Cresco co-founder and CEO Charlie Bachtell spoke this week with Grown In about new licenses awarded in its home state Illinois, and how the company plans to interact with independent operators.
Bachtell also contrasted New York’s transition to adult-use sales to what Illinois experienced two years ago, predicted Ohio and Maryland to be among the next states to go recreational, and defended Cresco’s presence in more competitive Michigan and California.
While Bachtell believes there is “more than a coin flip” chance for federal reform ahead of the 2022 midterm elections, he noted that he and his team “have been really successful in navigating this status quo.”
This interview was edited for clarity and grammar.
Grown In: Cresco’s SEED incubator program backed multiple Illinois cannabis social equity applicants that won licenses. How does the company plan to initiate commercial relationships with those entities as well as the larger cohort of retailers that hopefully are coming online in the company’s home state?
Charlie Bachtell: It’s an initiative of ours to make sure there is a viable opportunity that there is a place for them in this market. This is something that Cresco has been working on for a long time. I know that not only the legislative language, but the spirit that ran along with it would be that these opportunities would be viable opportunities. It’s one thing for the licenses to be issued, it’s another thing to make sure the new entrants can stand up sustainable businesses.
From a Cresco perspective, we are not only going to do the SEED Incubator and other informal collaborations that we do to stand up programs, but as far as product availability, as we think about how to sell into the broader marketplace from a production side, we are going to make sure that we are developing those relationships with the new entrants, the new licensees to make sure we have products to go on their shelves.
From a craft grower perspective, we’ve had several inbound inquiries about collaborating from groups that are not part of our incubator program. These are conversations we are interested in having.
First and foremost, the program needs to be successful. This is how we’ve approached this program from the very beginning. We can have the best products in the world, we can have the coolest packaging in the world, we can have the best marketing and branding in the world, but it won’t matter if the program isn’t successful.
Exactly how we work with the new licensees will be on a case by case basis depending on what they need. We’ve got a ton of experience, we’ve been there, we’ve done that. We’ve got access to resources that we’ve developed over the years that we have no problem sharing if that’s something that interests those other licensees and something that they need to broaden the scope of the Illinois program and Illinois operators.
Grown In: How do you think the New York State adult-use cannabis sales launch will be different from Illinois?
Bachtell: They’re all a little different, they all learn from each other. You see it in the way they draft legislation. The base is heavily influenced by the last couple of states that have done it pretty well. They all put their own fingerprints on it and try to make it better.
With New York, it has a lot of fundamental similarities with Illinois. They are very proactive to make sure there is new opportunity for new ownership groups in a more inclusive way. They are going about it a little bit differently too. They don’t have the infrastructure that Illinois had to start with, so they have to think about it differently. There are currently only, I think, 36 open stores in the entire state of New York. So, you are talking about the fourth most populated state in the country with 20 million-ish people that only has 36 stores open right now. A lot more needs to be developed in the infrastructure side, let alone the production side. There is a fraction of the production in New York as there was in Illinois when it went full blown adult-use.
Grown In: There is also a generations-old illicit market. My New York City delivery dealer from the nineties knew me by code name JB 116.
Bachtell: Everybody In New York has a guy. To the legislature’s credit, they understand that. As they’re thinking about ways to migrate from a very restrictive medical program – one of the more restrictive in the country. They know they have to compete with a fairly well established legacy, illicit market there that is very convenient and very efficient.
You’re very familiar with Illinois, and Illinois doesn’t even have delivery and storefront delivery was offered as an exception during the heat of Covid. In New York, the program has to deal with everybody having a guy who can show up at their door within an hour and a half to two hours with variety. So they need to be a bit more aggressive in helping the program compete.
Grown In: Let’s move to another side of the ideological continuum, and talk about Ohio, where Cresco is vertically-integrated in that state’s medical program. Given recent movements by the governor and legislature, when do you believe Ohio will allow adult-use sales?
Bachtell: Sales, probably 2023. In 2022, I do think you will see an adult-use law in Ohio. Unlike Illinois and unlike New York, they do have ballot referendums and voter initiatives. You saw it in the way their medical law was passed. There was a big push to do a ballot initiative that spurred the legislature into acting to address the issue so they can control it. I think you might see a similar path as it relates to adult use. I think there are already a couple of drafts floating around in the legislature to do it legislatively.
Grown In: Earlier this year Cresco entered the Florida market via its $213 million acquisition of Bluma. How is that integration going?
Bachtell: All good. With integrations, you’re going to have twists and turns and whatnot, but overall I think that integration has gone really well.
