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Ep 303 – Is The Market For Cannabis/CBD Products Saturated?

chris abbott botanica

Is the market for CBD and THC products saturated or is it just too much of the same products? Could it be a matter of creating a unique product and achieving product-market-fit?

Chris Abbott from Botanica is here today to help us answer these questions.

Learn more at https://www.mrmoxeys.com 

Key Takeaways:

  • Chris’ background in cannabis and how he came to start Botanica
  • An inside look at Botanica and its popular cannabis-mint brand Mr Moxey’s
  • What to expect when you eat Mr Moxey’s mints
  • Why microdosing is gaining popularity 
  • When and why people typically eat Mr Moxey’s mints to enhance their state and take the edge off
  • Mistakes Chris has made as an entrepreneur and what he learned from them
  • Chris’ advice on how to get a brand into distribution and on retailers’ shelves
  • Why Botanica uses a specific extraction process for the hemp oil that goes into Mr Moxey’s
  • Where Chris sees cannabis and low-dose edibles heading over the next few years
Click Here to Read Full Transcript

Matthew Kind: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now, here's your program.

Is the market for CBD and THC products saturated or is it just too much of the same products? Is it a matter of creating a unique product and achieving product market fit? Chris Abbott from Botanica is here today to help us answer these questions. Chris, welcome to CannaInsider.

Chris Abbott: Hi, Matt. It's great to be here. Thank you.

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

Chris: Yes, I'm on Bainbridge Island, which is a 35-minute ferry ride from Downtown Seattle.

Matthew: Great. I've been to Bainbridge. It's a very nice little island. What is Botanica on a high-level?

Chris: Yes. Botanica at a high-level, it's a cannabis branded consumer goods company and we are focused on edibles. We have a house of brand strategy. The way we think about it is we've got licenses in Seattle, in Portland, Oregon. We incubate brands in the Pacific Northwest. Once we feel like we've fully developed the consumer proposition behind the brand and understand the growth drivers, then we begin to utilize a network of partnerships in other states to roll our brands into those states. The brands that we have in our portfolio are Mr. Moxey's, Journeyman, and Spot. That's in a nutshell.

Matthew: Okay. Can you share a little bit about your background and journey and how you got into the cannabis space and started this company?

Chris: Absolutely, yes. This journey really started with my co-founder, Tim Moxey. We went to business school together back east at Dartmouth Business School. When cannabis legalized in Washington State, you will recall it legalized in Colorado and in Washington at the same time. Tim came to me. I was pretty much the only other alumni that lived in Seattle at the time. Tim came to me and said, "Chris, we got to look into this. It's going to be big." At first, I thought, "He's crazy. Cannabis? What is he talking about?" This was 2013, but he started peppering me with articles. As we began to dive into it, the more we learn, the more it felt like, "Gosh, there is an amazing opportunity here."

Out of the gates, we focused on edibles. The insight there was that for cannabis to go mainstream, in our opinion, it would have to be done with something other than an inhalable product because if you look at the trends, 12% of the population smokes tobacco. Okay, cannabis is something different than tobacco, but smoking, I think it's a decent proxy for the percentage of the population that is comfortable or wants to smoke, but to juxtapose against that is 70% of the population consumes alcohol. There's a big delta here, and cannabis was around 14% or is around 14% today.

Our thesis is that for cannabis truly to go mainstream, it would it would have to be on the backs of form factors like edibles to take us there and that brands would be able to reach out to customers, hold their hands and really educate them as to what this new world was like, what cannabis was all about. For us, it was going to be all about edibles and all about branded edibles. That's how we got going.

Matthew: Okay, what was it like going to Dartmouth, the school based on Animal House? Was it like Animal House at all? I know there's some wild rituals there. You guys have a huge bonfire in Hanover in the center of the quad every September? Is that what happened?

