Friday, June 21, 2024

Don’t Assume You Have The Complicated Cannabis Industry Figured Out 

The cannabis business is a sprawling, unfriendly hydra, destroyer of serious men with good intentions.

It all sounded so promising.  

Medicine Man Technologies, one of the more highly respected dispensary and cultivation operations in Denver, run by a well-respected cannabis business executive considered a pioneer in the industry, President and Co-Founder Andy Williams, rebranded the name of its subsidiary in mid-April to perhaps capture the whimsy of an industry built on getting people high. 

Medicine Man became Schwazze, which is defined as an urban slang word for chewing tobaccobut in this case refers to a plant pruning process invented by Chief Cultivation Officer Josh Haupt. Haupt said it was “a made up word that sounded cool.” 

Schwazze had ambitious plans to set the cannabis industry on fire — light up everybody. 

CEO Justin Dye thought he could leverage his background in executive roles at the Albertson Company grocery chain to succeed in the cannabis industry, telling Forbes in an interview that Schwazze was looking to become “one of the largest players in cannabis.” 

Although he admitted that he just joined the industry in early 2020, he saw many similarities in the grocery business and the cannabis business — a statement that came off as a red flag to any successful multi-state operator who struggled with the ups and downs of selling and marketing a federally illegal drug. 

There is no other business like the cannabusiness. It’s a business that is still evolving a workable business model for a profitable operation that no one can really agree on, as smart entrepreneurs continue to get hounded by regulatory reporting requirements, and have to deal with the cultivation quirks unique to this cash crop.  

There are other problems cropping up as the industry expands, including public employees getting involved and other licensing issues no other business has to deal with. 

License lawsuits are popping up, issues with contaminants in the product continue, the black market hangs over the entire industry, especially in California. It’s no business for the faint-hearted. 

RELATED: Why The Black Market Continues To Thrive — And What Is Being Done About It

This ain’t a seed-to-grocery store lettuce-or-tomatoes produce industry thing. The cannabis business is a sprawling, unfriendly hydra, destroyer of serious men with good intentions, making humble brand geniuses like Tilray Chief Operating Officer, Jon Levin, who came from Revlon to try and make Tilray succeed. Tilray hit the market with great fanfare, and huge numbers at first. Billionaires were made overnight. Now it’s just a shadow of its former monster self. 

Women And Minorities Push To Maintain Presence In Cannabis Industry
Photo by rez-art/Getty Images

So right out of the gate early this year, Schwazze acquired Mesa Organics, which Dye said would be the first of 10 or 11 pending acquisitions. 

Then the schmutz hit the fan. 

In a rather terse press release on August 17, Medicine Man announced that they were ending their relationship with Schwazze, saying that they were engaged in searching for another partner. 

MedPharm, another major Denver-based cannabis player since 2017 that had a deal in place in September 2019, to be acquired by Medicine Man Technologies before Schwazze came along, was working a new deal with Schwazze that just crashed and burned September 30. 

MedPharm and Schwazze had negotiated for over a year and half before MedPharm decided to call it quits. 

Doing an acquisition deal with MedPharm could have really elevated what Schwazze wanted to do. MedPharm’s facility received the first cannabis research license issued by the state of Colorado in October, 2018, and approval from the city and county of Denver to conduct clinical research this year.  

RELATED: Top 5 Cannabis Industry Scandals

In August 2019, the Drug Enforcement Administration (DEA) announced that MedPharm Research, a wholly-owned subsidiary of MedPharm Holdings, was selected to move forward as one of the first applicants to be considered for a license to grow federally legal cannabis under a new policy statement issued in the Federal Register. 

Amidst the smoking ruins of the Schwazze deal-making, where six deals have gone sour (including Dabble Extracts, Los Suenos Farms, and Colorado Harvest), Schwazze says it still remains in negotiations with other cannabis companies Canyon Cultivation, Medically Correct, Roots Rx. 

In a statement by the company, Dye threw up the usual corporate smoke screen: “Additionally, we remain confident in our ability to grow organically and through future merger and acquisition opportunities. We have a strong M&A and real estate growth plan and infrastructure to provide us a pipeline of opportunities in the marketplace.” 

Maybe trying to build a business during a pandemic was not the best idea. But hold on — the cannabis industry has shown amazing resilience and strength this year. In fact, Colorado reported a record $226 million in sales in July, and over $1.2 billion so far this year. 

That’s the kind of data that should get a former grocery store executive jazzed about his new career choice. 

In any case, Schwazze has still managed to hold on to Mesa Organics, acquired on April 20. And their relatively new Starbuds acquisition gives them 13 retail operations located throughout the Colorado front-range with four dispensaries in Denver, two dispensaries in Aurora, one dispensary in each of Commerce City, Westminster, Louisville, Longmont, Niwot, Pueblo and Pueblo West, and one cultivation in Denver. So they got that going for them. 

And they are still hitting up other businesses to find their next acquisition target as they begin reorganizing to figure out how to make acquisition deals work, with a new private equity firm guy on the board, Jeff Garwood; and the promotion of their chief integration officer, Nirup Krishnamurthy, a former chief information officer for United Airlines, to chief operating officer.  

Surely, there’s more to come. More ups, more downs. But there is plenty of wreckage already in the wake of yet another company that thinks they have the complicated cannabis industry figured out. 


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