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MPG Consulting: Time Travelers for the Cannabis Industry

Since its founding by Adam Orens in 2014, Colorado-based MPG Consulting, formerly The Marijuana Policy Group, has been helping industry stakeholders with an array of professional services that include market research and analysis, business plan creation, strategic investments, licensing, and regulatory advisement and government services, to name a few. It has an equally diverse client base that includes governments, corporations, investors, entrepreneurs, trade associations, private equity firms, and Native American tribes.

The firm, which manages its workload with only five employees, has over the years honed an engagement model that provides “each client with a bespoke approach to their unique challenges or requirements,” and includes five areas of focus to address clients’ needs: Analyze, Evaluate, Act, Sustainability or Expansion, and Exit. Designed to address the many complexities of the evolving cannabis industry, the model has also  given MPG space to flex its consulting chops in myriad ways and situations, some of them run-of-the-mill, others with stakes that seem to define the core challenges of the industry.

Adam Orens, Managing Director

New York is one example of the latter. As the state moves forward with its conditional adult-use retail (CAURD) program – which this week announced that an additional 99 CAURD licensees had passed initial screening – a coalition of registered operators (ROs) whose members include some of the largest multi-state operators (MSOs) in the industry filed suit seeking the dissolution of the CAURD program and the ability to add adult-use sales to their current medical cannabis locations as soon as possible.

Shortly before the lawsuit was filed, a report titled “New York Illicit Cannabis Market Absorption Analysis” was released by MPG on behalf of Acreage Holdings, an MSO and a plaintiffs in the lawsuit. The report, which provides a detailed analysis of the situation in New York with three scenarios depicting the strength of the illicit market under different licensing policies, including the present one, and concludes that the pathway to the “fastest illicit market absorption” is “Scenario 3 – RO Inclusion. ROs can sell products on the adult-use wholesale market and RO medical dispensaries can serve the adult-use market.”

The job in this case was to provide Acreage with insight based on unbiased analysis and research, but the work also put MPG squarely in the eye of the storm, so to speak, giving it a special perspective on the industry and its challenges. Cannabis Business Executive spoke recently with co-founder and Managing Director Orens about how MPG came to be, its growth over the years, his take on the current state of the industry and what we can expect to see in the future, and a little bit about New York.

Oren’s job is a form of prognostication, one might say. “I often pitch our work as, ‘It’s like we come from the future,” he explained. “We understand how cannabis markets will evolve and we understand what they’re going to look like, and we understand the influences around them – government, economic factors, the number of licenses, the amount of cultivation space, taxes – all the aspects related to a cannabis market we’ve modeled, we’ve looked at, we’ve seen from a number of angles, whether they’re government, business, investors, testing, etcetera. In Colorado we did what was called CHAMP, the Colorado Heritage Advancement and Management Plan, which was an economic development strategy implemented around developing hemp as an industry in Colorado.”

Mile High

Orens first work in cannabis was in 2013. “I was a partner at an economic policy strategic consulting firm based in Denver,” he explained. “We did a lot of work related to economic development and business strategy for companies that wanted to enter the market here in Colorado. I saw cannabis as an emerging market right after Amendment 64 passed, and attended an early meeting of the NCIA in 2012. That was my entrance into cannabis, meeting the people that were there.”

Opportunities to get a foothold in the nascent industry presented themselves relatively quickly. “We worked with the University of Colorado to get work with the state and consolidated all our cannabis work,” said Orens. “I spun our practice out of that to form our own practice focused on cannabis. That’s the origins of MPG.

“We’ve maintained an affiliation with the University of Colorado to do cannabis work, and we still do cannabis work for the state of Colorado,” he added. “We’ve had the Marijuana Enforcement Division as a client for years, and we were the first group to quantify the Colorado cannabis market for the regulatory body. That was our entrance into the public side of the cannabis space, and during the initial licensing rounds in states like Massachusetts, Florida, and Illinois, we did market assessments for different groups that were pursuing licenses.”

