Running Cannabis Operations in Multiple States with Pete Kadens

pete kadens

Pete Kadens is the co-founder and CEO of GTIGrows.com. Pete and his team run cannabis grows and dispensaries in multiple states.

Pete goes over the challenges and opportunities in each market and his unique way of identifying the markets where he wants to establish a presence.

Learn More:
http://www.gtigrows.com

Key Takeaways:
[1:00] – Pete’s background and starting GTI Grows
[2:36] – Pete talks about the solar company he sold
[4:21] – States that GTI Grows has a presence
[7:41] – Pete compares and contrasts the markets GTI Grows is in
[12:52] – Decision-making process around picking geographies
[15:53] – Pete talks about obstacles GTI Grows has faced
[19:07] – GTI Grows’ methodology on choosing strains
[22:22] – Pete talks about extraction and in infused products
[25:00] – Pete talks about team building
[31:01] – Compliance challenges
[33:49] – Pete uses his solar background to incorporate energy efficiency
[36:33] – Pete gives an idea to entrepreneurs to solve one of his problems
[38:35] – Pete talks about his partner’s skill sets
[41:47] – Pete talks about the next three to five years in the industry
[45:53] – Pete answers some personal development questions
[49:18] – Contact details for GTI Grows

Important Update:
What are the five trends that will disrupt the cannabis market in the next five years? Find out with your free guide at: http://www.cannainsider.com/trends

Read Full Transcript

As cannabis Prohibition ends in state after state, some entrepreneurs are tackling multiple markets at the same time. Pete Kadens, CEO of GTI Grows, is one of those entrepreneurs, and I’m pleased to welcome to today. Pete, Welcome to CannaInsider.

Pete: Matt, thank you for having me.

Matthew: Give us a sense of geography. Where in the world are you today?

Pete: I am in a very snowy Chicago, Illinois where we have a foot and a half of snow on the ground here.

Matthew: It’s the new North Pole.

Pete: Yes it is.

Matthew: Tell us, what is GTI Grows? What does that mean? What do you do, and how did you get started in this crazy industry?

Pete. So GTI is an organization that operates cannabis cultivation processing and dispensary licenses around the country in several states. I got into the business, I’ve been an entrepreneur for the last 15 years. Even before I was an entrepreneur, starting when I was a little kid, I had an anthropological fascination with poverty and homelessness. It’s something that I dealt with and tried to figure out my entire life. Why would someone be poor? Why would someone be homeless? In that study, that anthropological fascination took me to a place where I started learning a lot more about the War on Drugs and started reading everything I could about the War on Drugs.

As I met homeless people and impoverished folks, what I found out is that poverty wasn’t just some permutation of addiction or a mental illness. It was in fact this other bucket, which was largely minority populations who were incarcerated for non-violent drug related crimes. So when an opportunity came up three years ago, when I was running a solar energy company, to invest in the marijuana space, I took advantage of it. And at that point, frankly, not because I wanted to enrich myself, but because I just believed in the cause. So that’s how I first got in, as a passive investor when I was running another company, and then I fell so much in love with it that I decided to leave that company and go do this full-time.

Matthew: Tell us a little bit about your solar company. That sounds interesting.

Pete: In 2008, I started a solar energy company that installed solar panels on the rooftops of companies like Target, Walgreens and Kohl’s, and basically scaled that company over a period of 7 years to a company that operated in 17 states around the country. Had a lot of fun doing it, but I got to tell what, the cannabis industry is a lot more fun. So it had a great run, and I will tell you this, I learned a lot about provincial regulatory frameworks. And that knowledge of how to play the law in different markets, because they’re all different in the solar space given the incentives and such, was fundamentally really, really import to being successful in the cannabis business.

Matthew: Do you feel like this solar adoption has maybe hit a new place? I mean, is it really getting in more to the hockey stick exponential growth curve now?

Pete: It definitely is, the cost of solar has come down dramatically. With that said, there are fundamentally still a couple of huge challenges and frankly not the least of which is the new administration and their views on renewables which I think will probably slow down the progress of solar for the next couple of years because solar still does need a little bit of incentive in most markets to work. Yeah, I mean, the cost curve is, over the time I was in the space, costs came down 75 percent, and frankly I expect that same cost curve to hit the cannabis industry in the near future here too.

Matthew: Good, if you’re prepared for that and still plan to be profitable, you’re one of the few. So tell me, what states are you operating in right now?

Pete: We operate in Nevada, Massachusetts and Maryland. And then we have an affiliate business that I was one of the first passive investors in, in Illinois as well. So really four states around the country, but I run the business that operates, licenses in Nevada, Massachusetts, Maryland and applying in Pennsylvania and Ohio here soon as well.

