Cannabis is (still) illegal on the federal Level, which means cannabis Entrepreneurs must ask themselves: How do I operate a national brand while still complying with federal law? Federal laws restricting cannabis from interstate commerce mean that cannabis grown in one state must remain in that state for sale. The solution for many entrepreneurs is the multi-state operator (MSO) business model, which allows them to comply with federal law by maintaining legally distinct entities in each state, and to establish a brand capable of national expansion when the country does legalize - which could be sooner than expected. In fact, this week the House is set to vote on a Bill that would Federally decriminalize Cannabis.
The multi-state operator business model allows a single brand representing a collection of operators to be sold under the same name, while standing as legally distinct entities. This type of branding provides a path to profit and operational expansion. Where the industry has no standard manufacturing process for all products – we at Greenbelt strive to ensure our clients have the guidance required to implement an optimized, vertically-integrated operation.
MSOs have state-by-state “branches” offering similar products, but cultivated, manufactured and sold in-state. Consistency in quality is the main challenge posed by the requirement that all cannabis and related products remain intrastate. Geographical and environmental variations may mean different product qualities, which is why many MSOs opt for indoor cultivation operations which allow them to maintain consistent environmental control.
“What’s important is for a company to have a dominant or strong position in the markets it’s in rather than to be a small player in many markets,” said Mike Regan, an equity analyst and managing member of Denver-based MJResearchCo. “Then the standard business axioms apply: a healthy balance sheet, a good business model and strong execution by the management team.”
“Although capturing market share in new territories is key to the MSO model, a hurried and poorly executed expansion can be detrimental to the operator’s bottom line. Being first to market is great as long as you can adequately supply the demand with quality products. An intimate understanding of the regulations and your consumer base are paramount to turning a brand into a household name.” Jordan Thacker, CCO of Greenbelt Group
Experts have narrowed down what sets apart thriving from struggling Cannabis MSOs today: adequate capital (with a cash-flow cushion of two years), a competitive market position, operational excellence and consistency, a profitable business model, and realistic expansion plans and projections.