Sunday, February 25, 2024

Recreational Marijuana Chain Stores Are A Thing, Are Franchises Next?

In 1971, a little coffee shop opened near Seattle’s Pike Place Market along the waterfront. Today, there are more than 25,000 Starbucks locations worldwide. Will there be a “Starbucks of Weed” and, if so, who will it be?

As the nascent cannabis industry blossoms, retail outlets are opening at a vigorous pace. In Colorado, there are nearly twice as many marijuana retail outlets than the number of Starbucks and McDonald’s — combined. Other legals marijuana states also report the proliferation of retailers entering the market. And, as with any industry, consolidation happens.

In 2017, the marijuana industry is entering the “chain store phase” of retail development. More and more retailers are opening a second or third storefront in order to create a brand identity and provide a consistent experience for the cannabis consumer.

But like everything else in the cannabis industry, there are additional hardships to overcome as companies attempt to expand their retail footprint.

Because marijuana is still federally illegal, businesses are not allowed to move from state to state. Unlike coffee or burgers or aspirin or just about any other product, cannabis does not have a national market. Currently, there are eight legal markets and 28 medical markets — each are distinct. So grabbing market share at a national level is almost impossible.

Almost. Companies such as MedMen, based in California, and Diego Pellicer, which opened its flagship store last year in Seattle, are finding ways to create national brands. But for now, most of the marijuana retail chains are confined to one state.

Colorado’s Cannabis Behemoth

In Colorado, Native Roots operates 16 locations — some are recreational, some medical, and some service both. Native Roots bills itself as the nation’s largest dispensary chain, and it has quickly established itself from the pack. Because of its sheer number of retail outlets, Native Roots is able to control the customer experience and provide consistent inventory and pricing.

For Native Roots CEO Josh Ginsberg, the business model is simple. “If you’re in Aspen, in Longmont, in Trinidad — it doesn’t matter. You know what you’re going to get,” he told the Summit Daily.  “We’re going for the Starbucks model, and it’s not because we want to be a behemoth. It’s because you get a vanilla latte and it tastes the same every time. … When there’s consistency — when you know you’re getting the same thing every time — that’s why you go there, and that’s what we want with marijuana.”

A pair of high-volume retailers in the state of Washington made headlines earlier this year when it announced they were joining forces and putting their six retail outlets on the market for $50 million. Uncle Ike’s and Main Street Marijuana are considered the most profitable retailers in the state. According to state data, Main Street Marijuana’s retail sales for 2106 was $34.9 million and Uncle Ike’s sales hit $30.5 million — the two top marijuana retailers in the state in sales.

Although many considered the announcement as a publicity stunt, both owners said they are serious. But both entities remain under the old ownership.  One wrinkle is that Washington law forbids out-of-state ownership. So the $50 million must come from a Washington citizen.

Going National

But the push to create national brands is coming. The state laws surrounding cannabis are nebulous. Some states outlaw out-of-state ownership. But licensing and affiliate partnerships are allowed. And some large companies are making the leap outside the state boundaries.

Last month, Los Angeles-based MedMen, cannabis management and investment firm, made a foray into the New York medical marijuana market with the purchase of Bloomfield Industries, one of only five registered organizations licensed to operate a medical marijuana business in the state.

“New York is critical to our broader strategy,” said Adam Bierman, co-founder and CEO of MedMen at the time of the purchase in February. “We are talking about the fourth most populous state in the country and home to one of the largest, most densely populated cities in the world. We have the opportunity to serve roughly a fifth of that market, perhaps more and we are very excited about this opportunity.”

‘The Chardonnay Mom’

In 2015, MedMen took over an existing medical marijuana dispensary in West Hollywood and remodeled the space to fit the company’s sleek brand image. For Bierman, the retail opportunity is similar to Whole Foods or Apple. The demographic he is most interested in reaching is “the Chardonnay mom.”

MedMen focuses on those that are either new to cannabis or who are curious about it. “They see this store and say, ‘Oh, I’ll try those breath mints,’ ” Bierman told the Los Angeles Times. “They start becoming someone who is substituting marijuana for alcohol or something else.”

MedMen will take that same branding approach to New York, where it hopes to open four medical marijuana dispensaries.

Diego Pellicer, another high-end luxury brand, is expanding into other states. The company’s first retail store opened in Seattle in October of last year. On Feb. 14, Diego Pellicer had a grand opening of its Denver location. The company says six more locations are in the works, including two more in Colorado.

Diego Pellicer’s business model is unique. The parent company —Diego Pellicer Worldwide — acquires and leases storefronts for retailers in states that allow marijuana sales. It does not grow, sell or profit directly from cannabis.

As the industry matures, the retail experience will surely change. And if Medmen’s Bierman has anything to do with it, the “Chardonnay mom” will be helping shape it. And they’ll be as ubiquitous as a coffee shop.


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