California: Here Come the MSOs — Part 2

By Willis Jacobson
Dec 6, 2020

This is the second in a two part series on multi-state operators (MSOs) in California. The first part, on why they took so long to arrive, is available here.

In early 2020, when many leading multi-state operators (MSOs) opted to stay out of the massive-but-complicated California REC market, Cresco Labs saw an opportunity.

The Chicago-based company viewed some of the same qualities that turned away other MSOs – intense competition, a lack of strict licensing limits – as the cost of capturing a share of the “hub and home of cannabis,” Cresco CEO and founder Charlie Bachtell told WeedWeek.

“You can’t possibly be the leader of the industry and not have a meaningful presence in the largest cannabis market in the world,” Bachtell said. “Even if it’s not ideal, even if it’s complex, even if it doesn’t provide the highest and fastest return on invested capital – you’ve got to be there and you better figure out how to make it work.”

Cresco Labs is among a few MSOs currently making it work in the Golden State, with others expected to soon arrive or expand their California presence. Here’s what some leading MSOs are up to in California:

Who’s already here?

Cresco Labs, which operates in nine states, became a major California player in January 2020 when it acquired Origin House, a cultivation and production company that distributes several brands. With the acquisition, Cresco immediately became one of California’s leading wholesale distributors. Its brands, including Good News and High Supply, and those in the Origin House portfolio, are in more than 575 California dispensaries, about 65% of the state’s total.

  • While Cresco has vertically integrated operations in Illinois, where it’s required, its California focus is primarily on manufacturing and distributing its brands to third-party retailers.
  • Because of that consumer-packaged goods (CPG) approach, Cresco is rare among MSOs in that it derives a majority of its revenue from sales in stores it doesn’t own.
  • Origin House also currently distributes 13 third-party brands, including Kings Garden, through its Continuum platform in the state.
  • Cresco reported revenue of $153.3M for Q3 2020, an increase of $59M, or 63%, from the previous quarter. This was driven in part by strong growth in California, according to the company.
  • By acquiring Origin House’s 92,000 square feet of cultivation and production facilities, Cresco is considered by financial analysts to be well-positioned for rapid expansion in the state.

TerrAscend, a Canadian company that bills itself as the first to complete the trifecta of selling cannabis in the U.S., Canada and Europe, has 20,000 square feet of cultivation and production space in California, and operates five dispensaries.

  • The company has vertically integrated operations in California, Pennsylvania and New Jersey. It owns a handful of brands – including the Valhalla edible line and State Flower-branded buds in California – as well as the upscale Apothecarium Dispensary chain, which opened two new locations in California this year to bring its statewide total to five.
  • The company reported net sales increasing from C$35M [US$27.4M] in Q1 2020 to $47M in Q2 and $51M in Q3.
  • The company recently completed an expansion of its State Flower cultivation facility in San Francisco, taking it from 5,000 to 20,000 square feet. The target is a 500% increase in annual flower production, with an eye on the state’s wholesale market.

Curaleaf, which operates in 23 states, splashed into the California market in February 2020 when it acquired the Select vape brand, which already had a wide range of branded products in hundreds of California dispensaries, as well as manufacturing and distribution operations.

  • The Massachusetts-based company reported record revenue of $182.3M for Q3 2020, a 55% jump from the previous quarter and 195% increase from Q3 2019.
  • The company pointed to the Select acquisition, among others, and an increase in cultivation and harvest in California, Maryland and New York as the drivers of that growth.
  • It remains to be seen how aggressively the company will move into California. On a recent earnings call, outgoing Curaleaf CEO Joseph Lusardi pointed to pending REC markets in Arizona and New Jersey, and potential REC markets in New York, Pennsylvania, and Connecticut as targets for future growth.
  • Incoming CEO Joseph Bayern, who will assume his new post Jan. 1, was previously president of Indus Holdings, a vertically integrated California operation, and has held management positions with prominent CPG companies like Snapple Group and Dr. Pepper.

On the way?

Multiple other MSOs have indicated, either through direct company statements or business acquisitions, their bullishness on California:

Columbia Care, which has dispensaries in 12 states and Washington, D.C., closed on a deal this month to acquire Los Angeles-based Project Cannabis – a cultivation and wholesale shop with four dispensaries – in a cash and stock deal worth $69M.

  • Thus far, Columbia’s retail footprint in California had been limited to a single dispensary in San Diego. The Project Cannabis purchase will allow New York-based Columbia to increase its footprint throughout the state, according to the company.
  • The company plans to sell its product lines in Project Cannabis dispensaries, as well as in the more than 100 dispensaries that have a distribution relationship with Project Cannabis.
  • Columbia Care reported overall record revenue of $53M for Q3 2020, an increase of 64% from the previous quarter and 145% from Q3 2019.
  • In California, organic revenue growth more than doubled from Q2 to Q3 this year “with significant gross margin improvement,” according to the company.

Green Thumb Industries (GTI) counts California among 11 states in which it sells its branded products.

  • The Chicago-based company reported revenue of $157.1M for 3Q 2020, a 31% increase from the previous quarter and a 131% spike from 3Q 2019.
  • Like Cresco Labs, GTI has a heavy CPG focus. The company reported that gross branded product sales grew roughly 33% from Q2 to Q3 this year, driven mostly by expanded distribution.
  • GTI has 48 retail locations in 10 states, but none in California, suggesting future growth in the state could come from expansion of its product brands.

Trulieve, which dominates the Florida MED market, is among the largest cannabis companies in the country, but currently has just one California dispensary, in Palm Springs.

  • Sixty-seven of the company’s 72 dispensaries are in Florida.
  • CEO Kim Rivers has suggested the company intends to expand its California assets, along with entering into new markets, as part of its growth efforts.
  • Trulieve reported record revenue of $163.3M for the third quarter of 2020, up 13% from the previous quarter.