Matthew: I used to call my home state of Illinois the “Poster child for a dysfunctional cannabis market,” but it seems like even the politicians there are starting to make some changes that have made it a little bit better. Would you agree with that at all or do you think it’s still dysfunctional?

Pete: It’s starting. The law here was passed under Governor Quinn, who was a strong advocate for medical cannabis. Shortly after the law passed and after the applications came out, Governor Quinn was upset by Governor Reiner, who was not as big of a fan. You’re right, it is progressing. We started with 3,000 or 4,000 patients a year and a half, 2 years ago. Now we’re up to 15,0000 or 16,000. It’s still a smaller market than even comparably a market like Nevada, which has a lot fewer people in terms of total population, but yeah it’s growing. The advances it in largely have made have been in the expanding condition list.

Really there are 41 conditions, in which most are very severe, the cancers, the Parkinson’s, the epilepsies. Recently they added PTSD, which really advances the market. Still not on the list, and notably, is chronic or intractable pain, and that, as you know Matt, in many markets a real key element of the patient condition set.

Matthew: Are they requiring the fingerprinting, background check and prostate exam? I’m just kidding about the prostate exam, but the other stuff I’m not kidding.

Pete: They have made some of the components of accessing cannabis easier in terms of getting your patient card. So yes on the full background check. The fingerprint thing is a little bit diluted now, and it is easier for doctors to recommend. This is a fundamentally, really important change, and this is a change I expect to sweep the country. It used to be that physicians had to recommend a patient specifically for cannabis. They had to say, John is my patient and I recommend medical cannabis for him. They’ve changed that now, this is I think a very important change, to where a physician only has to certify that that patient has a condition that is eligible for cannabis. So the physician can say, yes indeed this person has epilepsy, and epilepsy is qualified condition. That indemnifies the physician, makes them feel a little removed from the recommendation of medical cannabis and thus removed from the liability of it. So that is also advancing the market in a big way. I think that’s fundamentally the most important change that happened here in Illinois recently.

Matthew: That’s good, a much lower bar. That’s definitely progress. Can you compare and contrast Nevada, Massachusetts and Maryland, their regulatory frameworks? What you like, dislike, the opportunities and challenges and both so people can get a sense.

Pete: Sure. This business is so hyper provincial. I mean, that’s why it makes it so difficult. Every market, every operating or legal market has its own fiefdom of laws. And in fact that’s one of my recommendations, for later I think you’re going to ask me, what do I recommend for the industry, is if there is any way for us to collaborate as states and standardize laws, that would really make things a lot easier for us operators in the space.

Maryland is a very restrictive state, 15 grow licenses, 15 processing licenses and there are 102 dispensary licenses, but that’s a small number of licenses for a population of roughly 7 million people, just under 7 million people. I think that’s a good thing personally. I’ m in favor of cap licenses and a rigorous application process. The laws there do not include edibles, which does take out a big chunk of the product offering, that especially some patients are looking for. I think their position there is we want to sit back and study the edible market and see how it evolves and see how standards around dosage counts and labeling evolve before we get in too deep into that space, and I understand that.

The Maryland market has had some real challenges. Unfortunately my company is involved in one of those legal challenges where the cannabis commission there has made some pretty serious mistakes. Unfortunately I would say, that up to this point, Maryland has been the most poorly run market that we operating in, in terms of how the regulations have been introduced and how they have been managed.

Nevada is a little bit more of a free-flowing market, and Nevada interestingly, is the opposite of almost every other market in the country. Most markets in the country are like Maryland where there’s a smaller number of cultivation licenses and a much larger number of retail establishments, and Nevada is exactly the opposite, 180 cultivation licenses and 60 dispensary licenses. That makes the Nevada market really interesting in terms of being a retailer. The one interesting thing about Nevada of course too is that there are only two real markets, which would be North Nevada, Reno, Carson City area and Southern Nevada, which is basically just Las Vegas. So because of that there’s nothing in between.

The third thing about Nevada, I always mention that’s kind of interesting, is many folks who live in Nevada are folks who have a firearm license. And because of the federal prohibition on accessing a controlled substance, if you also have a firearm license, many folks in Nevada are not able to access medical cannabis because they are not willing or able or interested in giving up their weapons license. So that has cast a shadow over the market, and I think that’s a very interesting dilemma that we’re going to have to face here in the coming years.

Then these two markets in particular, Nevada and Maryland, are interesting in that they are two states that recognize reciprocity. So if you have a medical cannabis license in another state that’s recognized by a physician and by the state, you can go to a dispensary in Nevada or go to a dispensary in Maryland and access medical cannabis. So that’s a nuance of those two markets that happens to be very interesting. And as you know, Nevada has voted in favor of legalizing recreational cannabis, which we think will be implement later in 2017.

