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.