Multi-state cannabis Company Cresco Labs Inc. (CSE:CL, OTCQB:CRLBF, Forum) is one of the largest vertically-integrated cannabis operators in the United States. It became this way by executing its tried-and-true manufacturing and retail strategy.
Company Summary:
Based in Chicago with operations in eight states, the experienced management team leading Cresco Labs has access to capital and a demonstrated growth strategy, while its focus targets highly-regulated markets where the high barriers to entry are matched only by its immense demand. In this article, we will look further into the distinct competitive advantages behind Cresco’s rapid speed-to-market, along with its ability to replicate this traditional, yet unique model to grow its national footprint.
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Cannabis is still an emerging industry trying to find its identity. At this stage, it is attracting an audience that ranges from millennials to grandparents and it’s a broad demographic that Cresco wants to capitalize on in its entirety. In every state the Company receives demographic info from, 70% of participants in the cannabis space are over the age of 40. To be a success, Cresco’s mission is to normalize cannabis, demystify it, and to become a trusted company as its audience grows to become more comfortable with its consumption.
In an interview with Stockhouse Editorial, Cresco CEO & Co-founder Charles Bachtell explained his Company’s operations under four verticals:
Each vertical offers long-term upside opportunities with downside risk mitigation. Let’s look deeper:
Cultivation: Cresco has cultivation and manufacturing operations in eight states. This is an important part of supply chain management, as licensing often requires a company to control its own supply chain, rather than put all of its eggs in one basket and hope third-party providers will offer the highest quality consistently.
Brand strategy: “Know your audience” is the core value behind Cresco’s branding. From medical, to recreational, to connoisseur consumers and regulatory officials. That’s why Cresco’s brands appear vastly different when marketed to 72-year-old grandparents looking to replace their traditional medicine with something that feels similar to it, compared to traditional customers looking for products with more “flair”.
The Company knew that its house of brands had to look diverse, because trying to appeal to a wide audience with a cannabis product would only risk watering down one brand that wouldn’t appeal to anyone.
Products available in the Cresco suite:
The medically-focused remedi.
For the recreational consumer, Rise (sativa), Refresh (hybrid) and Rest (indica).
Premium consumer-focused products under the Reserve brand.
For Cresco’s flagship brand of artisanal edibles, the Company turned to renowned pastry chef Mindy Segal. Winner of the James Beard Award for Outstanding Pastry Chef, her credentials speak for themselves, having been a celebrity chef judge on the Food Network and owner of the popular Hot Chocolate Chicago and Hot Chocolate Bakery at Revival Food Hall in Chicago. She spearheaded two brands under this umbrella:
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Mindy’s Artisanal Edibles - an indulgent, decadent chocolate premium product made with clear distillate so there is no cannabis odor or taste.
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Mindy’s Kitchen for the casual consumer, fruity and whimsical gummies, hard sweets and fruit chews with more cannabis flavour at a more approachable price point
There are already a few celebrity plays in cannabis, from Snoop Dogg to Willie Nelson, but the key difference with Mindy Segal’s products is that she is a professional chef and has personally developed these products and their recipes. Through the partnership with Cresco, these products are poised for national distribution through their supply chain.
Traditional CPG
The biggest opportunity the Company sees is to have its products available on other store shelves besides its own.
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For example, in the highly-regulated Illinois market, licenses are limited. There are only 55 dispensaries in the entire state and Cresco is on shelves in each one of those stores.
There is a massive misconception in the industry that retail is owned by large multi-state operators and they’re all vertically-integrated. As CEO Bachtell explained, the vast majority of dispensaries in the U.S. are independently owned “mom and pop” operators, not vertically-integrated and they don’t make their own product. They’re more comparable to “the corner liquor store” and their shelves always need reliable, consistent, and available products.
Another misconception is that when a retail store is owned by a vertically-integrated multi-state operator, they only sell their own products. In Cresco’s stores, 40-45% of revenue comes from its own products, while 50-60% of revenue comes from selling other people’s products.
As Cresco transitions from a highly-regulated medical program to a highly-regulated adult-use program, its reach is expected to jump from 55 to upwards of 500 dispensaries in Illinois, which are mostly independently owned. This is comparable to points of sale for liquor or other CPG’s and means a lot more revenue than simply selling proprietary branded products from within its own stores.
Retail
(A Cresco dispensary.)
A distinct advantage behind Cresco’s operations is that the Company can replicate its model in new markets, streamlining the expanse of its national footprint.
This approach is heavily formed based on the experience of its co-founders in the mortgage banking space. Charles Bachtell was formerly general counsel executive vice president at one of the largest mortgage banks in the country, where Cresco President Joe Caltabiano served as executive vice director of mortgage lending, and the Company’s third partner Rob Sampson was COO.
When CEO Bachtell joined in 2007 just before the financial collapse, the team had to rebuild their financial operation under strict regulations. In doing so, managed to thrive and scale that company from 200 to 3,500 employees across all 50 states during its most tumultuous period. This skillset translated very well into cannabis, with the bonus of getting the audience comfortable and knowledgeable about your industry in the face of scrutiny.
Regulating the Future:
Where Cresco is headed next is tied to the regulatory structure of each state’s cannabis program. CEO Bachtell compared regulation to a blueprint that offers a good first-step for the Company to enter market. In California, the state’s regulated format has child-resistant packaging, third party testing, and a state-focused regulatory body, all of which are areas where Cresco has experience.
The next potential state to come online is Michigan, where the Company has an application pending, followed by Florida. With those two locked-in, seven of eight of the most populated states will be home to Cresco operations. On the horizon, Cresco is building out its business in Arizona, where Phoenix is the sixth most-populated city in the U.S., then Nevada, where Las Vegas is one of, if not the most regularly visited city in the country.
From there, Cresco wants to make sure each program is accessible to patients and adult consumers. Illinois was a struggle at first, where until recently, patients needed to be fingerprinted upon registration, which seriously limited its accessibility. The Company then looks at the potential participation population in any given state to make sure it is viable.
Accessibility has been a cause championed by Cresco in the face of legislative action across the United States and has not only broadened its reach among consumers but opened a new program relatively untouched by the medical space. Coming up in Part 2: Cresco’s Opioid Alternative Program and how the Company is using cannabis to tackle an epidemic that saw more than 72,000 overdose deaths in America in 2017.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.