Pot industry grows, but not without challenges
Some medical marijuana companies in Florida see net losses in earnings reports
Last fall, as California-based marijuana retailer MedMen was opening new facilities in Florida and pumping millions of dollars into a state initiative to legalize recreational marijuana, the company also announced it would lay off 190 people.
MedMen reported a net loss of $277 million for the financial year that ended in summer 2019, as it prepared to open a store on International Drive and ready a facility in Eustis, northwest of Orlando, to produce more products such as lotions and vaporizers.
“Every emerging, brand new industry is sort of who’s first in has to learn all the hard lessons,” said Nick Hansen, MedMen’s vice president of government affairs. “So I think everybody in Florida and really across the country is learning sort of the hard lessons.”
And the company is not alone. As companies stormed into Florida since 2016 when the state legalized medical marijuana, some of their recent earnings reports dispel any notion that the pot business is easy money as the number of patients grows by thousands each week. At last count, more than 317,000 people were eligible to use the drug for medical reasons.
Four of the five companies with the most dispensaries in Florida are publicly traded — Trulieve, Curaleaf, Liberty Health Sciences and Fluent — and two reported net losses in recent earnings reports.
Curaleaf, based in Massachusetts, reported a net loss of $7.4 million for the third quarter of 2019.
The company operating under the Fluent brand, which used to be known as Knox Medical and is headquartered in Miami, reported a net loss of $11.3 million in the third quarter of 2019.
Growing patients, growing dispensaries
Surrounded by go-karts, miniature golf, and the other tourist trappings of International Drive and less than 10 minutes from Universal Studios, MedMen’s Orlando dispensary opened in October and uses tablets to display the price and descriptions of sprays, lotions and vape products.
A $35, 150-dose spray is recommended by the retailer for chronic pain and spasticity and has approximately 147 milligrams of THC, marijuana’s psychoactive component, as well as 3 milligrams of CBD.
A $20 lotion, marked as coming soon and having 300 doses, is made with about 73.5 milligrams of THC and 1.5 milligrams of CBD. It is also recommended for chronic pain and inflammation.
MedMen opened eight dispensaries in Florida since last year and had plans to open more, including near the University of Central Florida. The company is reviewing its footprint in the state to determine the timing for opening additional dispensaries, according to an earnings report.
“All of these people, all of these hard assets, and the plant itself it takes a lot of money to grow, and you’re building it from the ground up,” Hansen said. “You’re also building something for the future. You’re building something for an expected larger market space and you are talking about a product that’s only been legalized in less than half of the states for less than three years.”
Florida is a part of that plan, he said.
“We have a lot invested [in Florida], No. 1, we see a lot of potential here,” Hansen said.
“We continue to grow month over month with our medical patients.”
There were 317,106 qualified patients in the state as of the Feb. 21 Office of Medical Marijuana Use report, up from 314,234 just the week before and 188,240 from about a year ago.
“We are limited, by design I believe by the Legislature … We can’t market,” Hansen said. “All patient acquisition is done through education or through doctors.”
MedMen’s openings were just a slice of the new dispensaries in the state. This time last year, the number of approved dispensing locations had just broken 100, and now there are more than 230 in Florida, state records show.
Florida-based Trulieve has the most, with 45 dispensing locations, and also leads the pack by dispensing more than 48 million milligrams of medical marijuana for the week of Feb. 14 through Feb. 20, according to the state’s Office of Medical Marijuana Use.
Trulieve reported $60.3 million in net income in the third quarter of 2019, $57.5 million in the second quarter and $14.7 million in the first quarter, earnings reports show. CEO Kim Rivers said the company has been focused on serving patients, “providing access across the state and doing that in a fiscally responsible way.”
Surterra Wellness, which recently changed its corporate name to Parallel, and Curaleaf were the next two largest companies in terms of the number of dispensaries in the state.
Parallel is not publicly traded and had 39 dispensing locations as of Feb. 21. Its headquarters are in Atlanta.
“The industry is growing and as with any other startup it has to ‘storm, form and norm,’” Elizabeth Conway, Parallel’s Florida President said in an emailed response to questions sent through a spokesperson.
