When the first wave of cannabis entrepreneurs laid the foundation for the industry, there was no template for success or even survival. This is nothing new in a country where capitalism always has forgiven, if not encouraged, business leaders who push the envelope and take calculated risks to gain a competitive advantage.
As co-founder and chief executive officer at Chicago-based Green Thumb Industries (GTI), Ben Kovler learned this lesson well and has used it to his company’s benefit since the day GTI launched in 2014. Over the past seven years, Kovler methodically and patiently built one of the largest multistate operators (MSOs) in the United States, with operations in thirteen states and strategic partnerships with some of the most successful brands in the business. The company earned more than $500 million in total revenues last year and has an estimated market capitalization of $5 billion.
In an industry projected to hit sales of $35 billion in the U.S. alone by 2025, Kovler might be the archetype of the new cannabis entrepreneur: a business-savvy executive with extensive finance skills and a deep understanding of capital markets, investment strategies, and consumer marketing and branding.
Raised in a family of entrepreneurs, Kovler knows his way around the business world and has accumulated an impressive war chest of public and private capital to help GTI become a major player in any region where it decides to set up shop.
Carving out a strategy
“This is a $100-billion industry, and it’s almost an unprecedented opportunity to be a capital allocator with a low cost of capital,” Kovler said. “So you know how lucky we are. I think there’s been plenty of other industries that are analogous to this, and we certainly study a lot of industries over time. Cannabis gets a lot of airtime as Prohibition 2.0, but I also think the gambling industry is similar. I really think other successful businesses over a multi-decade period have been able to allocate capital and play in the capital market cycles properly for shareholders in massive new industries.”
Kovler also compared cannabis to the cable and telecom industries and pioneers such as Liberty Media Chairman John Malone, aka the “Cable Cowboy,” who built an enormous, multibillion-dollar, multi-tentacled conglomerate through strategic mergers and acquisitions. Kovler believes cannabis also shares traits with the technology companies that built cell towers and the infrastructure for the internet, blazing a path forward through murky rules and regulations at both the state and federal levels.
One of the business strategies to which most MSOs adhere is heavily investing in tightly regulated states where the number of licenses is limited and the return on investment is relatively steady and predictable. Conversely, most MSOs avoid California because its stringent regulations, heavy taxes, and licensing fees interfere with profits. Combined with competition from an entrenched, thriving black market, the state’s policies represent “death by a thousand cuts,” said Kovler.
“The California market is the largest from a consumer element, brand, innovation, product innovation, retail format. But that’s not the place where we need to be putting a large amount of capital for investors to generate the highest returns,” he explained. “We’re not going to build a $100-million cannabis campus in California the way we are going to build a $100-million cannabis campus in New York.”
GTI continues to invest heavily in Pennsylvania and other states where the numbers pencil out and consumer demand is high—New York, New Jersey, Connecticut, and Massachusetts for starters. When he contemplates the pros and cons of launching a cannabis company in the Midwest, where weed has been legal for less than a decade, Kovler brings the conversation back to dollars and sense. “For us, the goal is to create a lot of shareholder value and be a long-term business in this industry and a leader with brands that resonate with consumers,” he said. “So I couldn’t think of a better place to start than markets where we can take very large market share positions in production, in retail, and understand the markets and play from a position of strength. That’s kind of an unprecedented asset we’ve built brick by brick.”
By the numbers
The first bricks GTI laid were in Mundelein Village, a small town in the northern suburbs of Chicago. In November 2015, the state of Illinois allowed five medical cannabis dispensaries to open their doors. GTI’s The Clinic Mundelein was one of the lucky shops. At the opening ceremony, local newspapers photographed Kovler cutting a ceremonial ribbon with the village’s mayor at his side. GTI was off and rolling in a town with 30,000 residents. At the time, the entire state housed only 3,300 patients with prescribed medical cannabis ID cards.
Over the next four years The Clinic Mundelein became one of Illinois’s most popular dispensaries, according to patient numbers. When Illinois began issuing adult-use licenses in 2019, GTI renamed the store “Rise Mundelein” and rebranded for the recreational market. Again it was one of the first stores licensed, this time for recreational sales, and local officials expected up to 1,000 visitors when the store opened its doors on New Year’s Day 2020.
Kovler said establishing good relationships with local officials and communities was a key priority in GTI’s early business plan, which also emphasized a first-mover advantage. “Within retail, it’s a lot about going where you’re wanted and where you can develop a very good community relationship,” he said. “That means harder times in dense urban places, so we haven’t excelled there. But we do a good job when we create a partnership with the places where we operate. They know us, we know them, and we can get going. It allows us to be a first mover in a lot of markets where we operate.”
