Expanding Your Cannabis Brand: Which Model Is Most Profitable? Asset-Light, Asset-Heavy Or Partnerships?

The rapidly evolving cannabis industry has seen numerous brands vying for a piece of the interstate pie. Each brand's journey is unique, influenced by regulatory landscapes, market competition and strategic choices. The stakes are high and the decisions are many: Should a company tread the path independently or partner with existing entities? And if they choose to partner, what kind of agreement will maximize their profits without sacrificing brand integrity?

Tom Adams, the founder and CEO of Global Go Analytics, which offers strategic planning services to leading figures in the legal cannabis sector, sheds light on this intricate maze. Delving deep into the dynamics of cannabis brand expansion, Adams unravels the myriad strategies at play.

Major multi-state operators (MSOs) often prefer the solitary route. They embrace vertical integration, a strategy that has proven its mettle in states with tight licensing protocols like Florida. This approach allows MSOs to pocket every cent spent by the consumer, a significant advantage over traditional consumer packaged goods (CPG) models.

In contrast, many branded-product companies eschew vertical integration, instead focusing on their strengths and exploring diverse models ranging from solitary state-licensed manufacturing to cost-effective partnerships.

Global Go Analytics, with its rich experience in aiding brands' expansion to untapped markets, presents a comparative table illustrating various strategies. These models encapsulate the essence of decisions brands must make when eyeing territories beyond their origin.

Asset-Light: This model empowers the out-of-state brand owner with rights to their brand name, recipes, and processes for the in-state operator. While the brand ensures consistent marketing efforts, the licensee shoulders most costs. The brand, in return, receives a royalty ranging from 10% to 15% of the wholesale revenue.

Asset-Medium: Here, the out-of-state brand owner's role extends to providing legal materials for inter-state shipment, bolstering sales teams, and enhancing in-state marketing. The in-state partner, meanwhile, oversees manufacturing, marketing, sales, and distribution, parting with roughly a third of the wholesale revenue.

Asset-Heavy: This model sees the out-of-state brand owner delving deeper, either by setting up licensed manufacturing facilities or collaborating with a white-label manufacturer. While they manage most in-state marketing expenses, a state-licensed distributor manages the distribution and customer service, usually for about 25% of the wholesale revenue.

Go It Alone: Arguably the most independent model, the out-of-state brand owner mirrors its operations in the new state, reaping the entirety of the wholesale revenue.

However, decisions are not solely based on potential profits. Jesus Burrola, CEO of POSIBL, observes that while going solo might promise the largest share of gross wholesale revenue, it's accompanied by substantial costs and capital investment.

Wana Brands founder, Nancy Whiteman, underscores the significance of timing, especially in nascent markets. The allure of rapid expansion into multiple states at reduced costs made the asset-light model a favored choice for brands initially. Yet, this model isn't without risks, necessitating meticulously crafted contracts to safeguard brand reputation and ensure partner accountability.

GGA's thorough analysis highlights that while all models can yield similar profit margins, the brand's share of total wholesale revenue can dramatically rise, given successful execution.

The path to interstate expansion is paved with diverse strategies. As brands mature and secure robust investor backing, many are leaning towards higher risk for the promise of richer rewards. Check out the full report here.

Catch more insights like these at the Benzinga Cannabis Capital Conference, the place where deals get done. The event is returning to Chicago this Sept 27-28 for its 17th edition. Get your tickets today before prices increase and secure a spot at the epicenter of cannabis investment and branding.