How to Scale Your Cannabis Business in Other States: A Guide for MSOs

As cannabis legalization continues to expand through-out the US, cannabis operators start looking for ways to expand into new markets. The interstate commerce of cannabis is still illegal due to federal laws, so how do you bring your business to a new state? Enter the cannabis multi-state operator (MSOs.)

But MSOs need more than just the desire to grow. Operating in multiple states requires extensive preparation and solid knowledge of operational models, industry regulations, and market dynamics.

Whether you're a cannabis MSO or are wondering how to get into the cannabis industry in 2024, this guide will come in handy. It contains all the information you need about multi-state operations, their unique challenges, opportunities, and more. Read on!

Types of Cannabis MSOs

As mentioned above, a cannabis MSO is a large-scale business that operates in more than one state under different licenses. These companies can be divided into the following categories:

• Fully-integrated MSOs: These operators are considered to be the largest, manage multiple licenses from seed to sale, and engage in several areas across the supply chain. Most of the top weed brands that are part of this group operate across 5 to 15 states.
• Mid-range vertical MSOs: Also known as "partial vertical MSOs," these businesses have processing facilities in 2 to 4 states but only control part of the supply chain. The rest of the activities necessary for these operations are typically outsourced.
• Brand-driven MSOs: These businesses don't manage their own processing facilities or licenses but partner with white-label processors for production and focus solely on branding.

Do you want to expand your operations and develop an effective cannabis business growth strategy? This guide will provide you with actionable insights tailored to each MSO type. Continue reading to find more valuable information!

Understanding the Cannabis Market Landscape

Before diving into the challenges and opportunities of multi-state operations, let's learn a bit more about the cannabis market.

The Current State of the Cannabis Industry

The cannabis industry's growth is undeniable. According to Fortune Business Insights, the global cannabis market size was estimated at almost $44 billion in 2022 and is expected to grow at a CAGR of 34.03% to 444.34 billion by 2030.

Although more modest, Statista projections are also promising. These estimates say that the worldwide cannabis market is expected to grow to $75 billion by 2029.

In the United States, the cannabis market size reached $33.60 billion in 2023. According to data from Grand View Research, it's estimated to grow at a 12.10% CAGR over the next six years.

The legalization and increasing acceptance of medical and recreational cannabis use in multiple states has also fueled this growth. The stigma has eased, and customers continue to explore new products with innovative consumption methods.

As the cannabis industry grows, consumer preferences are changing as well. The market is witnessing the emergence of new trends, which include:

• Product diversification with more offerings, such as edibles, concentrates, and topicals
• More environmentally-friendly practices with a strong focus on organic and sustainable cultivation, processing, and packaging
• Integration of new technologies in all areas of the cannabis supply chain
• A strong emphasis on developing attractive brands, building strong customer relationships, and boosting loyalty

These trends offer many advantages and opportunities to all types of cannabis MSOs, such as the following:

• Fully-integrated MSOs: Emerging trends bring golden opportunities for businesses that possess full control over the supply chain, allowing them to innovate quickly to adapt to customers' changing needs and ensure consistent quality.
• Mid-range vertical MSOs: To adapt and take advantage of emerging trends, these businesses can focus on mastering specific areas of the cannabis supply chain and form strategic partnerships to expand their market reach, grow their customer base, elevate their brand image, and improve their competitiveness and profitability.
• Brand-driven MSOs: Emerging trends put these cannabis businesses in an advantageous position to capitalize on branding as it becomes more and more important. These companies also have the opportunity to leverage their white-label partnerships to adapt to new product trends.

Do you want to get real-time insights into market trends and optimize your operations? Regardless of the MSO category your business falls into, you'll need a robust ERP system like Distru.

Besides offering access to valuable information about the cannabis market, Distru has innovative features specifically designed to help cannabis businesses manage inventory, centralize data from all locations, and ensure compliance.

Distru will be your best ally when developing your cannabis business growth strategy and will equip you with the information you need to make data-driven decisions as your operations scale.