Chris: Yes. We went to Tuck Business School, which is right on Dartmouth's campus, but it's on the outskirts of the campus. There's definitely a pretty deep divide between the college and the business school. There were definitely people in our class that went to Dartmouth and had some connections to the frat houses, but by and large, we didn't spend a lot of time on the campus connected to the college. Mostly, we were in our own world. I think that's one place Dartmouth really prides itself in on its networking. It's a fairly small class size relative to other business schools and because you're isolated in Hanover, you just develop these really deep friendships with your classmates. We didn't have a lot of interaction with the college kids.

Matthew: Okay.

Chris: It was a great place to go to school though.

Matthew: Yes, it's a beautiful town. A lot of people don't even get that reference of Animal House anymore, and I'm like, "Wow, that's crazy. That's not in the cultural reference point anymore." If you've never seen it, check it out. It's a really funny movie. Tell us a little bit more here about your products and your brands, because you go the way of not highlighting milligrams of active ingredients like CBD or THC, but you go a different route. Can you talk about what that is and why?

Chris: Yes, for sure. I think ultimately, everything starts and ends with the consumer. We believe that the consumer is not looking to make purely functional decisions. They want some emotion. They are looking for choices that either jibe with their internal beliefs or they see something that they like that tastes well or that goes with their internal compass. To think about a product as only the number of milligrams in it, it feels like it's not really doing the category justice. To draw a corollary with alcohol, if you were to go out and buy a bottle of whiskey, say a 750ml bottle of whiskey at 80 proof, you could spend anywhere between $12 at the low end to $200,000 at the high end.

That entire market exists today. It feels like in the cannabis market, we haven't developed that broader range, obviously. There's a lot of people that are chasing the current consumer. Now obviously, we've got a win with the consumer today, but really always have an eye towards the next consumer that's going to come in and that's a 2.0 consumer. The consumer that is looking for brands, and is looking for an experience, is looking for an emotional connection. That's really what we're trying to do with our brands, rather than trying to compete on just a price per milligram level.

Matthew: I'm always interested in how a founder describes the effect of their product. People are very curious, "What's this going to do to me after I take it?" How do you describe what a customer feels when they take Mr. Moxey's, for example?

Chris: Yes. One thing that we've done is gone out of our way to tell the customer right on the package exactly how they're going to feel. We have these mood states that are curated throughout Mr. Moxey's range. It's anywhere from energized, to relaxed, to relief or dream. Really, the way we're driving those mood states is we incorporate herbs into each SKU. The herbs not only help us drop the mood states. For dream, we have passionflower and valerian root. People that consume herbs on a regular basis understand that those help them with sleep.

To think about cannabis as just another herb that you can incorporate into your day, I think is a really interesting way to approach cannabis and also understand how it's going to feel or how it might affect your mood.

Matthew: Do you notice any synergies when you start to put together these ingredients like valerian root? Do you say, "Wow, that has an even more impact than I would have guessed." Or it might be the feeling is I'm even more drowsy if want to sleep or something like that? What was your kind as you're experimenting with these with potions and everything to come up with the ideal recipe? What did you experienced?

Chris: We just launched the sleep mint. It took us a while to get there. We did a lot of experimenting around a bunch of other isolated cannabinoids to see if we could drive a more cannabinoid profile and ultimately ended up with herbs. One thing that's really interesting about being in the edibles space is that you can give out your product non-infused without the active ingredient cannabis in it to people so they can try your product. It's obviously something that you can't do with inhalation products. What we've seen with budtenders with this new sleep products, because we have these uninfused sleep mints that we give out that had the valerian root in it and the passion flower.

We got these amazing feedback from budtenders saying, "We want more uninfused samples. They're helping us sleep at night." Without even the cannabis in it. I think there's something there and I think it's an interesting realm to be able to play in.

Matthew: Okay. If you were to say the number one

Matthew: reason people are choosing a low dose option like Mr. Moxey's. Do they frame it in their mind that they don't want to run away high or do they frame it in their mind that I want to do some other activity? Those questions are related, but in the prospect's mind, what are they thinking, in your opinion?

