Hot off of a $682 million acquisition, Adam Bierman, the CEO of MedMen — now the biggest cannabis company in the US — opens up about his biggest competition.

While Bierman said he welcomes competition, big private equity firms are knocking on the marijuana industry's door, "and they'll come in and compete hard."

Bierman outlines what it will take to see these multi-billion firms enter the market, and why retail is "the ultimate defensibility."

The CEO of MedMen, the largest cannabis company in the US, thinks giant private equity firms could be his biggest competition.

"I've been asked over the last couple of years, who's your biggest competitor?" MedMen CEO Adam Bierman told Business Insider in a recent interview. "My answer has always been big private equity."

Though some analysts say cannabis could become a $75 billion industry by 2030 — which may even be a conservative estimate — big institutional firms like the TPGs and Apollos of the world have sat on the sidelines because of the risks associated with investing in the industry.

Bierman, for his part, isn't waiting to stake out MedMen's territory before these multibillion-dollar firms enter the market — his company is building out locations on some of the hottest real estate in the country.

While marijuana is legal in 9 states, including Washington D.C., the plant is considered an illegal, Schedule I drug by the US federal government.

Private equity may see opportunity in the nascent sector, but firms have been reticent to invest because their limited partners — likely pension funds or large insurance companies —typically don't want to take on the risk of putting money into a sector with murky federal regulations.

The STATES Act could be what private equity firms need to enter the cannabis industry

The rules in the cannabis industry, similar to other emerging sectors like cryptocurrencies, are constantly changing.

Though some of the bigger institutional venture funds, including Tiger Global and Lerer Hippeau, have dipped their toes into cannabis, albeit only in software and data companies that don't deal with marijuana directly — it'll take coherent federal regulations before private equity funds get into the dispensary business directly, Bierman said.

That regulation could come in the form of The Strengthening the Tenth Amendment Entrusting States, or STATES Act, which would protect businesses in states with legalized marijuana from federal government interference and prosecution from the Department of Justice.

President Donald Trump himself has indicated he'd support the bipartisan legislation, though its not clear when the bill would actually get passed.

If the STATES Act passes, Bierman said it would "open the floodgates" to institutional capital in the cannabis industry.

MedMen's Fifth Avenue location. Sarah Jacobs/Business Insider

'Retail is the ultimate defensibility'

Bierman said that while he welcomes private equity firms entering the cannabis industry as a catalyst for the industry as a whole, "they will come in and compete hard."

He used the example of New York state — where MedMen has three stores — as a prime target for private equity. The state has a large population of potential cannabis consumers combined with a restrictive licensing program.

In New York, there are 10 companies (including MedMen) building up businesses to serve the state's restrictive medical cannabis program.

A firm like Apollo or Blackstone has billions of dollars at their disposal, and could easily come in and dominate the market.

"They could say 'We're going to get into cannabis and we're going to allocate two billion, three billion, even five billion,' and the first place they'd look at is New York," Bierman said. "And when they come to New York, they're going to go buy one of these licenses for a billion dollars and then pour tons of money into it," in preparation for New York potentially passing laws to legalize marijuana for adult use.

MedMen's strategy is to stake out prime retail locations in markets like New York, Los Angeles, and Las Vegas before these big firms are able to leverage their multibillion-dollar funds to squeeze out smaller players.

In New York, for example, there are onerous zoning restrictions around where dispensaries can be located — they have to be at least 1,000 feet away from schools and churches, for example. That means in a dense, populated area like midtown Manhattan, there's hardly any space for a dispensary to come in and compete with MedMen's store on Fifth Avenue.

"Retail is the ultimate defensibility — or the ultimate moat," Bierman said. "So we've been so out front and using our first-mover advantage to lock up all the best retail and all the best markets." Because MedMen has staked out the best locations on busy thoroughfares like Fifth Avenue or LA's Abbot Kinney Boulevard, dispensaries backed by deep-pocketed groups will inevitably have to locate in less-trafficked areas.

"So when big private equity comes, that's fine, but they're going to ask somebody to drive right past MedMen's store," Bierman said. "Somebody wouldn't be compelled to say, 'I want to go out of my way and go further to shop somewhere else.'"

Those retail locations, according to Bierman, are ultimately what will defend MedMen from its competitors with deeper pools of capital.

"We're planting flags and around those flags are a moat with man-eating alligators and fire-breathing dragons," Bierman said.