The experience provided invaluable insights into how medical and adult-use markets in Colorado and other early medical markets functioned. “We were one of the first outside groups Colorado contracted with, and we partnered with the University of Colorado Leeds School of Business,” said Orens. “I was working at the time for consulting firm in Denver, and then

The following years were ones of unprecedented growth for the industry as the Canadian public markets fueled expansion with funding that only increased as the pandemic took hold. I asked Orens if those dynamics influenced the type or scale of projects, analysis, and market research MPG was asked to do. “Yes,” he replied. “Our practice has evolved with the industry and with the market.

How has it evolved? “Well, one thing has changed,” he said after a moment’s thought. “At first, we were focused on Colorado, then on Western states, and eventually our focus moved east, and then at a certain point we were asked to work on federal issues, and on how the market is going to evolve. So, it’s not just what the market is and what the footprint should be within a state – which we’ve done for states and for companies that are looking to figure out their place in the competitive landscape – but we’ve also done it for states like Virginia, which wanted to give analysis to their regulators so they can see what the fiscal impacts of certain bills will be. We were asked to do a very thorough breakdown of the Virginia market, and this went from answering piecemeal questions about specific market sizes to what is at stake and what is the best way for a state to roll out what they’re going to do as far as the cannabis market and achieve certain objectives.”

The Evolution of Objectives

As the industry has expanded, the stated objectives of states (and regulators) has shifted. “Most of what we’re asked to focus on is how do we best capture the illicit market, which is mostly what we’re best at answering,” explained Orens. “That question has become larger not just market-wise – the nuts-and-bolts and numbers about how many licenses or what’s the market size in terms of a mass of cannabis or dollar amount – but what is the best framework to implement it, how do we implement it, what should it be, and how do we tax it in a way that incentivizes the things that we want to incentivize, whether that’s a certain form of corporate ownership by certain groups, disadvantaged businesses, minorities, those that have been formerly incarcerated, the things that are very fevered right now in cannabis, like legalization, and what New York is doing, and then also what’s best for how we absorb the illicit market.”

The contrast with previous objectives is stark. “In the early days,” he continued, referring to the 2012-2015 era, “the only question was how do we absorb the illicit market. But today, that’s implied, and it’s about how do we do it in a way that is going to achieve our social/political objectives, and how do we right the wrongs of the drug war, and that’s become what legalization is about now. So that’s a change, and then we did work for organizations at the federal level, talking about issues like taxation, licensing, interstate commerce, and how to implement that next federal level. They also have the same objectives to absorb the illicit market, and right the wrongs of war on drugs.”

I asked Orens if that means the current focus is on more incremental changes or more aggressive action to reach stated goals? “What we try to do with every engagement, at least if it’s around the public policy part of this story, is to advocate for the best public policy to achieve the objectives that the jurisdiction has laid out, because that’s what it usually starts with,” he said. “We’re legalizing cannabis, but we’re doing it because of something, and those reasons are usually to absorb an illicit market, and to have a new class of business owners enter into a legal market. Sometimes those two goals are at odds with each other, and so that’s part of what we’re trying to work out, what is that best public policy for the situation. That’s when we’re doing public work.

“If we’re doing private work,” he continued, “it’s how do we achieve those objectives for the corporation given what the rules of the road are and the environment that they’re playing in, and how are they good corporate actors for the long term. As far as federal goes, there needs to be an absorption of this market and it needs to be considered, and sometimes you see with these recent federal bills, like the Booker and Schumer bills, that they state all these objectives and then in the follow-through and execution about what they’re going to implement, they don’t speak to that, or the execution will fail to achieve the goals that they have stated.”

