Founded in 2019, Greenlight is a lesser-known MSO with operations ongoing in Missouri, Arkansas, and West Virginia. An Illinois dispensary also is awaiting imminent approval from the state, and in South Dakota construction is underway on cultivation and six dispensaries. As founder and CEO John Mueller explained during a chat with CBE, targeting limited-license emerging markets has been a winning strategy for the company founded in the aftermath of the sale of Mueller’s first big cannabis play to one of the industry’s major players.
Mueller explained that he and his brother, Jim, who have always worked together as serial entrepreneurs, got their first taste of the cannabis business courtesy of a former in-law. “My brother’s now ex-wife’s father was in the collective medical world out in Southern California, and we got to follow along there,” he said. “It was an emerging market, 2012 or ‘13. We made a minor investment in him, but we really got started when the licensing process kicked off in 2014 in Nevada, and we went through the application process with our first big entree into cannabis. We won our licenses in Nevada from 2014 through ’15, got up and running in ’16, and then once we were in Nevada, our other entrance was in California in 2016, when we took over some of the old historic greenhouses in Salinas Valley.”
The Nevada project grew to encompass a massive cultivation site and a 19,000 square-foot dispensary called Acres, and another dispensary under construction when it was all sold. “We bundled it all up in conjunction with our Salinas operation in almost a simultaneous transaction in the first quarter of 2019, and although they’re different partnerships, different entities, we sold it all off in a bigger structural transaction with Curaleaf,” said Mueller of the deal valued at $70 million in cash and stock.
Regarding the California experience, “I think what we learned in California is that with the local jurisdictions out there, we basically didn’t really want to go back anytime soon,” said Mueller. “It’s a much more straightforward operation in the state of Nevada, the way the constitutional amendment was written. So, the local control, the taxation, and all the bells and whistles that come with operating in a very complex legal structure, plus you’ve got environmental water rights, the old legacy farmers. Traversing in those markets is much more challenging than the state of Nevada, and quite frankly, much more challenging than the markets we’re operating in today. So, as we sold the Curaleaf, we were happy to sign the non-compete not to come back to California for a little bit.”
Asked to elaborate, he added, “The challenge with California is you’re trying to put two decades of genie back in the bottle, and then they’re licensing all these people. I don’t see Greenlight operating back in the California market, because we’re focused on limited-license markets and emerging markets. And because of the cost structures out in California based on the number of growers, the square-footage, number of dispensaries, it would have to be a very compelling argument that I don’t know today that will get us to come back and attempt to burn some money in the great state of California.”
What about Nevada? Did he have a similar sense of relief when he sold those properties to Curaleaf? “Much different equation as far as the limited number of licenses and how you operate out there, so in a limited-license market we would look at that. We’ve looked at opportunities in Nevada. We would reenter that market but coming back home is a good way to stay married and keep your kids happy, so I think not being out in Nevada and coming back home with my kids and wife, who are from the Midwest, is a better equation for me personally.”
Home is Kansas City, where Greenlight is headquartered, and where both Mueller brothers have lived since 2000, long before the cannabis world. The question I had for Mueller was if, after selling his first big cannabis company to Curaleaf, did he start Greenlight with a beginning, middle, and end for the company in mind?
“So, we kind of consider it as Cannabis 2.0,” he replied. “You got a whole bunch of guys that sold to the big five operators – the big MSO publicly traded guys in the billion-dollar-plus market range – and we went through a lot of life lessons in Nevada and California. So, we went down to Arkansas, partnered with some local friends down there, and were fortunate enough to win one of the very few licenses in the state. That was the first Greenlight, and then we came back to Missouri, where we were born and raised, and again did exceptionally well through the application licensing process.
“And today, we have 15 dispensaries operating in Missouri, and we also ended up buying and branding two additional stores in Arkansas,” he continued. “I’ve got three in Arkansas and 15 in Missouri. From an ease of access view – having regional managers and marketing and things along those lines – having a core group of 18 dispensaries is much more efficient than doing a shotgun approach. And then in the state of Missouri we’re a 150,000 square-foot cultivator and manufacturer, so having control of your own products and being able to push them through your retail locations has been critical to our operation, as both of those markets are getting ready to go adult-use.
