Missouri marijuana: Growth, opportunity, and obstacles; a conversation with Nick Rinella
The Missouri marijuana market is experiencing significant growth and has surpassed expectations with the launch of adult use sales, which began in February.
The state has seen a dramatic increase in sales after legalizing recreational use in November 2022, with the first month of adult-use sales in February 2023 bringing in over $71.7 million in adult use sales. Since then, the market has continued to grow, in three months of recreational marijuana sales the state has brought in more than $255 million adult use sales and an additional +$90 million in medical marijuana sales. Cracking the billion-dollar mark for total sales just last week.
Despite increased sales. Missouri’s number of active patients has trended downward in recent months. Additionally, the explosive nature of the launch of adult use sales in the state has lead to supply shortages creating challenges for the industry.
For Rinella, the success of the Missouri cannabis industry starts at the beginning.
“With the initial rollout, we had a robust medical program which made a lot more sense than most programs, since physicians were able to determine whether or not it was medically beneficial for their patients to have a medical cannabis card, as opposed to regulators or legislators deciding which specific conditions they will allow medical candidates for when they’re simply just not qualified,” Rinella explained. “They’re not physicians, they don’t practice medicine on a day-to-day basis. And so, I think that was a huge thing that the state of Missouri did.”
The second key factor to early and continued success through Rinella’s eyes is what he calls, “the equitable distribution of licenses.”
“Having at least 24 dispensaries in each congressional district has allowed for patients and customers to have access – pretty much everybody is within 30 minutes of a dispensary. And you don’t find that in other states. You find a lot of cannabis deserts, and that just wasn’t allowed with the medical regulations,” he said. “I think that’s a huge benefit, because obviously there’s other avenues to get cannabis, there’s always the black market. So, if somebody has to drive so far where it becomes inconvenient, they’re just going to revert to the black market.”
It’s that access and variety of products on Missouri shelves that Rinella says has sparked the bursting adult use market, which makes concerns about dipping patient numbers less concerning than they may at first appear.
“I don’t think the consumption rates have necessarily changed (since prior to adult use sales), just what they are consuming, and where they are purchasing it,” Rinella continued. “Are they purchasing a safe, tested product from a dispensary, or something off the black market?”
“I think that that’s one of the things that’s made Missouri so successful.”
“You look at the number of actual production licenses, and when you take the cultivation, the manufacturing and see what we have out there, we have a really healthy marketplace that’s fostered a lot of competition. So, you have a variety of products without going absolutely wild and us having an oversupply of product, which is always the detriment of cannabis markets.”
Missouri faced a large oversupply in many cultivation facilities ending 2022, with some facilities having thousands of pounds of cannabis waiting to move. In the first few months of recreational sales those stocked storage rooms have evaporated, but Rinella says that’s not a bad thing for consumers or businesses.
“When we have an oversupply, in general, you have less innovation because companies end up racing to zero, and they’re just doing everything they can to try to get their investment out and get out of the particular state that they’re in, because of the financial issues. I think we’ve found a great balance here.”
Currently, nearly 15,000 agents are registered to work directly with legal marijuana in Missouri, and ancillary businesses account for hundreds – if not thousands – of other positions that have been created since marijuana was first legalized in Missouri in 2018. In the months since Missourians voted to legalize adult use cannabis in November the agent population has exploded by more than 5,000 – meaning Missouri operators have added nearly 33% of the total number of registered agents in the state within the last 6 months.
“I think Hippos and OG Yields have been impacted (by adult use sales) the same way that they’ve affected everybody. With our dispensaries, we needed to staff up and add additional staff to be able to handle the extra volume of customers, and we’ve done that.” He continued saying, “We did a lot of prepping. Really, the dispensaries are probably the easiest place to kind of transition from medical to rec. You might need to add registers and different bodies. But most of those things can be done – besides the hiring – essentially all within a week. And so, there has been a ramp-up period with that, and getting everybody in place, it hasn’t been the heaviest lift within our vertical operation, to get those properties prepared.”
“Obviously, there’s been an inventory crunch across the state of Missouri, and so it’s just maintaining good relations with all of our suppliers, and really keeping an eye on our inventory, making sure we don’t run out of things. What would have been maybe a month’s supply of product of a certain item a year ago might be half a day’s worth of inventory. We’ve done a really good job internally with making sure that all of our stores have stayed stocked, and that customers had an option in pretty much every category that they would have been searching for.”
“Now, on the production side, with OG Yields, our manufacturing facility (which produces atta and Bad Pony) and then, with our cultivation facility (which produces Sundro), that’s a little bit more of a heavy lift. Because any time you’re adding anything through these facilities, if we’re adding an additional room to grow product, or an additional anything, it just takes a lot more time.”
