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When Cannabis Business Executive profiled Greenlight in September of 2022, the MSO was flying under the radar in three states – Missouri, Arkansas, and West Virginia – with two more – Illinois and South Dakota – about to open up. Founded in 2019 by CEO John Mueller and his brother, Jim, the Kansas City, Missouri-based vertical is the second cannabis act for the brothers, who in Q1 of 2019 sold their online Nevada and Salinas-California operations to Curaleaf for $70 million. CBE recently had the chance to touch base with Mueller to discuss the progress Greenlight has made since we last spoke, a period of time that has seen some of the industry’s largest MSOs tighten their belts severely or leave states entirely. That has not been the case for Greenlight, which has not only opened new states and more stores, but also announced in August that it had issued a third quarterly dividend to shareholders, a very rare event in cannabis indeed.
“We’re in seven states as of this month,” said Mueller during a call. “West Virginia, Illinois, Missouri, Arkansas, South Dakota, Nevada, and we’re now moving into Ohio. When we last spoke, I was basically on a non-compete after I sold to Curaleaf out there, but we were able to reopen in Nevada, got a couple stores working as well as a cultivation [site] that we acquired, so we now have vertical operations out there, which is new.
“And we have 32 stores open today,” he added, “with at least six more that are in the process of opening and being rebranded as Greenlight across the seven states that we’ll be operating in, we just exceeded 700 people who are working for Greenlight, and we have about 300,000 square-feet of cultivation and manufacturing that’s up in operating.” The company also currently operates six facilities. “We have three in Missouri, one in West Virginia, one in South Dakota, and one in Nevada,” said Mueller.
When we last spoke, Greenlight was medical cannabis-only, with adult-use still ahead of it. “Missouri was a big flip for us,” said Mueller of adding adult-use. “Obviously. Illinois has been [adult-use] for a while, and we’re optimistic on Ohio here. About half of our states are adult-use as we speak.”
I wondered how significant it is for a company to add adult-use to the mix? “If you look at industry standards,” he replied, “you do two-and-a-half times the amount of volume that you do in a medical market, depending on how restrictive that medical market is. So, two-and-a-half times is generally the over-under, but when you look at a state like Missouri, the entire industry was basically doing $40 million a month in the medical market, we went adult-use on February 3 of ’23, and it basically went up three times. So, $120 million a month is about the current volume in the state of Missouri, and a lot of that is because of the surrounding states, and basically what touches you. We have states like Kansas, Arkansas, Iowa, Nebraska, and we also have a lower tax rate than Illinois, so people are no longer driving east to get cannabis from Illinois. They’re coming in the other direction, because our tax rates are lower in the state of Missouri.”
What about the other differences between medical cannabis markets, which usually impose low or no state taxes, and adult-use markets, which have taxes but also downward pressure on prices, as well as increased competition?
“I think you have that in medical, and you can get a $25 eighth in the state of Florida today,” said Mueller. “I think in medical markets, the longer they stay as just a medical market and do not go adult use, the more price compression they get. And with adult-use – at two-and-a-half, three times the volume – it takes a while for supply and demand to catch up, so price points tend to stay relatively higher in an adult-use market for a period of time. And then, we only operate in limited license markets, so those price points don’t drop as drastically as they do in the Oregon’s of the world, which basically send out licenses like candy.”
The Lure of Limited License States
While even limited license states differ in the way they regulate cannabis, there are elements that make them more consistent. “I would say that the vast majority of limited-license markets are all indoor cultivation,” said Mueller, “so the cost of electricity is not materially different from one state to the other. But a lot of that is internal, and we can grow as inexpensively as anyone in an indoor facility.”
Prices vary greatly, however, something that can be easily seen perusing the menus. “That really depends on what they allow,” explained Mueller. “As an example, gummies are not allowed in West Virginia, or prerolls. Things like that. So, it’s really about how many vendors are there out there, and like with any business, whether it’s marijuana or anything else, it’s supply and demand. If your vaults are full, you’re going to drop your price to sell less expensively, and that is passed through to the end consumer.”
