The MSO Two-Step “It is necessary sometimes to take one step backward to take two steps forward.” Lenin Kate Robertson recently penned a good article in #MJBizDaily where she outlined why some MSOs are pulling out of a few states. The 3 cited MSOs were Curlaleaf, Trulieve and The Cannabist Co. The article attributes the pullback to high taxes, expensive capital, the slow pace of regulatory reform and that MSOs are “…still learning as they go.” From a big picture perspective, exits are understandable even mundane strategic moves. While I have no insider knowledge of these companies, I do know that successful firms in every industry periodically leave markets and products categories. Facing reality and cutting losses is one reason why they succeed Yet, these MSO decisions were seen very differently by other cannabis industry tribes and pundits. Their take, and I paraphrase, was along the lines of: --> Consumers are rejecting their poor-quality products. --> MSOs can’t run a business in open license states. --> The pullouts signify Interstate commerce is never happening etc. The cannabis industry is a lot of things, but it’s not simple. It’s always useful to dispense with reductive and biased thinking. Perhaps these issues impact some of these firms. Maybe not. Nonetheless, I imagine their deliberations touched upon issues, like: - We have limited capital. Florida and Ohio beckon. Where should we deploy our money? - Sometimes we need to exit money losing markets where we don’t have a strong competitive position. - We still believe Interstate Commerce will happen but understand we need to be in a position of strength i.e. have a fortress market presence. - Our market footprint is overly complicating the firm’s organizational model. Or possibly the rationale is altogether different. Each MSO has their own unique financial & operating conditions, footprint and competitive position. In many cases, market exits are a move of strength, not weakness. And heck, losing a battle doesn’t mean you won’t win (or aren’t winning) the broader war. Two takeaways: 1. Overall industry complexity and clear MSO differences ought to dissuade people from simplistic diagnoses and cures. 2. Think critically, and go beyond the immediate term.

Posted by Mitchell Osak at 2024-04-12 01:32:54 UTC