The cannabis industry continues to flourish each year, with no two years being the same. Each year we see new states onboard cannabis, rules and regulations changing, and players in the industry raising capital, merging, and changing business models to accommodate industry trends. With this rapidly changing industry we have seen a number of deals conducted in late 2020 (Tilray and Aphria and then also Truly and Harvest Health), and many expect to see more acquisitions in 2021 as more states legalize adult use. We speak with Paul Seaborn as he explains the landscape of the cannabis industry and what he expects to see.
Video Transcription
Harry Brelsford 0:05
Hey 420MSP. We are back with Dr. Seaborn How you doing need a little time off from teaching at summertime.
Paul Seaborn 0:14
That’s right. Nice to see you here and nice to be looking forward to a great summer.
Harry Brelsford 0:19
Absolutely. busy times. Um, I am interested in getting your take on the recent issue of Marijuana Venture. Not surprisingly, they’re covering industry consolidation Tilray and Aphria and then also Truly even Harvest Health, it seems like the conversation is accelerating with respect to consolidation. What’s, uh, what’s your take? What’s going on out there?
Paul Seaborn 0:44
Yeah, that’s a great question, Harry. And I think the first thing to point out is there have been so many obstacles to any sort of consolidation early on in legal history in the States, you know, many states only allowed in state residents and in state companies to be part of their industry. So that made it hard for a multi state company to really grow. And then it was really hard to raise funds. Because even if you’re very successful, if you want to acquire someone else, enroll into a bigger company, you often need some interim financing, plus just the ongoing federal risks. So those things are holding consolidation back, and they’re just starting to now break the ice a little bit. And I think the biggest one would be a little more openness to multi state operators, as new states start to legalize and not oppose in many cases that feel more comfortable if a proven company that’s operated in another state that maybe has some good references from that state’s regulator is going to be their first company in their state, hey, yeah, we’re not quite so worried that we don’t know who this is or what they’re going to do so. So I think that’s coming. And then obviously, each time there’s a new state that that legalized as the market grows, you know, there’s that potential that you can take what you learned in Pennsylvania and bring it to New Jersey, take what you learned in and Colorado, bring it to Virginia or whatever. So I think this is pretty natural thing. I’m not surprised by any means. But I think a real interesting question then is how far will consolidation go? Right? If we looked at maybe we legalize nationally? Will we end up with only four or five or 10 major cannabis companies that dominate the entire country? or will there be a more mixed bouquet of big and small and everything else? And I think on that question, you know, it’s early days, but I would still expect that we’ll have a whole variety, just like we do, let’s say in the beer market, right? We kind of had a, we had a period in the if you look back in history at 50 6070s, it was actually pretty amazingly consolidated, not a lot of these craft niche providers, but we kind of got back to the happy medium. Now we’re Yes, there’s Budweiser, and in the big multinationals, but you turn a corner in any state these days, there’s a brewery, propping up a local craft supplier. And so I think that’s probably a more likely end point for the cannabis industry. Again, the wine industry has that same flavor and others. So yeah, one extreme you get a consumer product like you know, an automobile or, you know, diapers, there’s not really, you know, 1000 flowers blooming in those markets. But I think in a cannabis, we’re not going to get to that extreme by any means. So, yeah, this this is a real polarizing issue. Some people feel great that, you know, we’re getting these larger companies, they feel like there’s some sense of, you know, responsibility and scale and kind of it’s what they’re familiar with in other industries. Other people are kind of worried about this going becoming big cannabis and losing its grassroots nature. But I think if you look at the number of mergers, how big the big companies are, they’re still pretty small. And so I think this is probably just a healthy natural thing, and what will hopefully get to some sort of balance over time.
Harry Brelsford 3:46
Yeah, I agree. I, I don’t like concentrated markets in general, because my reputation and my career was built on small and medium business, right. So I come from an audience that naturally is a little disturbed when there’s like five players. In my past life in the MSP market, there used to be hundreds and, and and Paul is a publisher, my own business model. That’s also the kiss of death, when there’s that much consolidation, they only need one full page ad, they don’t need five ads, right?
Paul Seaborn 4:20
That’s right. Yeah. But But you think about what are the things that allow an industry to get to that extreme, right? If you’re making a database software and you’re the market leader, and you have different price points and different offerings for different customer sets, you probably can corner a huge part of the market, nationally, internationally, right? It kind of pushes out those smaller players, but you know, agricultural product that needs a lot of processing that has to be shipped from place to place it doesn’t just get uploaded and downloaded. That alone, keeps scaled down a little bit and it really I guess, in the end is going to come down to the customers, the recreational customers, the medical customers. What do they want? Do they want variety? Do they want to support local or The state or the the Pacific Northwest or the south or whatever? And if they do then there always be a market for for smaller firms and consolidation will not go as far.
Harry Brelsford 5:11
Yeah, final thoughts. The The other thing about the consolidation is in concentration that bugs me would be a call up biodiversity for lack of a better thing. And you laid it out pretty well with the beer market. I’m not a big beer drinker. But when I do have a beer, it’s a craft dark beer, right? I I like just kind of sampling those things. But I’m not a beer guy. And thank goodness, we have that biodiversity back in that industry, right? Because there’s just a really cool little finds that these little breweries, any thoughts on that? Because that that concerns me that you’re, you know, maybe we need to send seeds to Antarctica and put them way deep in the ice right to maintain diversity?
Paul Seaborn 5:54
Yeah, I’m not too concerned with that, because we’re still discovering so much about the cannabis plant and all its amazing properties, how it can be processed into different forms. So if anything, you know, I would, I would expect we’ll have much more diversity of products than we do even you know, beer in itself is kind of a narrower definition than what we’re seeing in cannabis, we have beverages, we have edibles, we have, you know, skin creams, all sorts of, you know, vaporize products, right? So that that’s almost a grocery store of products and itself. So from a consumer point of view, no, I don’t see the same kind of risk of getting down to Hey, we just have these three options on the shelf, and you just pick a, b or c. And then also you have the distinction between the medical side and the other uses. And so again, that provides another level of variation. So So yeah, I think, you know, it’s something to watch for, and certainly in a new market, a really established strong out of state and trend can disrupt that market, and really change the whole feel of it. And I have a lot of appreciation for people who really want to make sure that new markets get off to the right star that they bring in diverse participants, and they don’t just kind of copy over what another neighboring state had and end up with the exact same products, brands, storefronts, you know, cultivation style, but But again, the whole spectrum of where we could be I think we’re still you know, in a really small growing industry, not at like monopoly concerns or anything like that.
Harry Brelsford 7:20
Cool. All right. We’ll see you next time. Thanks, Paul.
Paul Seaborn 7:23
No problem. Harry Have a great one.
