In August, Cresco Labs Inc. took a step toward “building the most strategic and valuable geographic footprint in the cannabis industry” when New York state regulators approved the company’s purchase of Gloucester Street Capital, the parent company of Valley Agriceuticals, said CEO and co-founder Charlie Bachtell in an Aug. 8 press release.
Cresco Labs, a multistate, vertically integrated cannabis operator based in Chicago, has been focused on expansion since its inception in 2013. “From Day 1, we wanted to have a multistate footprint—that we knew we wanted to be more than just Illinois operators,” said Bachtell during the 2019 Cannabis Conference.
Bachtell and Nello Gonfiantini III, CEO, Diego Pellicer Worldwide, discussed challenges of multistate expansion for dispensary owners and cultivators during a panel discussion at the 2019 Cannabis Conference. Expansion offers brand-building and growth opportunities; but it requires a steadfast focus on regulatory compliance, talent acquisition, training and best practices for consistency of quality and efficiency, the panelists said.
Here, Cannabis Dispensary recaps some of Bachtell’s and Gonfiantini’s expansion and franchising tips and provides a glimpse into what’s to come for the 2020 Cannabis Conference in Las Vegas, Sept. 1-3.
1. Know the regulations. Prior to entering the cannabis space, Bachtell, who also is an attorney, worked in the mortgage banking industry as executive vice president and general counsel of Guaranteed Rate. During that time, he learned that navigating the regulatory landscape is critical to success. “You either embrace regulation, engage in regulation and do regulation better than the guy across the street … or we could go out of business,” he said. Guaranteed Rate thrived amid stringent post-recession regulations because the company excelled at the regulatory process, he said. Similarly, in the cannabis industry, companies looking to enter new legal markets must understand how to operate in states with different laws, Bachtell said.
2. Create a compliance program. Gonfiantini, also a former banking professional, recommended that cannabis businesses adopt compliance programs to ensure they’re staying ahead of quickly changing regulations. For franchisers, compliance programs may be more complicated because they’re dealing with individual operators. They should explain to their operators the importance of being proactive when it comes to regulatory compliance, he said. “We try to influence them and convince them that it’s a lot cheaper now to pay for some compliance than later on when regulators ask you to, for example, pull up the last 100,000 transactions and go through every one of them,” Gonfiantini said.
3. Tap into the existing supply chain. Expansion can be much more seamless and less risky if the state already has a strong network of cannabis businesses in place. One of the keys to Cresco Labs’ expansion into California was its deal to acquire Canadian branding and distribution company Origin House, which operates throughout California, for C$1.1 billion in April. (At press time, the deal was still pending regulatory approval.) “For us, the infrastructure ... [and] the relationships they have, the authentic nature of their operations in that state—where authenticity is No. 1—it was really good for us,” Bachtell said.
4. Establish standard operating procedures (SOPs). Cresco operates in 11 states and owns 22 dispensaries and a total of 56 retail licenses, according to the most recent figures cited on Cresco’s website. Maintaining consistency and quality becomes more challenging when every store is operating independently without standard, company-wide protocols. “It’s ‘Cresco’ in 11 states, and, of course, that’s a very challenging operational structure, especially with the fragmentation with the siloed operations,” Bachtell said. But the establishment of SOPs, business models and brands allows the company to design and build each dispensary the same way, he said.
However, in a franchise model, businesses must be more flexible because each dispensary is an independent operator, Gonfiantini said. He recommended that companies allow for a certain amount of creativity in their SOPs. “We trust that they know their market,” he says. “On the other side of the coin, they go beyond what we would consider the lines of the brand and the way we like to see it. It’s always a balancing act between tightening up the guidelines [and] loosening them up.”
5. Communicate with your partners. In a franchise model, communication is critical, Gonfiantini said. This includes weekly calls and updates to make sure everyone is on the same page and shares the company vision, he said. “It takes constant communication for us to make sure the brand is consistent, the message is the same and we’re always telling the same story and going down the same path together.”
6. Make sure your talent shares your vision. As the industry grows, finding qualified, skilled talent becomes more challenging. Diego Pellicer’s corporate team works with its operators to ensure they’re looking for employees who share the company’s vision, according to Gonfiantini. “Having highly educated budtenders on the floor, having good financial people is always difficult to do when you’re doing it once removed,” he said. “We try to work with our operators to make sure they’re looking for the right people and make sure they have that vision. Again, that’s the vision from the operator to the employees.”
7. Create an interview checklist. Bachtell suggested cannabis companies develop a checklist to help identify qualified job candidates. He typically includes questions that help the company determine whether the interviewee is the right fit culturally, including questions that focus on Cresco’s mission, vision and core values. “I don’t like to talk in absolutes, but it would be very difficult to have a successful company in this space if you didn’t have the right culture throughout the organization and in total alignment in the direction that you’re going,” he said.
8. Train workers on processes and standards. In a highly regulated market, the margin for error is very small, so training on SOPs is critical, Bachtell said. “From a training perspective, the bigger you get, the more sophisticated [you get],” he said. “We just launched our LMS—a learning management system. You can’t leave that to chance. You have to be super solid in your SOPs, in your onboarding and your training.”
Training is particularly critical for store operators, Gonfiantini said. “[We] try to ensure the operator understands the standards that we want to live [up] to,” he said.
9. Educate the consumer. Brick-and-mortar retailers, in general, often struggle to remain competitive in today’s e-commerce world. Dispensaries can learn from strategies retailers in other industries have adopted, Bachtell said, including experiential retail. “It’s not just a store. It’s an experience; it’s an education; it’s an opportunity.” Bachtell pointed to the Apple Store as an example of a retail business that provides both an education and an experience to consumers. “You go there and ask questions,” he said. “You get to experience their products.”
He also cites online grocery shopping as another example of how consumer buying preferences have changed. He suggests cannabis companies explore similar models. “E-commerce, direct to consumer—those should all be part of your dispensary model to help stem the risk of traditional brick and mortar,” he said.