Item 9 Labs Corp., an Arizona-based, vertically integrated cannabis franchisor, is continuing its expansion across North America with its recent acquisition of Sessions Cannabis and all 43 of its Canadian locations.
The company, with cannabis licenses in 15 states, is also expanding operations in Arizona, Nevada, Colorado, and more states in effort to ‘keep cannabis local,’ the company’s motto.
But behind the ongoing expansions and acquisitions, Item 9 Labs Corp.—with its name inspired by the Seth Rogen and James Franco stoner flick “Pineapple Express”— believes its franchising model puts the company “in the right spot at the right time to do the right thing,” says Chief Franchising Officer Mike Weinberger.
Weinberger and CEO Andrew Bowden joined Cannabis Business Times for an exclusive interview on Item 9 Labs Corp.'s recent accomplishments, and where the company sees itself and the future of U.S. cannabis next.
Zach Mentz: Item 9 Labs Corp. recently acquired Sessions Cannabis, based in Ontario, and all 43 of its locations. How did you identify Sessions Cannabis, specifically? What were some of the criteria that led you to wanting to acquire them?
Mike Weinberger: So we're always open to any acquisition or merger that makes sense. We're looking for good people, good brands, good systems. And strangely enough, Sessions is a franchise system and that's what we do. There aren't many franchisors in cannabis. We call ourselves the only one in the U.S., there's a few that are in its infancy, and then in Canada, there's about three of them.
But the Canadian Council for Sessions is our Canadian Council; Steven Fry is the CEO and the founder there [at Sessions Cannabis]. And they saw a lot of synergies between our team, between Andrew and me and between Steven. We went on our first date, met him, we talked the same way on franchising, about our vision for putting local people in business, about growing a franchise system, about taking care of patients and guests, and just had the same moral compass.
And from there, it kind of just developed. We started talking in October , and then you get the lawyers involved and go through the diligence and it really just became something pretty special. We're very excited about it.
We moved fairly quickly when, after we had the first couple calls, Andrew and I realized there was a good working groove. Steven's going to be staying on and running the Canadian division and doing what he does just with more resources, more support, and obviously Sessions will become Unity Rd. That'll give us more brand recognition, penetration [and] saturation in both the U.S. and in Canada. So it's great.
ZM: So all 43 of those Sessions locations in Ontario will be rebranded to Unity Rd.?
MW: Yup, we're shooting for by the end of this calendar year.
ZM: Item 9 Labs Corp.'s motto is ‘keep cannabis local.’ Can you explain the meaning behind that message and why it is so important to ‘keep cannabis local’?
Andrew Bowden: Giving back to the local community and allowing other people to have opportunities in the cannabis industry is a big push for me. The ‘keep cannabis local’ motto is near and dear to our hearts because we do have a few different aspects. We've got multi-state operators which are really trying to jump into different states, but mainly at the limited licensing stage. And then you have the state conglomerates, which are essentially these single-state operators that are trying to just take over a state.
We’re trying to give the MSO power to local entrepreneurs to get them into business, to keep them in business, and show them how to run their own business. That's really what the franchise model does; even though it looks as though we're a multi-state operator, we are really helping those local entrepreneurs with every single part of their business, which both Mike and I are extremely passionate about.
MW: My background is franchising. I went to law school to help people and realized that lawyers don't always help people. And I was fortunate enough to find franchising about two decades ago. So for the last two decades, I put people in business, and that's what we're doing here.
It might be cliché, ‘It's the American dream.’ Maybe it's the Canadian dream now, too, of just helping people. That's where Andrew and I come together. That's why Unity Rd. got acquired by Item 9 Labs a year ago, and that's why we bring Sessions in. Steven has that same vision and moral compass and values of taking care of people.
If you take it a step further, all these dispensaries that are opening with these big MSOs, they're all corporate, right? They got employees, but they're not invested. These are just jobs.
And dispensaries are new, depending on the market. So you got local business people there. These are people from your community. … The people you go to church with or kids go to the same school, those are the people you're going to resonate with, that you’re going to trust your medicine or your recreation with. So we believe there's a secret sauce, a little bit of a competitive edge and some authenticity of having those local business people own it.
The local businesspeople should own it. It shouldn't be owned by the same big corporations across the board. This is an opportunity to level the playing field a little bit. Those are some of the tenants that Andrew and I and now Steven all stand behind—keeping the business in the community keeps money in the community, and it can grow that community up from within.
ZM: What's it like operating in the Arizona market, specifically, where Item 9 Labs Corp. is headquartered? What are some of your challenges, and what are some of the opportunities that also exist in that market?
AB: Arizona is the fastest growing cannabis market right now, and it's pretty incredible to watch. We've grown our product brand pretty massively over the last few years. Year over year, [revenue was] about $4.7 million [in 2019] to $8.7 million [in 2020] all the way up to $22 million last year, so massive growth on just the product brand side.
I think there is a ton of opportunity in this market, but some of the biggest challenges in cannabis are financing. Not a lot of people want to walk into the industry because they don't necessarily trust it yet, even though it’s definitely a proven market. The United States surpassed $25 billion [in sales] in 2021, and that's just the legal cannabis market. There’s obviously a black market out there … but again, we're also seeing by 2024 [the U.S legal market] surpassing $50 billion. This is a real industry, it's a real market, and you're going to be seeing that in Arizona as well as California and all these other markets. But in Arizona, Item 9 Labs is usually battling for the number one, number two, or number three spot as we really do have a great product plan. We make a great product and we got one of the biggest SKU selections out there.
ZM: What is something most people don't realize about the cannabis industry?
