Sources report that Wholesale/Retail giant Costco (COST) is in sourcing negotiations with cannabis supplier Curaleaf Holdings (CURLF). The deal would reportedly enable the mega-retailer to sell selected strains of marijuana products under the Kirkland signature brand. Soon, cannabis will join that product list nationwide, pending federal legalization. By the year’s end, Costco plans to sell THC products in the already fully legal states of Colorado and California. But federal legalization?
Kirkland Kush? Costco’s Cannabis Plan
Sources report that Wholesale/Retail giant Costco (COST) is in sourcing negotiations with cannabis supplier Curaleaf Holdings (CURLF). The deal would reportedly enable the mega-retailer to sell selected strains of marijuana products under the Kirkland signature brand. While the foray into cannabis may be a shock at first glance, it’s worth noting that Costco currently churns out 12.2% of their operating revenue from cigarette and alcohol sales, while another 4.8% is generated from their pharmacy services. Clearly the company is no stranger to selling regulated products.
Despite still being illegal under federal law as a Schedule I drug, legal cannabis sales reached nearly $20 billion in 2020 and are expected to top $40 billion annually within the next four years. A total of 35 states and the District of Columbia have legalized marijuana for medical use, 15 of which currently allow adults to legally use the drug for recreational use. Retail marijuana prices and quality vary widely. Industry analyst Aaron Rogan with 420Ventures estimates that prices can differ by as much as 200% within a metropolitan market. All of which sets the proverbial table for an operationally oriented retail machine like Costco to enjoy a first-mover advantage over their competitors.
Where others see market chaos, Costco executives sense opportunity. Cordozar Broadus, Costco’s recently appointed vice president of cannabis business development opines that selling marijuana products is completely aligned with the company’s mission “to continually provide members with quality goods and services at the lowest possible prices”. Costco plans to roll out pilot programs at 23 stores in Colorado and California later this year. The company is building out specially constructed in-store dispensaries complete with trained staff, age restricted entrance requirements and tight inventory controls. In a departure from their traditional business model, Costco members will be unable to purchase their cannabis products in bulk due to strict government limits on the amount an individual buyer is permitted to purchase. Broadus is banking on these laws being significantly relaxed in the coming years, enabling members to eventually load up on a three-month supply of both cannabis and Cheetos on the same Costco shopping run.
Next time: cannabis and ecommerce – Amazon’s director of green ventures Richard Marin discusses the next frontier for the on-line sales behemoth.
The ‘Costco of Cannabis’? This Company Is Already Active in Canada, and Hungrily Eyeing the U.S. Next
Soon, cannabis will join that product list nationwide, pending federal legalization. By the year’s end, Costco plans to sell THC products in the already fully legal states of Colorado and California. But federal legalization?
Joan Oleck is a freelance writer currently specializing in the cannabis industry and cannabis tech. She has been an editor and reporter on staff for such publications as Forbes.com, Business Week, Newsday and The Detroit News. She won the Jesse Neal Award for best feature series in a trade publication, Restaurant Business, and a GLAAD Award for a Salon story about discrimination in adoption against single and gay parents
Costco, the member-based, big-box retailer, is a familiar sight on the outskirts of American cities (and cities in 10 other countries, as well). That’s no surprise: The Washington State-based retailer is wildly successful due to its steep discounts and bulk sales, spread across warehouse-size stores – and patronized by the chain’s 47 million U.S. club members.
Clearly, those customers love Costco’s low prices on prime steak and rotisserie chicken, toilet paper (sold by the truckload), alcohol, name-brand fashions and electronics – all available to members only.
Soon, cannabis will join that product list nationwide, pending federal legalization. By the year’s end, Costco plans to sell THC products in the already fully legal states of Colorado and California. But federal legalization? That might be months or years from now.
Meanwhile, a kind of mirror-image of the warehouse retailer’s membership/discount model is being set up by Canadian cannabis company High Tide. Already, the company has been dubbed by industry sources “the Costco of cannabis” as it prepares for a U.S. push, invigorated by last week’s announcement of a partnership with U.S.-based NuLeaf Naturals, an “organic hemp” company selling CBD, CBG, CBC and CBN.
“Since we started this innovative [membership] concept October 20, over 90 percent of our transactions are now being conducted by club members, versus 50 percent previously,” High Tide President and CEO Raj Grover said in an interview this week. “So [when] you see a vaporizer being sold for $200 in the market, we’re selling it for $50 to our members.”
Because THC products can’t cross state borders, much less the Canadian one, Calgary-based High Tide’s “Cabana Club” is limited to Canadian customers only. Likewise, the club’s 104 brick-and-mortar stores are based exclusively within that northern neighbor, as well. The company claims to have 270,000 Canadian club members.
But that doesn’t mean High Tide isn’t already active in the United States: It has two CBD platforms here, and one in the United Kingdom. (The deal with NuLeaf Naturals will add to the number of U.S.-based platforms.
And that vaporizer Grover mentioned? It’s already sold in the U.S. because High Tide has five U.S. platforms (and two more overseas). Four sell “cannabis-consumption accessories” – vape pens, pipes, rolling papers and the like, the CEO said. Prices are low, Grover added, because High Tide manufactures fully 70 percent of those 5,000 accessory sku’s.
Nor is the bulk-buying Costco emphasizes required in the much smaller Cabana Club stores. Membership fees like Costco’s have also been waived for several months, Grover said, to build loyalty.
His company, which has been public since 2018 (NASDAQ ticker HIIT), got its 2009 start as the Smoker’s Corner store chain. Today, across its six ecommerce platforms, High Tide claims a total 2.5 million “lifetime customers.” In 2020 it had approximately 100 million site (not unique) visits.
And there’s more to come. High Tide is talking to farmers, Grover said, about partnerships for a private (white label) branded THC product.
Then there’s the NuLeaf Naturals acquisition. “We are growing by 15,000 to 20,000 members a quarter,” Grover said. “Since we announced this concept, we are now growing at over 90,000 a quarter. So: a massive jump; you can see how loyalty works.”
NuLeaf, with its 285 stores, will expand High Tide’s CBD foot hold in the U.S., where CBD products have been legal since the 2018 Farm Bill green-lighted hemp.
The acquisition also allows the company the ability to sell these products under its own brand for the first time beside the other CBD products under its ecommerce umbrella. “We’re super-excited to get into the U.S. upon legalization,” Grover said, “but I believe we are already very well placed to get into the U.S. With [the NuLeaf] announcement, we have six-plus e-commerce platforms; [and] 80 percent of our customers live in the U.S.
“So, upon legalization, we can convert many of these customers and sell them THC products online.”