“It’s just a slower-moving train,” Rinella explained. “We have upped production substantially, both our manufactured product and our cultivated products. And some of those are just now starting to hit the market, based on our adding to our labor force in Vienna, which is where OG Yields is located. We’ve more than doubled that staff. And then we’ve doubled all of our staff at all of our dispensaries. We have nearly 2.5x the employees we had prior to rec, and we operate now seven days a week at our facility in Vienna, which before we were operating five days. So, we added a full other crew of people and another shift, and then we’ve added additional people. So, that’s been really the big thing that we’ve had to do to just ramp up production and keep up with the sales and the volume of the demand from the consumers.”
A recent survey of industry participants by Greenway found that more than more than 90% of respondents who cultivate or produce cannabis products in Missouri had already begun scaling or adjusting their operations prior to the first adult use sales. With a majority of cultivators expanding canopy or adjusting rotation and harvest schedules to better accommodate the quickly growing market.
“I don’t think we’re far off from (being able to fully meet the increased demand) and maybe we’re already there, as far as, we have the capacity to handle the demand – we may not have the variety that is in demand.”
“I haven’t seen any empty shelves in dispensaries, so, it might just be a matter of shifting resources and adding a few more strains within a cultivator’s lineup, maybe adding a few others that they didn’t normally have. That’s a short-term solution. A long-term one is people adding onto their canopy. I don’t think you’re going to see a big change in pricing or in large variety, probably until the beginning of next year.”
Rinella explains that while many operators may be looking to further expand as quickly as possible, that’s not always possible. “(Operators are required to have) regulators approve plans, then you have construction time, and we’re still facing large wait times on things like HVAC units, which are critical for commercial cannabis cultivation.”
“Then you have the lifecycle of the plant. And that’s after everything is completed with construction, if everything goes smoothly. I think you’re going to have a year before you see a large influx of new product, an influx where you’re going to see a substantial change in price. I think, until then, where we’re at now, I think we’ll probably see in the months of May and June where that status quo is going to be.”
“There is additional canopy coming in October, and I think that you’ll see things ramp up from October of this year until October of next year while companies continue to add to their canopy. After that, you probably won’t see a lot of operators adding to their canopy at that point. I venture to say that today’s status quo is likely to remain until next year.”
Missouri has seen the same cycle that other states have seen in legalizing marijuana, but in many ways, the state has gone through the process at a much faster pace than other markets. Missouri opened medical marijuana sales at $65 per eighth, when Seattle opened marijuana sales saw $75 grams. Within one-year average prices had fallen more than 40% with pricing on some brands at or below 50% of retail pricing on opening day. By 18 months the prices on concentrates and edibles had fallen as well. While Mssouri operators were prepared for a rise in customers and demand, the 400% increase in retail dollars and 3-6x increases in foot traffic in many dispensaries statewide were both a blessing and a curse. The overstocked products flew off shelves and wholesale cannabis supplies for manufacturers quickly became a much hotter commodity. While the rest of the country saw historic dips in wholesale flower prices in late 2022 and early 2023, Missouri was seeing prices continue to carry and begin to climb again. Missouri dispensaries have never become bare, and we haven’t faced product exhaustion in the four months since adult use sales began, but we do see a more limited variety in many stores around the state.
“Over time, things will be balanced. Things are pretty balanced right now. You do have product on shelves and available. Remember in Illinois, for the first couple of months of rec, you couldn’t find a pre-roll anywhere. I mean, there has been a supply shortage of such items as pre-rolls in Missouri, but I know our dispensaries, Hippos, have yet to be out of pre-rolls. I know everyone wants things to be perfect. Things aren’t necessarily perfect right now, but we’re getting there, and we’re getting there pretty quickly.”
Rinella expects the strong beginning to adult use sales to continue.
“You look at the tax rates, which I’m super proud of and always tell everybody – ‘Hey, I was the one that pushed for this low tax rate when we were drafting everything,” he explains, “There’s already a market for consumers, and it’s the black market. Long before there was a legal market, there was a black market, and in order to compete with the black market, you also have to compete with them not only on quality and convenience, but you have to compete with them on price. And the low tax rates allows us to do that.”
Rinella is quick to tout the successes of the program and Missouri’s regulators, and the relationship operators and the regulators have had to this point. In a recent Greenway survey, 83% of operators rated their company’s relationship with DCR as good to excellent.
“From a regulation standpoint, I think that Missouri has been fantastic to work with, from a standpoint that they are accessible to talk to, they’re fairly reasonable with anything that they’re looking for and they work hand in hand with licensees to cure any issues that they might have.
“I think there’s been great dialogue between MoCannTrade and the state with any issues that the industry has a whole. So, I think the dialogue in general with the regulators has helped us to operate smoothly because as a licensee, I’m not living in the shoes of a regulator all day long, and the regulators are not living in my shoes all day long. So, when there’s communication, I think that we’re able to better understand each other, and we’re able to better work within the confines of the regulations. And I think it’s easier for them to regulate as well, as long as you have that open line of communication.”
