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Arizona-based Story Cannabis was founded in June of 2022 by entrepreneur Jason Vedadi in what could be seen as the third act of his cannabis career, which has included significant stops at Harvest Health and Recreation and Oasis, the latter of which he sold and then reacquired as part of his plans for growth. Story is a private company currently operating cannabis retail stores in three states – Arizona, Maryland, and Ohio – with business agreements in place in New Jersey and plans for further strategic expansion in other markets. As Vedadi explained during a recent conversation with Cannabis Business Executive, plenty of opportunity exists in the U.S. market despite the lack of movement or momentum to pass cannabis-friendly legislation at the federal level.
“I got in back in 2008 in Washington state, which is where I’m from,” said Vedadi, recapping his cannabis journey. “You could have a small grow and a couple of patients, so I started cultivating on my own. I was a real estate developer and had a construction company, and we’d been bidding on projects, including some government projects. As these license started coming out, we also started tackling them. A lot of them had a pretty strong real estate component, which gave us an edge, and we eventually got into the Arizona market.” He founded a company called Modern Flower, which merged with Harvest in 2017. “We took [Harvest] public, and then that sold, and I did another business called Oasis Cannabis in Arizona,” he added. “I sold that to Ayr Strategies, started Story on my own, and here we are.”
The reason he started Story is a little more nuanced. “What happened is I sold Oasis to Ayr Strategies in 2020,” he explained. “I did that with another partner of mine, and it was post-Harvest for me. I sold it the day after rec passed in Arizona, and the day after the election in 2020, and I thought – like a lot of people – that because the Democrats had control of the House, Senate, and Oval Office, that we would see some reform at the federal level.
“It turns out that none of that worked out or we wouldn’t be where we are now,” he continued. “We realized that we weren’t going to see the markets consolidate, and we were going to have another bite at the apple, so I did go out and start this business with a couple of people early on, including Joe Sai, who at the time was running Trulieve as COO. At some point, he resigned and came to work with me. Joe and I are very, very close friends, so our relationship far exceeds our business relationship.
“Story Cannabis started in Maryland, where we based our first opportunity,” he added. “We primarily were targeting good medical states that hadn’t turned rec and met our underwriting criteria, and then we went from Maryland and started working on some opportunities in New Jersey and Ohio, and then we actually bought Oasis back from Ayr earlier this year. I had a no-compete with Ayr in Arizona, but when I bought the business back, my no-compete went away. We started consolidating opportunities in that market, and we have close to a dozen stores now in Arizona.”
The Oasis deal almost went south. “The agreement on our initial sale had some earnout provisions and some other things that carry along for a longer period of time, and we got into what I would say was the initial point of a potential dispute over some of those arrangements,” said Vedadi. “Instead of getting into a legal fight, we compromised on what we both thought was better for both companies. Ayr publicly released that Arizona wasn’t a core market for them, and we love Arizona and know it well. It’s where we built the core value of Harvest, we understand how the market works, and we were pretty excited about coming back in.”
I asked if it was a similar dynamic to his separation from Harvest. “When I left Harvest, I had a health issue, so I needed to depart for a period of time, and it was my choice,” he explained. “It’s not that easy to depart when you’re running a public company; there are complexities to how your ownership is and things of that nature. It’s still very amicable, and most of my friends are people running that business, but it was my choice to exit the company, and frankly, I would not be excited about running a public company again. It takes a different personality type. I can see why some people enjoy that, but it’s certainly not something I enjoy.”
Aside from the personal toll such a job takes, are there upsides to keeping a company private in the current market? “I have a lot of respect for the guys running these multistate public MSOs,” replied Vedadi. “They’re U.S. operated and Canadian-listed, and there’s a ton of complexities with tax and license structures, consolidation of your balance sheet, and quarterly reporting, and you start running your business differently than you would a private business. I think the primary reason everybody went public in Canada in 2018 was obviously it created immense opportunities to capitalize those businesses that otherwise wouldn’t have been available. But now that federal reform hasn’t happened, I think there are some disadvantages to having to carry that overhead in a generally illiquid market. There’s not a lot of capital available to them, and so I think if that one major resource – the ability to raise capital – is not available, I don’t think there’s a clear reason to be a public company, which is why you’re not seeing anybody go public. You haven’t seen that, and as a matter of fact, you’ve just seen public companies go out of business.”
He does not believe all will fail, however. “I think the larger ones will be the successful ones, because they have the staying power,” said Vedadi, “but the markets have certainly changed, and as a private company you have a lot more flexibility in how you structure your business and how you own these licenses. Some states can present a complex situation with residency requirements and all these other things. We have the ability to maybe go in and just be a minority owner in that license, and we’re okay with that, because we don’t need to consolidate our balance sheet, whereas public companies may have to own the majority and that may not be available to them. So, there are definitely some disadvantages to being a public company.”
