Who will be the McDonald’s of Weed Dispensaries?
One of the perks we enjoy from writing our once-a-week article on cannabis investing is the number of first-time investors that reach out to us as a result. We try and use this opportunity to remind these eager investors that their road to riches probably doesn’t involve “buying marijuana stocks“. The lion’s share of money to be made in legalized cannabis will be realized by startups that are guided by experienced entrepreneurs.
Most people don’t “get rich in stocks” because they bought some over-the-counter (OTC) 10-bagger on the right side of a pump-and-dump, but rather because they accumulated boring stocks like MMM, JNJ, or PG. Listening to an earnings call for one of these companies is as about exciting as an insurance seminar but these companies have made many people rich. One such company is McDonald’s.
McDonald’s is an instantly identifiable brand: seeing golden arches or Ronald McDonald conjures images of delicious fries, burgers and mystery meat nuggets that taste like chicken. Positioning within an industry like McDonald’s has within the fast food industry is extremely sought after. In the emerging cannabis industry, several companies have already made statements in regards to becoming the “McDonald’s” of weed dispensaries: the goal is to have a dispensary in every city, in every State, and ultimately, to dominate market share and prime real estate, just like McDonald’s.
With a tall order like that, what weed dispensaries today stand to rise to meet the challenge? What brands and company names may be the faces of the cannabis industry come ten to twenty years from today? Though this industry is still in its infancy and extremely fragmented, there are companies poised to expand aggressively and grab up more of the multi-billion dollar market share the cannabis industry boasts. Washington State alone is expected to exceed $1 billion in cannabis sales for 2017 with $120 million in sales racked up last month in Washington State dispensaries:
As they hone their products and grow their businesses, time will reveal which of these cannabis providers may become household names with coupon apps for iPhone and Android and nationally televised marketing campaigns, too. Loving it yet?
The Green Solution
Founded in 2010, The Green Solution (TGS) is a Colorado-based production and dispensary company focusing on both medical and recreational cannabis product sales. Boasting thirteen locations already in CO, The Green Solution is well established already, but they’re just getting started. On Feb. 6th, 2017, iAnthus Capital Management LLC, a capital management group within the cannabis industry, entered into a strategic pact with The Green Solution resulting in funding in the amount of $7.5 million. Their deal with iAnthus commits them to be advisors in operations to iAnthus for clients in markets including Vermont, Massachusetts, Colorado, and New Mexico, so be on the lookout for new TGS dispensaries in VT, MA, and NM in the future.
Having earned over $50 million in revenue in 2016 and over $150 million in cumulative revenue since their founding, The Green Solution has a firm foothold in the industry. Whether their plans to expand in 2017 to five new locations goes through or not may be a major determining factor whether The Green Solution can become the market leader in cannabis as there are other cannabis providers nipping at TGS’s heels.
LivWell Enlightened Health
LivWell was founded in 2009, serves the cannabis consumption needs of the Colorado market, and they currently have 14 locations. In an interview with Cannabis Business Executive, CEO of LivWell, John Lord stated in October of 2016 that,
First and foremost, LivWell continues to move forward with plans for out of state expansion. As new markets open up in states across the country, we have teams actively investigating circumstances on the ground in order to determine what makes sense for our business development.
One resemblance to McDonald’s that LivWell probably could have done without was the production-end controversy recently struck down in court. Though the charges against LivWell were dismissed, a court case was brought against LivWell concerning their use of pesticides on their plants. This kind of negative press is similar to the constant controversy that McDonald’s endures for their production and preservation procedures. LivWell has only seen $750k in funding so their expansion into a 14-dispensary operation obviously came as a result of reinvestment of profit. This could lead LivWell to take the competitive edge. Because they don’t rely on funding for expansion, their dispensary numbers will be growing steadily while other companies are stuck waiting for funding to clear before claiming stake in new markets.
