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Why marijuana CEO Ben Kovler of GTI is betting big on Pennsylvania and New Jersey

December 30, 2019

Source, The Philadephia Inquirer, Sam Wood

Ben Kovler, the CEO of Green Thumb Industries, presides over a cannabis empire that operates in 12 states and stretches from coast to coast.

Kovler is based in Chicago but Pennsylvania has a special place in his heart. GTI operates nine retail stores across the Keystone State under the Rise brand and cultivates its own cannabis strains in an expanding growhouse in Danville. It has the ability to open a total of 18 stores in Pennsylvania.

“Pennsylvania has unbelievable dynamics,” said Kovler in a recent phone interview. “It’s a highly regulated state with 12 million people and a great marijuana program that’s just taking off. It’s such an amazing state.”

In mid-December, GTI opened a Rise Dispensary in King of Prussia. It quickly followed that with its first store in New Jersey, another tightly regulated market for which Kovler has high hopes. The company plans to open a marijuana growhouse in Paterson in early 2020. With tough barriers to entry and strictly limited permits to operate being granted by the two states, GTI is placing big bets on both sides of the Delaware River.

On the national level, GTI is going great guns. Given the company’s relentless focus on shareholder returns, analysts consider GTI among the three top tier cannabis companies. Vivien Azer of equities research firm Cowen and Co. marveled this month at GTI’s adjusted operating profit margin, which had reached 21% in the third quarter despite a $17 million loss during that period. And, in a capital-starved environment, GTI has enough cash on hand to fuel expansion, Kovler said.

It’s not just financial types impressed by GTI’s achievements. The company’s proprietary Brownie Scout strain — believed to be the strongest marijuana flower ever grown at 37.5% THC — was enthusiastically embraced this year by cannabis aficionados.

Following MJBizCon, the massive cannabis convention earlier this month that drew 35,000 people to Las Vegas, The Inquirer spoke with Kovler. Though cannabis stocks took a beating this year, Kovler said the best is yet to come.

This interview has been edited for clarity and concision.

Why has the marijuana industry focused on the Mid-Atlantic states and what makes Pennsylvania and New Jersey so attractive?

Pennsylvania and New Jersey, like my own state of Illinois, have a very limited number of operators and huge amount of demand. We just completed a big expansion in Pennsylvania and we’re going again. It’s all about the return on invested capital. It’s the standard with which we judge our business.

New Jersey has been around for a while, yet it’s an undeveloped market. Until recently, there were only 60,000 patients. As of last week, there were six dispensaries and only one had concentrates. We opened a retail shop in Paterson last week. It’s like Prohibition is ending and only one bar has hard liquor. So here we come. We’re [metaphorically] going to make vodka and people are going to like it!

Why have you avoided California? When you spoke in Las Vegas, you said it’s because you “don’t have an edge there.”

The core of it is that it’s not a good business opportunity in California. And that’s for exactly the same reasons that it’s a great business opportunity in Pennsylvania, New Jersey and Illinois.

In California, the deck is not stacked in our favor. There’s a huge market with a lot of people who consume cannabis and like it, but there’s an unlimited number of licenses and there’s a huge illegal market. There are hundreds of illegal stores in Los Angeles alone that aren’t registered with the state. That’s a foreign idea in places like Chicago, Philadelphia and Boston. In L.A. they’re like pop-up stores that spring up and then go away. Still, we’re very much watching and being strategic about how we gain market share in California over time.
Ben Kovler, CEO of Green Thumb Industries, believes Pennsylvania and New Jersey will eventually legalize cannabis for recreational adult use.

Ben Kovler, CEO of Green Thumb Industries, believes Pennsylvania and New Jersey will eventually legalize cannabis for recreational adult use.

What are you up against in Pennsylvania and New Jersey?

In Pennsylvania, we’re up and running — we’re already the largest operator in the state. We have nine stores and recently opened in New Castle and King of Prussia. We’re opening 18 stores total in a very steady disciplined approach. We’re building production and our lines of branded consumer goods. We’re already through three expansion phases, starting the fourth, and penciling out the fifth.

Patients are getting product but the challenge is there’s not enough supply.