Who Will Conquer in US Cannabis?

This question matters.  Funders, suppliers, talent and dealmakers care a lot about where to place their bets. 

New entrants from bev alc, tobacco, cpg, wholesale and pharma are also scouting the right acquisitions for when they decide to enter the space.  This exploration could accelerate in 2025 due to industry catalysts like the passing of SAFER and RIII.

Generalities acknowledged and industry ceteris paribus, who is going to win: the early MSOs (i.e. incumbents) or emerging operators (i.e. upstarts)?

--> Incumbents

These MSOs have intangibles like hard-fought operating experience and grit plus some important advantages such as revenue, limited licenses, access to capital and nascent brands.  Many also have weaknesses such as high debt levels, legacy assets and unfocused strategies. Their vertically integrated models can be both a strength and weakness; It’s all how they run the business.

Canada's experience is also telling. With a couple of exceptions, the early and biggest incumbent LPs by volume have been steadily losing industry share.

--> Upstarts

These are the next generation cannabis operators, many of whom are enjoying rapid growth.  Upstarts inculcated the hard lessons of the early movers and fortunately did not enjoy the same access to capital.  Their business models are typically more focused, asset-lite and partner-driven.

At the same time, the emerging Upstarts will face serious financial and strategic issues. Being asset-lite makes it difficult to minimize costs, secure distribution, and control your supply chain.  Growing into adjacent markets is never easy. And, private firms (which is what most Upstarts are) are often challenged to raise capital.   

The wild card will be the entry of the big outsiders, and who they invest in or buy.  They will be looking for revenue, unique capability/advantage, and IP.  Size matters so they will (mostly) look first to the Incumbents.

There are valid points on both sides, but my vote goes to the Incumbents.

Two caveats:

i) Realistically, no will thrive if they cannot move down the cost and innovation curve.

ii) Regulatory change could also throw any firm into chaos.

It is too early to make a definitive call on a reductive question.  However, this debate should not preclude executives from thinking 1-2 years out and considering where they want to be.   

I believe in building a strong business and letting opportunities come to you.  This includes:

1) Picking a couple of strategic lanes and staying the course;

2) Committing to continuous operational improvements that drive efficiencies and service levels;

3) Getting serious about brand building based on deep consumer insights and;

4) Building relevant capabilities (i.e. your secret sauce) that drive market-leading value.

Call me.  I can help your company prepare for a future that’s fast approaching.

#Rescheduling #SAFER #MSOS #planning #strategy #M&A