As of mid-December, Curaleaf Holdings (CSE: CURA) (OTCQX: CURLF) was one of six licensed medical marijuana companies in New York to receive the formal green light to begin recreational operations this month. It’s a milestone that many smaller operators in the Empire State have been nervously watching, with fears that they won’t be able to compete with the multistate operator and its peers.
But running the competition into the ground isn’t on Curaleaf’s agenda, the CEO told Green Market Report recently. Rather, it’s local partnerships that the MSO is hunting.
In part one of this interview, Darin addressed the company’s broader strategy to achieve profitability.
This interview has been edited for length and clarity.
Tell me about what Curaleaf has planned for the New York cannabis market, now that the company has gotten formal approval to launch there.
We’re gearing up to serve the wholesale market. We’re one of a couple of companies that have built out significant capacity, just like we’ve done in other markets, like New Jersey and other places. We’ve had people working overtime packaging product, and we’ve got a lot of great new dispensaries that are eagerly awaiting shipments from us.
And getting our first store open, right when the launch happens, we’re looking forward to that as well. So New York is going to go from a big challenge, or big negative, to a positive here as we get into 2024.
The brand license, it’s kind of a unique, interesting concept to really encourage a lot of the United States brands and the entrepreneurial brands to come in. And, and so it’s going to be interesting to see how it plays out. We’re talking to a lot of these different groups about working together.
We’re hoping to start shipping wholesale orders out of our large facility outside of Albany within a handful of days after (approval for recreational operations, which happened Dec. 8). There’s some question whether it’ll happen the next day, or if it’s going to be shortly thereafter. But longer term I think that’s going to be the biggest opportunity with the many hundreds of dispensaries that are going to ultimately open up in New York and the big backlog of ones that are waiting to get open now.
There’s huge demand for high-quality, tested goods in New York. So we’re expecting that, knock on wood, in the next handful of weeks.
On the retail side, Dec. 29 would technically be the first day you could possibly open that first adult-use site. We expect to be ready right around then. Our site is in Newburgh, so a little bit north of the city, which we’re really excited about, a great regional location, very successful medical dispensary, that we’re going to be adding adult use there.
You’re limited to three retail locations, correct?
Yes, three adult-use retail.
Does that connect to what you just said about the wholesaling being a better business opportunity in New York?
We’re excited about the having three of those retail stores, but in a state of 20 million people and hundreds of dispensaries, ultimately, having three adult-use dispensaries is only going to give you so much there. So the opportunity to sell into hundreds of other retail dispensaries on the wholesale side is going to be a very big opportunity.
The R.O.’s in New York, like Curaleaf, have become sort of a boogeyman for many of the smaller businesses. What are your thoughts on how the New York market is going to develop and how much market share Curaleaf will be able to capture?
The way that the licensing structure has been set up for this adult-use program, with the license caps on the number of retail stores and the cap on canopy size for the R.O.’s, the reality is, the market is not going to be set up for any one or a handful of companies to truly own the majority of the market. That wouldn’t even be natural for a market that’s going to be the size of New York, which could be $5 billion-$6 billion over time.
This is part of why we tried to reach out to all the different stakeholders, because it has been unfounded, I think it’s been backwards. The reality of how this can and should work is that it’s one ecosystem of a regulated market. And there are different roles to play, different people with different business plans and different situations, but there’s a symbiotic relationship.
For companies like Curaleaf, we have the ability to do a lot of good for a lot of people in the market, for these dispensaries that we’re now selling into, many of which are entrepreneurs and are just getting started up. Our ability to work with them, to supply them, to offer payment terms that work for them, to use our marketing platforms and education platforms, there’s a lot of good that we can be doing with them.
Buying oil from the farmers that have so much product that they’re now going to be working through, co-branding products with local farmers to get their names out there, there’s a lot that can be done. That’s how we look at it, that there’s a lot of win-win partnerships to be had, not that it’s us-versus-them.
And the biggest point: Our competitors are not the regulated players, whether it’s the R.O.’s or hemp farmers or CAURDs. The competitor is the illicit market. And in New York, it’s become so out of control. The city council said up to 8,000 storefronts selling illegal unlicensed (marijuana). That’s the competition.
But it’s going to take time to get that horse back in the barn, and so it’s going to take some real will to make that happen.
How hopeful are you that New York is going to be able to rein in the unlicensed market? Or do you think that it’s going to wind up turning into a replica of California, where the unlicensed market has 70%-80% market share?
I think there’s some differences in the profile of the New York market versus California. It’s just a different situation where the amount of land they have to cover and the kind of pre-existing supply of unlicensed product is just totally different.
But it is going to require the will of governments and law enforcement to prioritize enforcing this. There are ways to do it that can be successful. Going after landlords that are knowingly allowing these businesses to operate this way is one way to do it, which they have started to do. Assessing significant fines, and really making it a moral hazard to be operating this way.
There’s ways that it can be done. And we’re cautiously optimistic.
Of course, it’ll continue to be there, but having it be so brazen and so unsafe (isn’t sustainable). This is not about corporate cannabis. That is a recipe for disaster. And we’re lucky that there haven’t been more incidents, but that’s the role of the regulated market.
I’m just skeptical looking at New York, primarily because of my experience, personally and professionally, in California with how they’ve been trying and failing for years to replace the the illicit market with a legal market.
Your skepticism is very fair. There’s a reason we pulled out of California; it’s that exact reason. It was not a place for us to successfully operate.
New York has some different characteristics. There’s not nearly the legal supply anywhere. There’s going to be an under-supply for some period of time of good, indoor-grown flower, of really good vapes and edibles and concentrates and everything else. It’s a different business dynamic, but long term, how big is that market going to get in the regulated market versus the illicit? It’s, we’ll see what happens over time.
I’m feeling a little bit better today, because now New York is moving forward, but we’ve been as frustrated as anybody with what’s taking place, because what’s happened in California. Once you allow that to happen, it’s really hard to get the genie back in the bottle. It requires a lot of attention, and ultimately, resources and money to go make that happen.
Again, it’s got to be a priority for the people in power to do something about it. Is it a priority that they want to expend resources on?