Marijuana multistate operators set to capitalize on new markets, but small firms face hurdles

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(The graphic above has been corrected to reflect that Acreage Holdings has a cultivation/processing operation in Pennsylvania but no retail locations and that Harvest Health & Recreation has eight dispensaries in that state.)

Marijuana multistate operators are well-positioned to thrive in adult-use cannabis markets created by the Nov. 3 election, but small businesses – including minority- and women-owned firms – face challenges such as access to capital.

Four publicly traded MSOs are particularly primed to benefit from new and potential adult-use markets in Arizona, New Jersey and Pennsylvania, according to an industry update by Canadian-based investment banking firm Canaccord Genuity.

Voters in Arizona and New Jersey legalized potentially huge adult-use marijuana markets on Election Day while Pennsylvania and New York are strong possibilities to follow suit because of their proximity to New Jersey.

The four MSOs identified by Canaccord Genuity are:

  • Massachusetts-based Curaleaf: the leader in New Jersey’s medical marijuana market, No. 2 in Arizona and competing for a top-three spot in Pennsylvania.
  • Arizona-based Harvest Health & Recreation: No. 1 in Arizona.
  • Illinois-based Green Thumb Industries: No. 1 in Pennsylvania’s medical marijuana market and one of 12 licensed MMJ operators in New Jersey.
  • New York-based Columbia Care, which operates in Arizona, New Jersey and Pennsylvania.

Curaleaf, Green Thumb and Columbia Care also control three of the 10 vertically integrated medical cannabis licenses in New York. (See graphic above).

Two private multistate operators also are well-positioned for new adult-use markets: Illinois-based Verano Holdings, which currently operates in New Jersey and Pennsylvania, and Illinois-based PharmaCann, which is in New York and Pennsylvania.

“Any established larger businesses like the MSOs are certainly well-situated to take advantage” of the new markets, said Steve Hawkins, executive director of Washington DC-based Marijuana Policy Project.

But the situation, Hawkins said, is more complicated and challenging for minority- and women-owned business as well as other small operators that lack the MSOs’ deep pockets and access to capital.

“To me, the biggest challenge leads back to Congress,” Hawkins said. “Until we see banking reform, we’re stuck with the status quo, which just makes it hard for small businesses to operationalize.

“There’s just not a lot of capital out there.”

Capital is needed for small businesses to unlock all the social equity incentives intended to open new markets to minority entrepreneurs, Hawkins noted.

While state regulators might put in place strong social equity provisions in the new markets, they also are expected to fast-track existing medical cannabis operators to launch adult-use markets and generate tax revenues as soon as possible.

Dearth of capital isn’t the only potential hurdles that small businesses face in adult-use markets. There’s also:

  • Restrictive zoning that drives up the prices of available real estate.
  • Municipality opt-outs that limit opportunities. A silver lining with the coronavirus pandemic is that municipalities have strong incentive to opt-in for tax revenue reasons, experts said.
  • Lengthy timelines between license application and final approval to operate. Small businesses generally don’t have as many resources as big companies to “wait it out” if the process drags, Hawkins said. The process has been dragging in Illinois, and lags have occurred in other adult-use markets such as Massachusetts and parts of California.

MSOs still maneuvering

While multistate operators generally have deeper pockets, several have faced a severe cash crunch over the past year, causing some to sell desirable assets.

For example, Los Angeles-based MedMen Enterprises put its Arizona assets up for sale last November. Arizona-based Copperstate Farms Management recently acquired control of two vertical licenses previously owned by MedMen.

MSOs, even those with cash constraints, have been busy the past couple of years acquiring and expanding operations in states such as Arizona, New Jersey, New York and Pennsylvania in anticipation of adult-use legalization.

New York-based Acreage Holdings, for example, wouldn’t let a tight cash position prevent it from establishing a foothold in New Jersey.

The company took out a short-term loan in June at an exorbitant interest rate of 60% and used marijuana business facilities in several states as collateral so it could close a deal to buy an MMJ license in New Jersey.

The flurry of activity has continued:

  • Canadian-based Ayr Strategies expanded its Pennsylvania operation with the $37 million acquisition of a cultivation and processing facility and also bought a couple of MMJ licenses in Arizona for $81 million.
  • Harvest Health acquired three more MMJ licenses in Arizona, which will increase its dispensary total from 15 to 18.
  • Verano Holdings this week signed a definitive agreement to acquire Florida-based Alternative Medical Enterprises (AltMed), which includes a vertical medical marijuana license in Arizona.

Questions hang over small operators

It’s unclear in most of the new markets how small businesses and women- and minority-owned firms will be treated.

Arizona already is set to issue 26 social equity licenses as part of its adult-use market, but regulators must still determine how to award those licenses.

New Jersey’s proposed legislation earmarks at least 15% of the adult-use licenses for minorities and another 15% for women- and disabled veteran-owned businesses.

But the bill still has a ways to go before being passed, and details haven’t been fully developed on how the licenses will be issued.

Hawkins did see it as a good sign that New Jersey already has started to set up a cannabis commission, with Gov. Phil Murphy selecting a chair – Dianna Houenou – who has a background in social justice issues.

“She will be laser-focused on social justice and equity concerns,” Hawkins predicted.

Such issues also are on the mind of MSO license holders in New York.

Vireo Health weighed in on the issue this week, when the Minnesota-based company announced it had secured an option on land that would enable it to expand its cultivation and processing operation in New York.

Vireo Chief Medical Officer Stephen Dahmer said in a news release: “To support diversity and inclusion, the program should prioritize licenses, job training and scholarships specifically for minority communities that have been disproportionately impacted by the prohibition of cannabis.”

Jeff Smith can be reached at