A year ago, I had the privilege of sharing Charlie Bachtell and his team at Cresco Labs’ story (The Big Boys Bring the A-Team and Game to Illinois and Beyond: Cresco Labs) with CBE’s readers. It was a story filled with a lot of hope, smart planning, a unique marketing and go to market strategy which we thought at the time was unique for industry start-ups and boy have they come a long way in a short period of time.
CBE caught up with Charlie recently and was happy to hear that Cresco Lab’s story has gotten exceedingly better in just one short year. Not only have they seen revenues triple since launching their Producer/Processor operation in Illinois, but they have also added a dispensary in Illinois and either won or bought licenses in, Pennsylvania, Ohio and Nevada.
Their employee count has more than doubled since last spring and grown to 135 and counting, they ended 2017 at +250% in revenue from the previous year and believe that revenues from combined operations in 2018 will put them in the rarefied air of the largest licensees in the United States. And with pending operating licenses in California and New York, they are well on their way to achieving their primary goal, having a national footprint and being in the top five in national revenues.
CBE: It’s always nice to hear that the good guys are doing well Charlie! Tell us about your whirlwind year and how you and the Cresco Labs’ team were able to accomplish so much since we spoke last April.
Bachtell: It’s been a heck of a year… this industry is difficult to forecast, so we’re very happy to have executed on plan in 2017 and have some incredible momentum for 2018.
We focus on growth/expansion through two primary channels that we refer to as Organic Growth (successfully applying for new licenses in new state programs) and Acquisition Growth (buying licenses in existing/established markets).
It’s impossible to know if you’re going to be successful in a competitive merit-based application process – so we were very pleased to be successful with both of our 2017 state application efforts (Pennsylvania – received Grower/Processor and Dispensary licenses; and Ohio – Cultivation license received and applications are pending for Processor and Dispensary licenses). It’s a testament to the effort that our application team put into both applications – while there’s a ton of things I don’t know…I know that our team engages and works as hard as any other team in the country when it comes to Organic Growth efforts.
On the Acquisition Growth side, it’s also very difficult to handicap the likelihood of success when you’re looking to acquire an existing license – needless to say, due diligence on existing operators in established markets is probably more interesting for us in cannabis than in more traditional industries… You go through quite a few opportunities before finding the right ones. So, again, we were really pleased to be able to find great opportunities in our favorite existing markets – we found some terrific operators that were professional, doing it right and were good fits for us.
CBE: Cresco Lab’s has been working with Denver Relief since launching its effort to win Illinois licenses. How has that relationship progressed since the initial collaboration?
Bachtell: We actually don’t work with them anymore – still a great relationship but we’ve internalized those functions. They have some ownership in PA so we still collaborate there.
CBE: What has worked above your expectations and what has required tweaking to satisfy the management team?
Bachtell: We’ve been rewarded by focusing on our original mission – elevating and normalizing cannabis by committing to regulatory compliance and fundamental business practices. There’s no trick to it. We wanted to build the model for regulated cannabis, and we’re doing it. That said, we’ve had to implement a TON of tweaks since we started, but that was always part of the plan. There are a thousand different ways to cultivate cannabis, extract oil, manufacture infused products, package the products, design the packaging, design the labels, design the customer-facing messaging, etc. As a cultivator, processor, manufacturer and retailer, we have a lot of moving parts. While we’ve stayed absolutely committed to fundamentals, all operators should understand that a fundamental approach includes the requirement to listen to front-line feedback (from customers, retailers and your own employees) and you have to be able to make changes FAST.
CBE: Adding so many employees in a short period of time in a variety of states had to be a challenge. How did you guys manage that effort?
Bachtell: It’s tough and it’s only going to get tougher – in 2017 we went from approximately 45 employees to 110…we’re expecting to be north of 400 by the end of 2018 (and we don’t include any people that aren’t W2 employees of ours in our numbers). This is again where fundamentals come into play. A focused strategy, solid SOPs across the company, and quick but measured decision-making is important. But the main reason we’ve been able to handle this growth and (hopefully) will be able to continue to execute on plan is because of the Cresco family – we have a management team that is second-to-none (seriously) and we have existing employees that are so phenomenal and engaged and that it makes growth/on-boarding new members/integrating into other markets easier than it may traditionally be. Everyone in the Cresco family is committed to making this company the beacon of the industry.