“We’ve got another five stores that are up and operating in West Virginia,” he added. “Once again, it’s a limited-license market, and we are pretty good at writing applications and scoring well with our experience. So, we won our licenses out there, bought a couple of extras, and we’ll end up with six out there. Up in Illinois, we won one of the social equity licenses in a partnership deal that we’re ready to commence up in Chicago once the state figures out how they’re going to handle these new licenses. And in South Dakota, we’ve got eight dispensaries under construction and a cultivation that’s finally growing plants. We see that as another big market, and a unique one. It’s limited-license, but it’s really controlled by the local jurisdiction, so, unlike Oklahoma, where it’s an unlimited license, it’s controlled at the local level, so they have one license for Spearfish and two licenses in Deadwood, so i’s a limited-license market from a local level, not a state level.”
I noted that much of Greenlight’s recent media has characterized its moves as a Midwest play, but there seemed to be as much interest from the company in the South as the Midwest. “Yeah, we say Midwest and southeast, as there are some wonderful opportunities and new emerging markets, like Alabama and North Carolina, which we believe is on the horizon,” said Mueller. “And then Florida obviously is a unique play. But we’ve been very cautious with capital and making sure that we have a return on investment, because I think the days of just having a land grab are long gone for guys like us. That used to be a cool thing in 2019, and now there’s a focus on earnings and earnings potential, and that’s what I pitched to my brother and my shareholders.”
Greenlight is a private company, but is it having any capital raises? What can he tell me about that in the context of the current environment. “Yes, it’s a very challenging market, but we’re very fortunate,” he said. “We’ve been profitable since the day we got rolling. We have a very limited cap table, and it’s kind of Cannabis 2.0. We’ve learned some of the life lessons of having an expansive number of investors and getting them all on the same page. you look at all these big companies that have done these roll-ups, and it’s always minority shareholders that have been the issue. So, we’ve been very selective of the partners we want in our business to make our business much more efficient. As a private company, we don’t publish financials, but we talk about our footprint, our canopy size, things along those lines, and strategically for us it’s continuing to be profitable on a monthly basis, using that profitability, and we’ve done a couple of small equity rounds, but being very cautious with our capital as we expand, because at some point all that stuff needs to be repaid. You look at all the big guys, they got a billion bucks in debt on those balance sheets, and the capital in our industry is still very expensive.”
How impactful is 280E to Greenlight, which has a lot of stores. ”We would love to see that one change when basically you’re paying a 50 percent tax on your EBITA number, which is not a fun equation,” he said. “We pay millions of dollars of taxes that if we were in the widget business, we would not be paying today. I think as you look at the millions of dollars that are going into that, it’s obviously restricting not just us but all of our peers out there and every MSO on how they invest and continue to expand their businesses. Obviously we’re hoping with SAFE banking or some other things out there that the tax code is changed, and I think if we get SAFE banking, which we’re optimistic about in Q4 or Q1, we’ll see the big publicly traded companies uplisting to the NYSE or NASDAQ, and then I think they’ll be rewarded. When you’re in emerging market and a very expansive emerging market and your stock is trading at 6.4 times your earnings, it’s crazy math. So, we see all those stocks doubling in short order.”
Currently, Greenlight operates only medical dispensaries, but that could change with the passage of ballot measures. “Our three big markets – Missouri, Arkansas, and South Dakota – are all on the ballot after legal challenges and all kinds of fun we face in our industry,” explained Mueller. “So, November 8 is a big day for Greenlight, and then we have one store in Illinois that will be adult-use the minute the regulators can get out and inspect their security systems, etc. So, other than six stores, we’ll be flipping everything we have today into adult-use come Q1 of next year.”
