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BCG Medium Growth Strategy Profitability M&A

Green Dreamz

#Retail #Cannabis Retail #Consumer Goods
ProHub Comment

This case tests quantitative skills (profit calculations with multi-step revenue modeling), qualitative reasoning (market analysis from charts), and strategic thinking (growth opportunity identification). The unique regulatory constraints of the cannabis industry require candidates to think creatively within specific boundaries, making industry knowledge a differentiator.

Estimated Time 15 minutes
Difficulty Medium
Source NYU
50 / 100
Your client is Green Dreamz, a vertically-integrated cannabis company based in Colorado, USA. Founded in 2011 as a medical cannabis business, Green Dreamz expanded into the recreational market following state-wide legalization in 2014. Green Dreamz has since become one of the largest players by store count in Colorado, where it competes with companies ranging from mom-and-pop shops to multi-state operators. Green Dreamz operates a cultivation facility in Denver and 12 dispensary locations (3 of which serve medical cannabis only, 4 of which serve recreational cannabis only, and 5 of which serve both). The 12 dispensary locations are spread across the state: 5 in Denver (all of which serve both medical and recreational cannabis), 3 in Colorado Springs (which only allows medical cannabis), 2 in Fort Collins, 1 in Trinidad, and 1 in Cortez (refer to Exhibit D for a map). Five of its 12 locations were acquired in 4 separate transactions between 2014 and 2018. As the cannabis industry has matured the market in Colorado has become saturated, and Green Dreamz’s organic growth has slowed accordingly. Although Green Dreamz and other companies have invested more in brand-building, consumer preference is still driven primarily by price. Green Dreamz’s CEO has hired your firm to help them find new opportunities for profitable growth.

Clarifying Information

Regulations:

  1. Cannabis companies are heavily regulated, with rules governing everything from zoning and operating hours to packaging and advertising
  2. Up to 2 ounces of medical cannabis flower (or its equivalent in infused products) can be legally sold to registered Colorado patients aged 18+ per day
  3. Up to 1 ounce of recreational cannabis flower (or its equivalent in infused products) can be legally sold to adults aged 21+ per day
  4. Medical infused products can legally have higher potency (100mg+ THC) than recreational products
  5. Federal regulations prohibit cannabis companies from using credit cards. Banks and financial institutions are generally unwilling to provide credit or financing
  6. Cannabis products cannot be advertised, shipped, or sold across state lines Operations:
  7. Green Dreamz retails all the cannabis flower it grows in-house, and purchases additional flower on wholesale markets to meet demand (especially for its recreational dispensaries)
  8. Green Dreamz does not produce infused products (products that are infused with THC oil e.g., edibles, lotions, and vape cartridges), but sells those produced by 3rd party manufacturers
  9. Green Dreamz sells trim (parts of the cannabis plant that cannot be sold to consumers as flower) to 3rd party manufacturers who extract THC oil for use in the production of infused products