Three years ago state cannabis laws in Maine were changed in an effort to support the smaller mom-and-pop type businesses in the marijuana industry, known as "caregivers" in the state. The goal was to allow the smaller businesses to better compete with the larger dispensaries by giving them the opportunity to open storefronts, hire more employees, and wholesale a larger percent (75%) of what they grew.
New regulations proposed by the state are now threatening to dismantle the opportunities put in place three years ago. One of the company's in favor of these new regulations is Curaleaf Holdings (OTC:CURLF), a large vertically integrated cannabis operator with annual sales of $1 billion, and a plethora of dispensaries across 23 states. Among those states is Maine, where the company has four operational dispensaries, and one more on the way. Depending on which direction new regulations take may determine whether Curaleaf could cede some revenue to the mom-and-pop shops.
What's at stake
Included in the newly proposed regulations is more detailed mandatory tracking of marijuana products, mandatory testing for purity and sanitation within the medical marijuana market, and added security requirements.
During a special legislation session in mid-June the House and Senate committees passed a bill that will allow the new regulations to be paused until further investigation can be performed, giving the small businesses a big win for the time being. That win will allow the shops to avoid additional costs in meeting those new regulations, while also buying some time to prepare for what could be inevitably stricter regulations should the state decide to apply new rules in 2023, or for if the country legalizes marijuana at a federal level, the direction its been heading in on a state-by-state basis.
One of the costs most concerning to the smaller marijuana businesses is related to the tracking of marijuana plants -- from seed to sale -- through the supply chain. This can lead to the need for additional staff to monitor compliance. Many of the small businesses are single owners, or those with a minimum number of employees used for daily operation of the business under current state guidelines minus the need for strict monitoring.
Not having a need for additional staff allows the companies to retain more profit on sales, providing it with a longer lifeline and opportunity for future growth. For a company like Curaleaf, it allows for more competition and makes it more difficult to grab a bigger piece of a growing market in the state.
Up for grabs
More than 3,000 licensed small businesses serve Maine in the marijuana industry, employing 5,200 people. The marijuana market in the state has hit $220 million and has become the state's No. 1 agricultural commodity, followed by potatoes at $184 million, and at a far distant third place is blueberries, coming in at $26 million. The recreational-use cannabis market in Maine is projected to grow to $394 million by 2024, a hefty 80% total growth rate over the next two to three years.
It is easy to see, based on these numbers, that the marijuana industry has growing command in the state. It's also easy to see why the smaller marijuana businesses are against the implementation of any new regulations, as 75% of marijuana sales in the state are driven by, and can be attributed to, the efforts of the mom-and-pop shops.
For the time being the new regulations are on pause thanks to the overwhelming vote passed in the House and Senate, and strongly supported by the small business caregivers. Among the guidelines set forth, it states that the Maine government will develop a process for consulting with caregivers, qualified patients, and medical providers, and will develop a process to use when hiring consultants to advise on new rules governing the use of medical marijuana.
In addition, it calls for allocating medical use of marijuana funds to hire 10 new positions as Field Investigators -- 8 investigators, 2 supervisors -- at a cost of over $1 million per year through 2023 as it carefully reviews the need for additional regulations.
The end result of regulation change review could potentially keep a bit of revenue out of the pockets of Curaleaf, but it doesn't necessarily mean that its current revenue numbers will shrink. If you're invested in Curaleaf, it doesn't sound like a change in Maine is reason to bail, and if you're looking for an entry point, now might be the time. The stock price has found a recent two-month resistance at $13.30 after sliding down from a 52-week high of $18.30, and currently hovers around $14.40 -- 27% off its high.