Challenges and Opportunities for Different MSO Types

Whether your business is fully integrated, controls a few areas of the supply chain, or focuses only on branding, you'll encounter both opportunities and challenges in the market if you're a cannabis MSO. Below are the most common ones:

Opportunities

• Fully-integrated MSOs: Your business boasts an economy that is suitable for scaling. Plus, you can control quality from seed to sale and have the ability to capture value at every stage.
• Mid-range vertical MSOs: You have the freedom to focus on core competencies only and need lower capital investments to enter new markets.
• Brand-driven MSOs: You can operate your business at low costs, focus only on marketing innovation, and quickly enter new markets.

Challenges

• Fully-integrated MSOs: Your business requires more capital, must comply with complex regulations across multiple states, and should maintain consistency across a large operation.
• Mid-range vertical MSOs: Your cannabis company must adapt to different regulatory landscapes in up to 4 states. Plus, you may face difficulties in balancing your own and outsourced operations.
• Brand-driven MSOs: You'll be required to ensure consistent product quality and build brand loyalty without having control over key processes, such as production.

Developing a Cannabis Business Growth Strategy Based on Your MSO Type

If you're an MSO, your cannabis business strategy will be your main driving force. Do you need help developing one? Here's how you can do it:

Assessing Your Current Position

Are you completely ready to start expanding your operations? This is an important question you should answer before developing your cannabis business growth strategy. So, you need to evaluate your current market position.

Assess how your business is positioned in the market and your capabilities will depend on your MSO type, but these are the general guidelines:

Fully-Integrated MSOs

If you're a fully-integrated MSO, you should:

• Evaluate how efficient your operations are across all verticals.
• Define your market share in the states where you operate.
• Assess your brand's strength.
• Analyze the capital available for potential expansion.

Mid-Range Vertical MSOs

If you're a mid-range vertical MSO, you should:

• Identify the areas of the supply chain you specialize in or excel at.
• Assess how your outsourced operations are performing.
• Evaluate your current operational model's potential for scalability.

Brand-Driven MSOs

If you're a brand-driven MSO, you should:

• Deep dive into your brand performance and recognition.
• Assess the strength of your existing partnerships.
• Analyze your marketing capabilities.
• Define your budget.

Are you wondering where to find the information you need to assess your market position and capabilities? Use Distru to get valuable insights into your operations! Our comprehensive solution offers:

• End-to-end visibility across all verticals and locations for fully-integrated MSOs
• Powerful analytics on how owned and outsourced operations are performing for mid-range vertical MSOs
• Sales and distribution data across different markets for brand-driven MSOs

Identifying Market Trends

When planning expansion, you should focus on multiple factors to choose the states where you'll operate, and these can also vary based on your MSO type. Here's what each should consider:

Fully-Integrated MSOs

As a fully-integrated MSO, you should focus on expanding into states with licensing structures that favor vertical integration, growing markets where you can claim a significant share, and regulatory environments that complement your existing operations.

Mid-Range Vertical MSOs

If you're a mid-range vertical MSO, you should prioritize states where your core competencies are most valuable and where regulations favor your preferred operational model. Additionally, it's important to choose markets with the potential for forming partnerships and outsourcing operations.

Brand-Driven MSOs

For a brand-driven MSO, states with a developed white-label manufacturing ecosystem and fewer restrictions on cannabis advertising and promotion can be a great option. You should identify markets where consumer preferences align with your brand position.

Did you know that Distru is equipped with market intelligence features? Whether you're a fully-integrated, mid-range vertical, or brand-driven cannabis MSO, our solution can help you identify opportunities for expansion by centralizing and analyzing data from multiple locations. You'll get valuable insights that can be used to design effective strategies to enter new markets, and this information will be tailored to your operational model.

Creating a Scalable Business Model

Cannabis MSOs should focus and work on their scalability capabilities for successful expansion, but this can also differ depending on your operational model. Below is what every business should do:

Fully-Integrated MSOs

If you operate in multiple stages of the supply chain and across several states, you should:

• Standardize operations and processes across all locations.
• Use robust, integrated inventory management systems.
• Develop and centralize quality control measures.

Mid-Range Vertical MSOs

When operating in only a few states with a focus on just your core competencies, you should:

• Implement a flexible operational model that you can easily adapt to different state regulations.
• Use vendor management systems (VMS) to manage relationships with third parties and control outsourced operations.
• Prioritize scalable core competencies and maintain flexibility in other areas.

