Adam Jackson
In recent months, Curaleaf Holdings Inc. (CSE: CURA) (OTCQX: CURLF) has made more headlines for its exits than its expansions, but this week’s acquisition of Deseret Wellness, a Utah-based cannabis retail operator, highlights how the company is still targeting key markets.
The deal, worth approximately $20 million, includes three of Deseret’s retail dispensaries situated in Park City, Payson, and Provo, which have a combined annual revenue run rate of $14 million.
In a statement, Curaleaf’s executive chairman Boris Jordan said that the deal “represents the largest cannabis retail change of ownership in the state’s history and bolsters our strong position in the market with an attractive portfolio of retail assets.”
Curaleaf had been on a rapid expansion spree for years, but recently it’s traded its broad land-grab approach for a more deliberate patchwork model that values various cannabis-specific growth factors, including:
- Limits on types of products allowed.
- Qualified conditions approved.
- Rules for prescribing doctors.
- Store count limits and local opt-out rules.
CEO Matt Darin said that Utah has become an “important emerging market” for the company, and the acquisition “immediately” strengthens Curaleaf’s retail footprint in the state.
In a March 29 note, Viridian Capital Advisors touched on the challenges multistate operators face as they try to maintain profitability amidst tightening cash flow.
Even as the company’s exit from the legacy west was unsurprising, Viridian posited that Curaleaf’s recent decision to close a New Jersey facility and lay off employees shows the gap between periods of high margins in newly legalized markets is becoming more narrow.
“After all, NJ has some of the highest cannabis prices in the nation and seemed to be the poster child of new market profitability,” the firm wrote. “It shows what we have talked about here for some time: the period of extreme profitability between when a market first goes rec and when wholesale pricing begins to fall is shortening.”
Although some markets, such as Michigan and California, show promise for more stable pricing due to consolidation efforts, challenges remain. In California specifically, pricing is stabilizing after many cultivation licenses failed to renew, but retailers continue to struggle financially.
Viridian suggested that consolidation is the inevitable next step in the cannabis market, “but everyone wants to be a settler, not a pioneer.”
Critics argue that Utah’s program is deliberately expensive and fails to deliver the promised quality of care. For instance, restrictions on the number of patients a doctor can provide a medical marijuana card to make diagnosing patients more challenging and drive up the cost of visits.
Complex regulations and separate state licensing fees for various aspects of the business also have made it difficult for operators to thrive. Although marijuana prices in Utah are average compared to the rest of the country, the overall system’s cost can be prohibitive, making it harder for patients to access effective care.
But that hasn’t stopped them from signing up. The Utah Department of Health and Human Services’ Center for Medical Cannabis reported nearly 60% rise in medical cannabis sales in Utah from 2021 to 2022. Sales during the year totaled $118.7 million, up from $74.8 million in 2021, according to agency data, and in January 2023, net sales were $10.9 million, with more than 60,000 registered patients registered in the program.
Persistent pain and post-traumatic stress disorder are the most common qualifying conditions for medical cannabis in Utah. The number of active registered patients in the state also grew by 51% from Oct. 1, 2021, to Sept. 30, 2022, according to the Center for Medical Cannabis’ 2022 annual report.