In Maryland, I’m sorry Massachusetts is also a state that voted in favor of legalizing recreational cannabis which will be in 2018. It looks like July of 2018. Massachusetts was an interesting process. It’s a rolling process. There’s no real cap, no real stated cap on licenses, although the regulators talk about a cap from time to time. There’s about 85 organizations that have qualified to provide both medical and recreational cannabis to the state, to Massachusetts. The interesting thing there now is even after three years of being up and running, there are only nine organizations up and running and selling cannabis in Massachusetts, including only one west of Worcester. So there’s about a million people who live west of Worcester which is kind of the dividing line of Massachusetts, and only one operator is open in that market.

So it’s an interesting market headed for full legalization. Definitely has some challenges. I will tell you that the process of getting through the Massachusetts Regulatory Framework is a three-step process and it is very time consuming, meaning a year to a year and a half plus, and extraordinarily expensive to get through. So I apologize for being long-winded, but I wanted to lay the landscape for all those markets.

Matthew: Yes and Wister is pronounced Worcester for the rest of the country, right?

Pete: Right, exactly, except in Massachusetts where it is Worcester.

Matthew: Okay, and how do you go about deciding which city in a market to go with, in let’s say in Nevada or Massachusetts or so forth, what’s your strategy there?

Pete: This is something that GTI has been really focused on. We’re very surgical with our approach to where we locate. We mine a lot of data. We’re studying everything from demographics to household income to traffic patterns. And importantly, we’re studying where other people are going. While we are focused on the impact we make in our communities, as well as, the number of employees we can bring in and the benefit to patients, we’re also focused on shareholder value. And we believe we can derive more shareholder value by being in markets that are less competitive.

So we look at a major metropolitan area where people are clamoring, other operators are clamoring to be in, say Boston or Las Vegas, and we go elsewhere. We go to (13.45 unclear) markets where there aren’t as many operator servicing of those folks but there is as much interest and there is as much demand. We believe that’s the best way to preserve margins and to avoid significant margin oppression in a commoditized industry, an increasing commoditized industry.

In addition, from a cultivation perspective, we have a couple key factors that we look at that help us determine where we’re going to operate. And those key factors are things like we want relatively high minority density in the markets where we have a cultivation facility. We want relatively high unemployment. In other words, we look for areas that have been economically depressed for two reasons. One is we like to give back. I talked earlier about my anthropological fascination with poverty. That’s not just something that I have. That’s me and all of my partners share that, and we like to be a part of revitalizing communities. That’s a fundamentally important thing to us as people.

Number two, those are markets where the mayors and the city council members, they want us there. We are not a burden to them. They don’t see us as a nuisance. We’re not a not in my backyard type of business. Our 50 jobs or 75 jobs are critical to the development of their urban corridor and to revitalizing their city. And so when you have a community who stands up for you in the face of drama or in the face of people not liking what you do that’s where we like to go. We want to be supported by the community and we want to be in a communities where we can make a big difference, and frankly in communities where we can drive shareholder return.

Matthew: What about operating GTI Grows has been a bigger obstacle than you imagined initially? You mentioned you came from the solar industry. It sounded like there was a lot of regulatory headaches there, compliance headaches perhaps, but what about this industry has been a bigger obstacle for you than you initially thought that hey I’ll be able to surmount this, no problem.

Pete: Yeah that’s a good question. I tell people this all the time that this business is two times harder and three times more expensive than you could ever have imagined. And primarily because the mundane in any other business is incredibly challenging in this business. I just totally underestimated that, for example. In almost any other business I have operated, I’ve had directors and officers insurance, which is a standard insurance. It’s one of the more expensive lines of coverage because of the risk associated with shareholder lawsuits and other lawsuits, but it’s an important coverage to have so that the directors and board members of the organization aren’t naked.

In this business you’re hard-pressed to find anyone who will buy the policy that is of substance. And what I mean by that is I’ve been to 20 different insurance markets with 20 different brokers and people who I know and trust, who I’ve worked with, who have gotten me great deals even in challenging situations in the past. And they’ll go and they’ll get a directors and officers policy, and I’ll go immediate to the exclusions of the policy and the first line in exclusions is, “If you’re breaking any federal law, this policy is null and void.”

So they want me to pay $45,000 in premiums to protect my fellow directors and officers and yet they’re saying that my policy is null and void, effectively because of a federal breach, effectively the policy isn’t worth the paper it’s written on. In any other business, that’s just par for the course. That’s easy. The banking thing is a challenge. I mean, we have banking relationships, but it’s not easy. I mean, in my prior life I spent less than 1 percent of my time focusing on banking. We had people banging on our doors to try and get our deposits and get our lending business.