Chris: The way we think about it is, it's all about choice and tailoring a product to their needs because we believe people want to experience what they want and that's what we give them with. When you're playing at the low dose, end of the spectrum, you can have one minute or two minutes or three minutes and really, by enabling the consumer to be in control, you're allowing them to then have the experience that they want and tailor it to their needs. When we got started in the industry, there was this famous Maureen Dowd article that came out in the New York Times.

I think it summarize a lot of people's attitude around edibles which was that edibles were out of control. It was this brownie experience that you had, if someone mixed up some butter with a brownie and no one had any idea how potent it was. Maybe when you're in college or you were on the set of Animal House, that might have been a really fun thing to do. Our products are targeted towards working professionals, people that want to be in control and know that they have to show up at a job next day or take care of their kids later in the evening and they want to be in control.

We really wanted to turn this idea of edibles that a ritual really on its head and say, "No, wait. Edibles are actually one of the best ways to maintain control and have a precise experience because we know exactly how many milligrams are in each edible." At the low end, now you can say that I can take one or two or three and you really are able to tailor it to your own experience.

Matthew: Let's talk about just specifically, the mint enhance. If you're trying to take the edge off a little bit, enhance seems like something where you're trying to add a little bit. Do you anecdotally get feedback about what people do when they're taking this? Are they working, relaxing, playing a sport, hiking? What kind of feedback do you get there?

Chris: I think playing at the low end of the milligram range is really interesting because at its core, having a cannabis heightens your senses. That's really rich territory. It just at the low end, it makes you feel a little bit different. It can help you be creative or present. We'll get interesting feedback. It helps me be my best possible self with kids at bedtime.

At the end of the day, when you're all stressed out, you're just trying to get the kids in bed, it just allows you to be a little bit more present and be there more creative at work, enjoy a bike ride. I think that at the low end of the dosing range, there's a whole world there to be experienced that we're getting constant feedback from consumers on how they're trying it and how they're using it. A lot of it dovetails with the experience that we broadcast on the front of the tin which relates back to the herbs about when that use state might be.

Matthew: There's a lot of startups that have or are trying to start products with THC or CBD in there. If they create a Me Too product, they're not likely to take off but if they can carve out a specific niche in their prospect's mind, a lot of times with their price right and get distribution, they can have success. On your journey, have you made any mistakes that you can share or talk about that you wish you didn't do but you learn from?

Chris: Yes, tons. I think given cannabis is I mean a brand new industry, brand new category. I think if you're not making mistakes in this industry, you're not learning, and if you're not learning you're not growing. I'm really proud of the mistakes we've made which are many. When we first launched, we launched with a brownie. We were taking all this risk of jumping into the cannabis space. I mean, when we first did it, I was scared to tell my mom what I was doing. It felt like you were committing career suicide almost by starting a cannabis business back in 2014. We thought, "Hey, let's do it, like a pot brownie. What's more traditional than that? We're not taking much risk.

If we put the pot brownie on the shelf, it will sell." Back in the day, we were really into low dose and continued to be that way. We wanted to release a product that our friends would enjoy and that we would enjoy. Then someone would try and say, "Hey, that's really nice. I'll tell my friend about that." We launched with a five-milligram brownie. The real learning there was that A, brownies are not very difficult to make so incredible competition would come into baked goods.

I think the real learning was that to play on the low end of the dosing range, you need to have something that you can have multiple of because you don't always want to have the lowest dose, you want to be able to, like what we talked about earlier, tailor your experience. That can be difficult with a brownie. How many brownies can you eat in a sitting?

Matthew: You're right, I can eat quite a lot.

Chris: Oh, can you? [laughs]

Matthew: Yes. You said if you're not learning you're not growing. Sometimes I eat brownies and I just grow, and I don't learn from my mistakes. [unintelligible 00:16:01] I'm getting wider.

Chris: We found that that's how Mr. Moxey's was born, was this idea that it's all very low calorie, just small format. You could have multiple of them without worrying about your waistline, I guess. It took us about a year to develop the product. In that time, this pot brands did very well because we were in market and things were going. To give you an idea that brownie today-- We don't even sell brownies anymore. We've discontinued that entire product and baked goods. Now, if you look at the categories, it's a very small percentage of the edible market.

