Curaleaf Prepares for Favorable Market Growth


102
102 points
  1. Cannabis Business Times
  2. February 2021

Departments – The Last Word

The company’s new CEO, Joe Bayern, is ‘pleasantly surprised’ by the Georgia runoffs, and says the U.S. cannabis industry could hit $50 billion by 2025.

           Joe Bayern photo courtesy of Curaleaf

When the U.S. Senate runoff elections in Georgia went democratic on Jan. 6, swinging the majority of the upper chamber, it opened the door for pro-cannabis legislation at the federal level. Prepared to take advantage of the potential of those results, multistate operator Curaleaf executives pulled the trigger to financially position their vertically integrated company by raising roughly $250 million of capital and $50 million through a revolving line of credit. New CEO Joe Bayern, who started his role Jan. 1, says his team wants to accelerate its 2021 projects to keep up with anticipated market growth. Curaleaf operates in 23 states with 96 dispensaries, 23 cultivation sites and more than 30 processing sites. Here, Bayern talks with Cannabis Business Times about raising capital, expectations for the cannabis market and the next wave of growth for Curaleaf.

Tony Lange: What was your reaction to the U.S. Senate runoffs in Georgia, and why did Curaleaf act quickly to raise roughly US$250 million on the Canadian Securities Exchange (CSE)?

Joe Bayern: I think everybody was pleasantly surprised, at least from the cannabis industry, that both of those seats went democratic. Even before the Georgia race, we had filed a shelf prospectus back in November to be able to raise capital if the markets were moving in our favor, and they were. It also allowed us to get some institutional investors into our stock, which is important of us. I think people are now saying it’s time to jump in. We think the Senate race was a catalyst for the industry, and it was just the first step in what we think is going to be a pretty exciting 2021 as far as positive legislation for the cannabis sector.

TL: What are your company goals for growth and expansion in 2021 and beyond? 

JB: We think [U.S. cannabis] could be a $100-billion market at some point. So, we want to be the leading industry player. By 2025, there’s no reason why we can’t get the [U.S.] industry to about a $50-billion market size, and we want to take a dominant share of that market. With that, we’re preparing ourselves to be able to grow, not only in our current footprint, but as we think about building an omnichannel consumer product company, [the question] is: How do we expand our distribution and costs that are appropriate across multiple channels to bring new consumers into the category?

TL: What other avenues have you used, or plan to use, to position yourself financially to take advantage of the 2021 M&A landscape?

JB: We want to accelerate some of our projects that we had scheduled for the back half of 2021 and the beginning of [2022] because we think the market growth is going to accelerate. We want to be ready for that growth. As we continue to see what we’re calling “a green wave of acceptance,” of consumers accepting cannabis as more mainstream products, we’re going to continue to see increased demand. We want to be prepared to be able to meet that demand. We’re looking at extending capacity through bolt-on acquisitions in a targeted way. And then the next thing is we’re really investing in the next wave of growth, which is predicated on innovation and developing different products backed by science. We can provide a better alternative to what’s in the market today; whether it’s alcohol or whether it’s prescription drugs for things like sleep or chronic pain; cannabis is a better alternative to those products.

Tony Lange is associate editor of Cannabis Business Times, Cannabis Dispensary and Hemp Grower.

This interview has been edited for length and clarity. 

Departments – Upfront | Sales Trends

2020 sales trends reveal consumer preferences across the new to seasoned cannabis adult-use markets of Michigan, Massachusetts and Oregon.

As legal adult-use cannabis markets evolve, how does the consumer base change? Are the purchasing patterns of a seasoned Oregon consumer who has been shopping on the legal market since 2015 similar to those of a purchaser who walked into a Michigan adult-use dispensary for the first time in 2020?

It turns out the answer is largely yes—product purchase patterns are quite similar across U.S. state markets, regardless of market maturity.

Data from Brightfield Group

Brightfield Group has broken down 2020 cannabis sales by product category for three states: Michigan (new market), Massachusetts (established market), and Oregon (seasoned market). The three demonstrate that there are some universal trends in product popularity, namely:

  • Flower, edibles, and vapes/concentrates are top sellers.
  • Flower is highly popular, driving at least half of sales and at least double the revenue of the second-ranking product types, in both new and seasoned markets.

The data shows that there are minor shifts in market behavior over time, however. Some examples include:

  • Edibles and drinks are more popular in newer markets. These products drive about 11% of sales revenue in mature Oregon, 13% in established Massachusetts, and 19% in new Michigan.
  • Vapes and concentrates are only slightly more popular in mature markets versus new markets, but they do begin to significantly outpace edibles as markets mature. Vapes and concentrates together drive 26% of sales revenue in mature Oregon, 27% in established Massachusetts, and 24% in new Michigan.

The message for those planning inventory and stocking shelves for burgeoning and maturing state industries alike? There will always be a market for these top sellers (barring regulatory limitations), though edibles sales may wane over the long-term.

