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Cannabis Business Executive has covered New York-based Columbia Care many times over the years, including lengthy profiles in late 2021 with founder Nicholas Vita, and in September of last year with then Chief Commercial Officer Jesse Channon, who has since been promoted to President of the multistate operator, which is now officially The Cannabist Company. Our most recent conversation was with David Hart, who was made CEO in January at the same time that Vita announced he was retiring to pursue other interests. Hart, who joined Columbia Care in 2016 and served as its COO from 2018, is an integral part of a reorganization plan the company undertook in the aftermath of the termination last July of its long-planned merger with Cresco. Channon spoke at length in September about adjustments the company was making following the aborted merger, and it is now up to Hart (and the rest of the team) to turn those adjustments into fully integrated operational protocols that successfully usher the publicly traded company through the unique and ongoing challenges that cannabis operators in the U.S. face today.
We began our call discussing the incremental but essential changes Hart is already making in his very new role as CEO. “It’s only been just under a month, and in the first month, we’ve tried to do a few very specific things,” he said. “One is to engage with employees. We’ve got over 2200 employees, so it was having several town halls talking about how to go forward, and frankly, I don’t think we can do enough of that right now. Coming out of the 16 months with the Cresco transaction, it’s an opportunity for us to engage with all the team members about where we’re heading, and why. I think there’s a gap, a void that we’re filling in talking about those specific things.
“If you zoom out,” he continued, “one of the things I’ve tried to highlight to people internally and with outside stakeholders is that we were a business that early on – and I’ve known Nick for a long time, almost 20 years – was very good at planting flags and winning licenses organically through the RFP process. We developed a pretty extensive and large portfolio of licenses that have been developed into assets that we built out in a number of markets, and we entered into a potential transaction with Cresco. We ended up mutually agreeing to break that deal with Cresco, and we’re now on a go-forward basis for ourselves as an independent company where I think the next couple years are going to be looking inward.”
As explained by Channon in September, some of the changes also clarified front-of-house and back-of-house responsibilities. “The moves that you talked to Jesse about when we did break with Cresco that separate the front and back of house was I think a really important inflection point for us as a company, and we’re seeing the benefits of that right now,” noted Hart. “In early 2024, we gave leaders who had been at the organization – some of them longer than me – the opportunity to take on more responsibility, sometimes vertical, but also horizontal. What we were able to achieve was to give people more territory with more specificity across the supply chain, meaning instead of covering an entire vertical within a market, they’re now covering a region and they’re focused on either cultivation through manufacturing, the retail side, or the wholesale business, which is early stages for us.
“It took a lot of effort internally for us to get everybody reoriented and realigned with the go-forward org design and what that actually means,” he added, “and now that we’re turning the knobs and focusing people on those specific parts of the supply chain, what we’re going to try to demonstrate in 2024 is that we have a tier one MSO asset base that we need to grow into, and I think that’s what’s ahead of us for 2024 and 2025.”
Hart’s job is to make the disparate pieces function seamlessly. “What I’m trying to add to the business as the new CEO is really an operational mindset, understanding what takes place on the front lines at the hyperlocal level,” he explained. “That is what really defines our success. It’s very easy to miss the complications we might add to a facility manager or general manager on their day-to-day work by just trying to execute on a multistate platform, So, by looking inward and understanding how we can free them up to focus on the things that only they can focus on when they’re local, that’s how you build scale, whether it’s regulated third-party buying in a more coordinated way or a more organized institutional approach to wholesale. Those are the types of things that are there for us to execute against and which we’ll deliver over time. It doesn’t happen overnight, but it will allow us to grow into, if you will, the asset base that we’ve developed.”
A Two-Way Conversation
I asked Hart what types of concerns his 2200 employees were expressing in the town halls. Considering the fact that the Cannabist is in 16 states and the District of Columbia, with markets as different as West Virginia and California, to name just two, one could easily see employees in one market feeling more vulnerable than employees in another market for a variety of reasons.