In this space, I’m spending 10-15 percent of my time, as the CEO of the company, focusing on accessing banking relationships and securing depository relationships. It seems like a waste of time to me, but unfortunately it’s a necessity. So I would say the most surprising thing and the biggest obstacle is that I’m spending, and the other executives are spending, a lot of time on things that should be easy and that aren’t revenue generating, but in this business they’re hard. And in effectively that impacts the bottom line. That impacts the top line. That can impact employee morale, and so you’ve got to work really, really hard to overcome those obstacles.

Matthew: Gosh sometimes is wish the politicians could see what the consequences are of the behaviors, the unintended consequences. I know most of them are trying to look out for their citizens or maybe they’re not. Maybe I’m in la-la land. Maybe they’re totally corrupt, but I wish they could see either way what happens. I mean, how you’re spending your time and how you could be spending your time. It’s crazy. Let’s transition to some more granular details. How do you decide which strains are the proper strains to grow and how do you come up with that? What’s your methodology around that?

Pete: We like to say that data is everything. So for example, just to kind of isolate hey we want to grow an OG Kush or we want to grow Golden Goat because it’s got a high THC, it’s not good enough. It seems fun, but really that’s not good enough to really be successful. Market data is everything. You have to match incidents rates in a market to the medicine that help alleviate those conditions. For example, in certain markets certain forms of cancer have a higher incidents rate. Heart disease or diabetes or things like that have higher incidents rates. Epilepsy, believe it or not, there are certain markets where there are higher incidents rates.

So you have to match the medical conditions and the incidents rates to the strain. Obviously for a spastic disorder, which is epilepsy, tourettes, (20.04 unclear) Syndrome, Parkinson’s, those diseases that cause the tremors, if there’s a lot of that in a market where you operate a dispensary, you want to be growing a lot more Indica, and you want to be growing at a higher CBD ratio of products that would settle those tremors for those patients. So we’re constantly studying data, but also this is an evolutionary process.

You come into a market, you study the incidents rates. I mean, the incidents rates for medical patients don’t tell you everything and you kind of make some educated guesses. I think it’s important though then that you study the data to understand who is buying what and why. So when we first opened up within one of our markets we did see that our highest THC content strain was the one that was flying off the hook, and it was 26 percent flower, it was a 26 percent Golden Goat flower and it was by far our best seller. I mean two to one, over the next closest flower.

Then as we started educating patients on the entourage effect and you don’t just have to have high content THC to get what you want out of this solution, we started to see those sales dip. Because what happens is, is people come into a market and they don’t know much. They’re novices at this. They have to learn and we have to teach them. Once we teach them, they adjust their tastes accordingly, and we’re educating them. So we’re using data, we’re using trial and error. We’re using experience. We’re using what flies off the shelf, and we’re taking all of that and putting that into a formula and basically determining which strains to grow.

The other thing is, and the last thing is, and this is more in the horticultural side, is there are certain strains that are more predisposed to things like powdery mildew and spider mites and other sorts of viruses, and we definitely try and stay away from those strains. For whatever reason, the genetics of certain strains are more predisposed to that, especially in an indoor climate. And the last thing you want is to be setting yourself to have to just eradicate a crop because of a spider mite infestation or a ton of powdery mildew. So we tried these very sensitive to using genetics that will allow us to avoid having those catastrophic viruses.

Matthew: Pete, how does extraction and infused products play a part in your business?

Pete: To me this is really the future, Matt. I mean, every week we look at our data, and our data tells us that people are migrating away from flower and more towards different types of product. The penetration is increasing for things like topicals, edibles, concentrates. And we believe that the business is becoming much more about experience and much less about strains. I have publically stated, I’ve given public discussions. I serve on the National Board of MPP (Marijuana Policy Project). I have stated a number of times, I think that we don’t do ourselves any service by using nomenclature like Maui Wowie and Great God Bud and OG Kush.

The reason I bring that up and I think that’s important is because we have to be a sophisticated industry, and I think the products and the nomenclature of the products has to be sophisticated along with it. So we’re working very hard to tweak our product offerings to provide more extracted products and to provide more experiences for people. I do believe that in 2-3-4 years that marketing will not be done via strain name, via flower. It will instead be done the formulation of some form of oil and extract. In other words, the example I always give, and it’s a little bit crazy, if I’m hiking in the Sierra Mountains and I want to enjoy the majesty and splendor of the Sierra Mountains, but I want to forget about the 40 pound backpack on my back, there should be a formulation of an extracted product for that.

I believe that the market is going to transition towards more extracted products that are formulated for very specific experiences and people will buy product based on experiences. So it is becoming a much bigger part of our business, and I think it’s going to be an incredibly important part of the industry going forward.

Matthew: Pete, running cultivation facilities and dispensaries is capital intensive. We know that, but it’s also human resources intensive. How do you organize your team members to ensure your goals are being met, especially when most people don’t have a background in executing on these things because no one really has experience in it because it was federally illegal, or still is federally illegal but it wasn’t state legal before. So how do you organize people to meet your objectives?

