
Navigate the Cultivation Success Story Special Report
Sponsored: Planning facilities, overcoming mistakes, and preparing for competition.
Navigate the Cultivation Success Story Special Report
Throughout the April issue of Cannabis Business Times, CEOs and contributors offer many strategies for companies to reach wide and niche audiences alike.
As the cannabis industry continues to evolve and mature, so too are consumers. Some, especially in established West Coast markets, are getting more sophisticated, while Midwest cannabis companies are learning what products are resonating in their areas and starting to fill education gaps with detailed packaging, online resources and in-person conversations.
Cannabis consumers are a varied group. As William “Beau” Wrigley Jr. notes in The Last Word interview, a key challenge for cannabis companies is, “… How do you reach your consumers? And in our case,” he says, “we have multi-generational consumers who are 21 to 80 [years old], and it’s all about really unlocking the code to how do you do that.”
Throughout this issue, CEOs and contributors offer many strategies for unlocking that code and reaching wide and niche audiences alike.
For example, Melinda Rombouts, founder and CEO of Ontario-based cannabis cultivator Eve & Co., featured in the cover story, discovered through internal market research a key demographic other Canadian cannabis companies were missing: women. The data showed more women were buying cannabis products than was previously thought. Despite advisers’ concerns, Rombouts realigned her company to better serve women, complete with branding and marketing that would speak to them. A million square feet later, she knows her gambit paid off.
Brightfield Group addresses another missed opportunity—occasion-based marketing—in this month’s Sales Trends. Especially for newer consumers, it’s important to suggest when products might best complement various activities, going beyond just feelings or sleep. Brightfield’s Madeline Obrzut explains that consumers are increasingly pairing video games with cannabis, and very few products are marketed to this varied and engaged demographic that includes a growing number of young women and parents. Products that are tailored to potential activities for which cannabis may be best—for example video games, biking, yoga, parties—could engage the unfamiliar but curious.
While niche strategies can be effective, opportunities to improve education for all, even connoisseurs, is also important, note Robert C. Clarke and Mojave Richmond in their column. Although cannabis companies are increasingly listing primary terpenes on packaging and going beyond the indica/sativa binary, myrcene, linalool and limonene don’t really mean anything to most consumers. Instead, Clarke and Richmond propose easy-to-understand Cannabis Flavor & Fragrance Groups to give consumers a preview of what aromas and tastes different cultivars offer, similar to how beer and wine are marketed.
The main lesson: Investigating niche audiences and discovering what resonates most with consumers can help set your cannabis company apart.
Alaska considers increasing THC limits for edibles, making the state's products more in line with what's available in other markets, while lawmakers in Washington, D.C. introduced competing bills to regulate adult-use sales.
Innovative Industrial Properties has been steadily building its real estate portfolio, infusing cannabis operators with much-needed capital.
In February, Innovative Industrial Properties (IIP) expanded its real estate partnership with Kings Garden, a licensed cultivator based in the Coachella Valley in southern California. The move followed San Diego-based IIP’s original acquisition of several Kings Garden facilities in 2019, a sale-leaseback deal that turned Kings Garden from owner to tenant, providing Kings with $27.1 million in cash.
The sale-leaseback model has become a steady and consistent feature of the cannabis M&A landscape. It’s a real estate transaction in which an owner sells property with the intention of remaining a tenant and leasing the space, freeing up capital while still running the on-site operations. IIP, founded in 2016, is known as a real estate investment trust (REIT), and is among the most visible companies using this strategy in the cannabis industry, allowing IIP to invest in properties with built-in tenants and cashflow. The company owns properties operated by dozens of licensed cannabis businesses in 18 states, each one structured as a triple-net lease with IIP’s partner on the ground. (A triple-net lease is a property agreement in which the tenant pays all property expenses, including real estate taxes, insurance, maintenance, utilities, etc.)
In the case of Kings Garden, it’s been a symbiotic relationship. The February transaction expanded Kings Garden’s footprint into adjacent land parcels. Because IIP, which invests in medical-use facilities, regards its tenants as partners, the company worked with Kings Garden to identify suitable opportunities, resulting in this case in a $1.4-million purchase, imminent building construction and a new lease. IIP acquires more real estate, and Kings Garden acquires the room it needs to grow.
“We greatly value the long-term relationship we’ve built with our industry-leading partners at IIP over the past years,” said Michael King, Chairman and CEO of Kings Garden, in a press release about the deal. “Between the deal we closed in November 2020 and this one, IIP is expected to provide reimbursement to Kings Garden for construction for just over $76 million. This is significant, as it sets the path to 665,000 square feet of indoor operations and over $300 million in revenue for 2023.”