The goals that dominate discussions today are twofold, noted Orens. “To have a federal cannabis market and the illicit market to be absorbed across the country and to implement small and disadvantaged business owners at the forefront of the industry, which is pretty much what’s stated in [the senators’] bills,” he said. “Of course, I’m oversimplifying, but those two goals are very much what cannabis legalization is about, it needs to be deliberate, and we all need to realize those two goals and set out to do them with the policy – issues with licensing, business size, public corporations entering this industry – because if you just say it’s federally legal right now, large publicly traded companies are going to swoop into this market. They’re going to come from tobacco and alcohol and they’re going to throw their weight around and concentrate production in states that are friendly regulatory-wise, whether with the environment or labor issues, and you’re going to see a quick corporatization of this market, and that’s not what the stated goals are right now.

“I’ll give you one quick example to crystallize the point,” he continued. “In New Jersey, New York Connecticut, Massachusetts, all those states in the northeast have legalized cannabis under our current state-by-state situation, and they all have a licensing system, but unlike agriculture or other markets, there’s a high percentage of small-business ownership in cannabis compared to other industries in the United States, and that’s because it’s federally illegal.”

That point required a further example. “In New York right now, the only people growing legal cannabis are licensed hemp farms in upstate New York,” explained Orens. “They are small businesses by definition. It’s the same with New Jersey. MSOs are there but there are still a lot of small and grassroots businesses. Massachusetts, the same thing. There are businesses that only exist in Massachusetts that may have two or three locations, and maybe two locations of the grow. That’s a small business.

“Some of them are owned by minorities,” he added, ” some are owned by a bunch of locals that started a business irrespective of their income, race, or social class, but they’re a class that we as a society has decided is somewhat disadvantaged, and we want to support them. But once this becomes federally legal, those small businesses that have an edible line in one state, or a grow in one state, are going to find it very difficult to compete with larger businesses in the West, or even smaller businesses in the West that have different regulatory or environmental systems.”

It is a vision of profound change, and a warning from the future. “If this corporate story I’m telling you comes about, and the Canopy Growths of the world come into this market from Canada, they’re going to set up large scale grows in southern states, and a grow in Western Massachusetts is going to have a tough time competing,” said Orens. “I think that’s a real fear, and nobody knows exactly how it’s going to play out, but it’s a real issue. If we’re going to say in all these eastern states that this is what we want, that this is the kind of business ownership that we want, then we really need to think hard about how federal legalization is going to work for those groups that we’re declaring should be the business owners and should be successful.

“It’s just something that hasn’t been thought through yet, and I think it’s going to be difficult,” he added. “If you look at other industries, like alcohol, there are tons of micro-breweries in every city. They’re all over, in some places more than others. I happen to live in a heavy concentration of them, but they’re definitely in Massachusetts and New York, and in Stamford, Connecticut, there’s Budweiser and also Joe Brewer, who’s got a pretty good business. Maybe this will shake out and work, but I think it’s a real issue that nobody is really talking about that if New York is going to implement all these policies, and then they’re going to legalize it federally, what’s going to happen to all these businesses when you have groups out of work in California that are just itching to send their product across the country?”

It’s a point that cuts across industries. “I don’t know where your strawberries grown, but it’s probably in the Central Valley of California, or Arizona, and that’s the way it should be,” said Orens. “We’re setting up these businesses in New York without considering that fact, when it should be, ‘Hey, we’re going to give you this opportunity, it’s going to last five years, but after that all bets are off.’ People should go into this with open eyes.”

In California, I noted, the idea was to give small farmers a five-year head start, but that didn’t happen. “With the craft farmers, I think it’s an open question,” he replied. “It’ll shake out, and some of the folks that were pioneers in the industry will disappear, but some who have a long-standing business in an uncertain environment, whether legal or illegal, will be able to make it. I think it is in some ways a normal evolution if you look at other industries. Most consumer-packaged goods are in industries that are a lot more consolidated than cannabis, and that’s going to happen here. If you look at all of the consumer goods, all the food and cleaning products, there are probably a half dozen companies that own 100 brands.”