Brand-Driven MSOs

If your business operates in several states but focuses solely on branding and marketing, you should:

• Set strict guidelines to maintain a consistent brand identity across all markets.
• Develop scalable marketing strategies that can be adapted to each state's regulations.
• Cultivate strategic relationships with reliable white-label partners in target markets.

Distru was designed to be flexible. Our solution is customizable and will grow with your business as it scales. If you're a fully-integrated MSO, you can use our software to track cannabis from seed to sale and centralize data from multiple locations into a single hub.

A mid-range vertical MSO can manage internal activities and external relationships through Distru. Meanwhile, for brand-driven MSOs, our solution can optimize order management and fulfillment to streamline operations across different white-label partners.

Expanding Your Cannabis Company Across State Lines

Crossing state lines can be a good idea if you want to expand your cannabis company's reach and increase your revenue. However, this must be done with the utmost care. You should plan your expansion thoroughly, partner with the right parties, and understand the applicable regulations.

Below are some valuable strategies that may come in handy if you're planning to expand your operations to other states:

Navigating Licensing and Compliance

Compliance is another important aspect for cannabis MSOs that can vary based on the business's operational method. The following tips, divided by category, can help you ensure adherence with each state's regulatory requirements:

Fully-Integrated MSOs

If you're a fully-integrated MSO, you should:

• Set up specialized compliance teams in each state where you operate.
• Stay informed about regulatory changes in each location.
• Use robust seed-to-sale tracking systems to optimize reporting.

Mid-Range Vertical MSOs

If you're a mid-range vertical MSO, you should:

• Prioritize compliance for your own operations.
• Choose reliable and compliant partners for outsourced operations.
• Conduct regular audits to make sure both internal and external operations are compliant.

Brand-Driven MSOs

If you're a brand-driven MSO, you should:

• Verify that your white-label partners comply with all relevant regulations.
• Establish clear agreements on compliance responsibilities with white-label manufacturers and suppliers.
• Understand advertising and packaging regulations across all markets.

Building Strategic Partnerships

Whether you operate in several or limited areas of the supply chain or plan to expand your business to just a few or many states, partnerships will be crucial. These are the most important relationships for your business depending on your MSO type:

Fully-Integrated MSOs

• Strategic partnerships with local businesses for easy market entry
• Strong relationships with regulators and industry associations for guaranteed compliance
• Robust M&A opportunities for accelerated expansion

Mid-Range Vertical MSOs

• Advantageous partnerships with trusted outsourcing suppliers
• Robust alliances that complement your core competencies
• Strategic partnerships with local businesses to facilitate market entry

Brand-Driven MSOs

• Established relationships with white-label manufacturers
• Well-thought-out partnerships with distributors and retailers
• Mutually beneficial marketing-focused collaborations with other cannabis brands

Adapting Your Brand for New Markets

To succeed in a new state, you should strategically adapt your brand to the market you're entering. Here's how you can achieve this based on your MSO type:

Fully-Integrated MSOs

Do you operate a fully-integrated business across several states? Since you have control over the entire supply chain, you can create market-specific products to quickly respond to emerging trends.

When entering a new market, remember to adapt packaging and marketing to local preferences to meet customers' demands while maintaining consistency.

Mid-Range Vertical MSOs

If you operate a mid-range vertical business in a few states, your products or services should be adapted to meet local demand. By working with local partners, you can research, analyze, and understand market preferences. Use that information to make necessary adjustments.

Keep in mind that while local adaptations are indispensable, it's important to maintain consistency.

Brand-Driven MSOs

Is your business solely focused on branding and marketing across several states? You should conduct exhaustive market research to understand local consumer preferences.

For a brand-driven MSO like yours, branding and marketing strategies need to be flexible to easily adapt to different markets. If possible, work closely with white-label partners to create product variations specific to each.

Operational Considerations for MSO Cannabis Businesses

As a cannabis MSO, you'll also need to take into account certain aspects related to your operational management. Below is more information.