AB: I think one of the biggest misconceptions is that it's not a medicine. I came into the industry specifically targeting the medicinal factors because, back in 2016, my mom was diagnosed with triple-negative breast cancer. And we got her some of the Item 9 Labs products through one of my good friends, who is one of the founders of Item 9. She was utilizing the product all the way through chemotherapy and radiation, and it's what gave her the strength to battle and become, now, five years cancer-free through the help of cannabis. So I think one of the biggest misconceptions is that it's not a medicine and it's just a drug.
I see it as completely the opposite direction. I think it is a medicine, and opening it up to the recreational platforms, what that does is it also opens up to medical patients that don't necessarily see it as legal until it's passed on a state level. Once it's passed on a state level, I think people are realizing, ‘okay, well maybe I'll try it for sleep. Maybe I'll try it for my anxiety. Maybe I'll try it for the different ailments I've got.’ I think that's going to open the actual medical-recreational market. I think it's going to change the industry.
And when they break things into medical and rec, I think we're seeing another market, too, that’s also opening up, which is kind of that medical-rec market where people are okay with buying it.
ZM: What are Item 9 Labs Corp.'s short- and long-term goals?
AB: We're looking at right now expanding across the U.S. We currently have one franchisee in Colorado, and we own one store in Colorado that's going to open here [this summer] that's going to be a corporate store. We have another store that we're acquiring in the Washington Park (Denver) area, so we're going to have three stores there. Bringing our product brand into Colorado is one of the next steps while continuing our franchisees moving into that state as well.
We have an Oklahoma dispensary that we acquired. We also have won a franchisee a license in Chicago, and one in South Dakota. We've got three in New Mexico one in New Jersey. Our goals are to get these stores open in as short of order as we possibly can while also expanding across Canada, as well, and bringing our product brand to Canada and bringing our product brand into the states where our franchisees are located.
MW: Unity Rd. is the vehicle to bring the Item 9 products to the masses. We’re going to pick select markets—[Andrew] named Colorado in particular—and once we get a throughput on a number of locations or topline sales, then we bring our award-winning Item 9 prerolls and live resin products to these markets. So as we win in [New] Jersey and the rest, you're going to see our product across the country, which is pretty cool.
ZM: What are some of Item 9 Labs Corp.'s most proud accomplishments over the last year or so?
AB: We've had 24 cannabis industry awards. We closed the loan with Pelorus, which expands our Arizona facility from 20,000 square feet up to about 85,000 square feet. We are about to finish our Nevada facility, which is 20,000 square feet. It's about 98% complete. We acquired [a dispensary license in] Adams County, [Colorado]. We’re going to take that, bring it in house, flip it into a Unity Rd. and sell it to a franchisee. And then we’re also in the process of acquiring Herbal Cure, which is in the Washington Park area.
MW: For me, it's the same list, but obviously the Sessions deal is huge. Being able to complete [One Cannabis Group’s] merger in with Item 9 was a game-changer just to allow us to scale together. And then there's this magazine called Cannabis Business Times that we won one of the best places to work in retail. That's huge because that's what I always shoot for, and we've been able to recruit and bring in exceptional talent. Our team continues to grow with really, really strong people that believe in our mission. Andrew and I are about the people and winning the award for your magazine and having the people believe in the team, that's what gets me excited, man.
ZM: What do you think the future of U.S. cannabis ultimately looks like? And where does Item 9 Labs Corp. fit into that picture?
AB: It looks like franchising. That's one of the biggest things that we're seeing; 50% of retail [in the broader economy] is sold through a franchise, whereas only 10% of retail stores are franchisees. With every other industry that we look at, it all moves towards franchising and a common experience and being able to walk into a store and know exactly what you're going to get from that store. Historically, that hasn't necessarily been the case in the cannabis industry, so what we strive for is making sure we've got top-shelf products [and] we're helping you every step of the way. The future of cannabis is franchising.
MW: I think the counterpoint to that is there's going to be a lot of consolidation in the U.S. market. You got 11 or 12 billion-dollar MSOs that are gobbling up everything they can and squeezing on the mom and pops, trying to grab as much license and as much real estate, and it's going to be hard to compete with them.
But to Andrew's point, the answer is franchising because these municipalities and jurisdictions want to put local people in business, and they want them to be disproportionately impacted by the war on drugs and putting the right people in business. Those people won't be able to succeed against the bigger giants without support, without SOPs, without cash handling, without brand recognition, without volume buying. That's what we provide. They own that business 100%; we're just providing support to them.
It's going to come down to a lot of big MSOs owning the U.S. market and franchising being their competition, because it's that bifurcation of where the licenses are going to go and what it looks like. That's kind of been, to Andrew's point, how other businesses in the U.S. and around the world have gone. It's big business, and then it's locally owned with franchising behind it. So I think we're in the right spot at the right time to do the right thing.
ZM: What advice would you offer to either new or existing operators that really want to succeed in this industry?
AB: As much as it sounds cliché, the cannabis industry is different in that it moves in dog years. So it’s extremely fast-paced, and we've seen it all. What we're here to do is help those local entrepreneurs get into business and stay in business. But it's just a different industry for sure.
MW: My advice to anyone is pick your partners carefully; do your diligence, spend some time. It's a nascent industry. It's brand new and no one really knows where it's going to go and what it's going to do. So you need to spend an extraordinary amount of time on the strategic planning and making the best decisions you can with the data points. The other thing is just, have a safety net with some cash and then be flexible because—Colorado's a testament to this—things are going to change. And if you're rigid, cannabis is not for you because that industry is going to have some massive changes over the next one, five, 10 years. And that's okay, but just be aware of that.