“Some of the questions that came up were, ‘What does this mean for me? What does it mean for my facility? What is the need for my market?’” replied Hart. “Because you’re exactly right, much of what we do operationally is as if we have a portfolio of companies across the country in different regulatory frameworks, different competitive landscapes, different etcetera, etcetera. So, a lot of it was around, ‘What does it mean for me.’ In fact, over the last few weeks, I’ve done a number of 30- to 45-minute discussions with executives across the organization asking them very specific and candid questions. ‘What are you afraid we might change? What should we change? What do you think we should do that will have the largest impact on our business financially and culturally by the end of the year?’ I’m trying to make sure I can hear from everybody that’s got much deeper viewpoints in their understanding of local markets and what we could be doing differently, or what we can do more of if it’s actually working.”
He noted that some common themes have come out of those discussions. “Coordination of the centralized activities that we can take off of the plates of the local teams, that’s a recurring theme that came up not only in the town halls but also in some of my subsequent discussions with executives,” he said. “And we didn’t invest in a number of technologies that we probably needed to either off-the-shelf or internally create, where we can add some scale to our business and take some of the manual pain points out of our business. That’s a clear objective for us in 2024.”
There was also employee feedback about company culture. “We changed the name in August to Cannabist,” said Hart. “What does that mean? How do you define the culture of Cannabist? Not every door has the name Cannabist today. So, what does that mean for me as an employee? Are we going to change all of the doors to Cannabist, are we going to have products that have the name Cannabist on them? I think people are looking for what is the lighthouse for us as an organization going forward, and I’m directing them towards the two that I would highlight right now. One is how different can we look financially by the end of the year and really grow into the assets that we’ve spent money on and developed? And two is where do we want to be culturally by the end of the year and get buy-in: better onboarding processes, better engagement across the supply chain, and more town halls.
“We’ve certainly heard that people want to hear about what’s going on,” added Hart. “They want to get our insight on why we cultivate the way we do, what’s the new product that’s coming down the pipeline, which market was it developed for, and just an overall more cohesive experience on a recurring basis. The more cohesive we can be bringing people together for these town hall moments will I think bring people up-to-date and up-to-speed with where we’re going. But it is a two-way street. I want to hear as much as I can from the people out in the front lines, all the team members, what can we be doing better. What are we known for doing well in the market that we can continue to do well and take to all the other markets? And what are we doing that feels like a little bit of a waste of time? If it’s a corporate process that is actually a pain point for people, let’s identify that and find a way to do something differently to make it more efficient and free people up to do what counts, which is the customer journey, patient health, product innovation, and those sorts of things.”
The plan is to create a cohesive culture that is also company-wide and market agnostic. “We’re approaching 90 dispensaries throughout the country and depending on the timing of changes at the federal level, they’re going to continue to see more and more customers opting to come in and figure out how they can incorporate cannabis into their lives,” said Hart. “We want to have a consistent experience when they walk through our door, and that is something you have to get right. That’s Retail 101, that’s Restaurant 101, and it should be Dispensary 101 that you can deliver a consistent experience.”
It begets very good things, explained Hart. “When you do that, when you define what that is as an ethos, it’s easier to onboard new team members, and it’s easier for them to understand the greater purpose for why we do things a certain way,” he said. “You can boil things down to very specific KPIs, which should be as front-line and local-driven as possible, so they can recognize their contribution to the performance of the company. It translates into financial results, but also translates into culture, into efficiency, and into customer service. It’s finding ways to have those key moments in the metrics that people look to and putting them into a broader context so that they understand how they’re contributing to the overall.
“And that’s just not even the team members in the facilities or the dispensaries,” he added. “It’s also our finance compliance group. Why are they doing what they’re doing, and how is it helping the entire organization? How are they helping their teammates? How are they taking things and allowing the local teams to be more efficient? This is about building the financial success, and the cultural improvements can be worked on almost independently, but they’re definitely not mutually exclusive when you get to that endpoint, which we’re looking towards.”
Hyper-Local Focus
What about the differences between markets and the local pride that every market has? The Cannabist is in West Virginia, which is very different from, say, Massachusetts. Isn’t the best model one in which you’re building your own brand, but also including local elements – legacy brands and local growers – that add crucial diversity and character to the corporate experience?
“I absolutely agree,” responded Hart. “If you make it all about the corporate you will disenfranchise the beautiful things that teams have developed at the hyperlocal level, like community engagement, the local brand, the local way. They all do one or two things differently. On the retail side, we have the opportunity to bring in different brands in various markets that you can’t get in other markets. You’ve got non-vertically integrated cultivation and manufacturing providers, and there has to be an understanding that you want to have a competitive product portfolio on the shelf for customers that will include things that perhaps are only available, to your point, in West Virginia or Ohio.