CBE: Cresco has relied on private equity fund its growth. How has that gone and when do you project that operating income will be the major fuel for future growth?
Bachtell: We’ve been successful raising capital from private channels over the past couple of years. Raising capital (smart capital that wants to be part of this industry for the right reasons and can help you achieve your goals) can be tough. I believe that we had success raising capital because our investors appreciated our approach to the industry and our messaging. This is absolutely an industry that can create win-win-win scenarios – do things the right way and all stakeholders (the public, patients, state regulators, operators and their investors) can all have very successful results. While we’re profitable, based on some of our markets being earlier stage (IL, PA, OH, etc.), the point where operational revenue is the major fuel for future growth efforts is 2019/2020 – but that depends on how our growth strategy matures and the opportunities that present themselves.
CBE:How difficult is it to operate in a variety of regulatory systems with their individual nuances and how much of what you have learned in Illinois have you been able to leverage in the new markets and markets to come?
Bachtell: It’s very difficult – state by state nuances will prevent most companies from being in multiple states, let alone a successful multi-state operator. There’s a big difference between being an operator in multiple states and being a successful operator in multiple states – there’s a giant leap in the level of engagement required.
Illinois is a funny experience…it’s hard to find another state program that has had the difficulty level of Illinois. IL was the architect of the current “Generation 2” regulated medical cannabis program – highly regulated, compliance focused and limited licenses that are issued through competitive, merit-based application processes. As the first to design this type of program, we’ve had to deal with some components of the law/rules that probably looked good on paper but have caused incredible difficulty in the administration of the program (like making prospective patients get fingerprinted and background checked before accessing the program along with not having a general pain indication as a qualifying condition). We also had a governor change that happened between the passing of the law and the issuing of licenses – the state immediately went into political gridlock (failing to agree on a state budget for 2015 and 2016) and the medical cannabis program was impacted. We’ve worked hard to be good stewards for the industry, worked with the regulators/administrators to make sure the program was a success for the patients and we’re starting to see the results – IL now has roughly 35,000 patients getting relief through cannabis, some legislative changes may be forthcoming that will make the program more accessible to patients and we’ve accomplished the goal of making the Illinois program a pillar of regulated cannabis. The industry operators that have been able to manage this Illinois process and come out the other end of that tunnel deserve a lot of respect.
Without question, Cresco’s experience in building what we’ve built in IL, and our Founders’ prior experience in the banking industry (arguably the most scrutinized and regulated industry in the US from 2008 to 2015), has profoundly impacted our ability to operate in multiple states with the individual nuances that are found from state to state. A great example is PA – we were the first grower/processor to be deemed “operational” by the state and we were one of the first 2 dispensaries approved by the state to open. We then delivered products to the patients of PA about 40 days before the second operator to come to market – it looks like we’ll end up being 60 days ahead of the 3rdoperator. That’s a great reflection of the benefit of our prior multi-state experiences.
CBE: Tell us more about Cresco Lab’s New York and California efforts and plans.
Bachtell: We’re very excited about these two markets – it’s way more than just the size of the states. We see clear opportunities to bring our model and our brands to these markets.
California is experiencing truly regulated cannabis for the first time – it’s a different world. It’s critically important to have good operators with successful, proven models be part of the program. As the largest individual cannabis market in the world, we’re happy to see sufficient regulation be implemented so the market will be a successful part of the future of cannabis in the US. We’ve developed a lot of great relationships with California-based companies over the past couple of years and we’re just excited to join their program.
We also love the NY market. It’s been one of the most tightly regulated programs in the country and the administration is making some great adjustments to ensure that more patients are able to access the program. Similar to IL, I’m sure some of the more restrictive components of the NY regulation looked great on paper – but in real life, you have to make sure that the regulations still provide program access to the patients that the law was drafted to help in the first place. We love seeing the the state respond and make adjustments the way that they have and hope that this level of careful development continues. NY is a similar market to IL and we think Cresco’s model, approach and brands are going to be well received.