Six years after GTI opened its first dispensary, the company employs more than 2,400 people. In 2020, GTI opened eleven new retail stores and ended the fourth quarter with fifty-one storefronts across ten states. Unlike some MSOs that expanded too quickly and now are stretched thin on cash and attempting to soothe nervous investors, GTI has generated impressive revenue growth and stock performance. In 2020, the company’s stock jumped more than 150 percent; in 2021, share value thus far is up almost 50 percent. As of March 31, 2021, GTI’s assets were valued at $381 million, while total debt outstanding stood at $100.1 million. The company also reported an impressive 134-percent year-over-year revenue increase to $177.2 million. Aside from its significant revenue growth, GTI also raised $156 million with a stock offering in February and another $217 million in secured debt at a 7-percent interest rate—a rate almost unheard of in the cannabis industry, where traditional banking rules and business loans don’t apply.
“We have an edge in the capital markets,” Kovler said. “We also have a unique investor base that is aligned with management, sees the vision, and is invested in that. That means they’re allowing our leadership to understand this is not a quarter-to-quarter game. Our quarterly numbers are strong, but we’re thinking about how strong and how big and weighty the business will be in 2024 when we’re building a long-term enterprise for shareholders.”
While GTI’s success is primarily the result of smart business strategy and sound execution, it also benefited from Kovler’s financial backing, business connections, and family history. When he describes the cannabis industry as “Prohibition 2.0,” he knows of what he speaks: He was born the scion of a beverage alcohol empire.
Shortly after prohibition ended, Kovler’s great-grandfather Harry Blum bought out his partners in a liquor company and went on to build Jim Beam, one of the world’s most recognized bourbon brands. Everett Kovler, Blum’s son-in-law and Ben’s grandfather, took over the company in the 1950s, and in 1967 the Blums and Kovlers sold the company for an undisclosed amount.
Kovler was raised in Chicago, where his family is well known for its business dealings and philanthropic pursuits. His father, Jonathan, was the managing partner of the Chicago Bulls in the 1970s and ’80s, and the family has been a major donor to a wide range of organizations around the city: Kovler Diabetes Center at the University of Chicago Medical Center, Kovler Hall at the Shedd Aquarium, Kovler Seal Pool at Lincoln Park Zoo.
As a teenager, Kovler studied abroad in Switzerland and then headed out west to Pomona College, a prestigious liberal arts school east of Los Angeles. There, he studied philosophy, politics, and economics. He continued his education in Prague as the country transitioned from communist economic philosophy into a market-driven, decision-based economy. “The interdisciplinary major was the beginning of a large part of what I’m still thinking about,” he said.
At the time he graduated, the internet was booming in the San Francisco Bay Area. He took a job at a private equity firm in the food and beverage/consumer products space, and a few years later landed a position teaching eighth grade math. All the while, he traded in the stock market and continued his own informal study of business and finance. When he moved back to Chicago a few years later, Kovler managed several different investments and portfolios for his family’s business and took night classes at the University of Chicago’s Booth business school, eventually earning a master of business administration degree.
Throughout his youth, Kovler also kept an eye on the burgeoning cannabis industry. While in college in 1996, he had his first taste of cannabis activism by voting for California’s Proposition 215, the first medical marijuana bill in the U.S. “My wife was from Denver, so I saw a little bit of the marijuana industry there,” he said. “And then, in late 2013, Governor Quinn signed the medical cannabis pilot program in Illinois. I read the law when he signed it, and that’s sort of where this started.”
While he never had worn a chief executive officer’s mantle before he stepped into the position at GTI, Kovler had all the requisite skills, experience, and business heritage to lead a company in an industry with complex regulatory structures and a murky legal status. His connections to some of the wealthiest people in the country didn’t hurt, either. One of Kovler’s investors is billionaire Leon Cooperman, a hedge fund manager who serves as chairman and CEO at Omega Advisors. Other early GTI investors include Ari Levy, whose father founded Levy Restaurants group, and Morgan Paxhia from Poseidon Asset Management.
While GTI’s early success has drawn praise and growing interest from investors, it also has brought scrutiny from Chicago media. In March 2021, the Chicago Tribune published a story alleging GTI was under federal investigation for “possible pay-to-play violations during its push for coveted state licenses… Investigators have been scrutinizing campaign donations and other steps Green Thumb Industries took as it sought to secure growing and distribution licenses in Illinois and several other states…”
The Tribune used anonymous sources for the story and there has been no acknowledgement of an investigation by any federal agencies, making the paper’s claim somewhat dubious. In response, GTI issued a statement refuting the allegations and demanding a retraction. Shortly thereafter, Kovler tweeted “Why publish a headline with no apparent credible sources? GTI has not found any evidence of a federal investigation. This kind of journalism is a direct attack on our team’s accomplishments over the past 7 years. #FakeNewsChicagoTribune.”
GTI also received unwanted attention in 2017, when Cary Neiman, one of Kovler’s high-school acquaintances, filed a lawsuit claiming the company breached an agreement involving financial compensation for Neiman’s help in getting GTI off the ground. According to the suit, Neiman was an experienced cannabis operator at the time he called Kovler to propose a business partnership in 2014. While there was no formal deal in writing, Kovler and Neiman worked together on the business concept for several months, the lawsuit alleges, before Kovler stole the idea for GTI and cut Neiman out of the business. Four years later, the lawsuit is still pending in Illinois’s Cook County Circuit Court after Neiman rejected a settlement offer.
