Cleveland native Jared Maloof remembers a day in 2016 when Kevin Murphy, Standard Wellness co-founder, asked if he’d help fund a ballot initiative to legalize medical cannabis in his home state of Ohio. Maloof, who has an extensive background in finance, was working in metals—an industry plagued with supply-and-demand challenges. The opportunity to take part in a new industry held appeal.
“In cannabis, there was a very big need for leadership at all levels at the time,” Maloof recalls. And, unlike traditional industries, almost everyone was starting from a similar place. Maloof made a Super PAC contribution toward a ballot initiative, but the Ohio legislature and governor beat the ballot and signed medical cannabis legislation into law.
Still, the call of Ohio cannabis was strong. “I think because it was my home base, I felt like I knew the players. I could wrap my head around it,” Maloof says. He and four co-founders launched Standard Wellness in 2017, believing local applicants for Ohio licenses would have an edge. Their hunch was confirmed. Standard Wellness won its Ohio cultivation license that year and, by 2019, Maloof had segued from metals into the role of multistate cannabis CEO.
Strategic Expansion
From the start, the Standard Wellness team viewed vertical integration as a distinct advantage. “I think vertical integration is essential,” Maloof says. “If you have retail dispensaries, you get close to the patient, and it helps inform the decisions you make when you’re cultivating and processing. The relationship between us and the patient has influenced how we’ve evolved pretty dramatically.”
With an Ohio cultivation license in hand, a dispensary license under the name The Forest Sandusky came next. Standard Wellness became Ohio’s first vertically integrated cannabis company when it won a processing license in early 2019.
While the vertical Ohio expansion materialized, Standard made its first out-of-state move and went for New Jersey in 2018. The team didn’t win a license, but Maloof says he “got the bug.”
“I realized that there were going to be a number of other states to have competitive processes, and it was a one-time chance to grab land in a burgeoning new industry,” he recalls. Standard’s intentional, strategic expansion efforts—focused on limited-license medical states—grew.
Fueled in part by belief in cannabis’s medical benefits, the strategy offered other advantages. Maloof notes regulators in limited-license medical states tend to manage programs so lower initial volumes yield more sustainable margins from the start. “As the market grows, you expand with it,” he explains. “Then that gives you the opportunity to succeed financially.”
By the summer of 2019, Standard Wellness had applications on the table in Utah, Missouri, Maryland and again in New Jersey. They acquired another Ohio dispensary and won cultivation and processing licenses in Utah and Missouri. New Jersey brought another loss—now on appeal.
Maryland is on its way to a cultivation license win. But it took a long, arduous appeal before Standard Wellness Maryland was finally awarded stage 1 pre-approval in April 2022.
Purposeful Partnership
Maloof considers Maryland among the country’s top medical markets—one geographically positioned to capitalize on eventual adult use, federal legalization and demand in bordering states. But Maryland came into Standard’s sights for another reason.
Washington, D.C., Conscious Capitalism executive director Christina Betancourt Johnson, a Maryland resident, recruited Standard to become her partner in Maryland’s rigorous 2019 application round—one designed to promote diverse ownership in Maryland’s medical cannabis industry, particularly for minority- and women-owned businesses.
Now CEO of Standard Wellness Maryland, Johnson would become the first Black and Latina majority owner to win a Maryland cultivation license, but she wouldn’t go it alone.
With an expansive real estate and nonprofit background, Johnson knew Maryland’s business community and culture intimately. She wanted a partner that could demonstrate past performance, mitigate operational risk and act as a sounding board. “When you’re going after a highly coveted license in a limited-license state, you want experienced people in the foxhole with you,” she says.
She also wanted a partner that wasn’t too large: “I didn’t want to get lost in their asset group, if you will. I wanted a partner that really valued working with me, who was really interested in doing business in Maryland, in serving the patients there.”
A self-described “calculated risk-taker,” Johnson approached Standard Wellness after a trusted industry consultant suggested the match.
In Standard, she saw a “gritty” company with “lessons learned” under its belt. “The leadership team also had an acute awareness of finance and risk management, which is really important when you’re moving into the plant-touching business, especially in a limited-license state,” she says. “I felt that Standard was led by a group of community-conscious operators, which was parallel to what I wanted my business to be and how I wanted our business to show up in Maryland.”
Johnson went to Ohio and pitched the partnership. “At that point, we sort of knew,” Maloof recalls. “I would say to you… that we would have chosen Christina as a partner, regardless of the way the application round was structured. We were that impressed with her.”
Standard improved the application’s chances because of demonstrated cultivation operational expertise. Johnson improved the application’s chances because of her local market knowledge, professional background, and the round’s emphasis on social equity.
But Maryland’s 2019 round left Standard Wellness Maryland in the cold. Amid assertions of inequity and bias, a lengthy appeal for a cultivation license ensued. As Maloof says, “… it took two years of hell that Christina had to go through to ultimately get it.” But get it, she did.
With the battle for Maryland cultivation finally won, getting operational has just begun. As with Standard’s operations in other states—from financing and construction delays to production deadlines and legal appeals—the steps to MSO status don’t come easy.
Multistate Financing
As Standard Wellness grew, Maloof and team experienced the rollercoaster of financial interest in cannabis companies. He’s notably transparent about the ride.
