Chicago Tribune - Marijuana rising: Illinois just elected a weed-friendly governor and Chicago pot companies are on the move
In the past six months, Illinois marijuana companies have gone public in Canada, raised hundreds of millions of dollars to fund expansions and consolidated through a number of deals — one topping $680 million.
The state’s medical marijuana companies are moving at a fast and furious pace. They are largely past the days when growth was stagnant and there was a stigma around weed. About 60 percent of Americans think recreational marijuana should be legalized, and Illinois just elected a governor, Democrat J.B. Pritzker, who has said he is one of them.
Cannabis companies say the stars are aligning for growth in the nascent industry, born just three years ago in Illinois as a pilot program for patients with a limited number of medical conditions. Expansion hasn’t been without its twists and turns, but Illinois companies are betting on the future.
“In theory, this was always the path forward,” said Charlie Bachtell, CEO and co-founder of Cresco Labs, which in the past month has raised $100 million and announced plans to acquire a dispensary and go public in Canada. “But how we got here, when we got here, why we got here I think has been an interesting journey.”
The pot industry gained a foothold nationally in Tuesday’s midterm elections too. Michigan — about an hour drive from Chicago — became the 10th state and the first in the Midwest to legalize recreational marijuana. Missouri and Utah approved medical use.
The total legal U.S. marijuana market is expected to hit $11 billion in sales this year and $23 billion by 2022, according to a report out earlier this year from California-based Arcview Market Research.
Marijuana remains an illegal drug in the eyes of the federal government. Jeff Sessions, who was not friendly toward recreational or medical pot, was ousted as attorney general Wednesday. But a federal ban still keeps big banks and other large institutions and investors away.
In Canada, however, pot is now legal, and big-time investors are diving in. Alcohol company Constellation Brands, whose beer business is based in Chicago, invested in Canadian weed company Canopy Growth in 2017 and took an additional $4 billion stake over the summer.
Canadian companies were building up war chests that they could use to buy American assets, said Jeremy Unruh, director of public and regulatory policy at Oak Park-based PharmaCann, which is being acquired by Los Angeles firm MedMen for $682 million.
“If we are going to compete, we need a war chest like that too,” he said.
Green Thumb Industries, or GTI, became the first Chicago medical marijuana company to sell shares of its stock to the public, debuting on the Canadian Securities Exchange in June. It raised $67 million through its listing, then followed up with an additional $61.6 million in financing.
The money has helped the company hire more workers in the eight states where it operates, expand its facilities and acquire more dispensaries. GTI knocked down a wall at its Chicago headquarters to accommodate a growing employee count. The company expects to employ about 270 people in Illinois by the end of next year, up from about 180 now.
GTI’s public market debut also helped cement investors’ interest in the industry and showed them the potential value of a marijuana company that operates on a national scale. The company is valued at $2.1 billion.
Cresco hopes to be next. The company, headquartered in River North, announced last month that it entered into an agreement with Randsburg International Gold Corp. that will result in a merger with the Canadian company.
Cresco hopes the deal, which is subject to regulatory and shareholder approvals and other conditions, will help it access additional capital to grow its business. Separately, it raised $100 million in private funding that it has already started to deploy.
Cresco operates three cultivation centers in Illinois, and it just finished expanding its Joliet facility to more than double the amount of marijuana it can grow. It also plans to acquire FloraMedex, a dispensary in Elmwood Park.
Other growers have made similar acquisitions. For the growers, operating dispensaries means access to the customers, Bachtell said. The dispensaries join national companies that are better capitalized, which can mean better benefits for employees.
“They want to be part of something bigger,” Bachtell said.
Cresco, PharmaCann, GTI and other Illinois cannabis companies are focused on making sure they are prepared for the coming growth. Products need to be high-quality and consistent, people need to be hired, and corporate culture must be considered. Some firms have foreign regulations to learn.
Industry operators say the lessons learned in Illinois’ highly regulated industry have given cannabis companies the chops to undertake going public or negotiating megadeals.
“They learned quickly, whether it’s how to be a good steward within a regulatory framework, how to go through a rigid application process or even ... how to dial up or dial down capital expenditure,” said Mark de Souza, CEO of Revolution Enterprises, which has two cultivation facilities in Illinois and operations in two other states. “It made us all very smart very quickly.”
Illinois was one of the first states to roll out a medical cannabis program with such stringent regulations. Fledgling vendors jumped through hoops to abide by state laws that mandated how far dispensaries must be from day cares and how to dispose of plant waste. There was also a much harsher stigma to deal with then, resulting in struggles to find banks, landlords and insurance companies that would work with a weed business.
Earlier this year, the number of patients buying the drug in Illinois remained too low for some operators to recoup their investments. That wasn’t because there weren’t enough potential patients — it was because of constraints state law imposed on the program’s growth. Patients had to have one of about 40 conditions to qualify for the program, such as cancer or AIDS. Chronic pain was not included.
The landscape is changing. Gov. Bruce Rauner signed legislation this summer that allows people prescribed opioids to use medical marijuana. There are more than 46,000 qualified patients, nearly double the amount a year ago. Even before Rauner signed the law, Illinois growers began to expand as more patients gained access to weed.
Pritzker has said he wants to work on legalizing and decriminalizing cannabis “nearly right away” after being sworn in next year.
But even if a bill is passed and signed into law in early 2019, it could be another 12 to 18 months before the first legal sale of recreational marijuana is made, said Unruh, from PharmaCann. Companies are planning for that potential expansion, but they still expect significant growth in the medical marijuana program.
“There’s a hell of a lot more than 46,000 people that have cancer or (amyotrophic lateral sclerosis) or HIV,” Unruh said. “It’s about accessing (them).”
Medical cannabis programs typically reach about 1 to 2 percent of a state’s population, said Jennifer Dooley, chief strategy officer at GTI. In Illinois, that’s 128,000 to 256,000 people. With medical marijuana set to become a legal alternative to prescription opioids, Dooley said, the reach could increase to 3 to 4 percent of the population.
However, those patients can’t buy the drug yet. The Illinois Department of Public Health expects that to occur early next year.
The marijuana industry is ready to welcome them — and recreational users, should the newly elected governor succeed in legalizing the drug.
Most of the growers in Illinois have additional land near their facilities on which they could expand, and many already have plans drawn up. GTI just increased the amount of weed it can grow in Illinois by 60 percent and is planning for its next phase of growth, Dooley said.
“If the program grows at minimum eight times … there’s a lot to do,” she said.
amarotti@chicagotribune.com
Twitter @AllyMarotti
MORE COVERAGE
New Chicago marijuana company raises $120 million, is expanding in Illinois »
Wirtz-linked Breakthru Beverage invests $9.2 million in Canadian marijuana producer »
Main bank for Illinois' medical marijuana industry is pulling out, leaving some operators to deal in cash »
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.