Are adult-use markets more dynamic whether or not they are a limited license state? “Obviously, adult-use opens up a much bigger market, especially in states where it’s difficult or expensive to get your medical cards,” he said.
“So, the more friction there is between your state regulator and the patient, the lower the patient count is, and the fewer potential consumers. When you open up to adult-use, anybody driving by can stop in and select cannabis over grabbing a 12-pack of beer. But more importantly, we don’t believe that we build that many new consumers. We believe that when we switch to adult-use and those price points drop, we’re cutting into the black market.”
State taxes also play a big role in the black-market dynamic, said Mueller. “Generally speaking, in ballot initiative states, you’re able to put in the language on what the state or local government is allowed to charge,” he explained. “In Missouri, we have 6 percent that basically goes back to a veteran’s program, and 3 percent that goes to the local community, so they can add a full-time police officer or get a new fire truck. And those local communities are probably impacted much more than the bigger cities, like St. Louis and Kansas City, so we’re basically putting $4 million into local governments on a monthly basis here in Missouri. But the bigger the tax rate they put on, the less it cuts into the black market. When you look at Illinois and places that have higher tax rates, it allows that supply and demand to not cut into the black market as much as it would at a lower tax rate, like the state of Missouri.”
Is it about finding the balance? In Connecticut, for example, there are only four producers, so there’s very little diversity of products. Massachusetts, however, which shares a border, does have a competitive framework that has resulted in a diversity of products.
“There’s obviously a happy medium there where the entrepreneurial spirit can thrive, but you’re getting enough coverage across the states where a regulator can ensure that everybody’s playing by the same rulebook,” said Mueller.
I noted that over the past few years, we have seen some MSOs in this industry retreat from the less regulated, more competitive markets, ostensibly because they could not compete in them. “When you make public filings and things like that, companies, and especially the big five, are looking at financial statements and if they’re making money. And none of them are in the state of Oklahoma today, as an example. Having that x-number of stores isn’t the important thing. What kind of revenue and the bottom line you’re generating for your shareholders is now the focus of our company and every other company?”
But doesn’t any company need to show that it can be competitive sooner or later? “I don’t mind competing against anyone as long as I’m on a level playing field with my peers,” said Mueller. “My cost structures are significantly less than most of my peers out there, but we don’t want to go to a place where we lose money, and everybody in the state Oklahoma is losing, except if they’re shipping out a ton of black market, which is the worst-case scenario for any regulator. Those are the only guys that are basically paying the bills down there, so we don’t need to be in an Oklahoma, we don’t need to be in Oregon with 900 stores, and California’s taxation system doesn’t make sense to us if there’s not a pathway to profitability.
“McDonald’s would not go into a place where they were not going to be profitable just to have coverage,” he added pointedly. “So, we’re laser focused on using our capital to go into markets like South Dakota, where it’s very restrictive medical today, but we think it has a good chance of being adult use, and it should be. And we’re in places with limited licenses, like Arkansas, where it’s a medical program now, but we’re betting on the fact that at some point that medical market will open up a little bit more or may someday become adult-use.”
Does Greenlight have a timeframe in these states? Is it leaving 5 or 10 years in which to get to adult-use? “We don’t mind operating in a medical market like Arkansas,” replied Mueller. “We are profitable there, and whether it takes 5 or 10 years, we plan on being in Arkansas as long as they don’t follow an Oklahoma, where they can’t control the number of stores that pop up across the state, and they have no control over the amount of product being produced in the state, so it becomes a race to the bottom, everybody makes poor decisions, and people that shouldn’t be in the business mortgage their homes to set up a business and end up having to go black market with it.”
And there are definitely states that Greenlight is eyeing. ‘We’re still in the application process,” confirmed Mueller. “We thought they’d be out in Florida. We really love that market and are tying up real estate and all kinds of other stuff. We see that being a great long-term market, and whether or not [adult-use] wins in November, that’s a market that we want to pursue. Anyplace that’s coming out with new ballot initiatives, or the North Carolinas of the world that are trying to launch a medical program, we would love to pursue those, as we attempted to do in Alabama. We’ll see how that shakes out, but we’re looking, and any limited license market in the country is very interesting to us right now.”