“Compliance in a highly regulated environment, fiscal controls, patient access, great products, and stellar customer experiences all cost money. Growing a business in the cannabis industry requires skilled management and financial discipline, both of which Parallel is fortunate to have.”
Curaleaf, headquartered in Massachusetts and with a presence in 14 states, had 28 Florida dispensing locations. It reported a net loss of $7.4 million for the third quarter of 2019, $24.4 million for the second quarter and $10.9 million for the first quarter, earnings reports show.
“In Florida, we are profitable at the EBITDA level and soon we will be profitable at the net income level,” said Pablo ArizmendiKalb, Curaleaf Florida president.
EBITDA is a commonly used financial metric that stands for earnings before interest, taxes, depreciation and amortization. It’s often used to gauge a company’s profitability.
Other companies also reported varying results.
Miami-based Cansortium, which operates under the Fluent brand with 19 Florida dispensaries, reported a net loss of $33.1 million for nine months through the end of September, an earnings report shows.
Liberty Health Sciences, with 23 dispensaries in Florida, reported a net income of $26.57 million in Canadian dollars for the nine months that ended Nov. 30, 2019, an improvement over an about $18.48 million loss for the same period the year before.
“Liberty’s recent success is attributed to executing our operational strategy, which has been to aggressively expand our retail footprint along with the introduction of new products and categories,” CEO Victor Mancebo said in an emailed response to questions sent through a spokesperson. “Since the launch of flower derived products in April 2019, we have seen a strong uptick in revenue.”
‘A multiplier’
MedMen put more than $3 million, both in cash and other donations, toward Make It Legal Florida, a ballot initiative to bring recreational cannabis to Florida. The group is backed by marijuana companies, including MedMen and Surterra, and wanted to make this year’s ballot, but faced a time crunch to submit and verify signed petitions. Now they are aiming for the 2022 election.
Surterra Holdings chipped in more than $5.3 million, records show.
“Cannabis aids in wellbeing and we support an adult’s ability to access their well-being through cannabis, whether they are medicinal patients or not,” Conway wrote.
MedMen’s Hansen is chairman of Make It Legal Florida.
“No doubt adult-use is a multiplier anywhere from 15 to 20 times … every dispensary, every license,” Hansen said. “Your market size grows exponentially. You talk about just the 21-and-over adult population in Florida that lives here, right, and then you talk about how many tourists come here.”
While MedMen’s Orlando dispensary is located in a major tourist corridor, Hansen points out the large number of residents who work in the area.
“We wanted to pick, obviously, high-visible, hightraffic locations because we know that inevitably there will be adult use,” Hansen said. “We also want to serve the patients.”
Hansen would also like to see Florida allow patients from other states to buy the products while they are visiting among other changes to the rules that govern marijuana companies.
“What I think is probably going to happen is I don’t think we’re going to see a lot of movement on most of those issues for the next year or two,” Hansen said. “I think we’re going to be voting on adult use in 2022.”
‘You’re a retailer and you’re a farmer’
Medical marijuana companies in Florida must grow and produce their products from start to finish. MedMen’s offerings come from a facility in Eustis.
“In Florida, you’re a retailer and you’re a farmer and you’re everything in between and that’s incredibly expensive,” Hansen said.
For Curaleaf, the challenge is maintaining a supply that keeps up with the growing number of patients, said Arizmendi-Kalb. It has growing and production facilities in South Florida, as well as a growing site in Mount Dora.
The company is building more capacity at its Mount Dora facility and has plans for another processing site in Lake Mary, ArizmendiKalb said.
Adding supply will help grow sales, he explained. And opening more stores will also drive revenue because patients in more neighborhoods will have access to a nearby outlet.
Curaleaf has 12 more Florida dispensaries in the pipeline, which will bring their total to 40, ArizmendiKalb said. It has dispensaries on Semoran Boulevard and South Orange Blossom Trail in Orlando as well as one in Sanford.
“We are actively looking in the Orlando market today,” he said.
Parallel, Liberty Health Sciences and Trulieve also plan to grow.
“The Florida industry is one of the most exciting markets in the country,” Trulieve’s Rivers said.