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It didn't take long for one of Colorado's largest dispensary chains to sell...EXPAND
It didn't take long for one of Colorado's largest dispensary chains to sell...
Scott Lentz

Denver Marijuana Business Owners Ready for the Challenges of Big Money

"The names might not change, but the ownership could be completely different."

That's what the owner of one of Colorado's largest dispensary chains predicted for the state's cannabis industry after financing rules were enacted allowing publicly traded companies and other out-of-state investors to own pot businesses here. The new law, which took effect November 1, has already led to over 55 announced dispensary purchases and infused-product business acquisitions between just two cannabis ownership groups.

Green Dragon co-owner Alex Levine isn't worried about losing his seat at the table, though. In fact, he views his experience in Colorado as an advantage, and others who've owned pot businesses in this state for some time share the feeling. Although Colorado just opened itself up to outside ownership — something most states with recreational weed industries already allowed — this was the first state to legalize retail cannabis businesses, and it's considered to have the most mature marijuana marketplace in the world...even if most of the rest of the world was shut out until now.

"Colorado really does have the most experienced operators in the country. Even if there are players who are well-capitalized and raising money, it doesn't necessarily make them experienced operators," Levine says. "It'll be interesting to see how they hang in Colorado. The margins are really tight here."

Marijuana Deals Near You

While more outside money is inevitably going to enter Colorado, the recent dispensary deals that have been announced have some strong local ties. Medicine Man Technologies, a Denver-based ownership group that helped write the law allowing new owners, is about as local as a pot business can get. The firm's CEO, Andy Williams, founded one of Denver's early medical marijuana dispensaries, Medicine Man, which is now a chain of stores in the metro area. But Medicine Man Technologies is about to own way more than a handful of dispensaries.

In less than a year, the Denver-based public cannabis company has agreed to purchase more than thirty dispensaries throughout Colorado. Recently reported deals, most of which are still pending regulatory approval, include agreements to buy all three metro Colorado Harvest Company dispensaries, five Starbuds locations statewide, and mountain dispensary chain Roots RX's six dispensaries. Medicine Man Technologies also has plans in place to buy over ten more stores through the acquisition of southern Colorado chains Mesa Organics and Strawberry Fields. Too, the company has announced deals to acquire two Colorado hash brands, one of the largest outdoor cannabis-growing operations in the country, and Medically Correct, the parent company of Incredibles edibles.

Another major dispensary buyer isn't based in Colorado, but it's keeping Coloradans around. On November 5, The Green Solution, one of the state's two largest dispensary chains, announced that it had agreed to be purchased by publicly traded company Columbia Care Inc., a cannabis operator registered in Canada with licenses in more than a dozen U.S. states. The deal requires The Green Solution's founders to stay on board as the brand pushes for expansion out of state.

"I think it's really exciting for the Columbia Care side to really leverage what The Green Solution has built here as we look to develop our other markets across the country. In some ways, it's exporting a lot of know-how across the country," explains Columbia Care CEO Nicholas Vita.

Founded by the Spiedell family in 2010, The Green Solution not only bloomed into one of the state's largest cannabis brands, it also created an in-house line of edibles, concentrates and vaporizer products. But even Colorado's pot giants are small potatoes compared with Wall Street wallets. 

"Kyle and I come from humble beginnings, and have bootstrapped the company for over a decade," explains Eric Spiedell, who is co-president of the company with Kyle. "We felt one thing we lacked was an acumen of financial markets, and felt we'd be better suited partnering with a team of that capability."

If the founders of one of Colorado's largest cannabis brands feel that way, will owners of much smaller cannabis businesses follow the same path? "I think at this point, definitely. The rules were made or created for this exact opportunity," Kyle Spiedell says. "Colorado was somewhat left behind when we didn't pass the laws four or five years ago that the rest of the country did."

As the Spiedells point out, many cannabis business owners with operations much smaller than the Green Solution have been waiting for a chance to sell to people with much deeper pockets and receive financial rewards for all their hard work. Wholesale cannabis price fluctuation, stiff business taxes and audits, and a lack of federal tax breaks have all thinned the margins of dispensary profits. Advocates of the new pot investment rules argue that bringing more investors into the state has provided these small business owners a chance of getting out with a profit.

Levine and other local dispensary owners see those same factors as heightening risks for would-be buyers, which means a certain level of Silicon Valley-like hubris might be required to try to take over Colorado's cannabis space. John Andrle, who owns Denver dispensary L'Eagle with his wife, Amy, thinks a dispensary's profit margins are closer to a restaurant's than a tech business — but the funding he's seen indicates that investors think otherwise, he adds.

"It's easy to just round up money, but there's so many other benefits in tech or gig economies, because there's always data with those things involved, which you can sell to other companies," Andrle says. "Lyft and Uber can take the data from where you're riding and sell that data to someone else for a lot of money."

L'Eagle, a standalone dispensary in Denver.
L'Eagle, a standalone dispensary in Denver.
Lindsey Bartlett

Andrle sees more failures than success stories in big cannabis at this point, noting the continued revenue losses reported for MedMen, a public company and one of the country's largest and most notable cannabis retailers. With so many new regulations, Andrle prefers a slower route for growth right now.

"I'll bet some banker types look at Amy and I and think that if we can do it, then they'll kill us with all of their money and resources," he says. "But there's all sorts of examples of those models going out of business in two years."

According to Marijuana Business Daily, MedMen reported successive net loses of more than $63 million during the second and third fiscal quarters of 2019, as well as multiple lawsuits and a target on its back placed there by South Park's creators.  "How many millions did MedMen lose last quarter?" Andrle asks. "You gotta do revenue eventually. You can't just keep losing."

And if you're losing, you can't come up with the big amounts of cash local businesses are demanding right now. The reported $140 million price tag for the Green Solution's 23 dispensary licenses, numerous infused-product brands and double-digit growing facilities only included $15 million in actual cash, as well as $110 million in Columbia Care stock (which started trading for around $7 per share in May and currently sits at less than $3 per share) and another $15 million in senior loans.

Medicine Man Technologies has been buying cannabis brands under similar circumstances, basing the compensation on a majority of MMT stock (also currently hovering around $3 per share) while retaining the brands' respective founders as executives under the Medicine Man umbrella. The moves could pay off big-time if Columbia Care and Medicine Man Technologies end up growing into cannabis giants, but Andrle notes that they're also slight on guarantees when compared to mergers in other industries.

Still, these new players have significantly more backing than Colorado's current stock of dispensary owners. And with other new laws allowing upcoming pot consumption lounges with micro sales as well as dispensary delivery, Andrle predicts that local dispensaries that are already struggling are likely  to get weeded out.

"I think if we weren't so prominent and established, I'd be really worried. But if I had a nickel for every time someone moved here from New York to start a cannabis company...," he says. "I've been competing against people with infinite amounts of money for ten years, and we've always found ways to compete. Still, truth be told, everyone is not going to be in business two years from now."

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