As the cannabis market experiences turmoil, don’t lose sight of the industry’s relative size
I write about the business of cannabis, the industry, and on some days, just some simple observations.
Today is just an observation …
The phrase of the day is relative size. I am always interested in relative size. Relative size is like a tool of a good political speech writer. It can give a spin to a subject to make the mediocre look great. Mark Twain made the phrase “lies, damned lies, and statistics” famous. It is described as the persuasive power of statistics to bolster weak arguments.
Imagine a retail store chain that expanded at 50% a year over eight years. Sounds impressive, doesn’t it? But if we inquire about relative size, things might look different. What if that chain had one store, doubled to two stores by year three, four stores by year five, eight stores by year seven, and 16 stores by year nine. Fifty percent annual growth sounds far more impressive than we added 15 stores over the past eight years.
When faced with performance figures, I always look at relative size. It provides a more complete view of the situation. Before we get to how this applies to the volatile cannabis space, let’s start with some examples that the typical reader can wrap their head around.
Disney just announced they will cut 7,000 jobs from their various companies. In 2020, the small Massachusetts town I currently live in had a population of 9,945. If 7,000 people moved out of town, it would be quite noticeable. As of Oct. 1, 2022, Disney’s total worldwide headcount was about 220,000. So their staff reduction amounts to about 3.2%. Relative size is important to having a full understanding of an issue. If 3.2% of the residents left Plainville, we would be down 318 people, or less than 100 families. Relative size.
According to the US Centers for Disease Control (the CDC), in 2017, an average of 7,708 deaths occurred each day. More than 10,500 people are born every day. All of a sudden, 7,000 isn’t such a catastrophically big number (unless you are one of those 7,000 people losing their job). But that 7,000 person staff reduction is at one company, not nationally, so national comparisons are misleading. Of course, political speech writers are known for their powers of persuasion, not accuracy or presenting data in a relatively correct manner.
Now, how this applies to the cannabis space …
The Motley Fool investing newsletter just reported its insight on the cannabis’ industry big news from last week that behemoth Curaleaf was exiting three western state markets. The Fool noted a well-worn statistic: Curaleaf “reported that it had 142 dispensaries across 22 states back in November when it released its third-quarter earnings, which is one of the largest footprints in the industry.”
Consider there are probably around 7,000 or so state licensed marijuana retailers in the US (Statista 2021), and all of a sudden 142 isn’t a very big number. Curaleaf does not have any stores in Oklahoma. Eliminating Oklahoma (2,300 stores) leaves a 4,700-national store count. All things considered, 142 is just 3% of that reduced figure.
Curaleaf, headquartered in Wakefield, Massachusetts, has 142 stores across 22 states. Is that a big deal? You decide. Dunkin’ is reported to have nearly 1,100 locations in its home state of Mass, while Starbucks, the world’s largest coffee chain, has about 280 locations statewide. Consumer Value Stores (known as CVS), headquartered just over the border in Rhode Island (but founded in Lowell, Mass, in 1963), claims the Bay State as its largest market by store count with 406 stores (CVS has over 9,000 stores total).
Our population consumes coffee far more times a day than it consumes cannabis, so there should be more coffee shops. CVS sells lots of stuff across many aisles. Cannabis stores sell basically one product—in several forms and with accessory items, but the focus is still one product. In November 2021, George Anderson of retailwire.com reported that CVS planned to shutter around 300 locations a year over the next three years—about 3.3% a year for three years. And while 900 location closings is a lot, at 3.3% a year, it isn’t a deadly tailspin to bankruptcy. Again, it’s all about relative size.
As the cannabis market progresses through financial turmoil, don’t lose sight of relative size when determining how news stories might impact a business.