Why MSO’s are afraid of California
Why mso’s are afraid of California can really be boiled down to two reasons. Competition and the black market. Both make it much harder for a cannabis company to succeed in California than in other marijuana friendly markets.
California is Different
Most, if not all, mso’s (Multi State Operators) are funded by huge investments made by institutional investors and large companies that hope to see profits as soon as possible. In states other than California, it’s a lot easier to start a brand, grab a handful of marketshare, and start moving your business ball forward immediately. Newer markets have few and very often, zero, heavily established competitors to fight it out with.
California is a totally different animal. We’ve been growing weed at scale since the late 60’s and dispensaries and delivery services have been up and running since the passing of prop. 215 in 2006. Legacy brands and retailers that have been operating in the space for 15+ years and made the transition to the legal market have huge customer bases and followings. Well established competitors are much harder to compete with for a new brand entering the space. MSO’s in other states often compete with brands and retailers that are also new to the market and are starting from the bottom.
And even if you think you have the chops to compete in the legal, licensed market in California, do you think you have what it takes to compete with a thriving black market?
The Black Market
The Bureau of Cannabis Control as well as local authorities have all pretty much shit the bed when it comes to dealing with unlicensed cannabis brands, dispensaries, and delivery services. You don’t have to search very hard to find a black market shop or delivery in your area that sells untested, high strength products that are as good as, sometimes even better, than what’s available at licensed shops. And at a fraction of the price. To be honest, I’m not sure there is an easy or realistic solution to this problem. Until someone solves the issue of the incredibly high tax rate attached to legal cannabis sales, there’s always going to be a huge number of stoners willing to buy from the black market. Even if you solve the tax rate, licensed brands have such higher overhead attached to their business that there’s no way they can lower their prices to compete. And with the amount of money a trap shop/brand can make there’s always going to be a group of individuals that are willing to stomach the risk in order to serve the market.
Taking a Shot
California may be a difficult state for marijuana businesses to operate in, but that doesn’t mean everyone is scared. The team behind Planet 13 in Las Vegas is rolling the dice and opening a new, state of the art marijuana mega-store in Santa Ana on July 1. I wish them the best of luck but even with all the bells and whistles they are building into their new location, I have a feeling it’s going to be hard for them to hit their revenue goal of $50 million dollars in their first year of operation.
Consumers in California enjoy a unique shopping experience but at the end of the day, price and product are more important. Stealing customers from established dispensaries and delivery services is going to require a huge selection of fresh, popular products that are priced correctly. A cool LED floor or an art installation isn’t going to carry as much weight in Orange County as it does in Las Vegas. Big operation means big overhead. They’re going to need to grow very fast otherwise they’re going to have to increase their prices to make enough money to cover their nut. Ask the guys over at MedMen how well that model worked out.
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