“And we don’t want to come over the top with culture,” he added. “I think you want to define the ethos of what culture needs to look like and feel, but it has to have a local flair, because these markets right now are basically hyper local. We like the way we engage with customers, the way we think about plant health, the way we think about manufacturing – those can be standardized – but the actual community involvement and the opportunities that brings are very different.”
Jesse had described it as the Cheers factor, I noted. You want to go where everybody knows your name, and that can only happen if they already know your name. “You’re exactly right,” said Hart. “That’s technology, that’s understanding consumer habits and behaviors, and to Jesse’s point, we would love to have our dispensaries be a destination. They’ll certainly be a destination for incremental opportunity as new consumers interested in cannabis come into the space to learn about what they’re interested in. That’s very much a destination too, and we have to be prepared to address the customer who might be different from someone who’s been coming in for three or four years, they know specifically what they’re coming in to buy and looked at the online menu, and they like the familiarity of knowing where they’re going to go, and the convenience factor that they can be in and out in less than five minutes. So, being prepared at the retail level for that range of consumer expectations takes a team that’s fully engaged, and a very strong general manager to build culture, career trajectory, and inventory management – it’s a very tough role for us in the organization. General managers have a lot of responsibility in the markets. They carry the torch for us.”
Channon had said in a more recent interview that except for some local additions or build-outs, Cannabist is basically capped in terms of growth in 2024. “I would say the overarching theme for this year is to look inward at the assets and the team we have and make sure we’re optimizing the potential throughput through our facilities,” said Hart. “Historically, we spent a lot of capex, but that number has fallen pretty dramatically in the last few quarters. We’ve built out the assets that we need to be successful. When you think of markets that are coming, speaking specifically about 2024, there are definitely organic growth opportunities for us. Number one, fundamentally across all the markets, we’ve been underrepresented in the wholesale market because we weren’t focused on it. When we were vertically integrated, from a leadership perspective we were essentially order taking in many ways, so having the infrastructure and dedicated sales team will produce results. That takes a bit of time, but you’ll see that as a percentage of sales that ought to increase in 2024.”
A Wholesale (and Retail) Revival
To be clear, was this a concerted focus and effort to build up wholesale? “Absolutely,” said Hart. “There’s a clear go-get for us to see continued growth in the wholesale business, not just in absolute dollars but as a percentage of total sales. That’s an opportunity for us because we were starting from such a small base. Historically, roughly 11 or 12 percent of our business has been wholesale, and that’s without putting time, money, and energy into infrastructure, which we’re doing now.
“If you zoom out to the organic market growth opportunities,” he continued, “Ohio is likely to go adult-use, which we are well positioned for with five doors, cultivation, and manufacturing, and we’re going to get a few more doors that we’ll be able to go after and open up. Pennsylvania is talking about going adult-use, and we’ve got a terrific cultivation manufacturing facility there, and three really strong dispensaries in northeastern Pennsylvania. We could use some more from a distribution perspective. Delaware is likely to go adult-use. We just entered the wholesale market in New York on the adult-use side, and there’s talk in Virginia that the governor might have something to look at and potentially sign in 2025.”
These are organic adult-use converging growth opportunities that Cannabist is well positioned to take advantage of, added Hart. “We still need to paddle out to catch the waves, so we need to be prepared for it, but we’re excited about these,” he reiterated. “They can also offset some of the challenges we see in other markets, whether it’s price decline curves that are significant and may be stabilizing, maybe they’re not, in Massachusetts, as an example, or Illinois. Florida is obviously potentially going adult-use in 2025, and a lot of people are focused on that. We’re relatively under-scaled in Florida, but that’s certainly the talk.”
Channon had mentioned New Jersey, Virginia, and Maryland for retail expansion in 2024. “We have the ability to open new doors in those states,” confirmed Hart. “One new door in New Jersey, one new door and a relo in Maryland, and in Virginia, we have two more doors that we’re allowed to open under the current licensing framework that we have. We could open new stores in Florida, but we’re not looking to do that right now.
