Do you think vertical integration will become more prominent in the coming years or will we see more companies specializing in the production or retail side of the business?
Steve Levine | Partner | Husch Blackwell
“Vertical integration will continue to be a model that most large MSOs will follow, as they have invested heavily under this thesis over the years. However, given current market challenges, there is an increased movement by smaller operators to streamline operations and for new market entrants to only focus on retail. We have seen several clients sell off or shut down certain verticals of their operations to focus solely on one. I see the specialization of cannabis companies to continue as companies look to remain competitive and profitable.”
Will Smith | President | Bud Bar Display
“I think it’s highly likely we will have an uptick in vertically integrated brands in the coming years. Vertically integrated brands are overseeing their products from beginning to end, which creates a focus on higher quality control standards. While this could be a good thing, it can also limit product variety. These companies will need to allow competitors/outside brands, with the same proven quality, to sell at their facilities in order to give customers wider selections and prevent product burnout.”
Payton Shubrick | CEO | 6 Brick’s
“That depends on whether 280E is present or not. If you are on the production side, you receive modest relief from a tax perspective, but your brand must be in 100-plus retailers in a more mature market like Massachusetts. However, if you are on the retail side, your business model has virtually no tax relief and little control, as you rely heavily on the products you can secure and industry pricing. As we saw in 2022 in Massachusetts, when prices fell by 38%, many independent, single license-type companies suffered the most, especially retail. Controlling the entire vertical gives you more options on taxation and sell-through, but business savvy is the difference between it being done well or not.”
Tahir Johnson | CEO | Simply Pure Trenton
“I believe in the coming years we will see a trend toward companies choosing the line of business that they’re most passionate about and developing a specialty in that vertical. In the past we saw companies race to be vertically integrated in every market, building massive multi-state operators and it hasn’t proven to be the best strategy as we now see some of them scaling back. Being strategic and nimble is the way to go.”
George Fernandez | CEO | Modern Canna
“I think we will see some sort of a hybrid model. Larger operators will seek to control the entire supply chain, since vertical integration offers better profit margins, more control over product quality and availability, and makes it easier to maintain compliance with regulations. Small, economically disadvantaged businesses will still be given opportunities and perhaps less barriers to entry so competition isn’t as limited.”
Otha Smith III | CEO | Tetragram
“As the cannabis market matures and regulations evolve, I think we will see a mixed bag of strategies. Some companies may choose to specialize in specific segments, such as cultivation, processing or retail, to focus on their core competencies and differentiate themselves in the market. Others may opt for vertical integration to have more control over their supply chain and potentially capture more value.”