There’s been a wave of cannabis companies bulking up in the last month, including Curaleaf and Grassroots’ slow-motion merger, Michigan’s C3’s big move into Missouri and Massachusetts, Verano merging with AltMed and this week likely going public. It’s a change that is not unnoticed by ancillary cannabis company executives, who spend their time divining the future needs of their clients. 

About 70% of cannabis companies are operations with two or three facilities, says CEO Gary Cohen, whose Cova Software maintains point of sale systems for over 1,000 facilities in North America. But for that other 30%, the bigger players, analytics and scale is the name of the game. “This is the big thing people don’t think about. But as the market becomes more competitive, it’s the number one tool to be a better operator,” said Cohen.

Typically, the line between a small and medium-sized business and larger company is whether or not you earn $100 million in revenue per year. Once you get to that size, the cost of capital and it’s availability changes significantly as public debt and equity markets open up. But cannabis, because of its dependence on equity, has numerous small companies already in public markets – some with annual revenues below $60 million.

So in cannabis, the bright, shiny line between big and small companies is becoming enterprise operations. Plant-touching companies that built out analytics, and even have vice presidents in charge of inventory management, are the ones turning on the afterburners, say ancillary company executives.

The limited number of licenses available in legalizing states is also driving the press towards analytics and enterprise-focus. In these states, the costs of licenses are skyrocketing, for example the $25 million price tag for two Illinois licenses reported last week.

“What’s really interesting is you’re seeing two different markets and there’s not much crossover,” said Leaf Trade president Michael Piermont. “You’ve got the East of the Mississippi markets, plus Arizona and Nevada building up these very highly regulated states with big hurdles to get a license. Because these licences are complicated and expensive to get, you have to build an enterprise company around that. That has made the cannabis space hunger for enterprise-focused companies.”

Curaleaf, Green Thumb Industries, and Cresco Labs are all managing dozens of dispensaries, with an eye towards dozens more across the country. As dispensary ownership shrinks into a smaller set of hands capable of squeezing out every last margin with analytics, watch for shelf space to get expensive, says Jeff Krucek, a partner at cannabis marketing firm 4042 North.

You can get a license to create an edibles brand, but the challenge is if all the dispensaries are controlled by the big integrated players, they’re making sure their shelf space goes to their products,” said Krucek, who managed marketing campaigns for Marlboro and Coke in a past career. “Like with consumer packaged goods, like P&G or Unilever. You have the marketing muscle helping you pay the fees to force your way in [stores], or you’re the retailer with your own private label brands. But, if you’re the independent brand, it’s more and more challenging.”

Right now, cannabis company dominance is limited by the number of licenses they’re allowed in each state. Illinois allows ten dispensary licenses. Massachusetts three. Missouri five. Plus companies are still scrambling for capital since they don’t have access to debt markets.

Krucek is convinced all that can change in a snap. Especially if the federal government deschedules cannabis,  we should expect states to lift license limitations in short order.

“The reality people are learning is that it’s not the apocalypse if you open the doors to cannabis. The horror stories people expected didn’t pan out. It’s been a very good revenue maker for a lot of states,” he said. 

Then, once the stigma of cannabis is gone, lots of new players will move in.

“Back before Covid, I used to get approached by people at conferences about this all the time,” said Krucek. “There’s a lot of different brands that have exploratory groups gathering information for senior leadership for when to move into cannabis. They’re afraid of waiting too long to miss an opportunity. But they don’t want too long.”

So, these ancillary services executives are telling me, a tidal wave is coming for cannabis. Your company might need a bigger boat.

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Editor Mike is an itinerate reporter, recovering political consultant, and strategy game devotee.