Marijuana companies are spending millions in the run up to recreational sales launch
Cannabis Companies Gear Up for Adult-Use Market Launch.
Ohio’s established cannabis companies are gearing up to serve a significantly larger market as a regulatory framework allowing non-medical sales to begin in early summer comes into focus, investing heavily in their companies along the way.
On May 13, the Joint Committee on Agency Rule Review (JCARR), a state rulemaking body, gave final approval to regulations allowing applications for dual-use licenses to go live in early June.
Barring any setbacks, the expectation is these licenses—which will allow licensed medical marijuana companies to serve non-medical customers aged 21 and older under medical program rules—will be awarded around the back end of next month.
"Given the foundation already laid through the Medical Marijuana Control Program, current medical permit holders positioned to apply for dual-use status who have already undergone many of the comprehensive checks are anticipated to have a much quicker turnaround for issuance of licenses over the summer," said James Crawford, a spokesperson with the Ohio Division of Cannabis Control (DCC).
Companies such as Cleveland’s Standard Wellness, a Level I cultivator and processor whose dispensaries are branded as “The Forest," have been investing millions of dollars in anticipation of an adult-use market that could launch in the back half of June.
That money is helping to scale up cultivation and manufacturing, increase product inventory, enhance retail stores—particularly with new software at points of sale—and expand its workforce. The company has about 250 employees today with 60 additional positions open across operations.
Standard Wellness CEO Jared Maloof estimates the investment in these preparatory efforts to be around $10 million.
“We are doing our best to get ducks in a row from production and capacity perspectives,” Maloof said. “We’re ensuring dispensaries are prepared for increased volumes and doing all the things DCC would like to see us do in order to be ready. I think we are all anticipating that on June 7, the applications for dual-use licenses will be published, and we are hoping to be able to turn those around very quickly.”
Many other companies estimate that they're investing several millions of dollars to improve or enhance operations ahead of the launch of adult-use sales.
“We are encouraged to see that Ohio’s JCARR has approved regulations for adult-use sales to commence within the coming weeks,” said Matt Darin, CEO of New York-based Curaleaf, which has Ohio cultivation and processing facilities in Johnstown.
“The Ohio adult-use market shows great growth potential, and Curaleaf has been actively preparing to serve the projected $2 billion market that will come after adult-use sales commence,” Darin said. “We plan to submit adult-use license applications on or before June 7 for our two existing (retail) locations in Newark and Cuyahoga Falls, and plan for continued growth in the market.”
Reaching a milestone
The launch of adult-use sales is a milestone for Ohio’s nascent marijuana industry, which has languished for the past several years in a lackluster medical-only market.
The market here has been rife with challenges that go above and beyond the typical issues cannabis companies have faced, such as the 280E tax codes that prevent companies working with Schedule I or II substances from deducting ordinary business expenses.
That array of challenges includes competition from illicit markets and neighboring states with cheaper marijuana, a flat customer base that has stagnated at around 167,000 active patients, advertising restrictions, an oversupply of product and customer confusion—Ohio’s weird, regulator-derived formula for dispensing medical marijuana via “day units” is simply not doing the industry any favors.
While retail prices on medical products have been coming down, some items may still be priced comparatively high as a result of an expensive and highly regulated industry. With products not any cheaper to grow or make, as prices come down, margins for businesses get tighter.
Medical marijuana sales began in Ohio in January 2019. Since then, and through March 25, licensed companies have sold $1.78 billion in cannabis flower and manufactured products.
That includes $484.4 million in sales in 2023, which marked annual sales growth over 2022 of just 1.2%.
That’s a disappointing figure for marijuana operators.
“One-percent growth in a 5-year-old medical market causes a lot of concern, especially when license holders had to ship 20% to 30% more product just to stay even with 2022,” said Andy Rayburn, CEO of Buckeye Relief, which has cultivation and processing capabilities in Eastlake and dispensaries under the “Amplify” brand.
“My estimate is that over the last year and a half, the large majority of license holders in Ohio have been losing money,” said Rayburn, who also is president of OHCANN, the state’s trade group for marijuana companies. “The new market will double demand on day one and bring relief to those companies that have been funding losses for a pretty long time.”
According to market projections from New Frontier Data, Ohio could see $420 million in non-medical sales in 2025, the first full year for adult-use sales.
By 2030, New Frontier estimates that annual non-medical sales in the state could potentially balloon to more than $2.8 billion as the market captures consumers who have been buying from neighboring or illicit markets.
“We expect that revenue within the state should triple as the program ramps up, which will bring significant support to many struggling operators,” Maloof said.
'A whole new market'
While cannabis businesses have been committed to a strong medical market for the past several years, this significantly larger adult-use market is what they’ve been waiting for all along.
This is why companies are, naturally, highly motivated to be ready for non-medical sales as soon as those are permitted.
“When Issue 2 passed, Green Thumb (Industries) immediately began preparations for increased demand with the launch of adult-use sales, such as expanding our cultivation and processing facility and hiring additional retail team members,” said Dan Shaker, Ohio commercial general manager for Chicago-based GTI, which has cultivation and processing facilities in Toledo and dispensaries across Northern Ohio branded as "RISE."
“We are also making improvements to all our RISE Dispensary locations in Ohio, including adding more point-of-sale systems and addressing the need for additional parking,” Shaker said. “Across all stores, we are partnering with municipalities to ensure the best possible experience for our medical patients and new adult-use customers.”
Shaker said GTI has built up our production facilities and honed its growing, processing and packaging processes to support this next step in the industry’s progression.
“Not only will it broaden the Ohio customer base and drive higher demand, but it also offers a potential solution to address the lingering issues of oversupply and underperformance in the medical sector,” he said.
Pete Nischt, a vice president with Akron-based Klutch Cannabis, whose dispensaries operate under “The Citizen” brand name, said his company has been preparing for months for the launch of adult-use sales as well. But because its operations were set up in anticipation of a future rec market, there’s not as much of a heavy lift.
“We designed and built out our stores with the intention of getting here someday,” Nischt said. “We oversized waiting rooms, sales floors and vaults whenever we could. So, in addition to the preparations we’ve been putting in place over the past few months, we also have a really great foundation established already.”
Klutch employs about 200 people today and is actively filling additional positions. Nischt said it’s possible that the workforce will double that size by the end of 2025.
“From a business perspective, we're going from 160,000 patients with kind of quirky rules and relatively low purchase limits to potentially two to three million consumers almost overnight,” Nischt said. “It is going to be a whole new market. It is essentially like starting over from scratch but with the infrastructure already in place. That’s huge for Ohio, and it will be huge for Klutch.”