The branding puzzle
While finance and business are his fortes, Kovler also is fascinated by and focused on ways to satisfy a customer base that is still sussing out what it wants among an ever-growing array of products. “We’re just in the beginning stages of investing in brand development, but you can see it’s even more evolved where we will go,” he explained. “But at the moment, with a core brand like Rythm, we’re looking at things like ‘who is the consumer; when, where, and why are they consuming and how’ and trying to be the best we can be for them. We’re maniacally obsessed with the consumer and every single part of the experience of the product to make that the best. We think if the company focuses on that, it’s a big win for shareholders and it’s a big win for the consumer.”
In its relatively short history, GTI has developed and acquired a number of in-house brands, each targeting different segments of a fickle consumer market spanning old-school medical users to modern recreational users. “The basic tenet of a brand for us is a meaningful relationship with the consumer,” Kovler said. “What’s becoming more and more clear is that you need availability and consistency, so that is square one. It’s also a simple brand message that hooks the consumer, like ‘find your rhythm,’ which is an easy idea. Who doesn’t want to be in their zone, right?”
GTI manufactures and distributes a portfolio of branded cannabis products including Beboe high-end edibles and vape products, Dogwalkers pre-rolls, and the incredibles brand of edibles. When the company doesn’t have the answer to an emerging consumer trend in-house, it has been savvy about acquiring other brands that fill the gaps or creating partnerships with brands that complement its own offerings.
The M&A game
One of the advantages MSOs have over smaller cannabis companies is the ability to acquire or partner with complementary entities, allowing MSOs to gain a foothold in markets where they might not want to make a significant investment. “I think there’ll be a lot of deals [for GTI], but we’re not going to get distracted by that and we’ll do things that are beneficial to investors,” Kovler said. “We are in a unique spot: We can do acquisitions, we can do strategic investments, we can put capital to work to the advantage of shareholders. At our core, we’re a consumer-brand products business, and we want to be where the consumer is developing relationships with the brand.”
With an enviable amount of investment capital at his disposal, Kovler has been able to aggressively develop, market, and scale GTI’s homegrown brands, but he also understands the company can’t develop all the products it wants to offer its fast-growing customer base. Specialized and high-end products are a valuable commodity in an industry starting to build customer confidence and allegiance, and Kovler has a keen eye on the competition and companies ripe for mergers, acquisitions, and partnership deals.
When GTI acquired Beboe for an undisclosed amount in 2019, Beboe already had established itself as one of the premier luxury cannabis brands; the New York Times dubbed the brand the “Hermès of marijuana.” At the time of the acquisition, Kovler said, “Beboe has an extremely talented team, a robust innovation pipeline, an aligned vision on the future of cannabis, and a groundbreaking partnership with Barneys New York.”
In another significant move that year, GTI bought Fiorello Pharmaceuticals, one of ten companies approved to operate medical cannabis businesses in New York, for $60 million in cash and stock. In 2021, GTI purchased Dharma Pharmaceuticals, one of only five medical operators in Virginia that is permitted to have a vertical operation including a retail presence.
Beyond its acquisitions, GTI has collected key partners in markets around the U.S. In 2021, the company announced an exclusive partnership with a cannabis-infused beverage brand to manufacture and distribute the Cann line of sparkling beverages in Illinois. In May, GTI announced a partnership with Cookies, among the largest flower brands in the industry. As part of the deal, GTI’s Essence and Rise retail locations in Las Vegas, Henderson, Spanish Springs, and Carson City, Nevada, will be retail outlets for Cookies products.
“We love the partnership with Cookies and want to be on the forefront of what’s happening with the consumer and cannabis,” Kovler said. “What [co-founder and CEO] Berner has built with Cookies is tremendous, and it resonates with the consumers that go to the store and want to embrace that lifestyle. That’s great, and there’s magic there. Same with Cann, but with different consumers and a totally different dimension, but the same magical element of a brand connecting with the consumer. We can bring the strength of Green Thumb and combine that in ways to create really important cannabis products and experiences for the American consumer nationally. It’s a real crawl-walk-run strategy here, and we’re seeing the beginnings of it.”
While Kovler acknowledges GTI and other MSOs — Curaleaf, Cresco Labs, Trulieve, etc. — are carving out significant market shares, he also believes there is plenty of room for smaller players and craft growers as the industry evolves. His explanation of the market opportunities moving forward is a window into the mind of a lifelong puzzle-solver who doesn’t seem fazed by the competition or the challenges that lie ahead.
“We’re really focused on ourselves and leading the conversation, and we respect the other operators who are each kind of doing something differently,” he said. “We think there’s so much market to go. If you think about the U.S. market, it’s at $20 billion today and headed to $80 billion. There’s [going to be] $60 billion more to claim versus worrying about [what company is earning] the other $19 billion right now. You know what I mean? I’m not really concerned with that $19 billion. I’m thinking more about the other $60 billion and how we take advantage of that and work with the other folks to make this better.”