This latest transaction will supply Kings Garden with another 180,000 square feet of industrial space, building on its goal to produce 140,000 pounds of finished cannabis product annually, according to the press release.
“Our successive transactions with Kings Garden really exemplify the focus of our business model—to be the go-to, flexible, long-term real estate capital partner to our tenants, moving quickly and on their timelines to provide flexible capital solutions as they continue to grow their businesses,” IIP CEO and President Paul Smithers told CBT.
As M&A trends floundered throughout 2020, REITs like IIP offered an alternative way for cannabis operators to raise cash and offload liabilities from their balance sheets.
“In the end,” Smithers said, “the tenant-operator retains full operational control of their mission-critical facility, while at the same time unlocking the real estate capital that was previously invested in their facilities, providing them the opportunity to re-deploy that non-dilutive capital back into their business with the goal of achieving substantially higher returns.”
This is not necessarily an arm’s-length deal. Smithers said that IIP is focused on understanding its tenant partners’ needs, “and then tailoring real estate capital solutions to meet those requirements.” This might include investing in more properties on behalf of cultivation companies over time to increase on-site production capacity, for instance, as in Kings Garden’s case earlier this year.
“We look at each transaction holistically, with specific focus on the tenant and its management, financial profile and track record, while also analyzing specific state market and regulatory dynamics,” Smithers said.
Most of IIP’s properties are specialized industrial (indoor cultivation facilities), though the company does hold greenhouses in its portfolio, which includes assets from companies like Cresco Labs, GTI, Curaleaf and Trulieve.
From January 2020 through February 2021, IIP made 22 acquisitions across 11 states, while also amending 23 existing leases across 10 states. It’s an ongoing process, like just about everything else in the cannabis space.
Eric Sandy is digital editor for Cannabis Business Times.
Whether you’re applying a pesticide to a conventional agricultural crop or to cannabis, the same concepts apply to help ensure the task is performed in a safe manner.
Whether you’re applying a pesticide to a conventional agricultural crop or to cannabis, the same concepts apply to help ensure the task is performed in a safe manner for the applicator, the public and the environment. Here are 15 tips to avoid putting your employees, and your license, at risk when applying pesticides.
The best way to protect staff from exposure to potentially harmful chemicals is to limit pesticide use. However, if pesticides must be used, integrated pest management (IPM) principles should be implemented prior to applying any pesticide. Consider these steps first to help control pest issues:
1. Establish an action threshold. An action threshold is the point at which a pest population becomes large enough to require corrective action. Seeing one insect doesn’t always indicate a pesticide application is necessary.
2. Take time to identify and understand the pest’s life cycle and habits. Understanding a pest’s biology could allow you to control a pest issue by simply modifying the environment.
3. Implement practices to proactively prevent pest issues, such as removing plants before pests spread, clean room practices and regular scouting.
4. Once it’s determined a pesticide application is needed, identify the least toxic product that will accomplish your goals. For any applications being made to Cannabis, be sure to check with your state lead agency to confirm that the pesticide product you intend to use is allowed for use on Cannabis. States must review each product to determine if it meets state criteria or rules that would allow the product to be legally used.
5. Remember to read the label before applying any pesticide because the label is the law. The product label provides important information that the applicator and those who may encounter residues must know, such as:
6. Be sure you’ve met all federal Worker Protection Standards (WPS). Cannabis is an agricultural crop; therefore, the WPS applies to certain applications.
7. Choose product formulations and application methods least likely to lead to exposure.
8. Mix pesticides in well-ventilated areas.
9. Mix only what is needed to avoid storing or disposing of excess pesticides.
10. Never dispose of pesticides down the drain.
11. Be prepared for spills. Have paper towels, kitty litter, garbage bags and non-absorbent gloves on hand and easily accessible.
12. Read the first-aid instructions on the label. Know the warning signs of a pesticide exposure and have the number for the Poison Control Center (800-222-1222) available.
13. Make sure the area is well ventilated when spraying indoors. This is especially important in cultivation facilities that have been converted from warehouses (which might not have been equipped with ventilation). Having air scrubbers or portable air movers can help ensure areas are well ventilated.
14. Use the correct mixture rates intended for use on agricultural commodities. Do not use the “non-crop” rates listed on the pesticide label.
15. Always wash your hands after using pesticides, especially before smoking or eating.
John Scott is the pesticide section chief for the Colorado Department of Agriculture.
Editor's Note: This article was previously published in the July 2018 issue of Cannabis Business Times.
Cannabis Business Times’ interactive legislative map is another tool to help cultivators quickly navigate state cannabis laws and find news relevant to their markets. View More