Managing Multi-State Logistics

A cannabis company's success greatly depends on efficient logistics, especially if it operates in multiple states. That's why it's indispensable for MSOs to streamline management. The following are some strategies that can help:

Fully-Integrated MSOs

As a fully-integrated MSO, you must use robust inventory management systems and develop contingency plans to avoid supply chain disruptions if unexpected events emerge. It's also important to optimize transportation routes between facilities in different states.

Mid-Range Vertical MSOs

For mid-range vertical MSOs, coordination between owned and outsourced operations is crucial. You must work closely with partners and develop clear Service Level Agreements (SLAs) to optimize operations and logistics. If your products are moved through different facilities, make sure to use robust tracking systems.

Brand-Driven MSOs

Although brand-driven MSOs focus on branding and marketing only, you must work closely with your white label partners to make sure production and distribution occur timely.

Developing relationships with multiple distributors in each market can help ensure everything you need for your operations is always available. It's also a good idea to conduct quality control checks at key points throughout the outsourced supply chain.

With Distru, managing your cannabis operations is easier than ever. Our seed-to-sale solution features advanced inventory and order management tools you can use to get a real-time view of your entire supply chain and optimize logistics if you do business in multiple states.

Scaling Production Capabilities

If you want to scale your operations, you must develop strategies specific to your operational model. Here's what can work for each MSO type:

Fully-Integrated MSOs

• Automate technologies used for cannabis-related activities, such as cultivation and processing.
• Standardize manufacturing or production processes across all facilities and locations.
• Balance centralized and decentralized operational models based on each state's regulations and logistics requirements.

Mid-Range Vertical MSOs

• Focus on scaling core production areas and capabilities.
• Set clear criteria for deciding which operations should be scaled internally and which tasks can be outsourced.
• Promote flexibility in production systems to adapt to changing market demands.

Brand-Driven MSOs

• Partner with several white-label producers to ensure production capacity can meet product demand.
• Adopt strict quality check measures across all manufacturing partners.
• Develop proprietary formulations or production techniques to boost competitiveness.

Distru offers numerous tools that facilitate production management and support scaling needs. If you're a fully-integrated MSO, our software can help you organize complex tasks across different locations.

Our solution can also make it easier to coordinate with white-label producers if you're a brand-driven MSO and provides actionable insights that can help any business scale in the cannabis industry.

Marketing Strategies for Top Weed Brands Across MSO Types

Do you want to attract more customers, boost your revenue, and beat your competitors in multiple states? Cannabis marketing can help you achieve those goals, but your strategies must be suitable for your MSO type. Below are the most important considerations.

Digital Marketing in the Cannabis Industry

In the cannabis industry, marketing is subject to strict and complex regulations, so the options you'll have are limited. Here are some good strategies for each MSO type:

Fully-Integrated MSO

• Tell your seed-to-sale story through content marketing.
• Use your experience in various operations to create educational resources.
• Personalize marketing campaigns across different channels or touchpoints using data collected through Customer Data Platforms (CDPs).

Mid-Range Vertical MSO

• Show your expertise in cannabis operations through your content marketing.
• Demonstrate your commitment to product quality and safety by highlighting the measures you implement in your owned operations.
• Launch co-marketing strategies with other businesses.

Brand-Driven MSO

• Leverage brand storytelling and lifestyle marketing to boost your strategies.
• Partner with cannabis influencers if allowed in the states where you operate.
• Build a strong, compliant social media presence on permitted platforms.

Building Brand Loyalty Across States

Brand loyalty is another important driving factor for a business's success. If you create consistent experiences across states and manage to create an image that customers can automatically associate with your cannabis company, you'll stand out in this competitive market.

Here's how you can build brand loyalty based on your MSO type:

Fully-Integrated MSOs:

Are you a fully-integrated MSO? You can foster brand loyalty by:

• Closely monitoring the supply chain to ensure product quality.
• Launching loyalty programs across states to increase customer engagement.
• Leveraging your vertical integration to create and offer unique brand experiences.

Mid-Range Vertical MSOs:

Do you want to build brand loyalty as a mid-range vertical MSO? You can focus on:

• Creating exceptional, memorable experiences across your operations areas.
• Asking partners to follow strict brand standards to ensure quality and availability.
• Implementing loyalty programs targeting your core products or services.