It’s always important to understand if and why your company will add something to a market before it goes into that market – we feel Cresco can provide some good things to both the CA and NY markets. We will be operational in these markets in Q2 and Q3 respectively.
CBE: Sorry to pile on the questions but my guess is that the Cannabis Industry is just seeing the blossoming of the Cresco Flower. What’s next and how do the adult-use/recreational and international markets fit into Cresco Lab’s future?
Bachtell: I like “the blossoming of the Cresco Flower”! You’ll continue to see Cresco focus on executing – executing operationally and executing on our growth initiatives. It’s important not to lose site of the number one priority, providing consistent and high-quality products that benefit the lives of consumers. PA was a great reminder of that for us. It’s easy to get tunnel vision when you’re focused on construction, cultivation, product formulations, packaging, etc. (and you have to) because we wanted to be first to market. We were happy to be first to market – but the best part about being first to market in PA was the impact of getting medicine into the hands of THOUSANDS of patients when they otherwise would not have had access to this medicine. Over that 40-day period, almost 3,000 unique patients were able to get relief because we were able to produce it for them quickly/efficiently – thatis why executing is so important.
Regarding adult-access programs, we see those types of programs as the further maturation of the general populations’ position on cannabis. Our internal perspectives on the accessibility of cannabis have matured over the years and by being in this industry. Me personally, I entered this industry with a focus solely on “medical” applications of cannabis – but by engaging with patients/customers over the last 3 years, I’ve modified my perspective on what “medical” application means. I’ve also seen tens of thousands of people in IL that need access to cannabis for clinically defined medical purposes that haven’t been able to legally access it because the regulatory framework made it too difficult. So, with that, we’re supportive of greater access to cannabis in structured, regulated programs and you’ll be seeing Cresco in more markets like CA and NV.
CBE: So, there you have it folks. From day one, Cresco Labs and their top-notch management team have stuck to the knitting. A solid management team with a strategic vision to expand nationally and beyond to serve the cannabis consuming public in private public partnership with a variety of regulatory systems in some of the most populated states in the US. They have a tactical framework that includes core competency skills and the flexibility that the Cannabis Industry requires to effectively execute state by state. They are confident and competent, transparent, yet humble and realistic in their approach to becoming one of the top five revenue producing players in the US.
Sounds like a great strategic and tactical model for the investing public and consumer marketplace to gravitate towards and support…CBE can’t wait to see where they are a year from now. Stay tuned for Act III!
Cannabis Business Executive Background Information
Company Name: Cresco Labs
Year Founded: 2013
Ownership structure/operating entities: Holding company model with sub-entities in IL, PA, OH, PR, NV, NY, and CA
Charles Bachtell – CEO
Joe Caltabiano – President
Ken Amann CFO
David Ellis – COO
Industry Segment/Category: Cultivator/Producer, Processor, Retailer
Current Markets/States Served: IL, PR, PA, NV, OH – have ownership and soon to be operating in CA and NY
Number of Locations: 13 currently (4 IL, 1 PR, 4 PA, 1 OH, 3 NV)
Number of Licenses by State:
IL = 3 cultivation and manufacturing, 1 dispensary;
PR = 1 cultivation and 1 manufacturing,
PA = 1 cultivation and manufacturing, 3 dispensaries,
OH = 1 cultivation,
NV = 1 cultivation, processing, and dispensary
Current Number of employees: 135+
Market Strategy/Goal: Have national footprint with top 5 national revenue
2015 Revenues: N/A
2016 Revenues: NA
2017 Revenues: NA (IL only – Nevada was another $12M but we didn’t own until the end of the year)
2018 Projected Revenue: NA (includes IL, PA, NV, CA and a little for OH and NY)
Company Revenue Mix: Flower = 55%; Concentrates = 30%; Edibles = 15%
Expansion Plans: Binding contracts pending in CA and NY, expect to close both in April, pending deals in AZ, MA, pending application in Iowa, will submit application for MI, ND, and FL.
Financing strategy: Private capital
Original Story Published April 2017