Pete: I and four other partners and all of us bring different assets to the equation here. I think the thing that I’m most well-known for in our partnership is my knowledge of hiring and recruiting and building up a team. That’s kind of what I’ve done with my prior businesses. So first we implement a system that ensures that we hire the right people. That system that we use is called Top Grading. It was invented by a guy named Bradford Smart out of Peoria, Illinois, and it was then basically kidnapped by Jack Welch of G.E. who made it famous, but the founder is this guy, Bradford Smart.

Effectively what he says is, no matter what industry someone comes from you should make sure that they have a track record of success. So even if someone was working behind the counter at a fast food restaurant or if they just got out of college or if they were actually in the cannabis space, you should see consistent success. You should see promotions. You should see that their manager elevated them and believed in them. You should see indications that they had a good attitude. So we use this system and it’s a very thoughtful, thorough interviewing process. Then we ask really, really tough questions. And you don’t have to have experience in the cannabis space to answer these questions.

Let me give you an example. We’re hiring a dispensary manager right now for our facility in Massachusetts, and one of the questions we asked him, and it’s an essay-type question, one of the questions we asked him is you find out that your best salesperson, your best patient consultant has been stealing money. Not a ton, $50, $75 a day out of the drawer and a couple weeks later you catch up with it and you see it on camera, and this person is a really, really talented salesperson, your best salesperson by a country mile. And if you fire him the patients will revolt. They’ll go elsewhere because he will undoubtedly get another job elsewhere. What do you do? Now that is a really tricky question.

Matthew: Yeah that is a tricky one.

Pete: But fundamentally it’s an important question and it’s important to assess how people answer that question. And that question, someone could have been managing a fast food restaurant, again, and would have had credible background. They don’t have to have cannabis specific knowledge, but we want to understand how people think. We want to understand what their attitudes are towards their colleagues and their employees and their subordinates and their managers too. So we ask tough questions. We go through a ridiculously challenging and arduous hiring process, and then congruent with hiring slow is frankly and honestly firing fast.

I mean we don’t screw around with people who we know are going to be cancerous to the culture. We don’t screw around with people who are not A players and have bad attitudes. We move them out quickly. And that may scare off some people from working at GTI, but the fact of the matter is is that I’ve learned over my 15 years of employing people that there’s nothing more that an A player hates than sitting next to and working next to a B player. So we focus a lot on, not on cannabis specific knowledge and the fact that say we, I’d advocate that we actually like the cross-pollination of other industries coming into our orbit, but we focus on the human being, their track record of success. Matt, this is not just senior level people who are managing operations. This is all the way down to the woman or the man who is trimming flower.

Matthew: Wow, such a good point there. I’ve been part of teams where you’re in a group of seven or ten people and everybody’s got a positive attitude and working hard except for one person brings it down, and it’s like you can’t help but notice it really does ratchet the whole operation down. There’s something about the morale, and the vibration of the team just gets anchored by that somehow. Also the difficult thing is that everybody has a bad day sometimes. So I guess you just try to look for patterns that are more medium and long term versus short term.

Pete: Yeah, everybody does have a bad day and unfortunately that includes me too. So we do recognize that. I have a theory around managing and employing people and I call it unwavering authenticity. If I’m transparent and really honest with you, there’s nothing more than a colleague or an employee hates than a manager who isn’t transparent with them about things like compensation or just about what’s going on in a business. Are we going to get acquired? Are we selling? Stuff like that really scares employees, and they don’t like that. So there’s this thing that I try to establish, kind of the core of the organization, where I am unwaveringly authentic with my colleagues, in exchange just by the associated property, they will in turn oftentimes be unwaveringly authentic with me. And that transparency allows for someone to be a little pissed off some days.

It doesn’t preclude you from kind of going on a rant every once in a while. There are times I have who is a little more reserved and like to really be contemplative, and I advocate to him, hey it’s okay to get mad once in a while. That is okay because those are human emotions and we don’t employ robots. We employ humans and they have emotions and they have bad days. And so you’re right, as long as we don’t see a trend there that makes us uneasy, those things happen and we deal with them on a case-by-case basis.

Matthew: You’ve compared and contrasted the states a little bit earlier, but is there any particular compliance challenges that you’re suffering through right now or have recently that you feel like may not be on the public’s radar neither in Nevada, Massachusetts or Maryland to an extent? It sounds like Maryland there’s legal proceedings going on, but for Nevada and Massachusetts, anything in the compliance structure there that’s particularly difficult to deal with?