Matthew: It really did start out strong and it's faded. Do you think it's because all the challenges around keeping baked goods fresh and stable and so forth?

Chris: Yes, that is a huge factor. Our big thing was to have it taste really, really good, and then have the experience be very consistent on the back end. We thought if we could do that, we had something. We'd have these brownies and you'd make them and then you try them, and man, out of the oven, they tasted amazing.

We were like, "That, we're going to kill it. These are the best-tasting brownies ever." Man, when you open that brownie, even three weeks later, it's a different product. It's very, very hard to create a super delectable delicious brownie that sits on the shelf and tastes that way three weeks later, and three weeks is nothing in the shelf space time, so much less three months later.

Matthew: You have a unique way of doing things. You're doing all your manufacturing in-house because you have a unique way of making your mints. Can you talk about the process and how it's different than typical mints are made?

Chris: For sure. It's very much an artisanal process. As you would expect with a British-oriented brand, everything starts with a T. We take the herbs that we've spoken about, and we mix them with water and create a T that then is the liquid that we mix with sugar to create a dough. That dough is needed and then sheeted to get to the perfect width and then we hand punch it through a custom machine that we built to do this to create the mints.

Then after that, they're air dried at just the right temperature and then ultimately, packaged and then ready for the store. It's this dough-base mint which are quite unique in the market. What it allows is a really nice consistency. What we found out early days, Tim and I were trying these things. We'd have all these test cases. I try this pot and I'd say, "This one is the one. This one tastes perfect." He'd come out with the total opposite when he'd noticed, "This is the perfect one." I'd say, "Well, what is going on here?"

It turned out, he'd like to suck his mints and take a while, it would stay in his mouth, and which is really interesting from a cannabis standpoint because if you supplement, you can begin to feel the effects through sublingual, whereas I just crunched mine and consumed them. When we were developing this dough, what we wanted was this perfect consistency, something that was very crunchy, but also if you were to suck it, would last in your mouth such that you could get this sublingual effect. That's what we have with that product.

Matthew: We have suckers and we have biters. If someone just jumped to this point and broadcast it like, "What the hell are these guys talking about?" Are people broke down the line there about 50/50 or what is it?

Chris: Well, it's interesting. When you talk to the budtenders. They'll often tell people to eat one and then suck one so that you get that sublingual effect right away and then later in, your digestive tract begins to kick and you get the feeling from the second one, but yes, I'd actually don't know what the statistics are around suckers versus users, but I know they're both a great way to enjoy our mints.

Matthew: What about getting your brand into distribution and onto retailer's shelves? Is that tricky? How did you go about that? Anything you can share there?

Chris: Yes, I think it really all starts with the consumer, and I think as we're developing our products, we're trying to really dive into consumer insights to figure out what does the consumer want? What will be successful with consumers? If you can create a product that hits on that cylinder then it's really easy to convince, not really easy, but it's easier to convince, I guess, a distributor or a retail partner to take it on. What we've done is sort of curate these mood states where you're-- and then it's the ability to tailor your experience and that's quite different. Most of the other competitors in the market have run towards whatever the maximum milligram is per unit. You could do that's kind of where everyone ran to. I think it's-- it starts with [unintelligible 00:21:17] kind of creating something unique. That's really driven from consumer insight.

Then the second piece of it is really creating a partnership with the retailer. I mean, ultimately the retailer is going to take your product in because they believe they're going to be successful and they believe it's going to be a profitable endeavor for them. Having a product with higher margins and not pricing on price per milligram, being able to carry higher margins on your product is amazing for the retailer as well. Really figuring out a way to partner with the retailers, such that we're able to educate the budtenders and have a great point of sale display, really showcase the products, such that it becomes very shoppable for the consumer having that all dialed in and you being able to deliver that to the partner, I think really helps you get into the retail stores that you want to be in and that are likely to be successful for the product that you're marketing.

