The Benzinga Cannabis Capital Conference in New York brought together three industry leaders to discuss the prospects of cannabis legalization in New York, New Jersey and Pennsylvania.
Peter Caldini, CEO of Acreage Holdings (OTC:ACRHF), Micah Tapman, CEO of BDSA and Matt Singer, managing director of BMO Capital Markets joined David Feldman, from cannabis consulting firm Skip Intro Advisors, LLC, to discuss the impact of legalization on multi-state cannabis operators (MSO) and regional cannabis markets.
Specialization Is Key For Cannabis Operators In These Markets
Peter Caldini said MSOs should consider five factors when approaching legalization in NY, NJ, and PA.
They must have differentiated portfolio strategies for each state and evaluate their market attractiveness, Caldini noted. And at the same time, MSOs should weigh their own capabilities and resources.
Furthermore, in the case of federal legalization, cannabis operators will have to segment their consumer base and differentiate their products to compete with larger actors from the value segment, Caldini added.
MIcah Tapman CEO of BDSA, a leading provider of market research solutions for the cannabis industry, concurred and added that unless companies want to be “swept as the low-cost providers,” they will have to specialize in certain segments.
“Specialization will be the key to success in case of federal legalization”, said Tapman adding that retailers are already using data to “figure out” consumers and budtenders at each store. Hence, they gain a better understanding of how consumers distribute geographically and align market-wise.
Interstate Trade and Border Bleeding
One of the main concerns with cannabis legalization in the area is about how to effectively regulate the regional market. Major issues at stake include the organization of the industry (vertical/horizontal) and the regulation of interstate cannabis trade.
Tapman noted that an alternative approach to border issues would be “to figure out the “tax tipping point” for people to cross state lines to buy weed where it is legal.
“How much is it? Is it 5%, 10%, 20% tax? How much are people willing to pay before traveling to another state?” asked the CEO before the crowd at the Marriott Marquis Hotel in NYC.
Regarding vertical integration, It’s about the local vs. the national, according to Matt Singer from BMO, a leading full-service financial services provider.
“If you are vertically integrated within the state, the jobs, the capital, taxes, value creation, the social equity programs, concentrate within the state.”
However, Singer argued that “the challenge is that it is inefficient, (…) you can’t build scale if you want to serve many states,” Singer said.
“Some parts of the country are better suited for cultivation and others for manufacture. So you make the market less efficient, this means keeping the wealth creation local, at the cost of increasing the prices for consumers.”