While the breakdown of cannabis consumers in each state may be different demographically, with customers consuming for various reasons, when they leave the dispensary, the product mixes in their baskets tend to look very similar.

Jamie Schau is head of research with Brightfield Group.

Departments – Upfront | M&A Monthly

Cresco CEO Charlie Bachtell says Bluma Wellness presented the ‘perfect opportunity’ for the multistate operator to expand its reach to 10 states.

Bluma Wellness’ One Plant dispensary in Port St. Luci, Fla.

Photo courtesy of One Plant Florida

Multistate cannabis operator Cresco Labs announced Jan. 14 that it will acquire Bluma Wellness, a Florida-based, vertically integrated company, in a transaction that company executives say combines two like-minded companies with similar business models.

The acquisition places Cresco in 10 total U.S. states and advances the company’s overall goal of developing a strategic geographic footprint based on desirable regulatory structures and population, Cresco CEO and co-founder Charlie Bachtell tells Cannabis Business Times.

The acquisition is “the culmination of a multi-year evaluation of how to get into the Florida market the right way,” Bachtell says. “We wanted to make sure we [entered the market] in a very thoughtful and appropriate way, and Bluma really presented that perfect opportunity for us, so we’re really happy with it.”

Bachtell describes Cresco as a traditional, consumer packaged goods-focused organization with a “product-first” approach that prioritizes the creation and distribution of branded products into as many retail stores as possible. This differs from other companies’ retail-first business models, he says, which prioritize the opening of as many dispensaries as possible.

“Bluma is arguably the only operator in Florida that thinks about the industry similarly to how we do,” Bachtell says. “They focused on production first, and then they opened very strategic, very thoughtful retail locations as they had product to sell.”

As a single-state operator, Bluma has been looking for a multistate company to partner with in order to expand nationally, especially as cannabis policy reform efforts begin to take shape at the federal level after the 2020 election, says Bluma CEO Brady Cobb.

“You see with the presidential election results [and] the Senate races in Georgia, it was time for us to find an MSO and a partner to be able to expand and be able to take advantage of this opportunity at the federal level that we’re seeing,” Cobb details.

Bluma’s CEO says his company had a lot of suitors looking to enter Florida’s market, but that Cresco emerged as the best partner, “based on their culture [and] their focus on having the best flower and best premium products in any market that they operate.”

“They invested like we did in building out cultivation and … manufacturing so that you could have quality product, and then [focus] on retail,” Cobb says. “Once we had a chance to meet them and see how great of a cultural fit it was, too, it was a no-brainer, and we can’t be more excited to go on this ride with them.”

Bluma currently operates seven dispensaries under the One Plant Florida brand, with eight more locations planned. The company also has 54,000 square feet of cultivation space, with a planned expansion of its cultivation capacity, processing lab and edibles kitchen.

Cobb says that it will be business as usual for Bluma following the acquisition, although the company has a lot of work ahead to expand its cultivation, manufacturing and retail footprint.

Cobb is looking to close the deal by April 1, 2021. “Then, it’s building the expansion of our cultivation facility. We’re looking at doing a large indoor facility at our existing farm, and then also building out a manufacturing house where we can do a full post-harvest process—dry, cure, trim, dry packaging, a full edibles kitchen, a full concentrates lab, full hydrocarbon lab, distillation lab. Getting all of those projects done in 2021 is a key goal, and getting us up to 15 stores is a key goal.”

Editor’s Note: Read the full article about the acquisition here.

Melissa Schiller is senior digital editor of Cannabis Business Times, Cannabis Dispensary and Hemp Grower.

Departments – Upfront | Quick Tips

‘Cold and Controlled’ is the motto at Seattle-based Solstice.

Terpene preservation starts before harvest at Solstice to ensure the final product retains its fragrance and flavor.

Photo courtesy of Solstice

At Solstice, preserving terpenes through the post-harvest process begins a day before harvest, when the cannabis cultivator reduces temperatures in its indoor and greenhouse flower rooms just before plucking fresh buds. Outside, the team wears headlamps so they can harvest before sunrise when temperatures are cooler, says Craig Allen, inventory manager at Solstice.

In indoor and greenhouse rooms, managing humidity throughout growing and during the drying and curing stages is key to retaining the flower’s flavor and fragrance. Here, Allen shares how the Seattle-based company controls the climate in its drying and curing spaces to protect delicate terpenes.

1. Develop standard operating procedures (SOPs) for preserving terpenes.

Solstice calls its terpene preservation plan the “Cold Train,” Allen says, and it details temperature, humidity and more from the day before harvest through drying and curing to be sure the plant is protected at every step.

“We try to not let anything heat up so we have terpene preservation throughout the entire ‘Cold Train,’” Allen says, adding they keep the temperature below 62°F. “If you’re able to smell the cannabis product, those are terpenes leaving the product itself, so the goal is to keep it cold and controlled and not handle the product very much.”