The Greenlight Difference
One of the key aspects to Greenlights success has been its ability to create symmetry across very different markets through its use of technology. “It starts with the front facing of Dutchie,” said Mueller, “and extends to our entire tech stack, from our texting programs to our web presence and the internal guides that we built to manage and keep an eye on margins and long inventory items on the stores, and then tying all that into Metrc in most of our states, or BioTrack, and also into our ERP system. We’re now a quarter-billion-dollar business, so it’s been critical for us to have that entire tech stack.”
How else had the macro-environment changed over the years? Obviously, credit had tightened up significantly. “From a macro standpoint, I think we are the only MSO that’s doing dividends today, so we’re not actually looking for third-party capital,” responded Mueller. “We’re using cash flow to continue our expansion, but a lot of people have gone out of business that were in the lending business and made some frothy bets back in 2021. There is the pool of people who invested in that with debt deals that are in the mid-teens now that interest rates and everything else are up. I can take our cash and go get four-and-a-half percent interest on it sitting in the bank today, so they’ve got to be in the mid-teens when they’re lending money. And cannabis is a little bit riskier today without rescheduling or SAFE banking or any of the other stuff we all thought would be done. And with a lot of the sale leaseback deals, people are realizing that the program was expensive long term for operators if the market compresses.”
Was he essentially saying that decisions they made years ago are the ones keeping Greenlight in good stead today? “I just think operating like a widget business instead of a weed business, and focusing on earnings and controlling costs is critical for any business,” he replied. “And we were very, very frugal with our dollars. As one venture capital guy said, we dispense cash through an eyedropper. On the buy side, as we’re making acquisitions, we’re very cost conscious to ensure that we can’t afford any large bets that don’t work out.”
Has production output and SKU count also grown over time? “We’ve gotten a lot better at that, just like anything,” said Mueller. “Our SKU count and the quality of our products have greatly increased, we continue to tweak THC percentages and terp profiles in all of our manufactured items, and we’re continuing to expand that portfolio of items. We have three main brands – Greenlight, Core, and Rogue Green – and our focus on marketing these brands to our consumers has worked well, so we’re not in the licensing business.”
The reason I asked is because many people are telling me that we’re moving into the age brands in cannabis. “I actually thought it would be here already, but there’s still no Tito’s or Grey Goose of cannabis,” responded Mueller. “Cannabis consumers are still very fickle. They don’t stay with one product. They like to bounce around and try a lot of different things, and if you consistently have just that Tito’s bottle on the shelf, they’re not going to come back and get that same bottle every time. So, brands are important because they add diversity and quality of product to our shelves, but they are still not in a dominant position like I thought they would be when we started this venture eight or nine years ago.”
And of course, the consumer still chooses to walk through the door, a universal and ever-present reality. “But if you look at the cannabis industry, we’re still in our infancy,” said Mueller. “We’re 11 percent of the alcohol world and all indications we will be over 20 percent in pretty short order. That means 11 percent of the population doesn’t get hangovers, so that’s a good thing, and because we are in our infancy, people will get used to going into a Greenlight outlet versus something else, as long as we continue to deliver a great product and, like a restaurant or any other business, they have an excellent consumer experience when they walk through the door.”
The Road Ahead
Ironically, as more states legalize cannabis in some fashion, the regulatory challenges seem to iron themselves out, becoming more similar and workable. “I would say 95 percent of all regulations are the same across the markets,” said Mueller. “You grow a plant, put it in a jar, track it, and sell it to a consumer. And all these facilities are primarily indoor under lights, so growing in different environments and controlling the environmental might cost a little more in some states versus others, but generally speaking, it’s all very similar and regulations are basically the same. Some places have restrictions on ownership transfers and what products you can put in a jar or how it’s labeled, but 95 percent of the meat on the bone is the same across all the states, because we still got to test it, we still got to basically ensure that the product is being tracked and the consumer is protected, and that stuff is all the same in any marijuana market across the world, quite frankly.”