As far as process improvements, we’ve learned a lot from the team over there. We opened a store, and have a couple more on the way in the near future. We are finalizing our three-year plan right now. Given the learnings, given the resources, given the needs, given the dynamics of that market, Florida is going to be a very big market for Cresco, I can tell you that. That transaction has been great. Great asset, great team, and tons of opportunity down there.
Grown In: Cresco’s strategic playbook, which we’ve talked about before which is shared to some extent with other leading U.S. cannabis operators, involves a combination of high population, high regulations, and low competition. With this evaluation rubric in mind, what new states are on your wish list for expansion or acquisition?
Bachtell: We put it out there that our strategic plan starts with creating the most strategic geographic footprint that you can, and Florida was really the last have-to state that you need to be in. We have ten states now, all seven of the ten most populated states that have real cannabis programs, we’re in them.
The other three states that we are in that are not in the Top 10 from a population standpoint include Massachusetts, which is a billion dollar plus adult-use market. You’ve got Arizona that is another billion dollar market with adult-use. The third one is Maryland, which is not adult-use but is right there in that same tier as Ohio, which is part of that next group of states that will have serious runs at adult-use in the very near future. It’s about as strategic and valuable of a footprint as you can put together
As far as the states that we are not in that people say are also there, you can say New Jersey and Virginia, which very quickly moved with adult use. I think you are going to see more licenses issued in those states over the next year or two. You never want to be a buyer when it’s a seller’s market. We are very conscious of where we invest our capital, and I don’t know that those states right now would warrant the price that it would take to get into them. We are going to observe. We have plenty of work to do in the states that we’re in, so we have a lot of execution ahead of us just in the states where we are in right now.
Grown In: Michigan is somewhat of an aberration for Cresco as the company is competing against considerably more operators for market share. How does Michigan fit into Cresco’s blueprint?
Bachtell: It truly fits our blueprint. Our definition of a strategic state is appropriate regulations and a big population behind it to support it. Michigan has appropriate regulations and a big population.
Some of our peers only focus on limited licensed states. For us, California and Michigan are not limited licensed dates, but they act and behave like limited licensed states. Their regulations require you to be very professional operators that execute. That’s why you hear so much complaining in those two states because it’s hard to operate. They have to migrate from kind of wink-wink legacy medical programs that were very robust and prolific. When you try to transfer to a regulated, controlled adult-use program, it’s kind of like putting toothpaste back into the tube, it’s challenging. So there are a lot of complexities when the regulations come out. We are regulated cannabis. That’s who we are.
We don’t shy away from competition. At some time in the future and perhaps the relatively near future, all of these states will have become a lot more competitive. You should know how to operate a company in competitive marketplaces that don’t have any sort of artificial barriers to entry. So we look at big populations and strong regulations. Michigan is the tenth most populated state in the country and has appropriate regulations. We’re going to be in it.
Grown In: So, in contrast to other MSOs focusing exclusively on limited licensed states, Cresco is designed to compete wherever there is this combination of population and regulation, even if it is more difficult to compete at this point in time?
Bachtell: We think long-term brands matter. I don’t know how you can build a national brand without being in two of the largest markets in the country with California and Michigan. Plus, Michigan is in our backyard where the southwest part of the state is an hour away from downtown Chicago.
Grown In: When the year began, Cresco among other leading U.S. cannabis operators raised gobs of money from investors anticipating federal banking normalization. Now that it is apparent that the Biden administration is not prioritizing cannabis, how, if at all, has this altered 2021 planning and how moving forward do you manage around the feds not passing legalization or even banking for the foreseeable future?
Bachtell: It’s a great question that we can talk about for days. But if I look at it and just call it status quo, I’ve managed this company for years in this environment. Tough capital raising environment, tough regulatory reform environment, tough operating and execution environment. We’re just gonna continue to do what we do. We’ve been really successful. Taking a step back and giving credit to the entire team, we have to acknowledge that we’ve been really successful in navigating this status quo.
So, while I love the opportunities of what the next phase of cannabis looks like for a lot of reasons, from Cresco’s perspective and the other opportunities it creates for the industry as a whole and for the subject matter of this industry. I’m a big fan, and a big believer, and I’m a big promoter of this industry.
I should add here that I’m optimistic and a glass half full guy. I do think some regulatory reform happens at a federal level before the federal elections. It’s more than a coin flip. It might not be much more than a coin flip, but I am a believer that it is more likely something happens than if something does not happen. But, if the status quo is the path forward for the foreseeable future, we are definitely prepared to be successful in that type of environment.