But Rinella did not shy away from his assessment of some of the issues he finds with the proposed new regulations.
“One of the big things, they’re looking to change is packaging regulations limiting to just two colors and limited verbiage. They’ve recommended that only Sativa, Indica, and Hybrid be used to describe the product. Which I think can cause confusion, as traditionally those terms are used to describe different types of cannabis plants based on the physical characteristics, not their effects” he continued. “Although I do believe the idea was fostered with the best of intentions.”
“Not every Indica, Sativa, or Hybrid is going to give you the same feeling or effect. Not every Sativa is going to wake you up, and not every Indica is going to put you to sleep. So, I think that’s one of the things that doesn’t make a lot of sense.”
In his comments to regulators, Rinella referenced the tragic case of cyanide poisonings in 1982, when thousands of caplets of Tylenol were laced with cyanide.
“The culprit tampered with the product, removing it from the original package and replacing it with contaminated pills in similar-looking packaging. As a result, Johnson & Johnson, the manufacturer of Tylenol, implemented safety measures and distinctive labeling to prevent similar incidents from occurring in the future. So, with that being said, using a single color makes it difficult for consumers to distinguish between different products and could lead to unintended consumption of the wrong substances. I think also using multiple colors on packaging can prevent counterfeiting and ensure that consumers are purchasing legitimate products and avoid potential dangerous counterfeit products. We’ve all seen these counterfeit products on the market. Not necessarily in the legal market, but we’ve seen them in the black market, we’ve seen them in other states. You look at anything – look at your driver’s license. There’s a reason that that’s not like a single-color, black-and-white driver’s license. They want to make it tough to produce counterfeits.”
Aside from the prospects of easily replicable design, Rinella’s biggest concerns over packaging come from the inability to properly educate patients and consumers.
“If you look at just dosages – forget cannabis, let’s talk about like over-the-counter drugs, which over 32,000 consumers overdose and die from in the US every year. We know where the death stands on cannabis overdoses, and that’s zero. And then you look at the companies that are producing these over-the-counter drugs, and they’re the largest pharmaceutical companies, with large compliance departments. With that being said, I think you can use deductive reasoning – if the color of the package, having multi-colors, was the reason behind the overdoses, there would have been some pretty big class-action lawsuits. It’s important to have the amount of colors on their packaging to easily distinguish between an extra-strength Tylenol, a nighttime Tylenol, and an all-day Tylenol, no matter one’s literacy level. And if the colors were contributing to the fact that people were overdosing, you’d have a single color. Again, there is no doubt that the state’s suggested rule is based on good intentions but I think we already have addressed any potential issues (through the previous regulations).”
“Looking at it just from a business standpoint, and from the state Missouri standpoint, any time you’re trying to build any business, especially a consumer-facing business, you do that through branding and marketing. And our number one way in which we brand and market is the packaging, just like every other consumer packaged goods.”
“Snickers doesn’t wrap their chocolate bars in a nice wrapper for the fun of it, they do that so people understand what the brand is. And to avoid confusion. I think when you look back and you think of a consumer coming for that thing that second go-around, will they remember the strain name? Will they remember specific things? If everything looks the same, it’s kind of hard to distinguish what to use.”
“The state of Missouri has done a lot of great things, The program has obviously been a wild success, especially with the addition of rec. And it’s given Missouri a similar opportunity to what Illinois has had. And if you look to our East – there’s a lot of major players in the cannabis industry that have come out of Illinois. You look at Cresco, they’re all over the country now, you look at Verano – based in Illinois, all over the country, GTI – all over the country. There’s a lot of major players that are out of Illinois. And are they using their same branding? Of course they are. And people have come to know those brands, and they trust them. I think if you take that, the ability for people to recognize what the brands are, and you pull that away, and you don’t give them a chance to build that trust through branding, you’re really holding back those brands and those companies.
“Due to the state’s pragmatic regulations thus far the program has been extremely successful, and we’ve all been able to build some tremendous brands, that we can take to other states with our headquarters based out of Missouri; and I’m afraid that these changes could slow that down. In essence the downstream effects could potentially go beyond having to change logos and update packaging. It’s going to limit the branding of the companies, which are Missouri companies. We’re proud to operate in Missouri, a state known for having limited red tape and sensible regulations. The proposed packaging changes have the potential to hurt our business and confuse anybody that’s not familiar with every product from top to bottom. With that being said we look forward to continuing to work hand in hand with the Department to provide safe tested product to consumers in the most responsible way and are proud to operate in the country’s best-regulated cannabis program. ”
Danielle Million contributed to this piece.