Founded recently in 2014, PharmaCannis serves New York and Illinois medical cannabis patients from 8 dispensaries; four conveniently located in each State. While both LivGrow and The Green Solution operate within the legal recreational market in CO, PharmaCannis is strictly focused on cannabis-based medicine. In terms of dominating the cannabis market, PharmaCannis will have a bit of trouble, unless the industry itself sees trouble. One major, conservative, and risk-minimizing aspect of dealing exclusively in medical cannabis is if a Federal crackdown occurs on the legalized recreational cannabis market, cannabis providers working exclusively for medicinal purposes may either be left alone or integrated into a possible Federal medical cannabis program, should one ever come to fruition.
Operating with $68.78 million in funding, PharmaCannis is already a huge player in the cannabis industry: the question is of the future and whether they can dominate other cannabis providers. In PharmaCannis’s case, competition comes second to patient care. PharmaCannis as a company is set up to provide stellar medicine and informational resources for patients and doctors in the NY and IL markets. NY has been considering increasing the number of medical cannabis licenses available for dispensaries, but at current rate, even if PharmaCannis wanted to expand in NY, they cannot.
Though PharmaCannis is a phenomenal company with plenty of dispensaries and a giant amount of funding, it can be safely ruled out of becoming the Titan of Industry that McDonald’s is, barring a Federal crackdown resulting in a future where only medical dispensaries are allowed. Even then, PharmaCannis may remain exclusive to the NY and IL markets. There has been no formal discussion or allusion from company executives concerning the expansion into other medical-only States.
Founded in 2010, Privateer Holdings holds three major brands, two of which are easily identifiable within the cannabis community. Leafly is a media presence that deals with cannabis-related content exclusively: they are quickly becoming the “Wikipedia” of cannabis information. With over ten million monthly page views, it’s obvious that Leafly is well-known. Next, and perhaps most recognizable when it comes to brand identity is Marley Natural. Yes, this is Bob Marley’s own cannabis company. Yes, Privateer Holdings owns it. Lastly, Tilray Medical operates out of Canada but they are also owned by American-based, Privateer Holdings.
If there were one good pick on what company will become the McDonalds of cannabis, it’s Privateer Holdings, though most folks may never associate their favorite brands with this umbrella corporation’s name. For example, everyone knows Febreze and Mr. Clean. Not everyone knows that both of those products are made, marketed and sold by the same parent company, P&G. Beyond being able to work better behind the scenes, Privateer Holdings has the funding to take over the market. They also have Peter Thiel as an investor. We’ll let you connect the dots on that one.
Sitting on $122 million in funding to date, Privateer Holdings is among the highest funded cannabis companies running. Because they own a cannabis product line, a medical cannabis company, and a media channel, Privateer Holdings is already well-diversified. Add the fact that their Marley Natural products grace the shelves of dispensaries in, not only multiple States, but also in Canada, you now have a diversified company with access to an international market share of the cannabis industry. Wrap that up with the previously mentioned funding being invested in expansion and this is a recipe for a market leader for decades. All Privateer has to do is start to set up a franchise model for a brand and then begin to grow it, like “Leafly Dispensaries”. With the market being fiercely competitive and highly fragmented, a known brand could give a struggling dispensary the edge in exchange for a small percentage of revenues as royalty.
McDonald’s was a unique case-study of a company as it blew up into the corporate brand we all know today. Between capital investment, standardized training, and an undying passion to expand everywhere in the country and eventually world, McDonalds’ brand images are as instantly recognizable as fairy tale characters, video game characters, and superheroes. Though every company hopes to grab their market like this, it takes a special recipe of tenacity and bided conservativism to successfully corner 17% market share (the highest of any fast food brand) while maintaining thousands of brick-and-mortar locations. A leader will emerge from the pack of cannabis-based businesses running today. It’s yet to be seen whether we’ll be subconsciously sold to using slogans, or able to pick up a discounted bag of cannabis at the corner shop because our phone app informed us of a deal.
Here at Nanalyze, we complement our tech investments with a portfolio of 30 dividend growth stocks that pay us increasing income every year. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.