‘Big Marijuana’ is actually a thing

DURING THE 2016 CAMPAIGN, and since the passage of the law legalizing the sale and adult use of marijuana in Massachusetts, opponents of legal pot have continually pointed to the potential for wealthy investors to cash in on the billion-dollar industry and nudge smaller entrepreneurs to the side.

They have labeled such corporate backers “Big Marijuana,” turning the phrase into a pejorative that scares communities out of allowing the businesses into their midst and conjures up images of megacorporations lobbying to craft the laws and regulations to maximize profits.

But is there such a thing as “big marijuana,” or is it just a bogeyman to demonize an emerging industry that banks on a one-time, and still federally, illegal substance?

“Theoretically, yes, absolutely,” said Shaleen Title, a commissioner on the state Cannabis Control Commission, when asked if “big marijuana” was a thing. “It’s something to always think about as we regulate. Does it exist right now? That’s a harder question.”

Title, the only commission member with previous experience in the legal marijuana industry, said  the agency and lawmakers were fully aware of the potential for large corporations to dominate the landscape and have written the statute to ensure a level playing field for both big and small players, including capping at three the number of licenses any one person or entity can hold.

Joe Lusardi, president and CEO of Curaleaf in Wakefield, called the limits in Massachusetts an “artificial cap.” Curaleaf has grown from a 10-person medical marijuana grower and dispensary to a 1,000-employee national cannabis company with 29 dispensaries, including a couple retail stores and 12 cultivation facilities in a dozen states. While there is a three-license limit on each type of operation in Massachusetts, something no other state has, Lusardi said there is no restriction on the size of a recreational wholesale operation and he plans to take full advantage of that.

“If that’s what you want to call big, great, we don’t mind being called that,” said Lusardi. “We’re creating jobs. It’s actually more than just the marijuana product. There’s ancillary businesses that create more jobs – security, construction, legal, energy. There’s a ripple effect on the industry. We see it as a net positive.”

Lusardi took the company public on the Canadian Securities Exchange last month at an initial value of $4 billion. The company raised about $400 million in private funding before going public, the largest amount raised by a US cannabis company in advance of public trading. Like other publicly traded US marijuana companies, Curaleaf is listed on the Canadian exchange, where marijuana is legal all across the country, because American stock exchanges won’t list cannabis companies while marijuana is illegal under federal law.

The company, which had $30 million in sales in 2017, expects to exceed $100 million this year. In the most recent quarterly statement, Curaleaf reported $14.6 million in sales, a more than 234 percent increase over the previous year’s second quarter.

While Curaleaf is expanding its footprint nationally, Lusardi said the industry is not a monolith looking to take over the world of pot.

“By no means is this Walmart coming to take over the marijuana industry,” said Lusardi, an Easton native. “With larger companies, we can grow product at lower costs, which results in better efficiencies and costs for consumers.”

Jim Borghesani, chief operating office for the cannabis consulting firm Tudestr and the campaign manager for the 2016 referendum, said the term big marijuana was used by opponents to make people think of “Big Tobacco” and all the ills that industry visited on the market. He said regulators learned from the tobacco industry about the misleading information and outright lies about its products and fashioned rules to avoid those pitfalls.

“It was always a scare tactic, one of the primary scare tactics,” said Borghesani. “Big tobacco had relentless marketing, advertising that was untrue, using mascots and such aimed at both adults and children. Nothing like that would ever be allowed in the cannabis industry.”

There are, however, indications that large monied interests are beginning to make their way into the Massachusetts market and elsewhere. Green Thumb Industries is a Chicago-based cannabis corporation that touts more than 60 retail stores and eight cultivation facilities around the country, including a medical dispensary in Amherst and a medical production facility in Holyoke. The firm says a retail store in Holyoke is “coming soon,” though the company has not yet been approved for a license.

The company also announced last week it is partnering with Boston-based Compassionate Organics to open a dispensary on Newbury Street.

A Canadian company has agreed to acquire Sira Naturals of Milford, one of the first companies to receive a recreational license from the cannabis commission. In addition to Sira, the Cannabis Strategies Acquisition Corporation of Toronto is buying four other Nevada companies, paying a total of $120 million in cash and stock for the five companies. Of the five, Cannabis Strategies in a corporate filing identified Sira as the one with the highest revenue potential — $91 million in 2019.

At the most recent Cannabis Control Commission meeting, staffers said most of the nine companies seeking final or provisional license approval were being eyed by other companies as investment opportunities or for acquisition. Officials said the information was based on rumors and media reports and no applicant has informed them they are the target of acquisition. By law, anyone with more than a 10 percent interest in a cannabis entity is required to be licensed and approved by the commission.

Beau Whitney, vice president and senior economist for the cannabis industry analytic firm New Frontier Data of Washington, DC, said Massachusetts will experience what other states are starting to see. Whitney said some of the “more mature markets,” such as Colorado, Oregon, and Washington, that have allowed recreational marijuana sales for several years are undergoing consolidation as investors take over established stores and facilities.

“Big players tend to have scale and purchasing power,” said Whitney. “As such, they can drive the market from a commercial perspective. The type of investor entering into this space is much more sophisticated than they were four or five years ago. There’s a lot more smart money than there has been over the last four years. What it does is it infuses money as oxygen, drive efficiencies, reduces cost, reduces price, and that’s beneficial for the consumer.”

One of the restraints on expansion, said Whitney, is the federal prohibition on marijuana, which classifies pot as a Schedule 1 drug. That prohibits not only interstate transport of products but also restricts how money can be transferred through the banking system and used for investments. Those binds on the industry’s growth are paving the way for Canadian companies to buy up local firms and be positioned if the federal law changes, Whitney said.

“There is this great war chest of money as result of their legalizing it nationally up north,” he said, ticking off a number of multi-billion dollar companies in Canada. “Anytime we’re talking b’s for billions, that’s big cannabis. They are starting to play that capital into the United States. That’s needed because the US cannabis industry doesn’t have access to the type of investments Canadian companies do.”

Whitney compared it to the beer industry, where the large breweries dominated the market but smaller microbrewers were able to find a niche.

“There’s a natural evolution of a growth industry like this,” he said. “People see an opportunity and everyone jumps in. The small mom and pops, unless they have specific carve -outs in legislation, are the ones that become less competitive. Think of big cannabis as your Budweisers; look at your smaller ones as more of the microbrewers.”