Pete: Yeah, I mean, those states, all three of these states frankly, Maryland, Massachusetts and Nevada, have done a pretty good job. I mean, there have been issues in Maryland that we’re in the center of, but all-in-all I think the regulations are pretty good. There are some interesting things going on. For example, there’s some issues around hardship, and this has really reared its head in Massachusetts. There are some requirements from the Commonwealth on how to treat patients who are going through hardship.

So those are patients who are perhaps on federal benefits, who are impoverished. These are patients who I have a real soft spot for, but the problem is is there’s a number of people who are trying to take advantage of that. And as a result, there was this idiosyncratic thing happening where the laws weren’t necessarily congruent with reality. And reality was is that yeah we want to offer hardship allowances to people who can’t afford the medicine because there are no benefits that cover this medicine obviously. We also can’t give it to everybody, and a lot of people are trying to take advantage of the system and take a hardship allowance so that they can get their medicine for half off.

So, that isn’t just Massachusetts, but Massachusetts is where it’s kind of reared its head, but that issue is a pervasive issue and a really, really challenging issue and the markets are going to have to figure this out. We get questions all the time, when we go to open forums or community forums. In fact, I had a question the other day, which is a tough question to answer. There was a gentleman in the audience in a community that is kind of a little bit of a down and out community, and he asked me, he said, so we can’t use any benefits to secure this medicine. I said sir, unfortunately you can’t. And he said, so what you’re telling me is cannabis is for rich people, and that’s a tough thing to answer.

Unfortunately we don’t make the rules because if we did, it would be a lot different. That’s one of the regulatory compliance challenges that we see in other markets. We have to run a business, and we have to be profitable or else we do no one any good, but by the same token too, we want to offer hardship allowances to people who really deserve them. And so how do we manage through that, and that’s a really challenging thing. We’ve seen it in Massachusetts but also in all of our markets.

Matthew: How is your background in solar? I mean, I’m constantly getting questions about how can I conserve energy in my cultivation facility. What’s the better lighting, LED or traditional? All these types of questions. Do you try to bring any of your energy efficiency models or solar background into the grow facility for energy efficiency?

Pete: Yes. So I think there’s a difference between energy efficiency and solar. Energy efficiency is the process of looking at how you’re consuming power and tweaking that and reducing your demand. Whereas, solar is an onsite generating asset. The important thing that I explain to people, because everyone always says, oh is your facility powered by solar. I say no it’s not, and the reason it’s not is because our energy demand is so intense, I mean, millions of kilowatt hours, that if we were to throw up a solar installation on our roof or in the field around our facility, the offset would be so insignificant. Solar panels are still not that efficient.

So roughly 19 percent of the sunlight that hits a solar panel, only 19 percent of that sunlight actually converts into kilowatt hours. And so you have to have huge, huge, huge, you would have to have 20 acres of solar panels to make a dent in the energy demand. So I don’t advocate that solar is a good investment because I think your offsetting 1 or 2 or 3 percent of your total load. It’s going to make a marginal difference at best. I would advocate, and this is what we’re studying now, is that it is better to study the operations in the facility. Know your mechanical load, your lighting load, the way you bring CO2 into the building. It’s better to study those facets and to figure out how you can save kilowatt hours and be more efficient with the functions that are actually up and running than to add new power sources like solar onsite.

Matthew: Okay, that makes sense. Although Elon Musk there in Nevada in his huge factory might disagree with you. Are you pretty close to that Tesla factory in Nevada?

Pete: We are relatively close, but the problem is is that he has not quite yet commercialized battery storage. Battery storage would make a huge difference. That factory, the Giga Factory, is attempting to bring down the cost of battery storage and to commercialize battery storage at a price point where all of us can afford it. If we had battery storage, then all of a sudden maybe it makes more sense. Still though, that facility isn’t commercialized to the point where the cost of battery storage has come down. Then if you integrate battery storage, at this point, solar definitely wouldn’t make sense unfortunately.

Matthew: So you have a background as an entrepreneur, both in the cannabis business and before that, do you have any pain points where you’re wishing, god I wish an entrepreneur would come in and solve this problem for me. I’m too busy running my day-to-day or I would do it myself. What do you see where someone could step in and add some real value for a business owner like you?

Pete: I think the cool thing about being in inefficient and (36.39 unclear) market like cannabis is that there’s so much to improve. I don’t even know where to start. But the one that’s interesting is in the solar energy industry there was a portal, this is a very simple solution, but I kind of like simple things. There was a very simple solution called DSIRE, and it was this portal that anyone could go to in the industry and you could, in one click, figure out what the laws were, what the parameters were, how you had to comply with the laws in any state around the country. You could even drill in and figure out, okay I’m in Maryland. What are the laws in Baltimore County? What are the zoning requirements? How far do have to be from a place where children congregate.