Brand-Driven MSOs:

Is your cannabis business a brand-driven MSO? You can foster loyalty among customers by:

• Collaborating with partners to ensure your products are premium quality and well-presented.
• Investing in creating and promoting a strong brand identity with a consistent story across all markets.
• Designing digital and experiential marketing strategies to foster brand affinity.

Financial Considerations for Multi-State Operators

Last but not least, it's time to think about your capital and finances. Below is more information on these important aspects.

Capital Management Across State Lines

How you manage your capital directly influences your long-term growth and sustainability. Again, this should be tailored to your MSO type or operational model, considering the following:

• Fully-integrated MSOs need sufficient funds in reserves to expand operations to other states and must implement sophisticated financial practices at each location. In these cases, sale-leaseback and similar strategies can help effectively manage capital-intensive assets.
• Mid-range vertical MSOs should allocate capital in a balanced way and develop clear Return on Investment (ROI) metrics for each owned and outsourced operation. This is why strategic debt financing is critical for these businesses' expansion.
• Brand-driven- MSOs must invest capital in brand development and marketing efforts. Plus, these businesses need to have sufficient funds to cover potential supply chain disruptions. Therefore, royalty-based financing models can be great options.

With Distru, you can take a look at your financial information to assess the performance of each operation in every state where you operate. These features have been designed to help you allocate your capital intelligently and adapt your financial planning to your MSO type.

Tax Implications for MSOs

If taxes are already complex, imagine how difficult it is to understand tax implications for businesses operating in this highly regulated industry and across multiple states. Fortunately, here's more tax-related information relevant to each MSO type:

Fully-Integrated MSOs

If you integrate multiple verticals and operate across multiple states, you'll have to comply with complex tax obligations. The Section 280E creates even more challenges and limitations across the entire supply chain. However, you can optimize tax management and reduce your tax burden with certain strategies, such as corporate structuring.

Mid-Range Vertical MSOs

As a mid-range vertical MSO, you'll also have to deal with complex tax implications and explore different strategies for both owned and outsourced operations. Transfer pricing can also affect the allocation of your taxable income between states.

Brand-Driven MSOs

If you're a brand-driven MSO, you need to assess your tax implications in relation to your partnerships with producers and distributors. It's important to understand your tax obligations across the states where you operate and pay attention to how taxes on licensing and royalty income are treated.

Distru: The Ultimate Tool for Cannabis MSOs

Regardless of your business size and the parts of the supply chain you control, managing cannabis operations across multiple states is complicated. Fortunately, Distru was designed to make this easier!

Our cannabis ERP solution has innovative tools specifically designed for cannabis MSOs' needs, including the following:

• Cannabis inventory management: Track your inventory across all locations in real-time, optimizing your supply chain to avoid common issues (stockouts or overstock situations).
• Order management: Simplify your sales processes by organizing your B2B and B2C operations across all states where you're present.
• Production management: Ensure efficient, quality-controlled production when managing your own facilities or outsourcing tasks.
• Financial management: Make data-driven decisions to optimize your capital allocation and expansion strategies with the software's financial reporting and analysis tools.
• Analytics and reporting: Create custom reports and get access to personalized dashboards with valuable information about your operations to identify trends and opportunities in existing and new markets.

How Distru Supports Cannabis MSOs

Distru offers great advantages to all cannabis MSO types. If you're fully integrated, our solution will provide end-to-end visibility and control over the entire supply chain, from cultivation to retail, and will centralize data from all your verticals or states for seamless communication.

Our ERP software assists mid-range vertical MSOs with numerous tasks, too. For example, you can use Distru to integrate data from outsourced partners into your internal activities, giving you a holistic view of all your operations, including those managed by third parties.

For brand-driven MSOs, Distru has order management and partner coordination features that can help you oversee your activities and relationships with while-label businesses. Moreover, our software offers innovative tools for brand performance tracking that you can leverage to develop better product development and market expansion strategies.

To sum up, Distru is a comprehensive ERP solution that offers something positive to every cannabis MSO. Our software can be your best friend when it comes to planning and managing your multi-state expansion. Need more guidance and support? Remember that our team has extensive experience in the cannabis industry and is willing to help you. Just get in touch!