Cresco Labs has expanded its reach in Nevada and Arizona—and entered Utah’s nascent medical cannabis market—through the acquisition of assets from Tryke Companies, LLC, a vertically integrated seed-to-sale cannabis company that held Reef Dispensary locations and licensed cultivation and processing operations across the three markets.
Cresco, an Illinois-based vertically integrated cannabis operation, has signed a purchase agreement to acquire Tryke’s four Reef Dispensary locations in Nevada—which include two in Las Vegas, one in Sparks and one in Sun Valley—and two Reef Dispensary locations in Arizona, in Phoenix and Phoenix Southeast Valley. Cresco will also purchase Tryke’s cultivation and processing operations under the agreement, which includes 160,200 square feet of cultivation, processing and ancillary space in Nevada and 27,000 square feet of processing capacity in Arizona. The acquisition also includes Tryke’s cultivation license that is attached to a 12-acre parcel in Spanish Springs, Nev., as well as Tryke’s cultivation license in Utah, which is one of eight that the state recently awarded.
The purchase consideration for the acquisition is approximately $252.5 million for Tryke’s operating assets, plus $30 million for the company’s real estate assets, according to a Cresco press release.
“Just at a market level, we’re talking about two very important, very influential cannabis markets for a couple of different reasons, with Nevada in particular,” Cresco Co-Founder and CEO Charlie Bachtell told Cannabis Business Times. “It’s a very unique opportunity to have the population density, especially when you’re talking about the adult-use market that Nevada, with Las Vegas, can provide. … With Vegas, you have 40-plus million people who descend on an area which is the size of a postage stamp every year.”
The Reef Dispensary location in North Las Vegas serves over 2,300 customers per day—the highest known average daily customer count in Nevada, according to the press release. Revenue at this store, combined with revenue from the dispensary along the Las Vegas Strip, has surpassed $100 million since 2016.
“Cannabis is an interesting opportunity for a lot of those tourists who don’t have access to legal, regulated, tested cannabis where they’re from,” Bachtell said. “With the Tryke acquisition, that Reef Dispensary that’s located just adjacent to the Strip, [it’s] as close as you can get. … Furthermore, to have that supported by a second location in the North Las Vegas area that applies more to the local residents of Nevada [and] that does basically the same amount of revenue as the strip store is impressive. … That’s why Nevada is important, but that’s why the Tryke acquisition with the Reef locations was a very unique opportunity, as well.”
Arizona, on the other hand, is one of the largest medical-only cannabis markets in the U.S., Bachtell said, with more than 200,000 registered patients in the program.
“While Arizona is not necessarily top 10 in the country from a population standpoint, Phoenix is the fifth most populated city in the U.S. and one of the fastest-growing cities in the U.S,” he said. “[It’s a] great opportunity to participate in a very healthy, very robust existing medical market.”
That’s not to mention the prospect of adult-use legalization in the state, Bachtell added, which could pass as early as next year.
Upon the closing of the Tryke transaction and other acquisitions pending approval, Cresco will have 25 production facilities and 29 dispensaries in operation, plus licenses to operate a total of 62 dispensaries, across 12 U.S. states: Illinois, Pennsylvania, Ohio, Nevada, California, Arizona, Florida, New York, Utah, Michigan, Maryland and Massachusetts. The company plans to continue building leadership positions in each of these jurisdictions, Bachtell said.
“If you think about our growth strategy coming out of last year and going into 2019, there was a concerted intent not to focus on additional state expansion,” he said. “What we set out to do was develop the most strategic geographic footprint, and we were confident that the 11 states that we currently had under our umbrella accomplished that. We don’t feel that we need any other state to be able to say we have the most strategic and valuable geographic footprint. The 11 states are super high quality for regulatory structure, population [and] potential market size. We love them. Then, step two in our growth strategy is to ensure that we have meaningful market-leading positions in each of these markets that we’re in. We think that’s the recipe for success—high-quality markets and then good positions in each of those markets.”
Arizona and Nevada were two of the 11 states that Cresco already had a presence in prior to the Tryke deal (with Utah being the 12th state it gained under its umbrella). Prior to the Tryke acquisition, Cresco had one asset in Arizona—a vertically integrated operation with a dispensary, cultivation facility and manufacturing operation.
“With one single asset, we basically were not satisfied just having one dispensary location in Arizona,” Bachtell said.
Similarly, before the Tryke acquisition, Nevada was the only state in Cresco’s portfolio where the company had a minority interest in an operation.
“We had a presence, but it was not a ‘Cresco Labs’ operation, and that was something we knew we wanted to improve,” Bachtell said. “We were fairly fortunate to find an asset. We were perfect for each other. I think we were the right buyer of Tryke and the Reef assets, and I think they were the right assets for us. I think our goals for further M&A activity were to improve our positioning in both of those markets, and this one asset checked both of those boxes.”
Bachtell calls Tryke’s Utah cultivation license an “ancillary benefit, and a great one.”
“Now that we have a regional presence between California, Nevada and Arizona, Utah is a great addition to the portfolio there, where we can have really the same regional team and just include that state also,” he said. “It’s not too disruptive to the current organizational structure to include that, so we’re excited about that, too.”
Also exciting for the Cresco team, Bachtell added, is the newness of Utah’s medical cannabis market. “That’s a construction project first and foremost, and then the building of a market, which we know how to do and we love.”
Once the Tryke acquisition and other pending transactions close (Cresco announced earlier this week its submission of certifications of substantial compliance with the Department of Justice’s request for additional information regarding its acquisition of Origin House), the next phase is executing on these pending opportunities and integrating the assets into its current operations.
“I think you’ll continue to see us be opportunistic when we see M&A opportunities that fit the stated objectives of creating more material and meaningful positions in the markets that we’re in,” Bachtell said. “I don’t think you’ll see us search for a 13th state, now that we have 12. You’ll see our eyes open for good opportunities to further our reach within the markets we’re in, but for the foreseeable future, it’s making sure that we integrate these new components into the Cresco fold and create those market-leading positions that we like having in Illinois, Pennsylvania, Ohio and, now, Nevada. That’s what we like to do—we like to be at the front of the pack in leading markets."