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This newsletter contains themed words to increase engagement
Canopy, MSOs, and Valentine's Day
There are two kinds of companies in the cannabis market in the US: 1) the big corporations, known as Multi-State Operators, or MSOs, and 2) everyone else, small retailers and cultivators. This is largely due to regulation; it is expensive to start a compliant operation — particularly when cannabis companies do not have access to the traditional banking system1 — and limited license, vertically-integrated markets create a winner-take-all dynamic.2
Below are the big public names, to get a sense for the players and their relative scale. You’ll also see their relative share in some East Coast markets, which should give you an idea for how anti-competitive some of these markets are. (You can find these here and here.)
The market share of MSOs is higher in those states where a fledgling medical industry with high barriers to entry makes it attractive to stake an early claim. In mature, recreational-use markets like the American West, MSOs such as Ayr and Curaleaf are scaling back or exiting completely. The evidence points to the MSO business model being unsustainable in a competitive market.
Canada is an even better example of a mature cannabis market; the plant has been federally legal there since 2018, and many large corporations exuberantly rushed to expand in the intervening years in hopes of building massive brands. Canopy growth was one such company; raising billions in capital — including a landmark deal with Corona beer maker Constellation brands — it was once the most-valuable cannabis company globally.3 The latest news last week of its stunning reversal of fortunes is an ominous portent for US MSOs and their investors:
Canopy Growth, backed by Corona beermaker Constellation Brands Inc., will close major operations and cut 60% of its jobs as it says Canada’s marijuana industry has failed to meet expectations due to competition from a thriving black market.
The company will move to an “asset-light” model in Canada, sourcing many of its products from outside parties. The changes mean the end of Canopy’s cannabis cultivation facility in Smiths Falls, Ontario. Headcount across the business will fall by 800 positions, the company said in a statement Thursday.
“Today, there are two very different cannabis markets in Canada. One that’s legal, highly taxed and regulated, and one that’s thriving and illicit,”
That’s CEO David Klein blaming the illicit market for Canopy setting billions of real Canadian dollars (eh?) on fire. Plan to see plenty of that kind of behavior from US MSOs in the near future.
The Globe and Mail has a helpful timeline of the company’s collapse here. Jeremy Berke, who’s been on this from the start, puts this seismic shift in context in his post here. And there are plenty of small businesses and activists taking victory laps on Twitter.
To be fair, Canopy is not alone in shedding jobs in the current market. But the news could be an early indicator of a discerning, engaged cannabis consumer rejecting “corporate” cannabis.
Themed words increase engagement
I don’t think anyone will be surprised to learn that including ‘sex’ increases sales, but anyway:
Wholesale cannabis platform Leaflink reported an enormous increase in sales in the weeks leading up to the celebration of romance for products labeled with themed words, such as:
Love (sales were up 247%)
They even included a map. What does this represent? Wrong answers only in the comments.
Without federal legalization, or an explicit legal framework, banks run the risk of being charged with money laundering if they service cannabis businesses
The arguments for vertical integration seem to revolve around consumer protection and control of the supply chain (retailers won’t buy from legacy market suppliers). But vertical integration limits competition and lowers consumer choice; New York announced late last year that vertical integration in the new adult-use market is prohibited.
The company was once valued around $20 billion and the stock traded north of $50; it now trades around $2