Since 2016, Luis Vega has run North Haven-based hemp company Wepa! Farms, but now he’s looking to expand into Connecticut’s newly-legalized recreational cannabis market.
Wepa! grows and sells hemp, and extracts legal cannabinoids like cannabidiol (CBD) for companies that make anything from CBD edibles to topical creams. Vega is currently looking in 10 different municipalities for a 100,000- to 250,000-square-foot space to expand the company’s operations, he said.
If all goes according to plan, Wepa! — which has five full-time employees — will get licenses to grow and sell cannabis to the recreational market.
“Ultimately we will enter the lottery for the numerous different licenses,” said Vega, who noted his company’s $5 million valuation stands to increase 10-fold by adding adult-use cannabis production and retail sales to the mix. “It’s a big marketplace.”
Fewer than three months have passed since recreational marijuana use has been signed into law, and state consumer protection officials are likely at least a year away from establishing a regulatory regime and blessing businesses to commence adult-use sales. However, many businesses are already getting their ducks in a row to enter what is likely to be a very profitable and competitive marketplace.
Industry experts and state officials are projecting Connecticut’s adult-use cannabis market will start off strong and grow significantly. Trade publication MJBizDaily in February predicted $250 million in adult-use sales in year one, and $750 million by year seven.
While Connecticut’s medical marijuana market is dominated by large corporate multistate operators, adult-use legislation was designed to give some preference to smaller players, especially those who qualify as social equity candidates.
As behemoths operating in the medical cannabis market expand into the recreational industry, and independent entrepreneurs try to get a foothold in the sector, some are concerned that large corporations will swamp smaller competitors, while others say there’s plenty of room for everyone.
Regardless, numerous in-state and out-of-state operators are developing plans to enter the market.
“Don’t be surprised if lots of [multistate operators] come into Connecticut because that’s their business; but that doesn’t mean little operators can’t succeed,” said Ben Zachs, chief operating officer of Fine Fettle, which owns medical marijuana dispensaries in Newington, Storrs and Willimantic. “I think there’s a real opportunity [for entrepreneurs].”
Local opportunities
Fine Fettle is a relatively small multistate operator that’s rooted in Connecticut. It’s headquartered in Hartford and operates three local dispensaries. But it also runs two cultivation facilities and two dispensaries — all of which serve the medical and adult-use markets — in Massachusetts, and a cultivation site in Rhode Island, where only medical cannabis is currently legal.
Zachs said Fine Fettle will apply for a “hybrid” license in Connecticut that would allow it to sell to adult-use customers, in addition to medical patients. Last month, Fine Fettle’s Newington dispensary became the first cannabis business in Connecticut to receive preliminary municipal approval for an adult-use outlet.
After operating in the industry since 2019, Zachs said he can see some disadvantages local entrepreneurs will face entering Connecticut’s recreational market that will likely include large, established corporate players like Chicago-based Green Thumb Industries and Massachusetts-based Curaleaf; but he also sees other areas where locals could have an upper hand.
Setting up a cultivation facility, for example, would be a steep hill to climb without corporate backing because it’s an expensive proposition that requires a large grow facility and equipment that cost millions of dollars, Zachs said. On the other hand, entrepreneurs looking to make edibles only need a kitchen and materials, and operators with less overhead costs can serve a smaller market share, make a healthy profit and possibly expand later.
“There’s a real opportunity for people to make niche products,” Zachs said. “If you make a product people love, you can be successful.”
Additionally, Zachs said, local entrepreneurs may be more in tune with municipal boards that will ultimately determine whether or not marijuana companies can operate within their borders.
Big ambitions
Tim Hawkins, vice president of retail field operations at Green Thumb Industries, agrees that independent entrepreneurs will face headwinds entering the recreational cannabis market. His company, which operates in 13 states and employs about 2,200 people, according to Cannabiz Intelligence, is interested in acting as a resource for smaller players as it looks to expand in Connecticut.
Green Thumb owns and operates three medical dispensaries in Connecticut, in addition to West Haven-based Advanced Grow Labs, one of four legal cannabis cultivators currently operating in the state. Green Thumb plans to apply for a hybrid license so it can serve both the medical and recreational markets, Hawkins said.
In addition, the company is looking to open a new and larger production facility in Stratford that would replace its current West Haven home.
About 75 people currently work at Advanced Grow Labs, and Hawkins predicts the company would add about 50 additional workers to operate the larger facility. He said Green Thumb wants to start construction by the second quarter of 2022.