Those numbers are made up, he stressed, but not the consolidation. “Alcohol, luxury goods, apparel, that’s where all of this is going, but at this point the industry is very fragmented, and businesses are still comparatively small,” he added. “The only place that it can go in our system is the way of other businesses, but sure, there are going to be favorite local brands that persist, and small farms and operations that they are tied to that will still exist.”

He added pointedly, “One thing I do know is that the heaviest 20 percent of cannabis consumers – the ones who consume cannabis every day and know what they’re buying and are very educated connoisseur-level cannabis consumers – drive 80 percent or more of demand. I’ve seen it in state after state. Those consumers are very educated, and I would wager to say most of them don’t want to drink Budweiser when they’re consuming, and they’re not just going to go to large producers. Some of them are cost conscious, so there’s that, but most of them are going to seek out the best deal they can get from a non-corporate provider, someone who they know is local, who they like the story behind the product, and they will buy it often. And that’s going to keep the small-business, artisanal-level, local favorite cannabis producer alive, and I believe that will endure.”

New York, New York

I asked Orens if the Acreage report and others like it are prepared for a specific audience. “We do everything with an audience in mind, whether it’s a state legislature or regulators, or if it’s for public investors or what have you,” he replied. “With the February report, we were commissioned by one of the current medical operators in New York, and we did an independent analysis on it, and we based our work and our conclusions on the analysis.”

The conclusion pretty much speaks for itself. “One of the goals in New York was to capture the illicit market, and we don’t believe that what is happening right now is accomplishing that goal,” he added. “I think most people can see that, at least in the short term, and I think that the registered organizations, which are the 10 groups that are licensed medically in the state, are in a really unique position to help New York towards that goal. Also, New York is a huge market, so if they just open up the licensing to all, they’ll absorb the market faster.”

The issue, or roadblock, lies elsewhere. “New York has got market absorption as a secondary objective to making sure that those that have been wronged by the drug war are the business-owners in place, and they’re willing as a matter of policy to put that in front of market absorption,” explained Orens. “Groups like the registered organizations think they can help New York absorb this illicit market, but then also achieve their business goals.

“At that point,” he said, “it’s one and the same for the registered organizations, and in this case, that was definitely a piece to present to the regulators. That’s why we did it. What they wanted us to produce was something that was analytical and that said to New York, ‘Look, if absorbing the illicit market is your objective, we can help you do it faster.’ That was the whole message behind it, and I believe that New York is a big enough market, at $6 or $7 billion, that when all is absorbed, there could be many levels of cannabis businesses. Most consumers of cannabis know their products, and will search out smaller, more authentic businesses, and  New Yorkers are no different. If New York can get the market open and running, they’ll have opportunities for the [cannabis] business on many levels, if they can make it business friendly, and I’m not sure that that’s the case right now.”

It is a shift in priority with consequences. “With any economic development, it’s like, ‘Alright, let’s get the business licensing streamlined, let’s get land development licensing and permitting streamlined.’ I don’t care what business you’re talking about, that’s the number one thing governments do to incentivize economic development. In New York, it doesn’t seem like they have that in mind right now, and I’m not criticizing them. I think they’re just focusing on a different objective, that’s all. That’s their number one objective, so they’re very laser-focused on that, and I think this market will open up after they’re done accomplishing what they’re now focused on.”

The lawsuit filed on the heels of the release of the report was widely reported, but not unique to New York.  “I don’t know who is behind the lawsuits we’ve seen, but it’s frequently referred to and it has happened in Illinois, Florida, Georgia, and New York, and I’m sure there’s more,” said Orens. “It’s litigation that holds up the process in every state. I can’t say if it’s just big companies, but it’s groups that can afford litigation, and all they’re doing is holding up what is already a pretty impossible process awarding licenses and picking the people that merit it or get it by chance.”