What will that mean in terms of alterations to stores or menus? “The look and feel of our stores is definitely not white subway tiles and a medical focus,” he said. “We want the guy in his pajamas to feel as comfortable in our store as the guy in a sport coat. Our feel is warm and our music’s a little bit louder than other places, but we don’t believe that having a comfortable environment, whether you’re in a West Virginia limited medical market or an adult-use market, should be materially different. If people are alleviating pain, it doesn’t need to be in a medical look and feel. We’ve got cool art and couches and a real distinct vibe throughout our stores, and we attempt to make our patients or consumers feel warm walking in there. Those stores will look exactly the same as we transition to adult-use. We will do things a little differently, and we will have to handle two-and-a-half times more people walking through the door. We also do other unique things, with our Farmers Market and we’ve got some windows that you can look in and see how your cannabis is being packed or joints are being rolled. I think once you pull back the veil and people walk in the door and they’re not greeted first in a sally port, and they don’t feel like a criminal walking in, that’s why they will come back to Greenlight instead of maybe going somewhere else.”
That did somewhat answer the question why someone would go to a Greenlight dispensary versus another, closer one with similar products, but was the Farmers Market also a way to distinguish the brand?
“To answer your first question,” said Mueller, “it’s basically top-down and having a love for the people walking in the door and ensuring they’re not treated like criminals like some places I walk into. I don’t want my security guards to be opening the door behind some frosted glass. I want people to see what we’re doing inside and be welcomed when they walk in. So, it’s a top-down focus whether it’s a patient or consumer walking in the door that they’re treated as well as you would treat a family member. And we focus on how many nanoseconds it takes a person to get in and out of our building, or if they want to stay for an hour to build a relationship with our team, so that they trust what they’re telling them.
“And we want to be cost conscious,” he added. “Especially with the people that are your heavier consumers, we have a program where for the people that build up each one of these dispensaries during what we call the Founders Club, after they spend $1,000 with us they get to see things first, they know what’s going on with Greenlight, they’re part of the Greenlight family, and we build our business around our founders as we’re establishing our stores in any of these new markets we’re going into, and hopefully they fall in love with our staff. We’re about 400 people today, and hopefully every single one of them treats people walking in the door like their family.
“We invented our Farmers Market in Nevada, where it was highly successful for us, although Curaleaf got rid of it after I sold to them,” he added. “They started with these popups the brands would do in my store every single day. It might be a decade from now, but we believe that over time the brands will control the vast majority of the products sold, and farmers markets basically connect that brand directly with that consumer and allow that consumer to talk to the cultivator about how he’s grown what strain he has or what nutrients he uses, and that consumer gets to talk directly to the manufacturer or brand about what they have.
“From the brand side,” he continued, “you can direct people to purchase your product in the underground, which is what we call them at the Farmers Markets, because they’re going to talk to your people and you’re not going to have a budtender trying to convert them to a Greenlight product even; they’re going to talk directly to your cultivator and it’s that cultivator’s job to talk them into trying their product and taking their cash and put it in the register. A lot of cultivators and manufacturers use the underground to launch products and to connect with the consumer, because at the end of the day, the brands will control our market once we’re more developed, and I think we’re just expediting that process with our Farmers Market.”
Greenlight carries its own proprietary brands of course, in addition to the namesake. “We’re partners in the brand Fireball, which is the first big alcohol company to get into the cannabis world,” said Mueller. “We did that back in Nevada. We also have a brand called Cowboy Cannabis, which skews towards a totally different market, and a CORE cannabis line, which focuses on feelings of sleep or energy, and we’re infusing gummies and vapes to also focus on a feeling versus a strain.”
