AR: What drove Green Dragon to the northern Colorado market?
AL: So, we have decent coverage around the entire state. We have a lot of stuff in western Colorado, central [Colorado], and a little bit east of Denver with [the] Aurora [dispensary]. Telluride is southwestern Colorado, [and] Boulder is a little further north, but we've never really had anything that far north. Fort Collins is a huge population center in Colorado, and we've looked at things there for a while, but it hasn't worked out until now. So, as I said, we were able to put this deal together, and we acquired the license, and we are super excited to be in Fort Collins.
AR: So, I noticed that Green Dragon opened its first dispensary in Colorado in 2009. Is that correct?
AL: Yes, and at the time, the company was [called] Greenworks. So, [it had] slightly different [owners] and different brands. But yes, the company that is now Green Dragon has been in continual existence since that time.
AR: Can you describe some of the significant changes from acquiring a license and opening a dispensary now compared to then?
AL: Back then, it's interesting because the farther back in time you go, there were more organic licensing opportunities, meaning more cities were actually giving out licenses for the first time. So, I would say that there were less licenses trading hands. Especially in 2009, there were no licenses to trade because that's when people were getting kind of the first round of medical licenses. But as the years have gone on and cities have imposed moratoriums or license caps, you start to see more trading of those licenses, to the point where you'd even have applicants just get licenses for the sole purpose of flipping them, like getting them and then immediately selling them.
Another huge change historically was back in the medical days, and in the very beginning of recreational, there were vertical requirements, meaning that you weren't allowed to get these licenses without being able to grow. And that was in place for years and years and years. ... Basically, when recreational first started in Colorado, you couldn't just get a recreational license, you had to have had a medical license prior, and there was this preference given in most cities for like almost a year. ... So, it was really restrictive. … Also, while it was medical, there was this provision called 70/30. Basically, you had to grow 70% of your own product. Meaning if you had some growing issues, or you weren't good at growing, that limited how much wholesale you could buy. If you had more patients that you [could] grow for, you couldn't wholesale your way out of the problem. You couldn't just buy flower to meet demand. You were very much limited by what you could grow.
Another thing is that up until fairly recently, Colorado had some of the most restrictive outside-of-state ownership rules in the country. Colorado got left in the dust a little bit because other states allowed investment to flow more freely. So, if a group of operators wanted to apply for a license, or they wanted to expand, or they wanted to grow their business, they [had to get] financing from people outside of the state. Keep in mind, we can't get traditional financing from banks or anything like that, so we're [pretty much] paying for everything in cash. So, because of those restrictions, cannabis is very cash-intensive, and people have to raise money a lot. But states like Colorado limited it to only in-state investment. So, not only did you have to be completely based in Colorado, but you had to raise all your money within Colorado, which is extremely restrictive because there's only so much capital out there because we're talking about private sources of capital. So, Colorado, I guess sort of [saw that] other states were outpacing [its] growth and [that it] was really hampering and hurting Colorado cannabis operators, and they changed the rule [to allow outside investors].
AR: Can you describe the process of expanding via the acquisition of an existing license versus by winning a license in the application process?
AL: I guess it's easier in some ways, more difficult than others. Obviously, in the later stages, the industry has matured and has been around for a while; there are just less opportunities to [win new licenses]. If there were opportunities in Fort Collins to apply for licenses, we absolutely would have, and we have done [that elsewhere]. Meaning like in Aurora, for example, we have two licenses, one of which we were awarded from the city through a merit-based application process and one we acquired. So, like even in that one city, we've done it both ways and the same in a few other cities as well. In Fort Collins, there really were no other opportunities to apply for a [license] organically. So in that case, we were immediately kind of transitioning into like, 'OK, this has to be an acquisition of an existing operation,' and [in working with] a few other operators out there, this definitely seemed like the best fit.
This [process] has a whole bunch of other issues and difficulties to deal with, [compared to] if you're just applying for a license. If you're applying for a license, it's pretty straightforward. You're kind of just working with the government and local government. [You're working with] licensing, you're working with their planning department, you're looking for real estate. Usually, that ends up actually being one of the most difficult parts of it is finding real estate that qualifies. [Still] in almost every municipality in Colorado, the zoning requirements for cannabis are extremely restrictive. … So, you don't have to deal with any of that stuff [when acquiring an already existing license] because the location already exists. So, that is not so much a concern. But [when] you have to negotiate a purchase, that kind of opens up its own can of worms. [Each process] has its different problems.
Neither one is easy. I guess the main differentiator is that if you can get a license from scratch, it's usually a longer process. So, it's costing you more time. But the trade-off is it usually doesn't cost that much money. I mean, yes, there's real estate cost, you have to buy property, take a lease, stuff like that, and there are the application costs, but that's much smaller typically than having to [make] a full acquisition. Typically, acquisitions are faster, but they cost more money, but you're also getting a store that's generating revenue kind of day one. So, it's a whole bunch of trade-offs. I think, in general, it's better to try and get licenses organically.
AR: What is the company looking forward to with the expansion?
AL: Well, we are one of the top operators in the state, and to maintain that position, we have to keep growing. We know our competitors certainly are, so we need to kind of keep pace with that.
We have a business model that works. We feel pretty confident in what we're doing, so we feel like there's no reason to [not] keep expanding here, keep growing [and] keep doing what we do. ... We obviously love these new markets. [Still], we're planning to go deeper in the markets that we're already in. … We're kind of attacking it from all sides. So, [the] new markets, places that were already in, but kind of getting more market share and acquiring or applying for more licenses where we can.
AR: Is there anything else I didn't ask you that you think is important to mention?
AL: I think just like in general, when we [make] acquisitions, what we're looking for [is to] generally be able to increase sales. I'd say this in the case of almost, if not every single acquisition we've ever done, where we take over operations, and we're able to not just maintain the revenue that was existing at the store prior, but we almost always can get that revenue up, sometimes considerably higher than the previous operation. We certainly plan on doing the same in Fort Collins.
Editor’s note: This interview has been edited for style, length and clarity.