It was this one stop shop for all this information. And when you end up spending a lot of time, energy, effort and frankly money with lawyers doing is researching the provincial laws and even the hyper provincial laws specific to a city or a county or a municipality relative to zoning and permitting. It’s not all in one place. It reeks havoc on your legal bills, and I really wish that the industry would come together, and essentially that’s what the solar industry did. The solar industry came together and collaborated with North Carolina State University to bring this database together that was updated in real time.

As we know look, on any given night in America, a city council could meet and change an ordinance. And so the other thing is this portal has to be responsive to those overnight changes. It has to be real time. I wish that we had that. And frankly, I think that would even the playing field for companies in the space. We, because maybe we’re a little bit better capitalized, can afford the lawyers in all these markets to study the markets and keep us up-to-date. There are a lot of other companies that can’t. I do think the industry should level the playing field in that regard, and that would be a huge win for the industry.

Matthew: Tell us a little bit about your partners. You’ve got some interesting people working at your business with different backgrounds, and I would love to hear a little bit more about them.

Pete: Yeah, I always say, you cannot do good business with bad people, and I’ve learned that over the time, over my 15 years in business and I have had some partners who frankly I probably regretted having. And I look back and I’ve learned from that. The luxury of picking your business partners and picking your colleagues is just this awesome luxury. And I work with an amazing team, but specifically four of the greatest guys in the world, each with different backgrounds.

Eugene Monroe is a former NFL football play, the 8th pick in the draft. Grew up in total poverty, the youngest of 16 children to drug addicted parents. Overcame everything to get to the University of Virginia. And last year kind of came out and became the first active NFL player to advocate for the use of medical cannabis in lieu of the opiates that frankly were killing his fellow athletes. So he’s just a great, smart guy who’s had real life experience that makes him believe that medical cannabis is the path to begin to alleviate the opioid epidemic.

A gentleman named Ben Kovler, who is a fascinating guy in his own right. He wrote a book called Fundrum My Conundrum, which is a very well-read book on puzzles and games, and Ben thinks in terms of solving puzzles and solving riddles. That’s how his brain works. You can buy his book Fundrum My Conundrum on Amazon. That’s a paid promotion for him. But he wrote this when he was twenty, and he’s a super smart guy and I just love the way he thinks. He balances me because I run businesses a lot more by gut and intuition, and he uses a lot more data, puzzle solving, analytics than I do.

Then got two other partners, Anthony Georgiadis, who is heavily involved in the industry. Anthony and I have known each other for 20 years. We have some good stories about one another. He was a fraternity brother of mine at Bucknell University. And then a gentleman named Andy Grossman, who started as an investor and love what we were doing so much, after he retired from the hedge fund industry, decided he was going to come work for us full time. So I’ve got a great crew of people, and like you said, from totally different walks of life.

Matthew: Yeah, it’s really nice to have people with different backgrounds and balance the ying and yang and all the different things involved. So that’s great because if everybody is exactly the same, then someone’s redundant.

Pete: Exactly.

Matthew: So where do you see the industry going in the next three to five years? It’s already changing now. I mean, especially after all the ballot initiatives in November. That was just a huge, huge change, but where do you think things will settle in three to five years? Especially I’m interested in what you think in terms of automation because there’s a lot of manual processes in this business. Do you see more automation coming in, because we are dealing with a plant that’s very high priced. I mean, if we’re talking about tomatoes, maybe not so much, but when a plant is over $1,000 maybe there’s room for some more automation. What do you think?

Pete: Yeah, no I totally agree Matt. I mean, like I said earlier, I saw, I personally first-hand witnessed the cost of solar coming down by 70 percent over 7 years, 75 percent over 7 years. I’m not sure that kind of cost compression is going to be as accelerating in the cannabis space, but I will tell you it’s coming, and it’s going to be led by industry leaders who thoughtfully figure out how to produce high quality cannabis at lower prices. I mean, you’ve seen it in markets across the country. I think most notable is Colorado of course, but that cost compression is coming fast and it’s through robotics. It’s through automation. There could be some artificial intelligence in there.

I frankly think it’s through just labor efficiencies, or what I call the learning curve and the experience curve. As we get more and more experienced at trimming plants, at drying and curing plants and packaging the plant and labeling, as we get better and better, we learn more and more. And so I think that the costs are going to come down over the next 2 to 3 years between 40 and 50 percent. And I think there are some organizations that won’t be prepared for that, and frankly they’ll be distressed as a result of that cost compression. I think there will be a market of opportunity that opens up for people who are well capitalized to begin to roll up the industry and consolidate it based upon that cost compression because there will be companies who just can’t get there. They can’t invest the cap X in systems and people and processes that help them reduce their costs, but that’s coming. And the day of reckoning associated with that cost compression is coming as well in my opinion.

