Rise of the MSO

The challenges of being a multi-state operator (MSO) in the cannabis space within the U.S. are more complex than almost any other industry.  Since interstate commerce is essentially not possible for cannabis products,  successful MSOs need to maintain distinct legal entities in multiple states, and many of the economies of scale national businesses depend on to provide consistent products and fuel profitable growth are mostly limited to achieving efficiencies in intrastate economics.

Despite these challenges, MSOs continue to extend their business into new states and ride the current wave of rapid legalization at the state level and easier access to investor capital under current market conditions.    Existing MSO expansion continues to be a combination of new market entry through M&A activity and participation in new licensure rounds.  At Global Go, we have seen a significant increase in both types of activity in the early days of 2021.  Also, since the benefits to MSOs are more constrained under the current regulatory environment, we are not seeing any slowdown in  single state operators continuing to grow their networks.

We believe the successful MSOs in the long term will not be restricted to just those teams able to skillfully navigate a myriad of existing expansion opportunities.  The most successful MSOs will be those who have positioned their businesses, brands and supply chains to leverage the end of federal prohibition, continue to demonstrate social responsibility, and are able to rapidly extend their networks nationally and even internationally.  While we have seen several publicly traded MSOs (Cresco, Curaleaf, GTI, Trulieve) exceed $100 million in quarterly revenues, those results will most certainly be dwarfed by the largest MSOs three to five years from now.

As all cannabis licensees know, Proposition 65 requires companies selling products containing substances believed to cause cancer or reproductive harm to provide clear and reasonable warnings on the product label. Since 2018, cannabis licensees have had the option of using long-form or short-form warnings, with many opting for the latter as they fight for label space to market their brand. However, recent proposed changes to Proposition 65 will put severe restrictions on short-form warning, potentially necessitating a mass migration toward long-form labels.

The state anticipated the use of short-form labels to be the exception, however, the CA Office of Environmental Health Hazard Assessment (OEHHA) has discovered many companies using the short-form in ways unintended. In order to rectify this, OEHHA has proposed the following changes to further restrict when a short-form label may be used:

  • The label surface area available for consumer information must be five square inches or less
  • The package shape or size cannot accommodate the full-length warning
  • The entire warning must be printed using the largest type size used for the consumer information on the product, no smaller than 6 point font
  • At least one chemical must be listed in the short form warning

Cannabis licensees should voice their concerns to the OEHHA as this is currently open for public comments through March 8, 2021.

About Global Go 
Global Go provides sophisticated consulting services to the global cannabis and hemp industry.  In tandem with strategic allies around the world, Global Go serves clients throughout the world from offices in Austin, Bogota, Chicago, Cyprus, Denver, Johannesburg, London, Los Angeles, Mexico City, New York, Palm Springs, Phoenix, Quito, São Paulo, Silicon Valley, Toronto, and Zurich. Powered by a team of cannabis industry pioneers and world-class consultants, Global Go helps leading cannabis funds and companies assess and enter new markets; acquire assets; raise capital; launch new product lines; improve SOPs; comply with regulations; implement technology and security systems; find talent; diagnose and execute solutions to growth obstacles; and apply for cannabis licenses (with a 99% success rate on over 150 cannabis license applications across the United States).  Learn more at https://globalgo.consulting.