## Cannabis Expansion: A Double-Edged Sword in a Volatile Industry
The cannabis industry is known for its volatility, and expansion can be a tricky game. Dustin Milner, CEO of California’s Talarya Brands, poses a crucial question for any cannabis operator considering growth: “Why?”
“There’s always pressure to grow, especially from investors,” Milner explains, “but if you haven’t maximized efficiencies or nailed down your market, expanding could be a recipe for disaster.” He cautions that many cannabis companies rush into new markets without fully optimizing their existing ones, leading to high-risk ventures that don’t always yield the desired results.
At the recent Benzinga Cannabis Capital Conference in Chicago, a panel of industry leaders discussed smart expansion strategies, moderated by Janice O’Reilly, Consulting Partner at AAFCPAs’ National Cannabis Practice.
### The Importance of Smart Partnering
Jennifer Briggs Fisher, a partner at Goodwin, emphasizes that expanding across state lines requires more than just legal contracts. “A lot of clients come to us with big plans, but often haven’t fully researched the regulatory landscape or vetted their partners,” Briggs notes. Without strong partnerships, cannabis operators can find themselves embroiled in disputes and expensive litigation.
Briggs underscores the importance of careful planning, thorough research, and tailored partnership agreements that align with each state’s unique regulatory framework. Building solid partnerships is crucial for successful expansion.
### Organic Growth vs. Acquisitions
Brandon Barksdale, CEO of Remedy Maryland, navigates the constant debate between organic and inorganic growth. Remedy has focused on building horizontally within Maryland’s market by closely monitoring customer preferences and offering a wide range of products. “We’re always evaluating where the strongest opportunities are,” Barksdale explains.
While acquisitions can offer quick expansion, he believes organic growth provides better control and aligns with Remedy’s commitment to consistent market presence. Barksdale emphasizes the importance of timing, saying, “Sometimes it’s about putting your head down and letting opportunities come to you when they’re right.”
### Cash Flow Trumps Top Line
From an investment perspective, Seth Yakatan, co-founder of Katan Associates, believes that cash flow trumps top-line revenue growth in the cannabis industry. He challenges the prevalent multi-state operator (MSO) model, arguing that prioritizing aggressive revenue expansion without profitability leads to eventual failure.
“Long-term, cash flow wins. The companies with the staying power are the ones who can be profitable,” Yakatan asserts, highlighting the recent string of business failures in the California market as evidence. Milner echoes this sentiment, emphasizing that Talarya’s focus on cash flow and profitability has been crucial for their survival in California’s highly competitive market.
“We saw competitors growing faster, taking the spotlight, but we stayed focused on building a solid business,” Milner shares, “and we’re still here while many of them aren’t.” In the cannabis industry, sustainable success lies not just in expansion, but in a strategic approach that prioritizes profitability and long-term viability.
