As we continue to learn about the legal cannabis business, it becomes further evident what a unique and challenging market we are dealing with. For starters, because of federal prohibition, cannabis businesses operate in disparate markets with dissimilar rules, regulations, and opportunities. In a similar vein, things like licensing restrictions, limited customers, and the ban on inter-state trade restrict growth potential for cannabis companies. In all these scenarios, businesses are entirely at the mercy of a single market in finding success or failure.
New business models are arising in the cannabis space that insulate businesses from many of the pitfalls seen with the current “state-by-state” market model. As the industry grows more sophisticated and mature, companies like Colorado’s Cannabis One are setting a new standard of market versatility. By following the “Mergers and Acquisitions model” as seen in more traditional industries, Cannabis One has developed a diverse portfolio of cannabis brands that are strategically placed in key markets throughout the US.
By following the M&A model, Cannabis One insulates itself from many of the challenges faced by current startups in the cannabis industry. To accomplish this, they purchase smaller, established cannabis companies that perform well in certain markets. After that, Cannabis One operates the acquisition under a larger umbrella where they pool resources, knowledge, and funding between brands.
We reached out to Jeff Mascio, president and CEO at Cannabis One. He gave us some great insights into this forward-looking business operation.
The M&A Model
Cannabis One’s focus on the M&A model has been largely directed towards product-based, plant-touching companies. They pay careful attention to the dispensary vertical, where they have devised sophisticated approaches to ensuring company growth. Mascio likens this strategy to what is seen in liquor and wine sales. He states, “our primary focus is a house of brands that is similar to
Constellation Brands in the alcohol space.” To this end, Cannabis One’s growth plans would impress even the most ambitious liquor companies. Mascio continues, “our goal is to own and control 40 per cent of the shelf space at dispensaries in legal markets across the United States.” At this point, they are off to a great start, with products featured in key arenas of the cannabis industry throughout the western US.
Cannabis One has very sophisticated and discerning parameters that they use in qualifying potential acquisitions. To begin with, Mascio and his group realize that in order to “control shelf space” in cannabis dispensaries, they must look to “acquire established brands that have dominated in their rightful markets.” For Cannabis
One, this success is measured by baseline numbers that each brand must meet. In fact, Mascio tells us, they only acquire “existing brands that have in excess of $3.5 million in top line revenue and have at least a 40 per cent gross profit.” While these sorts of numbers are certainly attractive to any investor, Cannabis One sees an even larger picture with their growth model.
As seen with the current “semi-legal” model, most cannabis businesses are limited in their growth potential by the markets in which they operate. This concept presents perhaps the largest challenge in scaling cannabis companies in today’s industry. This notion is explicit in markets like California, where new cannabis businesses continue to sink under the pressures of a dysfunctional industry. As of late 2019, the state-of-affairs in California has led to extensive employee layoffs as cannabis companies attempt to stay afloat amidst such turbulent times.
To counteract the very real dangers that come with doing business in a single market, Cannabis One has spread their business dealings across several arenas, including Colorado, California, Oregon, Washington, and Nevada. By operating in five markets, they are somewhat insulated from the happenings of a market like California’s, where small business owners continue to go bankrupt in such volatile times.
Read also: Making Your Mark on the Cannabis Industry
For the team at Cannabis One, the plan seems to be working. Mascio continues, “We believe that our business model gives us an advantage over our competitors. For instance, multi-state operators on the eastern side of the country are finding out that just because you have a license to open a dispensary does not mean you're going to be open in any relatively short period of time.” Again, we see the versatility of the Cannabis One model paying off, as they can also avoid many of the challenges faced by new businesses on the east coast.
With the M&A model, Cannabis one has begun commanding a serious retail presence in key points of the US. cannabis industry. Mascio explains that they have accomplished their growth by “studying the relationships that come with a brand and how well are they penetrating the markets.” With this vital knowledge, they are able to make strategic movements in key points of the industry.
The federal prohibition model will continue to challenge cannabis businesses as they attempt to scale. Similarly, it will prohibit cannabis companies from achieving stability — this notion applies to owners, investors, as well as employees. Yet, to combat present challenges (as well as anticipate future opportunity), companies like Cannabis One are redefining the industry with versatile, fluid growth initiatives.
By operating under a number of brand names within a number of markets, Cannabis One seems to have more staying power than companies pigeonholed in places like California. In like fashion, their M&A approach allows them to bypass many of the complexities and challenges that come with starting a brand “from scratch.”
As any successful cannabis business owner will tell you, information is power. To this end, Cannabis One has the added benefit of acquiring market knowledge with the acquisition of brands. This market knowledge could prove to be as valuable as brands in themselves — as it takes years to understand the parameters of success in each locale. Therefore, Mascio and his team realize the hard work and ingenuity set forth by successful entrepreneurs — this appreciation is shown by paying careful attention to pre-established models for success. In following this path, the future of Cannabis One will be a confluence of ideas and energies that arise from various brands and markets throughout the industry.