The Cannabist Co. sets sights on Delaware, New Jersey & Ohio, as it exits three other markets

Cannabis operators are no as focused on having the biggest footprint in U.S. cannabis anymore; instead, they want to have the smartest.

That’s the general motive for The Cannabist Company Holdings Inc. (CBST:CA) (OTCQX: CBSTF) to exit or downsize operations in three of the 14 U.S. marijuana markets where it has interests, including Arizona, Florida and Washington, D.C., company leadership said last week during its second quarter earnings call.

The multistate operator is also selling off one of its two Virginia licenses to Verano Holdings Corp. (OTC: VRNOF), which is also picking up The Cannabist’s Arizona assets. CEO David Hart also said the company would be shuttering two of its medical dispensaries in New York, while ramping up wholesale operations in the Empire State.

That doesn’t mean the company has stopped expansion, however, The Cannabist is eager to boost its footprint in Delaware, New Jersey and Ohio, and to ramp up its remaining license in Virginia once adult-use cannabis sales begin in that state, which isn’t likely until 2026 or even 2027.

The divestitures how both The Cannabist and the wider U.S. marijuana industry can’t afford to simply go big and expect to post profits. Rather, businesses have had to reassess their strategies and focus on their core operations, as investors have retreated from the sector and capital has become harder to come by.

The Cannabist, as an example, lost $174 million last year alone and reported a net loss of $14 million in the second quarter of this year. That led company leadership to the major restructuring plan and the exit from underperforming markets.

“To create a sustainable economic model and to drive value for all of our stakeholders overtime, we have made very clear that this company will look materially different by the end of 2024,” Hart said during the earnings call.

“While we have successfully implemented major structural changes in a very short period of time, we are not anywhere near done. We continue to evaluate underperforming assets,” he said. “For example, we are in the process of exiting Washington D.C. and are completing our analysis of other locations in the portfolio.”

The ultimate goal, Hart said, is simple: “Building a better business.”

Hart said that the sales of assets in Arizona, Florida and Virginia will likely be announced in the near future. The Virginia license sale, he shared, will bring in $105 million to further bolster The Cannabist’s balance sheet, while still giving the company the option to develop that market with its remaining permit.

“We expect both the Arizona and Virginia transactions to close in the coming weeks,” Hart said.

Hart and President Jesse Channon also spoke positively about a potential turnaround in the distressed Colorado marijuana market. They said it appears that market contraction has done its job to right-size the number of businesses in the first state to launch recreational marijuana sales, and the market now looks to be a bright spot in the MSO’s portfolio.

“We have seen a pretty dramatic improvement” on the retail side of the business in Colorado, Hart said. “We feel much better today about Colorado than we did say a year ago. … Part of it is just what is taking place in the marketplace with respect to consolidation and store closures. I think people have been waiting for this sort of consolidation wave in the marketplace to take place.”