How is Story managing the capital-raising challenges others also face? “We’ve had success historically with some of our investors, so we have core investors that continue to reinvest,” he explained. “We also have invested the majority of the cap on our own. Capital is scarce, but it is available, just not available like it was, and there aren’t a ton of transactions we want to do, and we are very particular. In some markets, we’re vertical, and in some markets, we’re not, but we wouldn’t go into a market and be just a wholesaler. We’re either going to be a retailer or a vertical operation, so we pick and choose our battles. In some states, it doesn’t make sense to be a wholesaler or reinvest in developing a cultivation strategy.” Story Cannabis currently cultivates in Maryland and Arizona only, said Vedadi.
Markets With a Story
“Our preference is to win licenses in new markets,” said Vedadi of the company’s plans for growth. “That is our core strategy, and we are working on numerous opportunities in markets that we believe are going to go medical in the near future or over the next few years. That’s the number one target. The next target would be acquisitions in states that have a medical program with limited licenses that eventually will turn rec. Arizona was a little bit of a different animal just because we’re so comfortable with it, but generally we’re not interested in entering markets that have become very mature, but that have sustainable growth but haven’t had their big burst yet.”
There are still markets that fit that description to a tee, he added. “The part of the country that hasn’t really developed that’s starting to develop in the southeast, so we’re paying close attention to those markets,” said Vedadi. “That’s our general target. Markets that meet our underwriting are more Ohio or Pennsylvania, with large population-to-license numbers and medical programs. Minnesota is something we’re starting to look at because they’re about to expand their program, but you’re also seeing developing stories in Kentucky, Tennessee, and Virginia, where they were looking at getting reform, but it didn’t happen this last session. I live in Texas now, which would also be a long-term opportunity that we’d like to execute on.”
The obvious goal is to target undeveloped markets with upside potential. “I think the southeast is going to have the opportunity to see how things have gone elsewhere, get to look at the mixed bag of things, and develop an idea of how they want to see their programs roll out,” he noted. “The West Coast, being early developers, are more difficult markets. The most difficult markets to operate in this country are the ones where you have unlimited licensure, and you don’t really have enforcement, so the black market has a stranglehold on the market, and licensed operators have high tax rates. You see that in California and Washington state, where very high cannabis tax rates and unlimited licensure is a recipe for a far more difficult environment to succeed in. It changes the underwriting quite a bit.”
I asked Vedadi about New York as a potential target for Story. “New York was a license that I wanted when I was at Harvest, and my partner at the time, Steve White, was completely uninterested,” he told me. “I kept thinking to myself, we really need to have a presence in New York, and he was pretty confident that they were going to get it wrong. I’m glad he made that decision.”
The partners were having these conversations around 2018, 2019. “People assumed there was going to be some federal reform, whether States Act or something, and these businesses would get rolled up, CPG would come in and buy or private equity would show up,” explained Vedadi. “There was also pressure from the investment committee for us to have access to certain markets, and almost all of our competitors at the time had a New York license, but the program was very restrictive, and people spent a lot of money in that market. When we were going public, people were paying $65-$70 million, up to maybe even $100 million, and I think as recently as 2021, one of those licenses traded for $250 million, primarily in cash.
“I was wrong,” he said of his original impulse. “I was chasing a little bit of what the investment committee wanted us to have, access to a market we didn’t already have access to, and we had access to almost every other market you needed in the country. We were very good at winning licenses, so we had most of the major markets. What’s turned out to happen in New York – and I’m just looking at it from 30,000 feet, because we haven’t been operating there – is that the MSOs have had a very difficult time with the regulator, because they’re still not able to sell within each other, the program has not rolled out, they’re trying to make the MSOs pay millions of dollars to the state to enter the market, and they’ve made a very restrictive program for social equity.
“I think to protect the social equity applicants,” he added, “they’ve made it so that anybody who is in an MSO – and I think we classify as this – cannot have a license in New York. On top of that, you have no enforcement in Manhattan. You see the articles about 1500 illegal dispensaries. So, you create a difficult environment for the MSO, and you want them to pay basically a tax to get in the market. You’re trying to protect the social equity applicant by making a very restrictive program where they have to pay a tax and run through regulatory reform and somehow get banking, with no banks able to open checking accounts and have access to capital, and then let the black market do whatever it wants to do, but the social equity applicants can’t even compete with that. New York is the worst of all worlds as far as how things have rolled out, and no one’s winning.”