Hawkins said Green Thumb established an incubator program in Illinois for smaller cannabis entrepreneurs. It doesn’t have a physical space, but offers an office-hours setup where company officials meet with small proprietors seeking advice. The company plans to establish a similar program in Connecticut, he said.
Tripling output
Acreage Holdings, a multistate operator that employs nearly 700 people across 12 states, according to Cannabiz Intelligence, is also looking to expand its Connecticut operations, which currently consist of three dispensaries.
“We are looking to convert [all three dispensaries] to hybrid licenses,” said Carl Tirella Jr., Acreage Holdings’ general manager for Connecticut, adding the company is considering adding cultivation to its local portfolio. “We’re monitoring that footprint, and we’re looking to enter that market, if possible.”
Curaleaf, which operates a medical marijuana grow site in Simsbury, plans to apply for a hybrid license and triple its local production output in anticipation of the coming recreational-use market.
Curaleaf’s Regional President of the Northeast Patrik Jonsson said the company is vetting smaller entrepreneurs with whom they may enter into social equity joint ventures. He added that while large corporates like Curaleaf will produce at scale, he thinks there will be room for smaller operators making niche products and craft cannabis.
That aligns with Thomas Macre’s thinking, as he seeks to eventually expand his Torrington medical dispensary, Still River Wellness, into a vertically-integrated company that cultivates and sells marijuana.
Macre, Still River’s manager and co-owner, said the company will apply for a hybrid license and plans to redesign its current 5,000-square-foot facility to establish separate medical and recreational-use dispensaries. Later on, he wants to open a micro-cultivation operation and delivery service, potentially with social equity joint partners.
Still River currently earns about $500,000 in monthly revenue; Macre said the company can double that by adding just an adult-use dispensary. The build-out to create the recreational business would likely cost up to $400,000 and take about six months to complete.
But the company’s growth will largely depend on local officials, Macre said.
“Right now our biggest hurdle is the Planning and Zoning Commission of Torrington,” Macre said, noting the commission is currently considering a one-year ban on new cannabis businesses. “There’s a lot of opportunity, our priority is definitely working with Torrington.”
Out-of-state players looking to enter Connecticut’s expected “green rush” aren’t all large corporations.
Smaller operators, like Massachusetts-based Green Meadows, are also showing interest. The six-month-old Southbridge, Mass.-based company, which grows and sells cannabis to the Bay State’s medical and recreational markets, is currently testing the waters for Connecticut expansion, said CEO Bob Patton.
“Right now we are speaking with Connecticut legal advisors to help us interpret … the laws in the state of Connecticut,” Patton said. “From there, there will be a certain point where we will try to identify … a location.”
Green Meadows currently employs about 50 people at its Southbridge cultivation and dispensary facilities, and is trying to hire about 15 more, Patton said. He’s interested in establishing a similarly-sized operation in Connecticut, and wants to start entering into serious talks with municipal officials by early next year, and possibly stand up an operation here by 2023.
Promoting equity
Vega, of the Wepa! Farms hemp company, said one of the biggest challenges in trying to enter the cannabis industry will likely be remaining in compliance with state and local regulations. That will require setting up a seed-to-sale tracking system for cannabis it grows and sells, establishing third-party audits and hiring professionals to handle stepped-up security measures.
“Compliance is a third of your business [costs] at this point,” Vega said.
Wepa! already has some financial backing to expand operations through the Minority Cannabis Business Association’s I-2 Accelerator, which partners with cannabis industry-focused private equity firm Merida Capital Partners.
Vega said he will qualify as a social equity applicant as defined in the legalization statute and geographic standards set by the Social Equity Council, but isn’t sure whether Wepa! will seek out social equity status, or go for a general application.
The Social Equity Council’s 15 members are well aware of concerns about large corporate operators dominating the recreational market, said council Chair Andrea Comer, who also serves as deputy commissioner of the state Department of Consumer Protection, the cannabis industry’s main regulator.
As part of the council’s duties, it will suggest legislation next session that could help ensure market access to smaller players, especially those who qualify for social equity status. She noted that parts of the legislation — like a ban on awarding more than two of any cannabis license types to a single company — could help create space for local entrepreneurs.
She said she wants to avoid creating a market that’s only hospitable to large companies.
“That’s certainly not the intent of the legislation and is not something that we would want to happen,” Comer said. “This really is about trying to promote equity in the marketplace.”