Inside The Battle Over Florida, The Nation’s Largest Medical Hashish Market

Some of the largest cannabis companies in the country are struggling to catch up with Trulieve, the largest operator in the Sunshine State.

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A battle is being waged for Florida’s $ 1 billion cannabis market.

The Sunshine State, which legalized medical marijuana in 2014, is the country’s third largest cannabis market by annual sales after only California and Colorado, which generated nearly $ 4 billion and $ 2 billion in annual sales, respectively, last year. And the biggest US cannabis companies are fooling themselves and chasing market leader Trulieve, who controls about 50% of the market.

Brady Cobb, a cannabis entrepreneur who co-founded Florida cannabis operator Bluma Wellness and sold it to Chicago-based Cresco in April for $ 213 million, says companies are embroiled in a price war that is spiraling out of control .

“From a price standpoint, there is a race to the bottom as these companies try to lure consumers into the store,” says Cobb. “An offer comes out every day that offers 30% off flowers, 25% off concentrates and 25% off vapes. It’s almost the point, if you have blonde hair and green eyes on Tuesday, you get a 20% discount. “

Cobb, whose father was a great cannabis smuggler before he was arrested in the 1980s, says Florida has always been one of the largest marijuana markets in the country, legal or not. But since the state legalized medical use seven years ago, it has quickly become the third largest market in the country and competition has intensified.

“If you look at Florida, given its limited licenses and the requirement that businesses be vertically integrated, it was set up as the battlefield state for the US multi-state operators,” says Cobb.

Massachusetts-based Curaleaf, founded by billionaire Boris Jordan, is aggressively reducing its prices. Jordan, the company’s chairman, assured analysts during his second quarter conference call that the price war in Florida will not affect the company’s margins in the state.

“It didn’t affect our margin at the time, but there is definitely competition for market share in Florida,” said Jordan. “The main operators Trulieve, Curaleaf and AltMed as well as Surterra [Parallel] all seem to be fighting for the top spot. But I don’t think that’s going to get out of hand in any way. I would like to repeat that the margins are still very strong. “

Matt McGinley, an analyst who covers cannabis at Needham, says the market is not going to cool anytime soon.

“Given the size of the Florida population, the broad list of qualifying conditions, and the availability of most form factors, it is very likely to remain the largest medical cannabis market in the US for years to come,” he says.

In the past year, a number of companies have expanded to Florida to build a business in one of the largest cannabis markets in the country.

Gilbert Anthony Milam Jr., the hip-hop artist and cannabis entrepreneur known as “Berner,” is building a 400,000 square foot indoor grow facility in the state and a chain of pharmacies focusing on the Miami area.

Berner says his Cookies company is not trying to dominate Florida, but he says cookies, known for their high-end genetics, will have no problem competing in a market that he believes is medium-sized herbs is marked.

“The current operators out there haven’t done the best job of offering high quality flowers,” says Berner. “I think anyone who brings quality cannabis to the table in Florida will be successful.”

The expansion into Florida is the first time that Cookies, which Berner founded together with his partner Jai Chang in San Francisco, has acquired a license for cultivation outside of California. Berner says his company has smaller acreage in Humboldt County, California, but the Florida location will be the company’s first “mega-manufacturing facility”.

Earlier this month, Planet13, a publicly traded company that operates a giant marijuana store on the Las Vegas Strip, Nevada, announced that it would be spending $ 55 million on a license to enter the Florida market.

Earlier this year, Ayr Wellness closed a deal to purchase Liberty Health Sciences’ Florida operations in an all-stock deal valued at more than $ 400 million. Jonathan Sandelman, the chairman and CEO of Ayr, says he chose to enter the Florida market for a number of reasons, but he believed that if his company hadn’t acted quickly, it would have an opportunity in one of the countries the country’s strongest markets would have been missed.

“I have decided that there will be a land grab in Florida,” he says. “I don’t think every city will have 10 marijuana shops. It’s unlikely, isn’t it? So I said to my team, we have to move now. “

The company also moved its headquarters from New York to Miami.

Sandelman said they will have each of their 40 pharmacies generating $ 4 million per year per store by the end of 2022 and that Florida will be key to the company’s cash flow and profitability. Sandelman believes his Florida company’s operations, which he plans to expand from 40 to 65, will grow to the size of his current company with a market cap of $ 1.37 billion. “I think a year from now, if the Liberty asset were a standalone asset, it would be worth the Ayr’s entire market cap today,” says Sandelman.

But not only newcomers are expanding their footprints. Curaleaf, which has 37 retail locations across the state, is also rushing to open as many stores as possible. The company plans to have a total of 60 pharmacies by the end of 2022.

Joe Bayern, the company’s CEO, said during the same conference call that Florida is becoming more competitive. “We want to make sure that we prepare as well as possible for the competition,” said FC Bayern.

But the elephant in the room is Trulieve. The state’s juggernaut controls nearly 50% of the market and has sold 1.15 million ounces of cannabis flower since the beginning of the year, out of a total of 2.31 million ounces sold by all Florida cannabis companies combined. During the same period, Parallel, operated by billionaire Beau Wrigley, sold only 194,469 ounces, while Curaleaf sold 255,719 ounces. Trulieve is the market leader and sells an average of one tonne of cannabis flowers every week.

Kim Rivers, CEO of Trulieve, says she’s not keeping track of the country’s third largest market, even though it extends to West Virginia and Georgia and a merger with Arizona-based Harvest worth $ 2.1 billion announced. Trulieve has most of the pharmacies in the state, currently in 92 locations.

“Florida is where we were founded and where our headquarters have always been, and we certainly continue to focus on Florida,” says Rivers. “And we continue to invest in Florida infrastructure, and we will continue to do so …”

Rivers says her competitors have been aggressively waging a price war that she does not consider sustainable. Rivers says Trulieve competed on the prizes but noted it wasn’t a blind race to the bottom.

“We’re pretty specific and understand down to the smallest detail [product] Level what we do, what impact we think it will have, and then decide whether or not it makes sense in the future, ”she says. “It is important to take stock of the competition, but of course also very disciplined with regard to your own business strategy.”

Rivers also doesn’t see any slowdown in Florida growth anytime soon.

“When we think of the future catalyst in Florida and think that it will become a recreational activity and it can be sold to 130 million tourists every year, the opportunity is great,” he says. “I don’t think there is a similar market in the US at the moment”

The idea that Florida will transition to an adult use market and double the size of the market is exciting, but short-term hopes were dashed by the state Supreme Court, which invalidated a proposed election measure to legalize adult cannabis in April. Recreational use is likely a couple of years away now, says McGinley, who says this is unlikely to happen until 2024.

Joe Caltabiano, who co-founded Cresco but left the company in 2020 to head a cannabis SPAC, says the state’s business-friendly culture and relaxation of marijuana laws are also helping to attract more cannabis companies and entrepreneurs.

“It will be irresponsible for companies not to recognize corporate headquarters and relocate them to the most tax-friendly and tax-efficient parts of the country,” he says. “When you look at states that are tax and cannabis-friendly and that tend to be more cannabis-friendly, Florida really checks a lot of those boxes.”

Data shows Florida saw an increase in the number of people moving to the state during the pandemic. But even anecdotally, it seems like everyone in the cannabis industry is moving to Florida.

“I joked with someone the other day that I think we could have a cannabis CEO conference in Florida because everyone now seems to be here,” says Rivers.