PITTSBURGH (TNS) — Larger companies control Pennsylvania’s medical marijuana market because of high licensing fees and financing requirements, access to capital, and a limited number of licenses combine to keep smaller outfits out of the game, experts say.
Publicly traded and private multistate operators now control 83% of medical marijuana stores in Pennsylvania, according to an industry report by Cantor Fitzgerald analyst Pablo Zuanic. Counting affiliated retail locations, the biggest dispensary owners are Trulieve Cannabis Corp. and Jushi Holdings Inc., each with 18 stores; followed by Green Thumb Industries Inc., 16; Verano Holdings Corp., 13; and Curaleaf Holdings Inc., 12.
All are publicly traded — and the growth spurt isn’t over.
On Jan. 20, Wakefield, Mass.-based Curaleaf announced the opening of two more pot stores in Pennsylvania, ones in Greensburg and Lancaster County. Curaleaf stores in Erie and Centre counties are scheduled to open by the end of February.
In December, Boca Raton, Fla.-based Jushi opened its 27th store nationwide — its 17th store operated under the Beyond/Hello banner — on the South Side, while Chicago-based Verano in July opened a four-lane, drive-thru dispensary, called the Healing Research Center, at the Mall at Robinson.
In a related matter, Tallahassee, Fla.-based Trulieve will rebrand stores in Washington, Pa., Philadelphia and Reading on Jan. 29, which are dispensaries picked up in recent acquisitions. In early January, the company opened Trulieve-branded dispensary Harvest of Southeast PA LLC in Philadelphia, its 160th owned, operated or affiliate store nationwide.
Gov. Tom Wolf has advocated for adult use of marijuana in Pennsylvania, but Republicans control both chambers of the Legislature, so legalizing recreational marijuana — unlocking an estimated $100 million to $200 million in new tax revenue — has stalled. Meanwhile, smaller, independent operators will be sidelined from the Pennsylvania market, save federal banking reform or state legislation to increase the number of licenses issued, experts say.
Capital is more expensive for small operators: Multistate operators have access to debt at rates ranging between 8% and 9%; small and mid-size operators are “probably paying in the mid-teens, if they have access at all,” according to Cantor Fitzgerald.
And getting into Pennsylvania’s medical marijuana market is not cheap: Department of Health application fees range between $5,000 and $10,000 along with annual fees ranging up to $200,000 plus proof of fiscal resources for stores that Cantor Fitzgerald said each generate an average of $9 million annually.
But the real problem is not entrance fees or access to equity markets for capital, but rather it’s the cap on licenses set by the state, said Todd J. Hughes, chair of the board of the Minority Cannabis Business Association, a Washington, D.C.-based advocacy group.
”It’s not necessarily access to capital — It’s a lack of licenses,” Hughes said. “That allows these existing guys to proliferate.”
}Only 25 permits for marijuana cultivation will be issued in Pennsylvania along with just 50 dispensary licenses, which allow applicants to open three stores. That caps the number of stores operating in the state to 150.
The only way for an operator to expand is to buy stores, which sell for an average $25 million each, according to Cantor Fitzgerald.
”That means you have to buy it from one of the existing guys,” Hughes said. “That’s really the problem.”
The status quo in Pennsylvania has smoothed the way for store consolidation and increased the competitive edge for bigger firms in relation to smaller peers, Cantor Fitzgerald said. But it’s also creating a challenge when it comes to banking and access to capital.
Because marijuana possession and use is still against federal law, most banks are prohibited from doing businesses dealing in pot — either medical or recreational. Federal legislation that has been introduced in Congress since 2019 would’ve changed that by allowing banks to service cannabis businesses.
The most recent attempt, the Secure and Fair Enforcement Banking Act of 2021, passed the House, but was dropped from the Senate version in November. The bill would’ve been a “significant stride toward legal reform for the cannabis industry, intended to bring the industry out of a cash economy and allow it to access necessary financial and other services more easily,” according to a review by Arnold & Porter, a Washington, D.C.-based law firm.
In Pennsylvania, more than 681,000 people have registered to use marijuana for medical reasons, while only about 700 of the 10,000 federally insured banks and credit unions nationwide actively provide banking services to lawful, cannabis-related businesses. Federal banking reform could make it easier for smaller operators to get into the market by expanding access to capital and opening the industry to outside investment.
But that’s unlikely to happen soon.
”It’s a hard industry. The profit margins are very thin,” Mr. Hughes said.