The litigation says something important, but again, not unique. “The decision-making is a very difficult task and the legal issues that pop up in every state only underscore how difficult it is,” he added. “This happens in other industries, and with government contracting, litigation happens every time. It simply underscores that this is becoming a bigger business.”

Peering Into the Future

It isn’t easy for someone from the future to maintain a completely unbiased position when they have a pretty good idea what is going to happen. “I feel like federal legalization is inevitable, but I want to be clear, I’m not on any side of this,” insisted Orens. “I really just feel like if New York is saying, ‘We want these operators to succeed and have viable businesses, and then also be like they are now, those things just don’t match, and like anything we do, we’re one country and it should be done efficiently. The breadbasket of America is where it is; we raise cattle where they should be raised, and farm vegetables where they should be grown, and it will be the same with cannabis.

“That’s the future, and that’s just the way it will be,” he added. “If they’re going to do this, if we’re going to permit them and legalize it, then we should have a plan for those businesses on the east coast. In a year or two, or three, everything’s going to change, so let’s just be thoughtful about how we’re managing this so that they a have an enduring business. It’s constitutional now that you can’t impede interstate commerce in this country, and that’s just what it is, but what we’re doing right now is at odds with the future.”

It does seem, however, that in a strange way the chaos so many markets are experiencing has created a period of time for small businesses to set down stakes, gain some market share, and at least have a fighting chance.

“Yeah, I agree,” said Orens. “When legalization happened (in Colorado), it was like cannabis Silicon Valley. It’s a shame that other states may not get to experience that, because there was a lot of businesses created around that time, and some of them still endure. That’s what this is all about, and one of the great things about legalization was that ‘anyone can start a business’ environment, and I think that three years from now, that may not be the case in whatever state is legalizing. I think there’s an expectation, at least by the state legislators, that [what happened in Colorado is] going to happen in every state, and the fact is that that is at odds with federal legalization and consolidation and production and all of that.”

There are, I noted, single-state operators and MSOs out there that have maintained fiscal discipline over the years, and are not feeling the same pinch as less-disciplined companies, and mentioned Native Roots and MariMed as two examples.

“There shouldn’t be any mystery to this market, and those that realize that are in a good position,” replied Orens. “This is retail, agricultural production, consumer packaged goods, and if you understand the fundamentals of those industries, you understand cannabis. Now, most of what we talked about on our call is the unique regulatory layer to all of this, but at its core, those fundamentals will prevail.

“[Native Roots] really focused on one state, and they made sure they had a good retail footprint, and they approached it as if they were starting a chain of convenience stores, because that is what this is,” he continued. “You need to be convenient in your market, and you need to be easy to purchase, because in the end, it’s just like a bottle of wine, a six pack of beer, or a bottle of liquor on a Friday afternoon after a week of work. Wherever you go to make those purchases, those are the same places you go to purchase cannabis, and those that understand that are going to survive, because they’re going to understand how big their marketing is and they’re going to scale their operations accordingly.

“And we always took that approach,” he added. “I had a lot of experience beforehand doing work in retail, but also for brands looking to enter markets and understand how to be successful in a modern retail environment, which is also changing. The companies that understand that and can instill this business down to what really matters are going to be the ones that succeed. The brands you mentioned are the ones that probably get that.

“There are a few companies, like LivWell and Native Roots, that are strong brands,” he added. “Trulieve has focused on what’s really worked, and there are others, like Cresco and GTI that have done the same. Those are the ones that could endure for a while, or mid-sized MSOs that have a state they’re strong in that they want to emulate elsewhere. Those could last the test of time, and somebody will come along and consolidate them after it goes federal, but I think the industry has definitely got some time to fully develop.”

Tom Hymes

Tom Hymes

Tom Hymes, CBE Contributing Writer, is a Connecticut-based writer and editor with over 20 years’ experience covering highly regulated industries. He was born and raised in New York City. He can be reached at [email protected].

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