I asked him to compare New York’s rollout with that of Maryland, where Story operates four stores. “Maryland is one of the better states,” he said. “The law passed last November, original licensees started selling rec July 1, and they’ve created a social equity program that I believe restricts it to locals only. I haven’t looked at this too closely, but I think you have to live in an economically disadvantaged zip code for a certain period of time. and they’ve made the transfer laws very restrictive, so you have to hold your license for five years before you can transfer it. I think the goal of the state was to create a social equity platform where the applicants have an advantage, and the MSOs can’t come in and buy up the licenses and take the opportunity away. We’ll see how it goes, but the intentions in Maryland were good. It’s going to be a stable market, I think social equity folks will make good money, and I think the existing operators will do just fine. So, Maryland has gone pretty well.”
Arizona is also a market that generally gets high marks from operators. “I believe it was the first state-governed license program that rolled out, and I think there’s enough licenses to keep the business competitive, but enough for operators to also do decently from an economic position,” said Vedadi. “It’s also a pretty mature market. People have been operating in the state-run program for 12 years, and I think over 12 years the products have got better, and the operators have known their customers for a decade. Prices are competitive enough at the store level so that the black-market kind of doesn’t exist, or not very much, and I think the customer experience is good. It’s one of the first places where people really invested in their retail concepts and became more sophisticated. The program also rolled out very smoothly, and it was the fastest transition from medical to rec. The law passed in November 2020 and rec sales commenced in February of 2021, so it’s been a smooth transition, the rules are fair, and there is enforcement.”
I asked Vedadi about the claim that the MSOs abandoning states like California and Oregon did so because they could not compete in a competitive marketplace. “Every one of these states is totally different,” he responded. “You can’t look at the general rules because we are going through a second probationary period, it’s confusing, and it’s growing on a state-by-state basis with different sets of underwriting criteria. It creates complexities, so when these MSOs have to operate in 15 different states, they can’t even package a product the same, they can’t advertise the same. In one state they can have billboards, in the next state they can’t have radio, so it’s very difficult to deal with that stuff in a large organization. And so, in places like California, as an example, I don’t think it’s that they can’t compete. I think it’s because it’s not a fair playing field. And I think people, especially the public people, get really careful what they say, because regardless of what they say, they’re going to get some backlash. As an example of this, when I was at Harvest, we had a dispensary in Venice, and with the city sales tax and state sales tax and the cannabis tax, our customers would pay around 45 percent in taxes.
“So, a customer comes in to buy a $40 eighth and it costs 65 bucks,” he continued. “But a cannabis user in California has been buying probably the best product in the whole world off the street for many years, not worried about testing, not getting sick, not having problems, a sophisticated buyer. He goes into a competing store that’s unlicensed, the city doesn’t care, the state doesn’t care, and buys the same product for $40. So, I don’t think it’s a matter of the MSO having an inability to compete. I think the MSO is unable to compete if the playing field isn’t the same. And nobody, including the MSO, wants to see people get thrown in jail for cannabis even if they’re illegally operating a shop. That’s not the personality of the industry. So, they’re like, ‘Hey, if we’re going to bark up the regulatory branch and try to get people thrown in jail or exit the market and move on because they’re not going to enforce this even for tax purposes, I’m going to close up shop and go focus on places that we can make money for our investors.”
Building Story Cannabis
The strategy for Story is ambitious but certainly doable. The company announced in August the acquisition of four vertically integrated Nature’s Medicines dispensary locations in the Phoenix metro area. “The most accretive thing for me is to try to win licenses,” said Vedadi of his plans for growth. “We applied in Texas, and we plan on applying in North Carolina. That’s the fastest way for growth with the least amount of capital expense. After that, from a future standpoint, we assume that nothing gets done at the federal level, and we run our business like nothing’s going to happen. If something happens, great, but at this point we’re back to underwriting our businesses like we did when we built apartments and we had a real estate business. Everything is predicated on an ROIC basis, so if something makes sense, we’ll do it, and if it doesn’t, we just don’t do anything.
“And the existing business is going to have some built-in growth into 2024 and 2025,” he noted. “Ohio has rec on the ballot in November, and is polling very strong, and Maryland just turned rec, so we’re dealing with the implementation of that, and Arizona is a steady Eddy for us.”
As it expands, Story Cannabis is also looking for partners. “We are looking for a cultivation partner in the state of Ohio,” said Vedadi. “That’s a target for us that we haven’t had, and if we find the right opportunity we will execute on it. In Arizona, we would continue to add retail, and in Ohio, we’re going to end up capped, and we’re capped with our opportunity in Maryland. If there are similar markets – for instance, Missouri is a state that has the right demographic of licenses and population – we would enter that market, but we really are focused on new states more than the existing states.
“It’s becoming more predictable,” he added, “because as they’re drafting the rules in the states, you get a really good ambient sense of how they want to govern it, and I think the later states are going to be more conservative on the number of licenses they issue. But we have a very good business if we don’t do anything else, and that’s all right with us. If something doesn’t make sense, we’re not just going to add things just to have more, and the existing four states we’re operating in would be very good.”
