CEO Jon Levine and CFO Susan Villare recently sat down with Green Market Report to talk about how the business positioned itself to weather the headwinds under which the national marijuana industry labors and what they think it will take for the broader sector to reach sustainable profitability.
Aside from its home state, the multistate operator has interests in Delaware, Illinois, Maine, Maryland, Missouri, Ohio, Rhode Island, and Puerto Rico, and is planning significant investments for expansion.
On the financial results from last year, MariMed was one of just a few public U.S. cannabis plant-touching companies that was actually in the black. What made the difference for MariMed?
Levine: The fact is, our company has been very successful in taking our time, in building this out from cash flow, without having to go borrow money at very expensive rates, or to basically sell the company just to be able to get the money to do this. We have successfully opened all of these (dispensaries, grows, and manufacturing facilities) through family, friends, and through small raises, that then we started producing positive cash flow and income, and gave us the ability over the last three years to continue to grow the business already, without having to go out and raise money.
This year, that gave us the ability to be disciplined, to concentrate on the proper items of making sure our expenses are in line, that we hire the right people.
We have one of the strongest balance sheets within the industry. And we are very disciplined on making sure that we watch for the stockholder value, but also watch our COGS and make sure that we’re not overspending on COGS or other expenses.
Villare: Tim Shaw, who’s our COO, he’s been with the company as long as Jon, 10-plus years, and knows how to grow cannabis. And so we have kind of that secret sauce with all of his SOPs that he’s put in place, that we’re able to replicate that, state to state.
Jon’s secret sauce is that he comes from a real estate background. His entire family was in commercial real estate. So anytime we’re in a different state, he’s like, “Oh, I have a big building in Bristol, Connecticut,” or “I have another one here in Waterbury.” I’m like, “How do you have buildings every state that we’re in?”
So we own almost all of our real estate, which a lot of folks don’t. (The other companies) did a lot of sale-leaseback (deals), or they pay really high rents (because landlords) say, “Oh, you’re a cannabis company, I’m gonna gouge you because you must make a lot of money selling drugs.”
When Jon started this, he was very thoughtful of the locations. So when he went to Illinois, everyone went to Chicago, but (MariMed) decided to go the southern area, and they got a lot of (customers from neighboring) states that didn’t have cannabis.
When we did the Kind Therapeutics acquisition, it wasn’t like, “Oh, we have to buy the building plus the assets.” We already owned those buildings, no mortgage on it when we got it, a big grow and processing facility.
We’re (also) one of the largest wholesalers in Massachusetts, and nobody knows that. That is, I think, a differentiator.
Are you expecting similar or better results for the bottom line when 2023 comes to a close?
Levine: Just recently we borrowed $30 million from Chicago Atlantic. That gives us all the money to accelerate this expansion (in Maryland, Ohio and Delaware). We’ll have all that completed, including the purchase of the Quincy facility here in Massachusetts.
Villare: We gave guidance, this past earnings (report), of $150 million (in annual revenue, up from $134 million in 2022), which will be our sixth consecutive year of double digit growth, which is great. Our internal plan is higher.
Some people have said, “Are you sandbagging?” And I said, “Maybe, but maybe not.” We shall see. But it is a tough market.
What do you see as the primary hurdles for publicly traded cannabis companies as far as getting to profitability?
Levine: I do feel that everybody is feeling the effects (of the economic downturn). People aren’t spending as much in their baskets when they go to their store. There’s a lot of price compression going on in every state.
Then there’s the fact that a lot of states have not put in the proper controls. New York is a mess. They’ll never have the proper controls. You’re dealing with the illicit market, and (that will) make that market very, very difficult to deal with.
But that happens everywhere. Our biggest competition isn’t just each other. It’s the illicit market.
So we’ve been very cautious about where we go to. We try to be in areas that are going to attract people, destination locations, which means that they’re going to come to us because they enjoy the experience, they know they’re gonna get that high quality product at a good price, and the customer service too. That’s where part of our success has come from.