Is consumer demand consistent market-to-market? “As we talked about, I think the consumer wants to try new stuff,” said Mueller. “Infused prerolls are a big thing now, for instance. So, the market continues to develop new isolates and other stuff. We do a chewing gum that was not previously being done in our industry, so you have to continuously innovate, just like in any market, and try to make a difference with the consumer. But flower is still the king of the castle.”
Would that include any hemp-derived products? “We don’t do any of those products,” insisted Mueller. Are they keeping their options open if regulators clear a legal path for hemp-derived products that are tested and taxed? “No,” he said, “we are focused on not allowing convenience stores to have a Delta-8 product on the shelf that looks like a pack of Skittles.”
What about cannabis or hemp-derived drinks” Do they have a future in the regulated industry? “I think it’ll be very slow incremental growth,” said Mueller. “If you look at the volume they’re doing it, there are 12,000 dispensaries across the country, and the amount that comes in a liquid format is less than 1 percent. So, I think it’ll be incremental, but my concern on that is ensuring that we’re not putting it in a kid’s hand.
“Our biggest fight is ensuring that these [products] are controlled better than they control tobacco in the world, and I think it can be a potential black eye on the entire industry,” added Mueller. “I think at some point it might be a thing, but we still think there are question marks coming out of the FDA on [hemp] and clarifying the Farm Bill, so we’re very cautious on that subject.”
Before we hung up, I inquired what a typical day looks like for Mueller? Does she deal mostly with things up here, or does he also get down into the nitty-gritty when necessary? “I was just looking at our discounts prior to this, and ensuring that they are being used properly,” he said of the chores before him that day. “We’ve got a bunch of people getting senior citizen discounts today who are in their 20s.”
That elicited a laugh from me. “Are you serious?”
He was. “Mainly, my life is a lot about transactions, and continuing to expand the footprint to acquire more limited licenses in different markets. I spend about 70 percent of my time on legal and a bunch on accounting and other stuff. I also like to go to the stores. I like to sit back and act like I’m a consumer and think about how we can shave nanoseconds as they’re walking in the store. I assume every consumer has a kid in the car that they need to get back to, and how we can make their experience a little bit better. Or, if they want to stay for an hour, how do we make sure that they’re enjoying every second of that hour.”
Is the company moving at the same miles-per-hour as it was last year or the year before? “We feel like we’re rolling downhill right now, and we’re moving a lot quicker today than we did in the past,” said Mueller. “We’ve got a significant infrastructure for people at the corporate office to engage with and be more efficient at opening stores and doing better at it. And we’ve also got an additional 100,000 square feet of cultivation that’s coming online as soon as we get regulatory approval to put the first plant in there.”
What sort of partners is Greenlight looking for? If there’s someone sitting out there reading this article, how will they know if they should call you? “I think any independent operator that wants to be a part of a bigger equation would be interesting,” said Mueller. “I enjoy those conversations. We’re building a footprint, and if they’re in a limited license market, we’re happy to talk to anybody.”
Mueller added that they’ve got a bunch of new press releases coming out soon, and what’s in them will have to wait until then, but he did share, “We’re very proud of the company we built here, debt free, doing dividends for our shareholders, and focused on consumer experience.”
And does anything keep him up at night? “I ponder where we’re going to land on rescheduling,” he admitted. “I think that’s going to be the catalyst to basically cut into the alcohol market and hopefully prescription drugs. I think that’s the catalyst for the industry to propel it to the next level. And, when you look at publicly traded stocks that are trading at seven times earnings in an industry that’s going to double in the next five to eight years is, I think it’s interesting to think about our timing relative to whether we should be going public, and also when NASDAQ and NYSE are going to treat the cannabis industry like they do every other industry.”
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