One of the most valuable things you can do for your company in the cannabis industry is expanding into additional states. Unfortunately, it’s also one of the most expensive. At MKSI Investments, we have had to learn the hard way.
Despite regulatory complications and federal illegality, becoming a multi-state operator, or MSO, is still one of the most valuable things you can do for your company in the cannabis industry. The market is expanding so quickly that if you’re unable to get your products in shelves across multiple markets, you’re falling behind. You can potentially double your market cap with each additional state you get your brands efficiently into.
Companies like Acreage, Cookies, Harvest, and CannaCraft are paving the way here. For the first time ever, you’ll order up an 1/8th of Gelato by Cookies, in Vegas, Phoenix, Denver, or even Detroit, and it’ll actually be the very same fire you fell in love with back in Cali.
Thus, becoming an MSO is also one of the most competitive, expensive, and time-consuming ventures you could pursue. It sometimes takes collaboration and teamwork with your competitors, lots of funds, and lots of patience.
Identify industry operators that do things well and reach out. If you have a facility with extra capacity they could benefit from, see if they’d manufacture for you in their market in exchange. There’s no need to be a top-heavy public company. Roll your sleeves up and find other good people who are actual operators.
Collaboration
Collaboration is essential for access to talent, resources, and exposure in this industry.
It was not until the third or fourth state we were looking to take our old retail brand into that it dawned on us that we were going to have to get creative in order to keep going.
All I wanted was to grab a few new dispensary spots along with a nice big warehouse in a new state. I ended up blowing money left and right hiring real estate brokers, lawyers, lobbyists, local consultants, and getting stuck in City Hall or Commission meetings.
Rewinding the clock a handful of years, there were only a dozen or so companies doing the national circuit, and most of us knew each other; for better and certainly for worse. Be it Colorado, Nevada, or Florida, you would see the same folks competing for the same overpriced buildings and getting overcharged by the same law firms; we started sympathizing with each other after a while.
It wasn’t until later at a hotel bar that it occurred to us to divide and conquer. I did not actually want to move my life to whatever state we were in, I just wanted a big building to grow great cannabis, as well as a place to extract it and process it for our brands.
What if we went halfsies on a spot with our competition? Better yet, what if we went halfsies with our competition on a spot in a few states?
All of a sudden we were stretching our dollars twice as far. And maybe, more importantly, we could draw straws on attending meetings and flying to different states every few days. So, over a few too many Rye Manhattans with a twist of lazy, the concept of consolidated production and manufacturing in cannabis was born to us. If you are going to do well collaborating, you are going to have to play well with others—including your competition.
Money
There are few things more expensive than lawyers and lobbyists; overpriced real estate, extraction equipment, and the process of converting an old logistics warehouse into a modern indoor cannabis grow are some personal examples.
If you have a brand or product that is more than just a logo a few designer grads whipped up for you, then you are going to need to get involved in the cultivation, extraction, and manufacturing of your products in new markets. Ask for references and resources locally if you’re building a new project, but look everywhere for an experienced engineering outfit they will be priceless when it comes to build time and cost.
What this means is controlling your supply chain via your facilities. What good is having your flower brand in Vegas if the guys you send your logo to just slap it on some mid-grade fluff they couldn’t sell?
You have got to roll your sleeves up and find growers you can collaborate with to make sure the product you’re putting your name behind is as good as the stuff that earned you your name.
If you are blowing butane into high-end extracts and want to cover more ground, go find someone who knows from real experience that safety is far more important than equipment that actually works half as well as the company representative at the latest NCIA meeting claims.
It would be much wiser to add a new set of chillers and extractors to a friendly competitor’s facility and throw down on the rent and overhead. It’s more cost-effective than starting from scratch looking for a building of your own to rent and than spend $100/foot or more improving.
Don’t worry about being a big multi-state operator, many of them have zero clue how to actually operate a cannabis business and are little more than the equivalent of a paper contractor consolidating revenue across their holdings.
Focus on identifying an opportunity, making sure you have a competitive advantage, which ultimately translates into margin, and start executing. There are plenty of VCs and private investors out there these days eager to throw money at a well-articulated opportunity. Alternatively, start small and grow as you can afford to, it may take longer but you’ll be all the wiser worth the experience it brings.
Patience
It’s important to remember that this is an incredibly slow process. Rome was not built in a day. Architects take forever. Plumbers, structural and mechanical engineers take forever, especially when the fire life-safety engineer is running sprinkler pipes through your lights or the exhaust hood for your distillation gear. Regulatory red tape takes forever to weave through.
The mentality of getting in and cashing out on the “green rush” is somewhat of a blinding force within the cannabis industry today. Too many of the people who are racing to get involved (even linearly) with cannabis are uninformed and unprepared for the cannabis industry.
The cannabis industry is a fast-growing behemoth. But before you can realistically consider expanding across state lines and into new markets, you need to go back and consider the research. Pay attention to the details that went into starting out in the first place.
Expanding your business is a huge opportunity. With the right tools and the right support structures in place, you’ll be able to accomplish so much. Make sure to think outside the box about your business plan.
Assuming you’ve written one, poke holes in it. Imagine everything that could go wrong and think about how you would adapt and if you could overcome. Don’t start a business planning on best-case scenarios. This is the cannabis industry and someone or something will always get squirrely somewhere.
Our strategy for expanding as a multi-state operator has helped some of our favorite brands and investments—like Cookies, Guild, Lemonnade and CannaCraft—conquer North America.
Martin Kaufman has extensive entrepreneurial experience in construction, real estate development, business development, finance, and more. He’s founded numerous successful companies, including SK Builders, Core Security Solutions, and Mesh Ventures. Today, Kaufman leads MKSI Investments with an eye toward building a successful, sustainable, equitable cannabis industry. Mr. Kaufman holds an associates degree in botany and a bachelors degree with honors in law and society from the University of California, Santa Barbara.
