🔒CT’s tough cannabis regulatory environment leads to industry consolidation; here’s how one major player is taking advantage

Many people familiar with Connecticut’s cannabis industry will tell you — it’s a tough, tightly regulated market. Such red tape is often frowned upon by industry participants, but it can offer some advantages to incumbents — and a barrier to entry to new competitors. That’s the way Carl Tirella Jr., co-owner of Budr Cannabis, sees it. He says the state’s tough regulatory environment offers positives for his fledgling business — for the most part. Getting state approval to open dispensaries is “very difficult,” Tirella said, but he and co-founder Derrick Gibbs plan to add more in Connecticut, where their familiarity with the regulations gives them an advantage over out-of-state operators. In June, Budr grew its market share by acquiring three Connecticut dispensaries — located in Danbury, Vernon and Montville — from The Botanist, a multistate cannabis brand owned by Acreage Holdings. The deal — financed, in part, by a $2 million investment from California-based, cannabis-focused hedge fund Poseidon Investment Management — adds to Budr’s existing dispensaries in West Hartford, Tolland, Stratford and Danbury, making it one of the largest operators in the state, with seven retail locations. Only one other company — Connecticut-based Fine Fettle — has more dispensaries (nine). Zen Leaf — owned by Verano Holdings, a multistate cannabis operator based in Chicago — also has seven dispensaries in the state. Overall, there are 72 cannabis dispensaries in Connecticut, according to state statistics. Other companies that own more than one retail location include Curaleaf, Higher Collective, Insa, Nutmeg, C3 Industries, Crisp Cannabis and Shangri-La. “I have a vast number of experiences to really navigate the complexities of the regulatory environment here, so that head start obviously helped,” Tirella said. “… (Connecticut) is not going to be a Massachusetts or an Oregon, where they open thousands of licenses. It’s really regulated to an extent where we know our competition.”

Social equity path

Tirella, a finance professional from Nyack, New York, entered Connecticut’s cannabis industry in 2019 when he started managing three medical cannabis dispensaries in the state. In July 2022, he co-founded Budr with Gibbs, a home healthcare business owner from Fairfield. A year later, they opened their first dispensary in West Hartford through the state’s social equity partnership program, which requires Budr to share ownership of each retail site it opens with an applicant who meets certain income and residency criteria. The state established the program in 2021, in order to promote social equity in neighborhoods that were disproportionately impacted by cannabis prohibition. By using the social equity program, Tirella and Gibbs were able to bypass the state’s general application process, which requires participants to win a lottery in order to be eligible to earn a license. The state has only conducted one lottery since legalizing recreational marijuana in 2021. “It allowed us to get working right away, instead of waiting on the lottery to see if we were able to win something,” Tirella said of the state’s social equity program. Budr plans to open an eighth Connecticut dispensary in Stamford, and is eyeing two additional retail sites in the state, a process made more challenging by limited real estate options. Municipalities can ban dispensaries and/or restrict where they are located, limiting the number of available sites. According to the state Department of Consumer Protection, 52.5% of the 120 Connecticut municipalities it has tracked have prohibited or placed a moratorium on cannabis businesses in their communities, while 47.5% allow them to some degree. Those restrictions are part of the reason Budr decided to acquire the Botanist’s dispensaries. The deal was unique because it involved an investment from a hedge fund. It also represented the departure of Acreage Holdings from Connecticut’s retail market.

Overcoming red tape

Poseidon Investment Management has wanted to invest in Connecticut, but was waiting for the right opportunity, said Morgan Paxhia, who co-founded the company in 2013 with his sister Emily Paxhia. Poseidon was impressed with Budr’s financial position,

professionalism and the industry knowledge possessed by its co-founders, Paxhia said. “We’re very happy with them,” Paxhia said. “They’ve been great to work with, and it seems like it’s already off to a great start.” Paxhia said Connecticut’s regulatory environment is challenging, but not as bad as other states where Poseidon invests. The company has $100 million invested in about 30 cannabis companies nationwide. “New York is brutal. I would choose Connecticut over New York,” Paxhia said. Some regulations he does find challenging in Connecticut include strict limitations on advertising, which curb customer awareness, he said. “We hear from folks in Connecticut that they didn’t even know they could buy from Connecticut cannabis stores,” Paxhia said. “The state is likely leaving real tax revenue on the table as they are limiting sales in stores without proper consumer awareness.”

Andrew Glassman, a cannabis lawyer with law firm Pullman & Comley, said Connecticut’s cannabis industry doesn’t just have a lot of regulations — they also keep changing. He pointed to one regulation — Section 149 — that has driven away out-of-state applicants because it requires them to pay a $3 million entrance fee, and partner with a social equity applicant to start a cultivation facility. He mentioned other regulations that make it tough for cannabis companies in the state, including one that requires packaging to be colored black and white. “There are a lot of regulations,” Glassman said. Tirella said tight regulations on product potency and variety also hurt the market, causing the state to lose “a lot of revenue … to Massachusetts, New York and Rhode Island.” “We should be probably double our size right now than where we are,” he said. Even still, that’s not stopping Budr from considering new growth opportunities. The company plans to expand beyond retail. It’s trying to finalize a lease in New Britain to establish a 20,000-square-foot cultivation facility that will produce 300 to 400 pounds per month as a micro-cultivator. The facility’s growing area would be only 8,000 square feet, while the remainder of the space would be dedicated to drying and packaging, Tirella said. Budr could also consider more acquisitions, Tirella said. “We will always be looking at transactions in the market,” he said. “I do think there will be consolidation, or continued consolidation in the market over the next few years, because it’s a very hard market to compete in, just by the nature of the regulations.”