With that as a given, did Story have an operational philosophy or secret sauce for running a competitive cannabis business? “I think that right now it’s the team that we have,” replied Vedadi. “Our existing c-suite is mostly comprised of people that have been working together for as long as 15 years in some cases. And we know that over the next three to five years we could double the size of our company and not have to add any new folks to get to that kind of scale if we do it methodically. As long as we can keep that team together, and some of the people that have worked for us for years at the local level, we think we can keep more of the mom-and-pop feel that we have. When you grow too fast and try to expand too fast, you can lose touch with the customer because it’s kind of untenable to do everything. In this particular instance, we think that we can keep that family feel, which then resonates through your employees to your customers.”
The industry demands that level of customer interaction, added Vedadi. “You have to be very customer focused now, and we’ve learned a lot about what matters to the customer, how branding works in a market, what works locally, what happens over time, what margins look like,” he said. “Having been doing this for 14 years on and off, there is no secret sauce in cannabis. A lot of people preach secret sauce, but with the things that matter, like genetics, everybody will tell you that the best genetics, how good your cultivation asset is, and how good your grower is, matter, but then everybody has the best grower. After a while, it’s like anything else. You just have to execute and execute and execute. But more importantly, we’re customer focused, and everything streamlines off that personality type. I think when you get into these giant companies with a lot of stress, you can lose touch with your employees. In our case, we’re going to make sure that everybody likes working here, and our customer retention will be good because of our employee retention.” Story currently employs somewhere in the ballpark of 450 people, per Vedadi.
The company is also preparing for a companywide rebrand that will see all of its dispensaries named Story by the end of Q1. The rebrand will not extend to Story Cannabis’s signature CPG brands, which include Just Flower, as well as a premium flower and concentrate offerings called Fade Co. “We’re also developing products, and we’re invested in other people’s brands as well, so we’ll help distribute those,” added Vedadi. “We scratch a lot of people’s backs, and we will be carrying everybody else’s products as well if it makes sense.”
Just to be clear, I asked Vedadi again if he anticipates rescheduling this year. “I hope they do it,” he said. “I’ve been a glass half full person all my life, and I’ve been an incredible optimist for the industry. I worked really hard during the lame duck session, using all my resources and relationships on SAFE banking. Rescheduling is something I’m behind, but I’m not educated on it. What I understand is that the president can basically reschedule without having to go through Congress, and to me, there is a fighting chance that something gets done as long as it doesn’t have to go through the Senate. I just don’t think that McConnell or Schumer for whatever reason and regardless of what they say are motivated to help the industry.
“I was at a conference during lame duck where Schumer came in and he specifically stated that he was going to get SAFE banking into the NDAA (National Defense Authorization Act),” continued Vedadi. “After he said that, a consultant-slash-lobbyist told me there’s no way this is getting passed. Everybody was optimistic after that meeting, it resonated through industry, and the way this was described to me was that the lobbyist specifically knew people who sponsored NDAA who 100 percent were never going to agree to this. He said he knew Schumer would know the same thing, and so when everyone was jumping up and down, and the market was going up, I got this news and I didn’t really want to believe the guy, but it turned out that he was right. So, I’m very skeptical. I think if something doesn’t have to go to the Senate it has a chance, and what I’ve heard is that if student loan forgiveness did not get approved, which it didn’t, that it increases the chances of rescheduling immensely, because people in the Biden administration know they need the young vote to win this election, and rescheduling has a better chance for that purpose. And it makes sense to me that if they can use cannabis to try to win the election they would do something, but I don’t think they’ll do anything just to produce the greater good for the business.”
Still, he is not holding his breath waiting for catalysts from the federal government, as nice as that would be. “We think we can be very successful with the current set of rules that go state by state,” said Vedadi. “We think the market is viable and we’re ready to come in without having any sort of legacy issues in our existing business. We think there are plenty of opportunities and we know plenty of companies that make money in the space now.
“The long-term outlook for me is that demand for the product will go up,” he added optimistically. “There’s huge upside in the amount of legal cannabis that’s going to get sold between now and the next 15 years, so I’m not concerned about demand. It feels like we’re already at the point of ridiculous that something hasn’t happened. 50 states have a legal avenue to some form of medical or legal cannabis, and nothing has happened. I just think eventually it’s going to tip over one way or the other because it’s kind of crazy. Rescheduling would be huge, because not only would it solve for 280E, but it would also solve for custody, which I think is the bigger issue, that most funds and larger institutions can’t actually invest in the space because it would violate their rules. So, if Schedule 3 happens, I think the entire face of everything that happens will change overnight.”
If everything pans out, will Vedadi still not take Story Cannabis public? “I won’t say that,” he quickly replied, “but I will say that if the company goes public, there’s a very low likelihood that I would be the CEO running that business. There are much better people than me to run a public company.”
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