Maloof says that Standard Wellness’s initial capital raises were equity raises. “We did so in 2017, when raising money for cannabis was relatively easier than it is today,” he says. “We raised $100,000 from 12 different people. That gave us enough money to apply in Ohio. Those were 12 people that took a bet on us, which we’re extremely grateful for.”
Once Standard won Ohio cultivation, Maloof says 2018 equity raises were relatively easy. But then 2019 and 2020 hit. Equity investment dried up, but Standard had just won Utah and Missouri licenses. There were facilities to build and deadlines to meet.
The team ultimately found a lender, at what Maloof calls “cannabis terms” of 13.5% interest and significant original issue discount—terms that most cannabis operators know well. But then they found a community bank willing to loan at 6% interest, no original issue discount, 25-year amortization and a 10-year term.
In 2021, on the heels of President Biden’s inauguration, investor optimism rose. Standard closed on its bank financing, the capital markets opened, and the company raised more equity. Maloof shares that Standard’s capital raises have been most successful raising equity from medium- to high-net-worth individuals.
“In the early part of 2021, we got all the financing that we needed—or so we thought,” Maloof says. Then came rising costs and disrupted supply chains. “So, we’ve been out there until just recently, raising more equity and debt to offset those supply-chain delays and cost escalations,” he adds.
Creative Problem-Solving
Standard’s expansion hurdles ranged from minor problems to what Maloof calls major mistakes. At the top of his list: the initial decision to house 100% of Ohio flowering capacity in greenhouses. Though winters saw high-quality product, Standard struggled with acceptable quality during summer humidity and heat.
The team decided to relegate summer greenhouse-grown product to extraction and add indoor facilities for year-round flower. Ohio indoor production started in January this year.
Maloof feels another mistake was using general contractors (GCs) without cannabis experience. “Growing cannabis inside … is a complex puzzle. Airflow, HVAC, carbon dioxide, light levels. Getting all those parameters to work perfectly, simultaneously is a real challenge for GCs and engineers,” he says.
The lessons have been expensive, but instructive. “My mantra is as we move into new markets, we’re going to make all new mistakes. We’re not going to make the same one,” Maloof says.
Utah held different challenges. With a looming March 2020 deadline for cultivators to start selling into the market, Standard Wellness was still seeking financing. Then Standard forged a temporary plan to grow in 500-square-foot, shipping-container grow pods until they could secure the financing needed to build their planned cultivation operation.
Maloof says two things happened: They discovered the controlled pod environment yielded very high-quality product, and, when capital challenges hit and build-out plans stalled, cultivation and processing pods had already been deployed. Last year, the Utah operation added an outdoor grow.
When frost threatened the October harvest there, Ohio and Utah teams joined forces, working into the night with headlamps—more reminiscent of pre-legalization harvests than a legal grow. “We all came together around something that’s as awesome as an outdoor harvest. It was probably one of my most rewarding moments as the CEO of the company,” Maloof says.
In Utah, permanent 35,000-square-foot facilities are going up as this issue goes to press. The two- to three-tiered facilities should be online in late Q4 2022 or early Q1 2023. Meanwhile, the pods and outdoor grow keep rolling.
Missouri had a longer lead time, but a similar story. Funding fell short after Standard won its 2019 license, and it took a year to get state approval to grow in pods, which finally went online May 2021. The team hopes to add an outdoor grow this year. Like Utah, permanent 35,000-square-foot vertical growing facilities are slated for July completion, with Missouri operations in full swing this October.
Strength for the Future
With adult-use on Maryland’s ballot this November, Johnson is confident it will pass, but she cautions that many variables will impact rollout. “[Passage] does not mean there’s a finger snap and we have recreational in 2023, much less 2024,” she says. Her focus is more present.
“Jared and I, we are working side by side to make sure that this operation is stood up, and Standard has extended their resources to make sure it’s done successfully,” Johnson says.
Priorities are real estate options for Maryland operations, including a planned 70,000-square-foot facility, and acquisition of a processing license. “Then we are focused on fundraising to ensure that we are properly financed to build out that facility and a first-class team,” she says.
And as far as plans for retail, Johnson responds in what seems true Standard form: “We are trying to eat this elephant one bite at a time.”
Back in Ohio, adult-use initiatives now focus on 2023. Standard’s plans include building a 100,000-square-foot shell that will house a 25,000-square-foot expansion to the company’s existing footprint of 57,000 square feet, with the balance available as Ohio’s cannabis markets grow. New dispensaries on tap for Cincinnati and Kansas City, Mo., will bring Standard’s retail assets to four.
“If we think about where we want to grow, our goal is to strengthen where we are,” Maloof says. “Originally it was Ohio. Then it was the expansion phase—new markets. Now it’s get strong in the states in which we operate, which means adding retail in all of those states.” And, he adds, keeping an eye on any new competitive application space.
Maloof holds that everyone in the cannabis industry is burdened; not just by banking or taxes or regulatory frameworks and supplier surcharges, but by the industry’s characterization as higher risk. “With all of these forces working against cannabis companies, those who can survive until we have normalization in our businesses are going to really thrive once we’re treated like everybody else in the world,” he says.
“As is so often the case, the source of your biggest weakness is also your biggest strength. Our weakness is the way that other people treat us. But it’s also our strength, because it’s making us all stronger having to deal with these challenges.”
And Standard Wellness intends to be strong and standing when the smoke finally clears.
