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420 with CNW — Cannabis MSOs Set Sights on Growing Wholesale Divisions

Cannabis News Wire, Media Partners

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A top cannabis executive recently revealed that several cannabis multistate operators (MSOs) intend to prioritize their wholesale divisions in 2024. Jamie Mendola, the national head of wholesale/purchasing, western region regional manager and chief business development officer at Florida-based multistate operator Ayr Wellness, says that while MSOs focused on wholesale last year, the division will become an even greater priority this year.

Mendola notes that reduced capital will decrease the odds of company growth through mergers and acquisitions or by obtaining more licenses, forcing MSOs to turn their focus to wholesale. He adds that with many vertically integrated cannabis businesses in states such as New York, Massachusetts and Illinois reaching or nearly reaching their total number of retail licenses, wholesale will take higher priority.

The cannabis executive predicted that the “vast majority” of the MSOs in America’s state-level cannabis sector are focusing on organic growth. This growth will likely come from the wholesale division, Mendola said, especially in markets that still haven’t transitioned from medical marijuana to recreational cannabis. However, MSOs will have to overcome challenges such as low cannabis prices to grow their wholesale divisions.

Mendola notes that in Ayr’s case, a double-digit increase in wholesale sales volumes in 2023 was significantly undermined by a double-digit reduction in wholesale prices. Although the company saw notable growth through the end of the year, Mendola says price compression masked a lot of this growth. Limited vertical integration among the newest entrants into the cannabis retail market could help stabilize wholesale cannabis prices as these retailers will need wholesale partners to supply products regularly, Mendola says.

Curaleaf Holdings Inc. (CSE: CURA) (OTCQX: CURLF) in New York is also hoping the state’s increasing number of retail cannabis retailers leads to positive headwinds for the company’s wholesale division. The company’s CEO Matt Darin said in a recent interview that Curaleaf had already begun selling its cannabis products in the wholesale market, likely in anticipation of the flood of demand expected to come from the retail division.

Unfortunately, this strategy won’t be as effective in mature markets such as Massachusetts where both retail and wholesale divisions are at capacity. MSOs in Massachusetts built massive cultivation facilities when there was easier access to capital and cannabis prices and averaged $3,000 per pound.

Ben Burnstein, a senior associate in charge of corporate development at New York-based cannabis wholesale platform Leaflink, says wholesale prices have now dropped to around $1,400 per pound, partly due to reduced foot traffic in brick-and-mortar stores.

Wholesalers can ensure they remain competitive in the increasingly saturated market by building value for their retail partners through varied product offerings, reliability and consistency, Dazed cannabis cofounder Chris Vianello says.

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