Pot Companies Looking Ahead to Distribution: Cannabis Weekly

(Bloomberg) -- The U.S. marijuana industry has been so focused on the “who,” “what” and “when” of the legalization effort that many have forgotten the “how” -- but that’s about to change.

With Democrats taking control of the Senate, the cannabis industry can shift its focus from whether it will win national acceptance to the nitty gritty of how to sell its products. A key issue will be distribution models.

In Europe, cannabis is largely distributed through pharmacies, but the U.S. is more scattershot. Medical cannabis is sold primarily through dispensaries, while recreational products can utilize direct-to-consumer models and items with CBD, a non-psychoactive compound in marijuana, even show up at many gas stations and convenience stores.

Distribution can influence how the industry evolves. Witness Molson Coors Beverage Co.’s move to launch its first U.S. CBD drink in the state of Colorado last week. The deciding factor on where to introduce it was not that state’s long history with legalized marijuana, as one might think, but instead about the company’s existing infrastructure.

“It’s the only state where we own the distributorship,” Molson’s president of emerging growth told me. “While more distributors are getting curious about CBD, some aren’t ready to go full in.”

Multistate operators are taking a closer look at how their product moves around because the Democratic Senate is renewing hopes that interstate transport will soon be allowed. Kim Rivers, chief executive officer of Trulieve Cannabis Corp., said the company is developing a hub model that will divide the U.S. into five regions. The evaporation of state boundaries and quirky laws that limit cultivation area in some states will come as a huge relief to her company and others.

Yet there are questions over just who’s going to be moving the product through such hubs on the way from greenhouses to customers.

Tilray Inc. CEO Brendan Kennedy sees a battle brewing among cannabis, alcohol and tobacco companies, all of which will push to use their distribution networks. While Tilray is based in Canada and Europe, it has a partnership with Anheuser-Busch InBev SA, which gives it a slight preference for the alcohol model, he said. That industry already has a powerful regional distribution capability.

“I have a hard time believing the multistate operators are going to win that lobbying battle. But I don’t have a dog in the fight,” Kennedy said on a recent webinar. “I think it will be fun to watch.”

QUOTE OF THE WEEK

“Investors who truly understand the space and the growth opportunity weren’t particularly concerned with how the balance of power played out in the U.S. Senate. We understood just how pivotal 2020 was, and one way or another, 2021 would see more positive developments unfold. The fact that the Democrats will control the Senate now just expedites important legislation -- the very top of that list being the SAFE Banking Act,” said Brian Burchell, head trader at Farmstead Capital Management, who is invested in several U.S. multistate operators, in an interview. The SAFE Act would allow banks to serve the industry even if marijuana remains illegal federally.

NUMBER OF THE WEEK

• 13%: The relative increase in marijuana use observed in the year’s final months compared to the subsequent quarter starting in January, according to a study -- suggesting that “dry January“ also applies to cannabis.

WHAT YOU NEED TO KNOW

• Molson aims to create a mass-market beverage containing CBD, with the launch of Veryvell.
• Aphria reported quarterly results, which sent merger partner Tilray Inc.’s shares up 20%, more than any full-day gain in two months.
• Cannabis stocks had another great week. Bloomberg’s Index of Global Cannabis Competitive Peers is now up 30% so far since the beginning of the year.
• The Parent Company, formerly Subversive Capital Acquisition Corp., completed its deals to acquire CMG Partners and Left Coast Ventures to expand as a Californian marijuana operation with Jay-Z at the helm as chief visionary officer.

EVENTS

• Thursday: New Frontier Data hosts the Cannabis Commercial Landscape in 2021 and Beyond webcast