“Jesse was referencing the organic new doors that are opening, and frankly they’re in very good markets,” he added. “In Virginia, the two doors are going to be great; the door in New Jersey is terrific for us, and we’re building a wholesale business there with good momentum. Maryland is still within the first year of adult-use, and it’s an exciting opportunity. We have a legacy dispensary there that was a Columbia Care, and through our gleaf acquisition, we have cultivation, manufacturing, and two other dispensaries.”
The Business of Building Brands
The Cannabist Company has many of its own longstanding brands of course, including Seed & Strain, Triple Seven, Hedy, gLeaf, Classix, Press, and Amber, but a recent press release touted a growing wholesale and retail partnership with the vape company called Airo Brands, whose products will soon be available in five West Virginia Cannabist dispensaries. It represents a growing trend for the company that could continue for some time.
“That’s basically a collaboration where we’re going to partner with them to bring them into some of our markets,” said Hart of Airo Brands. “I think this is maybe number two or three over the last month and a half or so that we’ve announced partnerships with third party brands. One of the things that became apparent to us when we broke away from the Cresco transaction was that brands were starting to approach us about our footprint. If you’re a California or Colorado brand that wants to come to the East Coast, you could potentially work with someone like Cannabist Company, where we can potentially get you access to a number of key markets on the East Coast relatively quickly.
“That does two things for us,” he added. “One, it helps us in the aggregate wholesale market when we have brands, like Airo, with real market recognition and demand, helps us on the wholesale front when we’re putting them into the wholesale market with our own brands. And two, if we’re working with a brand where it’s allowing us to put them through our manufacturing supply chain, that helps from a margin perspective, where just the increased utilization helps us on the cost of our internal brands. Those are two strategic points for us with these third-party brand partnerships.
“But we also need to get them right in terms of the implementation and the execution, so you’re not going to see us doing a ton of these,” he said pointedly. “I think you’ll see a steady state of opportunities for us because it makes financial and strategic sense, but we need to do this in a way that benefits both parties mutually, expectations are met, and timelines are met. So, I think you’ll see more of these for our own internal brand perspective, if anything, and it’s going to be Jesse’s wheelhouse more than mine, but you’re also going to see a simplification of our offerings. I think simple is better. More throughput for specific SKU and brand category will help us from a margin perspective and simplify what’s in the bag for wholesale if that makes sense.”
Is there any particular type of brand or company they’re interested in? “When we look at the ideal third-party brand partner,” said Hart, “some of the things we want to evaluate are brand recognition, the strength of the brand in the markets they’re in, and the potential demand we think they have for the market that we’d be talking about, and how successful have they been commercially? Do they actually have dedicated sales infrastructure that will be supporting their brand on the ground? That’s a helpful data point for the level of commitment that a third-party brand is going to make. I also think you’re going to see more success in these types of partnerships with manufactured products as opposed to flower. You have an opportunity to help third-parties build their brands across markets with a standardized SOP manufactured product, and I think that’s where you’re going to see some value creation opportunities for brands over the next few years.”
Location, Location
Like a lot of MSOs, The Cannabis Company is evaluating its prospects market by market, and making the necessary decisions, even if it means leaving. “We’ve announced that we’re exiting the Missouri market, where we were under-scaled, and we’ve communicated that we’re exiting the Utah market as well; again, under-scaled,” said Hart. “Not a knock on either of those markets, they have both been pretty strong. We were under-invested back then, and it didn’t make sense for us. We made the determination, frankly, that you either need to get bigger or you should perhaps exit the market and consolidate your footprint. Those were the two that we’ve made disclosures on, and I think you have to look at it from a couple of different altitudes.
“At the highest altitude,” he explained, “one of the driving forces for us in terms of value creation is to develop a wholesale business across the markets that matter, markets that are large in size and are geographically close to where we do a lot of business. I think when you look at it through those two lenses, Colorado stands out at a $1.6-$1.7 billion market down from the peak in terms of the total market size, but it’s still a very large market opportunity and brand recognition there carries value across the country. And if you move over to the East Coast, we’re pretty strong in the mid-Atlantic region, if you toss Massachusetts in there, which is a stretch, but we’re in New York, Pennsylvania, Delaware, DC, Maryland, Virginia, West Virginia, Ohio, and that’s a very strong core for us from a geographic perspective to really build brand recognition.
