From Crain’s Chicago Business Article – May 11, 2023 01:01 PM
Marijuana retailer NuEra plans to buy a cultivation operation near Carbondale. If approved by state regulators, the deal to purchase Ieso, a marijuana growing operation in Murphysboro, will help NuEra climb the ladder to the big leagues.
Cultivation capability is important because only marijuana grown and processed in the state can be sold in stores here. The largest operators — such as Green Thumb Industries, Cresco Labs, Verano Holdings and PharmaCann — have both cultivation and retail capabilities. Such vertical business integration is seen as the key to success in an industry where profits remain scarce.
The deal “makes (NuEra) a different level of player in this state,” says Ryan Holz, a partner in law firm Greenspoon Marder’s cannabis practice.
When Illinois legalized medical marijuana, 21 licenses were awarded for up to 210,000 square feet of cultivation space. In 2019, when the state legalized recreational marijuana, it authorized a huge expansion of licenses to sell pot from 55 stores to as many as 500. But new cultivation licenses were limited to “craft growers,” offering a maximum of 14,000 feet of growing space. That puts a premium on the original large-scale licenses, which rarely change hands.
“NuEra is one of the original dispensary licensees in the state, and Ieso is one of the original cultivation licensees,” NuEra CEO Robert Fitzsimmons said. “Our ownership groups have explored partnerships for several years across multiple states. Discussions really started in earnest (in spring 2022.)”
Cultivation allows retailers to source their own product at lower cost and also supply other dispensaries. Illinois has awarded 192 new dispensary licenses, and operators of new dispensaries will need to buy product.
NuEra employs about 130 people at six stores in and around Chicago, Champaign-Urbana and Peoria. It had grow capability at another facility under a partnership that recently dissolved, but it didn’t control the cultivation operation.
“Vertical integration is the way you can really control having the best quality product, and that’s how you differentiate yourself,” said Laura Jaramillo Bernal, NuEra’s chief operating officer. “It’s critical in a controlled market like Illinois.
“If you’re on your own as an independent retailer, you’re going to have a hard time getting the most desirable product. You have to have the product people want.”
The Ieso facility also has an extraction lab and an infusion operation, which can produce vaporizers, concentrates and edibles along with smokable products.
NuEra’s headcount is expected to double with the Iseo acquisition. It has hired a new cultivation team, led by Andy Damico, a veteran grower from California. The company plans to expand Ieso’s cultivation space by about one third to 40,000 square feet. It also plans to introduce new brands.
On the retail side, the company has been working on deals that it expects will allow it to reach the maximum 10 retail licenses allowed under state law.