2. Control both the climate and individual microclimates using monitors.

Keeping the “Cold Train” on schedule depends on precise environmental controls. Solstice has a separate HVAC system in its curing and storage space so it can carefully control temperature and humidity. The company also installs hygrometers throughout the facility—in each corner of the room, within individual bags and totes—so they can monitor overall room environment, relative humidity and individual microclimates, Allen says.

“The ability to control the microclimates within our bags or jars [and] also being able to control the entire environment of the room” is essential, he says. “If the room is too humid for the jars to burp, you’re not able to properly cure the product. … You’re going to want to have the room at lighter humidity so it can wick out … [of] the product into the environment.”

Monitoring conditions just outside of the curing space is just as important as inside, Allen adds.

“If we leave the door open too long, it’s going to change the room in general,” he says, adding that hygrometers are also placed to measure conditions outside of the curing space. “Knowledge is power; the more monitors [you have] gets you to statistically understand your space.”

3. Vary drying humidity.

It’s important to vary humidity in drying, Allen says. “We are more aggressive about removing humidity from the air at the beginning of the dry process and then really taper off and slow down the dry toward the end,” he says. “You don’t want cannabis to sit in a high humidity environment because you have potential mold problems.”

The team aims for a 10-day dry, Allen says, prolonging the step as long as possible to achieve optimal terpene preservation.

“We adjust the controls so we keep [the dry] low and transitional [temperature and humidity] levels,” he says. “We don’t want anything jarring.”

4. Keep curing humidity consistent.

Once product is dried, Solstice aims for a consistent 55% humidity in its curing space, Allen says.

“We take big influxes of product at different moments, so monitoring that room is key to keep things curing at a proper rate,” Allen says, adding that the extra product can boost humidity quickly. “We’ve really got to crank up the [dehumidifier] and dial in the room environment. This is commercial scale, big-time growing and curing.”

Michelle Simakis is editor of Cannabis Business Times.

Departments – Upfront | Quick Tips

Safeguards to protect your cannabis crops against extreme conditions

HVAC systems in action on L’Eagle Services rooftop in Denver.

Photos by Meredith McLoughlin

Editor’s note: This article was previously published in the October 2019 issue of Cannabis Business Times.

Whether it’s extreme heat or bone-chilling cold spells, severe weather is always a potential issue for cultivators. Major weather events can wreak havoc on crops if cultivators aren’t prepared for the worst. Knowing how to properly manage heating, ventilation and air conditioning (HVAC) systems can make the difference between safely riding out the storm and a potential crop failure. Here are six tips cultivators should consider to prevent potential losses when extreme weather hits.

1. Know your local climate, and keep an eye on the weather forecast.

In Colorado, we are no strangers to rapid, sudden weather changes, and they are common in many other major markets, as well. Blazing hot summer days, spring and fall thunderstorms and winter snowfalls can lead to disaster if you’re not prepared. Check forecasts regularly so you know what to expect and when to expect it.

2. Winter is coming. Try capping off your intakes.

During winter, growers often completely cap off the intakes on the roof of their flower rooms. Pulling cold air from outside and pushing it into a hot flower room is a recipe for humidity spikes and dripping ducts. We pull the outside air into the veg room, let it warm up and then direct that warmer air from the veg room into the flower rooms.

3. Unusually hot weather? Consider regulating your air exchanges.

Car air conditioners often have a recirculate function that cools the cabin faster by continually chilling already-cooled air. You can apply the same idea to your grow. Instead of using energy to cool outside air, focus on maintaining the already-regulated inside air. When you do need fresh air, pull it at night when it’s coolest.

HVAC systems in action on L’Eagle Services rooftop in Denver.

4. Don’t be afraid to run your rooms a little hot to take the load off your system.

HVAC units should not run at 100% all the time. Operating your system at full blast leads to frequent and costly breakdowns. You can reduce maintenance costs and system downtime by running your system more gently by reducing fan speed and thereby increasing temperature. And a little extra heat in the grow room isn’t always a bad thing. Cannabis can handle some heat, especially if you’re supplementing with CO2. Anything over 85 degrees Fahrenheit is a cause for concern. Ideally, I like to keep my rooms around 74, so that extra 11 degrees is the wiggle room. However, hot grow rooms can lead to flower problems, such as foxtailing and yellowing, so monitor the environment closely (see tip No. 5).

5. Familiarize yourself with the vapor pressure deficit (VPD).

VPD is the difference between the water pressure in the air and the water pressure within a saturated environment, when both are measured at the same temperature. This metric helps you track your plants’ comfort much more precisely than just temperature and humidity. If you’re running your grow rooms a little hot, tracking VPD will help you foresee any potential problems with your grow and address them before they happen.

6. Always have a contingency plan.

There’s no getting around it: Extreme weather puts a strain on cultivation systems and sometimes things go wrong. Power outages and broken parts happen. Consider installing a backup generator, and always maintain good relations with a reliable electrician and HVAC expert. Finally, consider running hypothetical emergency scenarios so you and your staff are fully prepared when extreme weather hits.

Meredith McLoughlin is a cultivation expert most recently with L’Eagle in Denver. 


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