Thirty-five states across the United States have embraced legal marijuana at least for medical purposes, creating a frenzy of activity among industry players scrambling to establish a national footprint in the emerging space. For this reason, big-budget acquisitions are transpiring seemingly every week. The largest among them happened in May 2021 when Trulieve, Florida’s most prominent cannabis producer and retailer, bought out Harvest Health and Recreation, Arizona’s largest operator, for a reported $2.1 billion in stock.
Trulieve’s purchasing of Harvest Health and Recreation exemplifies a massive trend amongst producers who are growing national cannabis companies one State at a time. These groups are known as multi-state operators (MSOs), who have already invested billions in vertical integration in assuring they have a seat at the table early as states legalize. Another model known as Multi-State Brands (MSBs) refers to companies building a brand nationally by partnering with vertically integrated operators with the goal of growing distribution fast but with lower upfront capital requirements. I’ve been following one MSB since their 2017 launch called Toast, which offers a wide range of marijuana and hemp-based products.
The urgency amongst MSOs comes down to what industry insiders believe is a safe bet: Cannabis will eventually become federally legalized. And if this happened tomorrow, the industry would wake up in a world with relative few “national” cannabis brands, meaning those with a presence in multiple states. The brands like Toast who do exist are actively building their footprint not only to grow their business, but to potentially sell it one day to bigger players such as Altria, Anheuser-Busch InBev, LVMH or a yet to be determined large cannabis conglomerate or MSO. For these giant corporations, it’s often less expensive to purchase an operating brand than to build one from scratch. For the brands, many feel it’s wise to set themselves up to become acquisition targets. In this spirit, one of Toast’s priorities is expanding in New York, the most coveted state to recently legalize.
A Green Rush In New York
New York only recently legalized recreational Marijuana in March 2021, and how State lawmakers will ultimately regulate Cannabis is still being sorted out. Since its unclear how the final governance will look, most activity in New York thus far has been legal hemp-derived CBD or medical marijuana products. Toast launched its hemp-based CBD line in New York back in 2018 with vegan restaurant group, by Chloe, a relationship which Toast Co-Founder and CEO Punit Seth says was the perfect way to bring Toast into the New York scene. Since then, Toast has partnered with high-end retail outlets like Higher Standards in Chelsea Market, Zadig & Voltaire in SoHo, and Brooklyn-based chocolatier Fine & Raw, all in an effort to cement the Toast brand in the eyes of the New York consumer. Toast recently announced a strategic partnership with New York-based Topical Biomedics, a 25+ year topical pain company, to tap into its distribution network of over 40,000 locations and explore other ways to collaborate. But if the legal recreational market goes the way experts believe it will, we are only witnessing the tip of the iceberg.
New York is slated to become one of the first states to write legal consumption lounges into its original laws. Going all-in on recreational pot by allowing these public spaces opens a massive revenue opportunity for the hospitality industry as well as distributors, manufacturers, and brands. And you can bet all of these are already investing and creating partnerships so they can hit the ground running when doors on these lounges are permitted to open. Columbia Care is one of the leading MSOs in New York and recently purchased 34 acres containing nearly 1 million square feet for cultivation for $42.5 million. The move positions Columbia Care as a leader in the New York Market. Toast already works with Columbia Care in Colorado with The Green Solution, but according to Seth, locking down distribution for dispensaries and lounges will likely be the most competitive market area. Seth shared that Toast has a letter of intent to distribute its CBD products in New York with Manhattan Beer, who has been servicing New York City since 1978.
Seth says, “New York has the benefit of learning from what has worked and what hasn’t in other markets. We are pleased to see the focus on social equity and that regulators are forward thinking about the supply chain and consumption lounges. With that said, because it is New York, it will be hyper competitive. While Toast was born in Aspen, CO, New York has always been our second home and we are fortunate to have developed key relationships with leading cannabis and non-cannabis businesses in New York as part of our preparation for adult use legalization.”
What makes the idea of consumption lounges in New York so attractive to the industry is not only the sheer size of the New York City market, but also because most states don't currently have them; California recently legalized lounges and in Nevada, dispensaries began the application process for licensing on July 1, 2021. While most legal states are slow to allow consumers to partake socially, smokers are restricted to consume primarily in private clubs and residences. The idea of a cannabis lounge scenario where a captive audience is ordering your product off a menu is a sexy proposition for brands like Toast, who are in the business of making their company synonymous with luxury and mindfulness. Meanwhile, lounge owners are seeking brands that fit their clientele, and Toast is already finding its home amongst upscale eateries by striking a deal with New York-based BLT Hospitality founder Jimmy Haber, who is planning a lounge dedicated to a luxury cannabis experience in New York City.
"Cannabis will have a large influence on New York hospitality,” says Haber. “Cannabis lounges will require education and a guided, high-touch experience similar to what you find in a speakeasy or a BLT location. Toast products are beautifully designed and micro-dosed, which encourages responsible consumption. The brand's image and its roots in developing products of the highest quality played a key role in my decision to partner with Toast. Soon, New Yorkers and tourists can Toast responsibly."
According to Toast’s Co-Founder, Executive Chairman, and former AB InBev CMO, Chris Burggraeve, lounges are the ideal way for consumers to become educated about Cannabis and discover brands and products that best suit them. Toast has a history of working with cannabis lounges, most notably partnering with Loopr in Aspen, Colorado to create a Toast Mobile Cannabis Lounge during ski season. The lounge also made a debut at the Food and Wine Classic in Aspen. As the industry evolves, Toast plans to continue partnering with global leaders like Haber and BLT Hospitality to bring this experience to New York and beyond.
“Brand building as part of cannabis 3.0 forces us to think differently in a legally constrained growth category,” says Burggraeve. “Toast is systematically building its national brand position, and there is no place like a post-shutdown Big Apple to showcase the full potential of Toast’s brand promise.”
