Federal Anti-Pot Laws Create A ‘Moat’ Around Marijuana Business, Says Founder Of US Cannabis Company

Photo Credit: Brian A Pounds

Contrary to what federal law might suggest, being an “early mover” in U.S. cannabis distribution hugely benefited marijuana cultivator and retailer Green Thumb Industries, its founder and Chairman Ben Kovler told CNBC.

“Right now, there is a moat around our business,” Kovler, who founded the company in 2014, told “Mad Money” host Jim Cramer. “Both in the states and the country, the federal prohibition provides a moat around our business for us to execute.”

For GTI, that “moat” consists of heavy regulations and limited supply in the states where the company does business. Other executives in the space have spoken to the difficulties inherent in still-stringent U.S. marijuana laws.

GTI currently has cultivation centers in seven states: Massachusetts, Maryland, Nevada, Ohio, Pennsylvania, Illinois and Florida, its newest high-growth market. The company also operates 13 retail locations in those states, but has licenses to open as many as 50 stores.

Like MedMen, another marijuana company operating in the United States, GTI has seized on Canada’s loosening marijuana laws to fuel its growth. On June 13, it listed on the Canadian Securities Exchange, providing a more concrete way for the cultivator to raise capital.

“Us going public in Canada allows us access to capital, drives down that cost of capital to build scale in these markets because everybody wants in,” Kovler told Cramer. “Let’s be real. There is a huge demand for this. The alcohol companies are seeing it, and you’ve seen evidence of them paying attention.”

And Kovler doesn’t see alcohol distributors as a threat to the cannabis industry, which research firm Cowen has said could represent a $75 billion U.S. opportunity by 2030.

“We don’t think history repeats, we think history rhymes,” he said. “And right now, we think brands distributed at scale in cannabis is going to be very similar to what happened in alcohol.”

GTI is already starting to infuse its business with branding, including in its retail stores, which are branded as RISE Dispensaries. Kovler added that powerful brands can also help control pricing, thus combating the price drops that could come if legalization continues to sweep the nation.

The company’s next focus is Florida, which many pot distributors see as the next leg of growth in the U.S. market. After that, Kovler suggested GTI’s main development areas would be Ohio, which just awarded the company five retail store licenses, and New Jersey, which is set to release license applications in the near future.

And when it comes to blue states like New York, where policymakers have been inching toward easing regulations but the laws in place remain strict, Kovler said legalization was likely to come sooner rather than later because of the opportunity it would unlock.

“Everybody’s thinking about and is following cannabis,” Kovler told Cramer. “We’ll see legislation move towards people getting jealous of tax dollars coming to other states.”