These marijuana companies are doubling down on California

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Image of palm trees lining a road in Beverly Hills, California

(This story has been updated to clarify that TPCO and Gold Flora’s merged company is named Gold Flora Corp. and to amend Jetty’s solventless product from live resin to live rosin. )

While some marijuana companies are exiting California’s difficult, regulated market – Curaleaf Holdings is among the most notable – others big and small are staying focused on the state and have plans to grow in 2023.

In February, two vertically integrated California operators – The Parent Co. and Gold Flora – announced an all-stock merger to create a new company that will operate as Gold Flora Corp.

The deal is intended to generate savings of more than $20 million while creating a cannabis business with a larger footprint.

Gold Flora Corp. will have 20 stores, 12 brands, three distribution centers, six cultivation facilities and a manufacturing facility.

Other California companies that aim to grow include:

  • Leef Brands: After going public through a reverse takeover with Canadian company Icanic Brands last year, the Willits, California-based extraction and manufacturing company acquired its first brick-and-mortar dispensary, in Southern California, to experiment with retail and delivery.
  • Jetty Extracts: After seeing success with its solventless line of products such as live rosin, the Oakland-based extraction brand will launch several new products this year.
  • Catalyst Cannabis Co.: The Long Beach-based retail operator plans to double the number of stores it operates this year.

Citing California’s reputation as the world’s largest regulated marijuana market, Catalyst CEO Elliot Lewis told MJBizDaily he believes the future is bright.

“We smoke the most weed by far,” Lewis quipped. “I’m just a firm believer in the California marketplace. So we’re doubling down.”

That’s despite the state’s list of challenges, which are conspiring against revenue growth. They include:

  • Declining sales, which last year fell for the first time since the state rolled out its adult-use market in January 2018.
  • High taxes, which have been partially addressed through cultivation tax relief. However, critics say high taxes are still contributing to the state’s thriving illicit market, where operators don’t pay taxes.
  • Price compression, which has eroded margins. Now that companies are exiting the state and there is less inventory, prices might finally be showing some signs of rebounding.

“The trend is desperation,” Matt Hawkins, founder and managing partner of Dallas-based cannabis investment firm Entourage Effect Capital, said in an interview.

“Companies are running out of money and are looking to stay afloat in any way possible.”

Longtime California marijuana operator Flow Cannabis Co., for example, has “mothballed” its operations until further notice.

Others are pulling up stakes.

In January, Massachusetts-headquartered multistate operator Curaleaf announced it was shuttering operations in California as well as in Oregon and Colorado.

Three other MSOs – Toronto-based Slang Worldwide, Florida-headquartered Trulieve Cannabis and Colorado-based Wana Brands – also recently wound down sales in California, according to Green Market Report.

The departures, among other factors, appear to have had an impact.

Cultivation canopy size across the state has decreased by approximately 15% since a year ago, according to New York-headquartered wholesale technology platform LeafLink.

Meanwhile, the value of M&A deals in California declined dramatically from 2021 to 2022, with many marijuana operators now looking to the eastern U.S. for expansion opportunities.

Expanding the Catalyst footprint

Lewis of Catalyst said that, aside from the job losses in California, he’s not sad to see large, well-funded cannabis companies such as Curaleaf exit.

“I’m going to be real honest,” he said. “I love it.”

Lewis concedes he and his colleagues have a chip on their shoulder.

Raising capital has been difficult.

“Imagine a little company that’s probably raised 3% of the money that Curaleaf has raised. And they’re out, and we’re still standing,” he said.

This year, Catalyst plans to expand its footprint from 15 stores to 30. In 2022, the privately held company added six stores to its roster and had a profitable year, according to Lewis.

But it hasn’t been easy.

The company tries to be frugal, Lewis said.

He cited pay for top executives and managers: They earn an ownership stake through shares in the company that, hopefully will pay off in the long term.

Store workers, by contrast, belong to the United Food and Commercial Workers (UCFW) union. Retail staff earn competitive salaries with health benefits and a 401(k), he said.

“I don’t take a salary,” Lewis said. “I never made one penny from this thing.”

Catalyst has also taken a lean approach to expanding.

Lewis said he spends a lot of his time visiting rival stores across the state, many of which are failing and run by operators who are eager to exit or forge a partnership.

Rather than acquiring a retail outlet outright, Lewis staffs a partner store with Catalyst employees and applies the company’s approach to operations to turn around the business.

If the store meets certain targets, Catalyst’s ownership stake increases.

With the company’s most recent partnership in the town of Patterson – about 90 miles southeast of San Francisco – the current store owner will always be the majority owner, according to Lewis.

“She’s just really happy that we’re there,” he said, adding that it can be difficult to run one store independently.

Extraction-focused companies branch out

Cannabis manufacturing company Leef Brands (Canadian Securities Exchange: LEEF; OTCQB: LEEEF) operates an extraction lab in the small Mendocino County town of Willits, and makes pre-rolls and edibles for its house brands and clients.

2022 was a tough year for Leef.

As of Sept. 30, according to its latest earnings report, the company had yet to generate positive net income and had an accumulated deficit of more than $90 million.

In an interview, Leef’s chief financial officer, Kevin Wilson, attributed the challenges to price compression and a decline in consumer spending.

This year, the company decided to broaden its reach through its first retail acquisition, The Leaf in Palm Desert, an upscale store that has been featured in an episode of the reality TV show “Keeping Up With The Kardashians.”

“We’re trying to double down in the state to really reach our consumers directly,” Wilson said.

In addition to growing revenue, Wilson said the retail component and forthcoming delivery services will give the company better insights into consumer preferences.

If all goes well, Leef plans to acquire more brick-and-mortar locations.

“We’re really trying to look at what’s accretive and strategic and executing on those,” Wilson said.

Leef partner Jetty Extracts experienced 20% revenue growth in 2022 thanks to its new solventless products and the quality of its artisanal vaporizers, pre-rolls and other merchandise, according to Nate Ferguson, the company’s chief production officer.

He said educating budtenders and promoting the safety and quality of the company’s products has been a key to success, as have maintaining a fair price level and not participating in the “race to the bottom.”

To keep the momentum going, the company is expanding to the New York adult-use market as it opens this year while also developing more new products to bring innovation to consumers in California, which Ferguson said remains the company’s primary focus.

“If there are companies exiting, yes, there is market share up for grabs, and we see that as an opportunity,” Ferguson said.

Canada-based Canopy Growth Corp.’s planned acquisition of Jetty, which was originally contingent on U.S. marijuana legalization, could be expedited to as early as this year if Canopy USA successfully launches.

Ferguson said he’s excited to work with the company on future product innovations.

“Canopy shares our vision of bringing the best brands to consumers,” he said, “and their expertise will help accelerate the speed and scale with which we can reach new consumers.”

Kate Robertson can be reached at