Scratching the Surface Twice
April 10, 2022
DB’s vision is most relevant in today’s cannabis industry when seen through the lenses of vertical integration, innovation, and multi-state operations (MSOs), as these are the factors that would determine the successful management, optimization, and expansion of a modern cannabis company. Expanding legalization efforts across the US have created a multitude of opportunities to optimize existing structures and integrate businesses to create formidable industry leaders.
Soil to sale vertical integration paves the road to operational and financial optimization and success for DB. We’ll tell you why. In not so many words, ancillary operations risk lapses in management controls, from product quality to supply management, leading to suboptimal results all around. Vertically integrated cannabis companies with end-to-end operations cut down costs, secure quality control, and leverage in-house synergies from growing a superior product to streamlining end-to-end management. Land management, PP&E development, plant sourcing, cultivation, growing, curing, testing, and marketing are some of DB’s capabilities.
The foundation of DB’s vertically integrated platform lies in the backward vertical integration achieved through its real estate “soil” holdings of cultivation, processing, and nursery facilities. Our management consulting team dedicates all its focus on the seed-to-flower phase to grow the best-in-class product that is customized to the preferences of each of our retail partners’ customers. In the flower-to-sale phase, DB’s brand and supply management team aims to optimize profitability by leveraging its robust distribution network. DB’s pro-innovation team strives to further optimize its business by engaging with partners that are disrupting the industry for progress, and its in-house AgTech capabilities. This level of integration and optimization is the fundamental building block for expansion into a multi-state operation. And that is what DB is working towards.
As today’s fragmented industry heads towards federal legalization, MSO capabilities are fundamental for a company that wants to maximize its potential for growth at the onset of this much-anticipated milestone and compel investor interest. Larger MSOs were able to score loans in the 7-10% range in 2021, down a couple points from the year before. Green Thumb Industries received a $217 million, 3-year term loan for 7% interest, one of the better deals of the year. Another power player, Ascend Wellness nabbed a $210 Million, 4-year loan at 9.5%. Unfortunately, smaller cannabis companies do not have access to such low cost of capital; for example, Item 9 Labs, for instance, has a 16% interest attached to its $19 million, 18-month loan. This further increases the valuation proposition of being part of a scalable, vertically integrated operation. In cannabis, and in industries across the board, the companies with the lowest cost of capital and healthiest balance sheets are the winners. DB is working towards this too and when achieved in the near future, coupled with the ongoing rise in national positive sentiment on federal legalization, will propel DB’s vision and success.
As more cannabis enterprises across the continent struggle to optimize their operations and supply-chain management, the opportunities for a vertically integrated MSO keep growing.
States like California, Colorado, and Washington, which offer a glut of opportunities to step into the cannabis business, often see business owners struggling to optimize operations and supply-chain management. Smaller businesses have particular difficulty here. Integration is key for businesses plagued by substandard product quality management, supply-chain disruption, and a saturated market where it may be near impossible to stand out. States with emerging medical and recreational legalization efforts, like New York, New Jersey, Virginia, Illinois, Florida, and Pennsylvania, are primed for MSOs with strong balance sheets and vertical integration capabilities.
MSO capabilities allow cannabis companies to capitalize on growth that comes with federal legalization. DB is in negotiations to acquire various cannabis operations that would not only add to DB’s vertical integration synergies but also prime it to springboard into becoming a multi-state operator (MSO).