Discover more from Money Puff
Also liquor stores, narc of the week, and Girl Scout cookies
Thanks for reading Money Puff! Subscribe for free to receive new posts.
This morning, John Schroyer at Green Market Report released a very informative interview with Axel Bernabe, the chief of staff and senior policy director for New York’s Office of Cannabis management. Bernabe wants to see recreational dispensaries in New York look like liquor stores:
I would venture that, quite frankly, the retail market in New York is a much safer place to invest money than any grow site anywhere in the country. That’s a highly competitive, highly speculative, volatile market. Whereas in retail, it’s like the (New York) liquor stores.
There’s a reason most liquor stores (in New York) have been in operation for 90 years. They’re mom-and-pop stores, and you make money. We’re allowing up to three (dispensaries per retail cannabis company), so we’re actually making that three times more profitable (than liquor stores). For me, it’s actually created a tier of investment that is significantly more interesting.
This is good news for Operation P.R.E.-R.O.L.L. Bodegas can’t sell liquor, but do you know what they can sell? Beer! We’ve talked before about ‘mids’ as the Bud Light of cannabis. People want cheap weed from bodegas, and pre-rolls often have an association with cheaper, lower-quality bud.
Are you a New York lawmaker who wants to impose an otherwise nonsensical THC cap? Perfect! Cultivators sitting on unsold weed can now chop up their mids, pack them into non-RAW cones, and focus on selling the more potent stuff to the full retail operations that Operation P.R.E.-R.O.L.L. will help fund.
In part one of the interview, Bernabe, referring to MSOs trying to enter the market, said:
You’re going to go to dispensaries, you’re going to try to go around our two-tier (structure), you’re going to try to push your shitty weed because you have so much of it at shitty prices. So no, if you’re doing that, no. But if you think you have the best weed in the world, then you should come to New York. Because we’ve set up a system where you are more than welcome to compete.
But the people want shitty weed! That’s why they’re buying from bodegas; the weed is cheap, no-frills, and does the job. There is a reason Bud Light is so popular. Allow the big MSOs (and everyone else) to sell their shitty weed to bodegas as pre-rolls.
Part of the irony here — and the reason the big medical MSOs want the rec system scrapped — is that New York set up its medical program so that all license-holders had to be vertically integrated. Now, they’re rolling out a two-tier program on the recreational side that explicitly prohibits vertical integration. Regulators don’t want the big corporations subsidizing their retail arm with the grow operation, under-cutting the nascent market.
But cheap weed is a public good, and pre-rolls are the cheapest thing you can buy at a dispensary anyway. Bernabe said they’re “dying for options” on how to implement a successful two-tier market. Anyone have his email?
Narc of the week: Weedmaps
We talked about the Kennedy/Boehner trade on Tuesday:
Here’s a trade:
Build a brand around prohibition. This is low cost to you, and shows you’re someone who gets things done.
As the tides of public opinion turn, switch sides. This is more costly, but you’re compensated for your risk.
Build a brand around the new ‘legal’ industry. This is again low cost because you and a few of your buddies are the only ones who can play.
Sell out at the top of the market; cut ties with all the people you made your brand on in number 1.
Weedmaps also tried this trade. After defending illicit sellers’ right to advertise back in 2018, they then reversed course in 2019 under pressure from regulators and the ‘legal’ industry. Following a cleanup of the site, the company tried to cash out via SPAC in 2020 (naturally). Now, whoever’s left holding the bag wants nothing to do with the illicit market:1
The trade does not seem to have gone great for Weedmaps: they lost $82 million in 2022, and a big chunk of that came from a December round of layoffs.2 Also, like any good SPAC struggling to justify its valuation, they tried to pivot to B2B SaaS last August. Back then, Beals said:
Better analytics and benchmarks data would also help brands maximize their profits. Weedmaps for Business already includes analytics elements, but the company is hoping to further expand that side of the suite over time.
“We’re looking to start adding information on Share of Voice, suggestions of products that seemed to be drawing increased consumer affinity, on skewed distributions by geographies. A lot of that data sits with us currently, it’s just a matter of building it in as we iterate on these analytical solutions,” Beals said.
A lot of data did and does sit with Weedmaps, for better or worse. In fact, economists Robin Goldstein and Daniel Sumner, in the book Can Legal Weed Win? that we talked about yesterday, said:
We think Weedmaps has the largest data set in the world of retail cannabis prices that can be analyzed in a standardized format that allows for statistical comparisons. We leap into these data to see what patterns emerge.
Maybe Weedmaps had the largest data set in the world of retail cannabis prices back when it included all the ‘illegal’ shops, but what about now? Well, now they want to focus on their content, content, content. Executive Chairman Doug Francis said:
“We’re really developing our content, which we think will help in all markets. Weedmaps really used to really be the source of truth for the industry. And through our data integrations and bringing kind of the pros back around, that’s really our goal is to be the thought leader,” Francis said.
“The main takeaway that I’ve gotten from most (cannabis industry) folks is that, it’s tough.”
It sounds like Money Puff should be the thought leader — I can give you better takeaways than that!
I’ve been talking a lot about pricing, and how the industry can use data to better project future sales. But I want to hear from you, the actual cannabis retailers, cultivators, processors, and investors. Here’s two quick polls to make your voice heard:
I’ll leave these up for a few days for those of you who consume Money Puff over the weekend. Be sure to comment, share on Twitter (@moneypuffnews) or send an email to firstname.lastname@example.org if you have any resources or ideas to share!
Girl Scout Cookies
After I wrote yesterday that the long-term price of retail weed could reach $300/lb., I naturally received reader responses. One thoughtful reader wrote, ‘What the market can bear from a consumer demand perspective is often wildly different from pure commodity-plus pricing.’
It’s hard to argue when you read stories like these:
The Raspberry Rally craze started when the Girl Scouts decided to try something new with its annual cookie sale. For the first time, a new cookie flavor was sold as an online exclusive. The organization reasoned that the move would help Girl Scouts learn online and e-commerce business skills. Bucking tradition, Girl Scouts would not be getting their hands on any Raspberry Rally cookies to sell at booths or door-to-door.
Instead, girls were encouraged to share a link with buyers who could then purchase online and have the delectable raspberry-infused treats shipped, at an extra cost, directly to their homes. (This didn’t make sense to me. My second-grader sometimes can’t even make correct change, let alone start her own e-commerce business.)
The new parameters created a vacuum in the market and something of a buying frenzy online, causing the raspberry-infused cookie to sell out within hours in the Los Angeles area, Girl Scouts officials said. The $6 cookie boxes then started reselling on eBay and other online outfits at astronomical markups.
When I first read the headline ‘$200 a box?’ I was sure the article was going to be about an ounce of weed. It turns out it was for a box of rare Girl Scout cookies! Maybe one day a rare strain of Girl Scout Cookies (the weed) will sell for $200/gram.
Thanks for reading Money Puff! Subscribe for free to receive new posts.
This newsletter is not affiliated with John Schroyer, but maybe it should be.