The WeWork Of Weed: This Investor Wants 30 Cannabis Campuses Across The Nation
Cannabis-focused commercial real estate has spawned everything from cannabis coworking to cannabis pop-up retail to cannabis REITs.
Now, one entrepreneur has expansive plans to bolster the industry's national supply chain, with the goal of investing hundreds of millions of dollars in 30 cannabis contract manufacturing facilities over the next 10 years.
To start, Ori Bytton got approval in Sacramento. In October, the city's Planning and Design Commission granted permission for Bytton's Natura Life + Science (then We Grow California) to build an 11-acre cannabis campus, centered around a 265K SF facility for cultivation, manufacturing, distribution and product development.
Natura began construction in southeastern Sacramento at the beginning of the year and expects to finish in Q1 of 2020, Bytton told Bisnow. At full capacity, the company will produce up to 1,000 different cannabis products — from vaping cartridges to edibles to flowers — for up to 50 different brands.
Originally an entrepreneur in California's solar industry, Bytton entered the cannabis real estate space in 2016 when he founded We Grow CA, a real estate investment company focused on supplying cannabis operators with compliant space. Perceiving an opportunity both in Sacramento and elsewhere, Bytton and Chief Operating Officer Craig Powell see Natura's real estate and manufacturing play as filling a gaping hole on the supply side of the growing cannabis industry.
"The supply chain is nonexistent right now," Bytton said. "[Brands] need a supply chain partner who they can trust to produce quality product at scale, and that's basically what we're doing."
The industry as a whole has a lot of room for growth, most clearly in the 11 states that have legalized recreational adult use. Oakland-based Arcview Market Research and BDS Analytics estimate a $40B economic impact by 2021, up from $16B in 2017.
Natura faced its fair share of backlash from Sacramento stakeholders against the industry's rapid entry in the area. But one of its most vociferous original critics, a southeast Sacramento business group called Power Inn Alliance, eventually came around on Natura's plans, the Sacramento Business Journal reported.
Even before then, Bytton was bullish on Sacramento as the first of many Natura campuses. He cites the state capital's central location, food and agricultural talent, and climate among reasons for its viability while pointing to Massachusetts, Florida and Ohio as potential future locations.
With approvals in hand since last year, groundbreaking underway in Q1 this year and a $91M round of private financing announced in May, the company has positioned its $50M facility to be "the largest vertically integrated cannabis campus in California," it claims. Bound by nondisclosure agreements, Bytton said only that Natura has about 10 undisclosed brands for which they will cultivate and manufacture cannabis products. Building designs call for a LEED-certified facility that includes multiple mixed-light buildings, a more energy-efficient version of greenhouses.
Opinions from industry insiders on Natura's planned scale range from bullish to ambivalent to skeptical. Former Sacramento Chief of Cannabis Policy & Enforcement Joe Devlin corresponded with Natura during their 2018 planning process and envisions their scale and strategy as part of the future of the industry.
"I think they're going to be industry drivers," said Devlin, now senior vice president for Ikänik Farms, a startup cannabis lifestyle brand. "Everybody else will either be pivoting around them or playing catch-up. They have scale, and from what I know from meeting with them, they've got financial and human capital."
Amanda Ostrowitz, founder and CEO of CannaRegs, a national cannabis regulatory data company, sees a need for such services.
"I suppose there is a play for somebody to be the biggest contract manufacturer," Ostrowitz said. "This is for brands trying to get established but that don't have the resources to actually do it, and there's certainly a need for that."
Competitor Flower One, which is publicly traded and Nevada-based, has found success providing contract manufacturing for some of the industry's most popular brands in a first-of-its-kind facility for Nevada. (Flower One, unlike Natura, only cultivates and manufactures flower products).
"In Nevada, like many other states, white-label manufacturing in cannabis really doesn't exist," Flower One Chief Strategy Officer Kellen O'Keefe told Bisnow. "We're the first seed-to-shelf solution for brands to come in and have full turnkey, white-label services to bring their brands to market."
At about 480K SF of cultivation, processing and manufacturing space, Flower One's Nevada facilities eclipse Natura's designs for southeast Sacramento. Although Flower One is tentatively looking outside the state — in states like California, Arizona, Illinois, Michigan, New York and Florida, O'Keefe said — they have not delineated goals quite as ambitious has Natura's.
As more states legalize cannabis and the most recent ones to do so grow their industries, more competitors to Natura and Flower One will emerge. The biggest boom will come if and when the federal government legalizes cannabis and the pharmaceutical company invests, Ostrowitz said. For now, several smaller players preponderate the West Coast, and only Natura has expressed goals of going so big and national.
Sacramento-based Infusion Factory CEO Landon Long said contract manufacturing in cannabis serves a definite need but may not lend itself to rapid growth. His company offers infusion and packaging for brands from its 11K SF facility.
"Manufacturing is a rugged slice of the market, and individuals that set up large, high-expenditure facilities and operations to service the industry are going to carry a lot of expenses that more nimble operators don't," Long said. "Knowing the margins of contract manufacturing, there can be a pretty challenging break-even point."
To CannaRegs' Ostrowitz, Sacramento and the rest of Northern California's mix of myriad operators and high costs of doing business will be a telling test for Natura.
"Sacramento is good placement for them to get a lot of product in," Ostrowitz said. "But they'll either flourish or fail hard, because it's going to be extremely expensive to operate the facility."
