Why concerns over MSO dominance may be overstated

In the rush to position themselves for federal reform and upcoming state legalizations, many large MSOs may be biting off more than they can chew. Here's why.

There are many permutations around what regulations will be liberalized, when and how. A myriad of production, retail and supply chain models are possible to accommodate what will be confusing and conflicting federal and states rules.  At the same time, MSOs must keep a close eye on their existing markets while dealing with the specter of rising inflation & interest rates, labour shortages and supply chain hiccups. 

To say this is a tall order for any firm or leadership group is an understatement, especially when the bets in 2022 are much bigger than they have ever been.    

Yes, most MSOs have raised lots of capital, have strong margins and have (or are) building scalable, national footprints.  But that’s not enough.  The operating environment is extremely complex (and soon to be more so). There are no clear indications where reform is going, and when it will get there.  The likelihood for strategic error, duplication and wasteful spending is high. Compounding things will be scarcity around talent, management focus and time. Finally, there are undeniable capital markets (and long suffering shareholder) expectations to compete everywhere possible and up-list to the big US exchanges asap.

Accordingly, I believe craft growers and strategically focused MSOs have less cause for concern over the medium term.  This is not to say they won’t face strong competition initially or they should not become as operationally strong as possible.  

If I was a large, ambitious MSO, what would I do to improve my odds of success while managing risk?

1. Make sure I have a strong decision making and governance model in place;
 
2. Undertake scenario planning to prepare for the most likely and impactful regulatory outcomes;

3. Focus on markets and consumer segments where we can win - not just compete;

4. Create management systems that efficiently and effectively allocate scare capital and resources – and report regularly on them;

5. Build proven and repeatable practices, tools and teams that can drive rapid but low-risk operational and organizational scale out. While you can’t 100% predict the future you do have the ability to respond and adapt better than others.

Excessive ambition and hubris can lead to bad strategic decisions, poor execution and increased risk.  We witnessed this in Canada. MSOs: mind your appetite or the liberalization and expansion indigestion will be painful.

#strategy #risk #planning #MSO #legalization #regulations