And the other thing, I talked about it earlier, is I just believe there’s going to be this major shift in experiential marketing. I just believe people are going to be buying product for what it does for them, not just based on the phenotype, which is the taste, the smell, the feel. I think it’s going to be marketed to them based upon the experience it gives them, and I believe that’s going to be a huge momentous shift over the next two to three years, as this market becomes more educated as consumers and it becomes more pervasive and consumers have more access to it.

Matthew: If you could go back and prepare or change something about how you went into this business, what would it be?

Pete: I think we’d all raise more capital. I would have more lawyers in-house because you end up spending lots of money on outsourced lawyers, as I talked about earlier, each market has its own legal nuances. When you bring legal in-house I think my analysis is that you save money. So more capital and actually I’m advocating for more lawyers in-house with a real marijuana skill set. I think one of the challenges is we go to these professional service providers on the outside who to this point have had no experience in cannabis. And so you pay them, in large part, to get trained and educated.

I think one thing is I probably would have spent more time off the clock, hopefully, educating my professional service consultants, my accountants, my attorneys about the specifics of the industry so I wouldn’t had to have paid for that. I would like to go back and collect some of those dues and fees that I paid, but those are two things that I think of. I mean, the capital thing again. It’s just way more expensive than you could ever imagine. We’ve raised a good amount of capital, but I think we need even more because the challenge around real estate. There’s very little financing. There’s no such thing as a commercial mortgage in the cannabis space. And so you’re deploying your equity capital into real estate investments and that’s a real challenge I think. So I wish I’d had more equity capital to deploy for real estate, and I wish I kind of had more lawyers in-house. Those are the two things.

Matthew: I like to ask some personal development questions to give listeners and opportunity to get to know you a little bit better. With that, is there a book that has had a really big impact on your life or your way of thinking that you would like to share?

Pete: Yeah. I don’t know if there’s one book, but I’m going to give you two quick ones. The first, and it sounds kind of cheesy, but I read it when I was 12 years old, and I think it had a huge impact on my life. I think other than the Bible, I actually think it’s the most well-read book of all time, and that is How to Win Friends and Influence People by Dale Carnegie.

Matthew: Oh my gosh yes, I think I read it about the same age. That’s crazy.

Pete: Pretty simple stuff, right. The sweetest sound in the English language is a person’s own name. Don’t use I, the word I, the pronoun I, if you can avoid it. I mean, really simple stuff. But when you read it and you see and watch the stories and the anecdotes, the tales of a real life anecdotes about how using someone’s name could impact the success of a person over a lifetime. It really hit me hard and it made me a believer in being dignified and how you treat other people. I think that has hopefully been reflected in how I’ve employed people and how I work with my colleagues and being humble, using other people’s name. Simple stuff, but that really did make a big impact on my life.

I think the other one, just more from a business perspective is, there’s a book called American Icon and it’s a book about Alan Mulally. Alan was the CEO of Ford during the 2066-2010 crisis, and what he did with Ford during that period of time was a total metamorphosis. And it went from the brink of total collapse to being enormously successful. In many ways he did it by using data. And because I’m not predisposed to use data, my mind doesn’t think like my partner, Ben, I had to be trained on how to use data, and that book was really important in teaching me how to use data to better assess how to build businesses.

Matthew: Is there a tool, web-based or otherwise that you consider valuable to your day-to-day productivity?

Pete: Unfortunately I would say the tool, the app that I use most often at this point is the Southwest Airlines app, and I hate to admit it. But given my travel schedule to all these markets where we operate, that’s what I’m using most often. But truthfully, I’m not an app guy. Maybe it’s a little odd, but I still read the hard copy of newspapers and magazines, and now what I’m doing, which is kind of interesting, is I’m actually reading the hard copy of the newspapers and journals where we operate our businesses. So in Massachusetts, the Springfield Republican, and in Maryland, the Hagerstown Herald. And in Carson City, Nevada, the Nevada Appeal, and to me I want to really have the flavor of what’s going on, on the ground in the markets where we operate. So instead of using apps, I still like kind of touching and feeling the newspaper and so I get those sent to me and that’s what I read.

Matthew: Well thanks for Pete. I’m also going to link to your TED Talk so people can listen to that from the show notes here. So I would encourage everybody to take a listen to that too, if you would like. Just visit www(dot)cannainsider(dot)com and go to Pete’s interview, and you’ll be able to find the link directly to that TED Talk. Before we close, Pete can you tell listeners how they can find out more about GTI online and connect with you?

Pete: Sure. Our web address is www.gtigrows.com. And from that website you can find out all you need to know, and I think on my bio there’s a link to my email, if anyone wanted to reach out to me.

Matthew: Pete, thanks so much for coming on the show today. We really appreciate it. Good luck with the 20 inches of snow just dumped on Chicago, and good luck in all the different markets you’re operating in. You got your hands full.

Pete: Thanks Matt, it was a great time. Thank you so much.

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