You’re asking how the industry is going to do. It really comes down to the states that you’re in. I think Missouri is one of the lucky states where they had plenty of growers that the price went up slightly because of the fact that they have adult use and the lowest taxes around. And that’s the reason everybody’s racing over the Illinois border to St. Louis to buy that flower, is for that reason.
But they had an overabundance six months ago, and their prices dropped dramatically, very much like Michigan. Now they’re back up to where they should be.
But we’re never going to get to that illicit market, because the fact is, we all have to pay taxes, and we have to get testing done. The key is getting the message out to the consumer: Be safe, don’t buy the stuff off the street, and not know if it’s laced with something, come to her testing environment, you know that you’re always going to get that safe quality.
How important is federal reform to MariMed’s business plan moving forward?
Levine: Having been in this industry since 2008, I have learned to deal with this banking issue head on. You have to learn how to find the proper bank, and there’s plenty of banking.
Yes, I have had issues where we’ve lost accounts, and we’ve had to jump from bank to bank. But there are banks out there that actually understand that this is not federally legal.
However, I came from the real estate world. And you’d be surprised, I’ve got mortgages that are 10 years old. And people were like, “How the hell did you get that?” It’s about who you know and how you actually understand how to explain what you’re doing – and having the separation of cannabis versus real estate.
Teaching people, that’s the other thing: You have to teach the people that you’re dealing with, that this is not as bad as they think, that it’s not this scary drug that’s going to hurt somebody.
We would love to see free ability to ship flower across state lines. Every one of our locations is very close to an interstate exchange. Why? Because I understand that I had to get these trucks out on the road so I can get everything to each location as easily as I can.
That’s the first thing that I looked at. It was for the future use.
But we’re more prepared today to keep growing at the rate that we know is the right rate. We could have run up to Canada seven years ago and got stupid money and just bought anything that we wanted. And it may not have made sense. That’s why 90% of these people are still in trouble, is that they’re trying to get themselves out of these non-cash flowing operations.
We did everything slowly, purposely. We wanted to make sure that we built each operation out with the same processes, procedures, SOPs, and make sure that they’re running on a positive cash flow basis, very quickly. We don’t want to have a lot of debt carry.
That’s where we’re successful. And that’s how we’ve avoided what a lot of other people have not.
Are there any other state markets that MariMed is thinking about entering?
Villare: Not California.
Levine: We’re not going to the country of California. But we did just apply in the state of Texas, which is the second California. But Texas is very far from being anywhere close to legalization. However, we feel it’s a state that we can prepare for the future.
We are going to be looking at the state of Arkansas, once they get their situation figured out, when they’re going to start taking applications. And we’re going to look at other states that are coming online with limited licenses that make sense to us.
How do you expect most of the public cannabis companies to perform this year?
Levine: On the public side, I probably agree that (2023) is going to be a little bit better (than 2022). I just think that you’re going to see the numbers still having a very large loss, even though there’s more markets coming on and being built out and causing additional revenue.
I just think with that the complexity of the market and the economic effects, people are going to see that the revenues are not going to be as growing as fast.
They’re going to grow for us. They’re going to grow for a few others. But there’s going to be a lot of people in this industry that are going to see tight margins and lower income.
What do you think it will take to see a really significant turnaround towards profitability for most public cannabis companies?
Levine: 280E would help a lot of companies in terms of their tax expense. However, I think that the biggest thing is some banking reform that would give the ability to borrow money at real rates, and not at these astronomically garbage rates.
It’s ridiculous. I can walk down the street and get robbed for less than I get from these bankers in the cannabis industry.
Villare: Yeah, the interest expense is telling. If companies are creative, the cost of capital is less than 10%. But for others, the rates are 15%, 18%, and there’s a pile of balloon payments.
So I do think we’ll probably see some more consolidations out there. I think there’ll be states and people made some big bets that they’ll be doing some divestitures from.
This interview has been edited for length and clarity.