Update 6/26/19: Cresco Labs Inc., a Chicago-based cannabis company, announced expanded operations and anticipated sales growth on Wednesday. It's projections come on the heels of Illinois Governor JB Pritzker officially signing adult-use legalization into law beginning January 1.
If you have doubts that cannabis is on its way from illegal to industrial, take a look inside Cresco Labs’ (CRLBF) custom-built, 43,000-square-foot production facility in Joliet, Illinois.
It’s the company’s flagship production house where it grows, processes, packages, and distributes medical marijuana, and is now ramping up to meet the imminent demand of the recreational market in Illinois.
“It’s the full Willy Wonka tour,” Jason Nelson, Cresco’s vice president of production, told Yahoo Finance. “You go from weed, to cooking weed, to cooking edibles.”
The Illinois State Legislature voted late last month to legalize recreational marijuana. Until then, Cresco’s vertically integrated operation — consisting of three growing and processing facilities — was 100% dedicated to producing packaged goods for the state’s medical marijuana market. Now Cresco is getting ready to expand.
“There’s a significant increase that’s going to come from the size of the market and the demand,” Cresco’s CEO and co-founder, Charlie Bachtell, told Yahoo Finance about the state’s embrace of adult-use cannabis, scheduled to go into effect January 1, 2020.
“From an operational perspective we have a very big presence in Illinois. We have three cultivation licenses, five dispensary licenses, so a pretty dynamic increase going from medical to an adult-use program,” Bachtell said.
A second-generation cannabis law
In addition to ushering in recreational use, the state also voted to expand its medical program. The revised program will permit marijuana to be prescribed to treat a wider group of medical conditions — including chronic pain, migraines, and irritable bowel syndrome — and allow nurse practitioners and physician assistants to certify patients to use the drug.
“Illinois has historically had a very restricted medical program compared to the rest of the states around the country,” Bachtell said, explaining that the restrictions have depressed Illinois medical patient numbers.
To meet growing demand, Cresco anticipates ramping up production in its three Illinois facilities. Currently, the company maintains multiple “bloom rooms” at each of its locations that can each hold as many as 630 plants. In Illinois, current average wholesale price for one pound of marijuana flower is approximately $3,000, making each plant, typically yielding a half of a pound, worth about $1,500, and capacity bloom rooms worth nearly $1 million.
Bachtell said Illinois has the benefit of designing “generation two” cannabis regulation by drawing on years of legalization wins and challenges realized in early adopter states, such as Colorado, Washington, and Oregon.
“It was one of the very unique components of the Illinois bill — we’re going to have one of the first limited license adult-use programs in the country. It was built on the back of the medical program. The medical program really did change the way that medical cannabis is done in the U.S.,” Bachtell said.
The upcoming law will pave the way for newcomers, as it provides for staged increases in the number and diversity of license-holders. Still, those who do enter the expanding market will be subject to the comparatively strict standards in the state of Illinois.
From the moment a new marijuana plant or “tip cutting” is placed into a cultivation dome, it’s tagged with its own barcode and entered into the state’s tracking system, Nelson said. Tip cuttings, organized by cultivars, or strains, are grown from a portion of a female plant, rather than from seed, to ensure each plant is a genetic clone of its mother.
“They know that there are clone domes, they know when they were cut, they know the amounts that are in one of these domes,” Nelson said.
State regulators also limit the type, frequency, and amount of synthetic and biochemicals that can be used to treat cannabis plants.
“We know in Illinois when we launched this space we had a lot of pesticide restrictions,” Nelson said. “It’s the most restrictive program in the country from that respect.” The pre-flower stage is the last time approved pesticides may be applied.
Extraction chemicals used to separate THC and CBD and other phytocannabinoids from mature plants are no exception.
“In Illinois, we’re forced to remove all of the butane out of the final product,” Nelson said. “Each state has a different threshold level that they allow...In Denver, where you can have 5,000 parts per million of butane left, I don’t like that per se.”
Every ounce of plant, whether utilized or discarded, must be physically and visually accounted for, capable of withstanding audit. More than 200 cameras monitor Cresco’s Joliet facility, with all footage backed up and accessible to state regulators, and unused plant material weighed, ground, and mixed with non-plant material before it leaves as refuse.
Cresco is unfazed by the restrictions in Illinois.
“Prior to this, we were in the banking space, particularly the mortgage banking space,” Bachtell said. He credits experience in the industry, during and after the financial collapse, for helping him handle markets that transition from unregulated to hyper-regulated in a short period of time. “For us, the transition should be pretty seamless,” he said. “Whether it’s a medical program or regulated adult-use, we’re familiar with the fundamentals.”
Bachtell said Cresco will offer its current brands to recreational users, once the market opens at the beginning of next year. The company also plans to develop new brands to appeal to its new market.
Alexis Keenan is a New York-based reporter for Yahoo Finance. She previously produced and reported for CNN and is a former litigation attorney. Follow on Twitter @alexiskweed.