“So, with a three-year plan, it’s about getting brand recognition not only through our existing internal doors, but as many doors and shelves across the country, and that’s an important driving factor for how we look at all the markets,” he added. “When you look at our portfolio without Missouri and Utah, I love the markets we’re in! I think they all have growth opportunities for us in terms of taking market share and building brand recognition. I think we have to keep our eye on that over the next few years, because that’s going to be mission critical to enterprise value creation outside of holding a license and true revenue and profitability metrics, all of which are mission critical, but I think brand recognition and brand values are going to become important over the next few years.”
Is New York an ideal market to put a wholesale focus into play? “New York is a very interesting market,” said Hart pointedly. “We were the first registered organization to open the doors, we’ve seen it from the beginning, and we’ve been waiting for the opportunity to participate in the adult-use market. Everybody has their own opinion about how big the potential market is for New York. I think the bottom line is that it’s very large. I think everybody’s comfortable saying that. The question is, when does it convert, when does the market share start to shift into the adult-use regulated market, and that’s a timing issue.
“There are regulatory hurdles, and there are enforcement-related items that I think need to be addressed,” he continued, “so for now we’re only licensed for wholesale in the adult-use market in New York. We’re talking to all the doors that are open today, and we’re talking to the MSOs, those that have opted to come into the adult-use market, but we have not elected to convert our retail stores yet. That’s a wait-and-see approach for us as the market evolves. So, we’re focused on wholesale, and I think it should be a market that people are focused on, because it’s a very large market and it just needs to convert the illicit market to the adult-use market. I do think you’re going to have to have brand representation there, no question about it; you just need to be thoughtful about the timing around it, and not build inventory in front of it, but be there with the ability to flex into your back-of-house production and manufacturing as the market develops.”
Headwinds
In terms of challenges, Hart identified ones he can influence, and others he cannot touch. “One headwind would be just trying to be prepared for the eventual timelines with adult-use, not to be building too much inventory ahead of adult-use and not being late to the party,” he said. “Getting that timing right is certainly a headwind, but it’s one you have to face to be successful. There are price decline curves in a number of markets that are very well documented from third-party pricing providers that make you hyper-focused on your costing model and your supply-demand planning process to make sure you’re putting products on shelves that are commercially and financially viable. And the supply chain – the time from cultivation through distribution is not a short one – so getting that right to make sure you’re pricing your product, and your costs are in line, is mission critical on a go-forward basis in this price declining environment. Not all of our markets have that – many don’t – but it’s an actual reality as all of these markets evolve.
“And then I think that it’s the standard ones,” he said of other headwinds “It’s the challenges around access to capital in the United States, the bantering back and forth on rescheduling, the timelines around that. Those are all things that are frankly out of my control, and if they come, terrific. It helps everybody. But those are the natural industry headwinds that we face every day that I think over time, if you’ve been in the industry long enough, you frankly start to ignore. It’s really about thoughtfully building inventory and matching supply and demand for the markets that are converting to make sure you’re there when it matters for first impressions with third-party dispensary clients and in your own doors, clients coming to the door looking for products.”
It sounded like the old wise advice to hope for the best and plan for the worst. “I think that’s the only way you can manage your business in this environment,” affirmed Hart. “If we do get rescheduling or descheduling, that benefits us. If it goes to Schedule 3, the benefit is obviously the 280E tax implication which benefits everybody. We potentially benefit disproportionately relative to others in a positive way because we have more exposure to retail revenue, so just from an accounting perspective, we’re well positioned for that.
“But we’re managing the business as if that’s not coming,” he stressed. “I sometimes feel like the more you plan for it not to come, the more it may actually come. My crystal ball is no better than anybody else’s. You’ve probably heard all the same things that I have. I do think it’s not a matter of if but when, and I can’t control that, but what we can control is planning our business with or without it coming. You have to be prepared for the without, and if you get the with, it’s great.”
Becoming CEO
As challenging as the headwinds may be, these are also heady times for Hart, for whom The Cannabist Company is his first crack at being a chief executive officer. “I’ve been a COO for a number of years previously at a medical device company, but I never had the CEO title,” he said, and described the difference between the roles.
