01 December 2021 |

Consolidation In California

By Matthew O'Brien

Consolidation In California

Breaking down the consolidation of cannabis companies in California…

The state of California is the largest cannabis market in the world.

Home to 39 million people, California was the first state to legalize medical cannabis back in 1996 & in 2018 California legalized adult-use cannabis.

Despite the ever-increasing demand for legal cannabis in the region, legal cannabis companies are struggling to remain independent in California.

The consolidation…

This week, Harborside announced its plans to acquire both Urbn Leaf, a successful cannabis retailer, and Loudpack, a successful brand.

This follows its acquisition of Sublime, another successful brand which they acquired for $43.8 Million USD in June.

This recent wave of consolidation makes Harborside one of the largest cannabis companies in California, however, they are by no means alone in seeking to consolidate cannabis companies across California.

Late last year Caliva joined forces with Shawn “Jay-Z” Carter & Left Coast Ventures to create The Parent Company which is also one of the largest cannabis companies in California.

The Parent company has continued to consolidate cannabis companies in California — acquiring West Hollywood Dispensary in June, Jayden’s Journey Dispensary in August, and Coastal in October.

Why is this happening?

To answer this question, we reached out to Taylor Jones, co-founder & V.P of Revenue at Pistil Data, a business intelligence platform that works with many of the top cannabis brands in California today.

Here’s what Taylor had to say:

“It’s extremely difficult to win in the California cannabis market today without reaching a certain scale due to over regulation & over taxation of cannabis.

Brands underestimate the difficulty of getting on cannabis retailers’ shelves and remaining on cannabis retailers’ shelves.

Struggling companies have limited options:

  1. Raise growth capital — this will allow you to continue to burn cash, and hopefully, provide enough runway to weather this storm. 
  2. Pursue mergers — find other operators who are complementary to reach the scale needed to increase your margins through vertical integration. 
  3. Go out of business — unfortunately, this is a real threat most cannabis companies in California face today.

D2C models and delivery options may help, however, the issue remains that there are only 868 cannabis stores open in a state home to 39+ million people.

  • This provides 1 cannabis retail store per 44,930 people.

For reference, Colorado has 574 cannabis retail stores to service the 5.7 million people living in the state.

  • This provides 1 cannabis retail store per 9,930 people.”

Looking forward…

The legal industry has been gaining ground on the illicit market of late, however, with close to 68% of California cities banning cannabis retail stores — cannabis companies continue to face an uphill battle.

Our Take

We will continue to see more consolation in California as a consequence of the lack of capital available to smaller cannabis companies in the state.

Should federal legalization occur, it would serve as a much-needed lifeline for independent cannabis companies, however, until such legislation is passed many cannabis companies in California will have no choice but to merge.

Headsets’ Recent Raise

Breaking down the cannabis data company’s recent raise…

Founded in June 2015 — cannabis data startup Headset has announced it has closed another round of fundraising.

With an additional $3 million USD from Althea, Headset has now raised $8.6 million USD since August 2020 and $24.1 million USD since its inception.

From Leafly to Headset…

The founders of Headset are far from strangers to the cannabis industry.

In June 2010, the 3 co-founders of Headset; Scott Vickers (CTO), Brian Wansolich (CPO), and Cy Scott (CEO) co-founded the cannabis marketplace Leafly — a company now valued in excess of $500 million USD.

Less than 2 years after they began building the company, Leafly was acquired by the cannabis private equity firm Privateer Holdings for an undisclosed sum.

The 3 co-founders remained with the company until 2015, when they decided it was time to build their next solution to help the cannabis industry.

“We’re entrepreneurs”

“We’re startup guys. It’s in our DNA to tackle new problems.” — Cy Scott said back in 2015 when they annocuned their new venture.

The demand for data…

The cannabis industry was once primarily comprised of mom & pop operators, however, the industry has experienced a significant transformation in recent years and the demand for data-driven solutions has never been higher.

By aggregating cannabis retailers point of sale data, Headset provides the cannabis industry with insights to help:

→ Brands create the right products.

→ Retailers stock the right products.

→ Investors allocate capital to the right companies.

Looking forward…

Headset has done a fantastic job developing its platform, however, with the rising demand for data-driven solutions in the cannabis industry, Headset isn’t the only company providing companies with access to insights.

In November, startup Pistil Data announced its $6.5 million USD seed round from Snoop Doggs venture capital firm Casa Verde.

Our Take

Whereas once the cannabis industry had to rely on instincts to make the right decisions, the industry has now reached a point where many software companies are being built to specially service the cannabis industry.

With global cannabis sales on track to exceed $31 billion in 2021 — it’s a great time to build a cannabis software company as we are seeing with Headset, Pistil Data, Flowhub, Fyllo & Dutchie who have all recently raised new rounds.