With so much going on during a time what the markets are strained and capital is scarce, I asked Mueller if the economy had impacted their plans or if they were pedal to the metal. “I think my brother and I have always been basically no brakes, so we definitely have the gas pedal down if there’s a market that we’re establishing,” he said. “We have 23 stores open right now, and I think we have 15 that are under construction or are somewhere in that process, so we definitely have the gas pedal down on those markets we talked about. Then we have a whole separate arm of Greenlight that focuses on new markets, going through license process. Even after the legislative or ballot initiative passes, you still have an 18-month window before the first store comes online at a fast pace, so we’ve always got to be out front, looking at those new markets as we continue to expand the footprint and build the Greenlight family. There are about 400 great people that work for us now, and that number is going to continue to expand, but we’re generally no brakes. We are expanding as quickly as we can, and I’m doing it with a focus on return on investment.”
It appeared that Greenlight was picking areas the larger MSOs were not staking out. Was that to maximize dollars and also avoid big fights? “We’re in flyover country here, and the MSOs have focused on the coasts,” explained Mueller. “We had opportunities up in New Jersey and that’s really not in our knitting. And you see people that have a strong presence up there, and we don’t want to be the last guy to the party, so we’ve avoided all that stuff. We like to be on the ground floor and get dispensaries up and operating profitably as quickly as possible.
“And, you know, a lot of the MSOs have been taking their planes over the top of us here, and at some point they’ll realize that in Missouri and Arkansas alone, that’s 9 million people, and you got an Arizona with 7 million people at $1.7 billion,” he added. “So, as we go adult-use in these markets that really allow the MSOs to come in and operate, we’re going to be about a $2 billion market between those two states. That can significantly move the needle when these companies are talking about only being a billion three at the high end of total sales volume. So, we think they’ll come to the Midwest and some of the states they’ve been missing out on here shortly.”
Is Greenlight having a lot of conversations with potential partners? Are they attending the capital conferences, taking meetings, seeking anything? “We spoke at Benzinga, “and one of the things they said is we’re the biggest MSO you’ve never heard of,” said Mueller. “Our PR team has done a wonderful job letting people know we exist, and it just opens up the opportunities to continue to expand our footprint and look at unique partnership opportunities and ways to expand our business.
“Mainly, I’m getting calls about people wanting to sell us stuff, but right now we’re staying focused,” he added. “I always want to produce a better-quality product out of our cultivation and manufacturing center, and I always want to have a better consumer experience, but right now we’re not raising any additional capital, and we have no interest in going out in the public markets at this juncture. We’re just trying to execute very efficiently on getting the stores up and operating that we have under construction and then obviously making the ones that are already operational more efficient and taking care of our consumers a little better, but we don’t really need much today. We do think November 8 is a massive day for us. We look at three states that could be flipping adult-use all in the same day, which will really impact what people will think of Greenlight in just seven weeks.”
Does that mean Greenlight is interested in opening more stores? “If there is a strategic M&A deal, we’ll obviously look at it, but generally we’d like to win licenses instead of buying them. But of the 23 stores up and operating, I think we bought six of those, to give you an idea. We are always looking at M&A opportunities, strategic partnerships, anything along those lines, they’re always on the radar. We realize the business we’re in, and we talk to a lot of people.”
Regarding international aspirations, “We looked at a few international opportunities,” said Mueller, “but at the time we passed on the chance. I wish we wouldn’t have with one in New Zealand, but it’s tough to stay focused on getting something up and operating. This company started in 2019 after we sold to Curaleaf, and we’ve been growing pretty quick, so maybe in a year from now we’ll revisit that, but our first target is to get 40 stores up and operating and a quarter-million square-feet of cultivation producing exceptional products.”
And what is Greenlight’s end-game? “We’re going to grow to a substantial footprint, and at some point it’s going to make sense to have a strategic merger with somebody to take it to the next level,” said Mueller.
Our time up, I remarked that this conversation reminded me of several I’d had recently with people for whom this particular time in the evolution of this industry was an entrepreneurial golden age, one that will one day end. I wondered if he felt the same way.
“Since the day I got out of college, I’ve never signed the back of a paycheck and only the front of them,” he replied. “We are definitely serial entrepreneurs in very exciting times and an exciting market. People are beat down over where the cannabis stocks are and funding and all of that, but it’s really first world problems that they are complaining about, because we’re in such an exciting industry.”
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