“When I had the COO title, I was focused on everything required for us to achieve revenue recognition and profit generation,” he explained. “That included the pursuit and development process when we were applying for applications to developing the assets. So, if you’re starting a business, the COO oversees the implementation of developing the assets and the team to actually operationalizing business, and in a market where we’ve now turned everything on, it’s continuing to gain efficiencies on the operation, soup to nuts, cultivation through retail. That was really the way I view the COO role.
“In the CEO role,” he continued, “you have more external stakeholders, so more interaction with investors, analysts, and the board of directors, and Jessie and I are dividing and conquering. He was elevated to the president role, and we basically look to make a lot of decisions together. We have conversations around what’s yours, what’s mine, what’s ours, but I think that’s the way a healthy CEO and president partnership can work.
“We just put out a memo internally to talk about the division of labor between Jessie and me,” he added. “I’m going to be focused as much as I can on cultural development, and not just what we talked about earlier – what does it mean to work at a cannabis? – but how do we do things that impact culture and make it better, and how do we do it more systematically? The onboarding process is an example. We’re putting together a program where those employees that are not attached to a cultivation, manufacturing, or dispensary facility have the opportunity to go do a tour for the day, shadow the GM, shadow the head of cultivation, watch your harvest takedown. There are going to be ways for us to get employees that aren’t in the field on a regular basis out there to interact with our front line people to understand what they’re doing, how they’re doing it, and where their pain points are.
Of course, those are not the only things a CEO in this industry is responsible for. “Ultimately, it’s the financial performance of the business and making sure that everybody understands where we’re going financially, and what the operational plan is that drives the results that will get to or beat the budget,” said Hart. “Those are the two big things that I focus on in addition to the transparent and frequent cadence of interaction with the board of directors. We’ve got a fantastic board, they’ve done a lot of strategic value-add to the organization, and I’m committed to making sure we get as much of that as we can.”
I also wondered if, after all this time and growth, there is a Nick Vita legacy discernible in the Cannabist. “I think Nick’s DNA is in the business,” responded Hart. “I think it’s also sometimes underappreciated how difficult it is to build a business from scratch. It really is a remarkable achievement, and when you actually add in the complexities of our business, if you go back to 2012 and 2013, those are very early days in this industry. Lots of people were probably telling Nick, ‘You’re crazy, you can’t do this. It’s impossible. What are you talking about? This is not going to become a business or a market.’ And so, yes, he’s made a lasting impression on this business without question. I think the transition we went through, which started in August when Jessie and I got elevated to President and CEO, we were preparing, as every company should be preparing, for succession planning, and this was part of that process.
“I’ve known Nick for a long time, as I mentioned, and had been his number two since 2018,” he added. “I think we have a lot of trust in each other, and so this is something where even in the announcement about the Cresco transaction, Nick had put in the press release that he has made an investment in something that’s very close and personal to him – a genetics platform or technology – and he wanted to devote time to that. It’s one of those things where there was a planning process, and then it happened. From the external perspective, it happens quickly, but there was planning involved.”
After a moment, Hart continued, “I’ve learned a lot from Nick about this industry and how to run this business, but I also have my own views on the go-forward. I was hired from an internal position to become the CEO, and I think you have an opportunity when you do come from the inside to find a way to take an objective third-party outside view when you have conversations with team members, to make sure that you’re not just going to go along with things without testing them. To ask, ‘Are we doing the right thing? Should we be doing A, B, and C? What about X, Y, and Z?’ I’m trying to be independent and objective because I think that’s what’s right.”
I noted that founders of companies frequently are not the people to take the company to the next level. They have particular strengths, and the company now requires other people with different skill sets to provide the necessary level of organizational consistency and cohesion. It happens all the time.
“I think Nick had the ability – and not everybody can do this – to hear someone say,’ No, we can’t do this,’ and he would find a way to do it,” said Hart. “And in this industry, you get a lot of, ‘No, you can’t do this. No, you can’t do that.’ And the go-forward for us in the next two or three years, I think what’s required is for us to look inward, and develop the throughput and demand, and ultimately match that with production to get the margin profile of the business and the cash-generation profile of the business to where it needs to be to match the asset base we have, which is a tier one asset base. And that’s different from planting flags, and different from looking at expansion opportunities or M&A opportunities. This is about looking inward and really sweating the assets. It’s an operationally focused management style for the next couple years that’s required, and that’s what my background is.”
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