Curaleaf entry into Colorado portends tougher competition

The Colorado edibles market is going to get more competitive with the entry of $4 billion cap Curaleaf and its Select brand via the purchase of Virginia’s Kitchen DBA BlueKudu.

When we first wrote about Colorado House Bill 1090 allowing out-of-state investment in that market, we wondered if a rush of new capital would pressure existing operators. This deal appears to be answering that question with a solid “yes.”

Curaleaf’s acquisition of the No. 14 edibles brand in the state with only 1.5% market share (according to data from Headset) seems to be more of a land-and-expand acquisition strategy than Medicine Man’s consolidation blueprint or the new-market, bolt-on acquisition of The Green Solution by Columbia Care.

We doubt Curaleaf will be content with only $2.7 million of sales given its 2020 pro forma revenue guidance of $1.0 billion to $1.2 billion.

Curaleaf seems more focused on using BlueKudu’s 8,400-square-foot production facility and distribution to 200 dispensaries (roughly one-third of Colorado’s dispensaries) to expand its Select brand than on distributing the BlueKudu brand itself in Colorado or elsewhere.

“BlueKudu’s established production and distribution capabilities will allow Curaleaf to seamlessly enter the market and expand the Select brand presence in the state of Colorado,” CEO Joe Lusardi said in a statement.

It also implies that Curaleaf might look to acquire additional smaller Colorado processors of branded products (such as vapes, concentrates or tinctures, given Select’s current product lineup) with established infrastructure to produce and distribute the Select brand even further.

BlueKudu previously hoped to distribute outside Colorado via a distribution deal with Dionymed that was announced in April 2019.

But DYME is now in receivership and has already defaulted on a lease with Innovative Industrial Properties. Headset data confirms that BlueKudu had no sales in California in 2019.

While Curaleaf could theoretically distribute BlueKudu outside Colorado, it made no mention of such plans in the announcement.

Terms for the acquisition were not announced, but if Curaleaf is paying the same 1.25X sales multiple that Medicine Man is paying for Medically Correct and RootsRX, the estimated consideration would be about $3.5 million – tiny for Curaleaf.

Edibles

Rank Brand 2019 CO Sales
(USD millions)
% CO Share
1 Wana Brands  $             45.7 24.7%
2 Tastebudz  $             16.8 9.1%
3 Dixie Elixirs  $             14.2 7.6%
4 Cheeba Chews  $             11.9 6.4%
5 Highly Edible  $             10.6 5.7%
6 Coda Signature  $             10.2 5.5%
7 Incredibles  $               9.8 5.3%
8 1906  $               7.2 3.9%
9 Canyon Cultivation  $               7.2 3.9%
10 Stillwater  $               6.1 3.3%
11 Sweet Grass Kitchen  $               4.8 2.6%
12 Robhots  $               4.1 2.2%
13 Koala Bears  $               2.7 1.5%
14 BlueKudu  $               2.7 1.5%
15 Love’s Oven  $               2.1 1.1%
Other brands  $             29.2 15.8%
Total Colorado Edibles Sales  $           185.3 100.0%

The Colorado edibles market is dominated by Wana Brands, which has 25% market share.

But a large, well-financed entrant such as Curaleaf might be able to better compete for shelf space, supplanting some of the smaller consumer brands on the list and forcing larger brands to invest in marketing and pay for shelf space.

For example, CV Sciences suffered a competitive loss of shelf space in the third quarter of 2019.

Those smaller brands will need to either grow or sell out.

Vape Pens

The vapor pen market is more fragmented than edibles, and the product might lend itself to white label licensing opportunities.

Rank Brand 2019 CO Sales
(USD millions)
% CO Share
1 Colorado Cannabis Co.  $                 20.7 8.4%
2 Evolab  $                 20.7 8.4%
3 Craft  $                 18.0 7.3%
4 OpenVape  $                 16.7 6.8%
5 The Clear  $                 16.5 6.7%
6 Willie’s Reserve  $                 15.1 6.2%
7 The Lab  $                 10.9 4.4%
8 Concentrate Supply Co.  $                 10.7 4.4%
9 Eureka  $                 10.5 4.3%
10 Spherex  $                 10.4 4.2%
11 Sweet Grass Kitchen  $                   4.8 1.9%
12 Green Dot Labs  $                 10.2 4.1%
13 AiroPro  $                   8.0 3.3%
14 Pyramid Pens  $                   6.7 2.7%
15 Revel  $                   4.5 1.8%
Other companies  $                 61.6 25.0%
Total Colorado Vapor Pen Sales  $              246.1 100.0%

Tinctures

The tinctures market is more consolidated by Mary’s Medicinals at 17% share, but the market is tiny at only $15 million of sales.

Rank Brand 2019 CO Sales
(USD millions)
% CO Share
1 House brands  $        2.9 19.1%
2 Mary’s Medicinals  $        2.7 17.4%
3 marQaha  $        2.2 14.6%
4 Incredible Wellness  $        1.1 7.5%
5 Aliviar  $        1.2 8.1%
6 Sweet Mary Jane  $        1.1 7.0%
7 Stratos  $        0.7 4.7%
8 The Root of it All  $        0.6 4.2%
9 Strainz  $        0.6 4.0%
10 Sum Microdose  $        0.4 2.4%
11 Escape Artists  $        0.2 1.1%
Other companies  $        1.5 9.8%
Total Colorado Tincture Sales  $      15.3 100.0%

All market data above provided by Headset.

Mike Regan can be reached at [email protected].