Matthew: How do you get the budtenders to care about your product? I mean, they've got so many products they need to know about, different brands coming in and talking to them all the time. Anything you could share there to make your product relevant.

Chris: Yes. In a world with cannabis being federally illegal and advertising being very, very difficult. Obviously those channels are largely shut down and also potentially prohibitively expensive if you're just operating one or two states. We really over-indexed on packaging to really tell the story and created packaging that we have a tin for the Mr. Moxey's brand. The tin I think is a very relatable package that people can understand. You've seen tins before and you can understand what the product is by just by looking at the 10, but then we overlay a tamper strip on the outside that has this really nice touch and feel to it and then relays all the information about what's actually in the package.

Then within the tin, once you open up the tin there's a whole experience, there's a liner paper inside the tin which kind of does two things. One said it had, there's some indication there on how the experience might go. As far as, it probably takes about 40 to 45 minutes before it'll kick in. Some guidance to the customer and the consumer around how to consume our product, but as well as we have an insert card in every 10 that greets the customer and tells them about our product and what's going on. I think when you put these products into budtenders' hands, and then you create great point of sale display to wrap around that such that you can-- the budtender quickly sees that hey, there's a lot of care and attention to detail, that's gone into this product. This is something special and that really comes across in the packaging and the point of display. Then if he can take the time to build those relationships in the stores whereby you're educating the budtenders as to why your product's special.

I think those efforts really go a long way but it is a lot of effort because there's budtenders, there's a pretty high churn in the industry with budtenders coming and going. It's a big endeavor to go out and educate budtenders and stay on top of that. That's, I think, what's nice about having really nice packaging, that's it's sitting on the shelf, it's talking to consumers and as the budtenders come in and out obviously the packaging is there and speaks for itself.

Matthew: What's the thought process around extracting oil that goes into the mints. I'm imagining you buy oil from partners and what do you look for in the oil? Do you want to maintain Terpenes, what are your thoughts around that?

Chris: Yes, we use CO2 oil for Mr. Moxey's brand, and for us, it starts with having partners that grow cannabis organically and pesticides are depending on the state where you're in. I mean, in Oregon, they have incredibly difficult and I think really good rules around pesticides, such that really there isn't much product in the market that has pesticides in it. Washington state, on the other hand, and I think California too really it's not as well tested. I think there are people that are using pesticides, but it's very hard to know. We go out of our way to make sure that we're getting organic source material that doesn't have pesticides in it. On the terpene side now, as we go through the CO2 process, obviously there's a lot of terpenes that are lost during that process and the terpenes today aren't as important to us.

I think the science is very early here on how terpenes play when you're ingesting something like an edible. It's much more built out on how terpenes work when you're inhaling cannabis, but not so much on the consumption front. When you smell our mint, it's going to smell minty or it's going to smell like cinnamon. You won't get a terpene experience, but I'm hoping, and I think this could be a really rich area for exploration over time as the science develops as to how terpenes might play a role in ingestion but today it's really not a focus of ours.

Matthew: What other kinds of discreet and low dose edibles do you think we'll see in the coming years that we don't see now?

Chris: If I go back to the intro, one of the things you said was are we at saturation? What's going on? Are there too many products in the market? I think we're just a blink of the eye into this. I think the industry is brand new and cannabis is really unique in that it can be, I mean, alcohol, you drink alcohol. That's it. That's pretty much the only way you can consume alcohol is by drinking it, whereas cannabis, my gosh, there's just every, almost every form factor you can think of, you can consume cannabis. I think we are just getting started and if you look at-- once again, you look back to alcohol during the prohibition era, all there was basically grain alcohol. You bought it because it was illegal.

You bought it in its most potent form because all the risk was around that transaction when you actually purchased it from that person that was when you could get busted.

You wanted to buy it in it's most potent form and then bring it back and then when you consumed it, probably consume it really quickly in its most potent form. As those laws relaxed, well, then you no longer had to suffer with grain alcohol and you could begin to experiment with alcohol and more palatable versions. Obviously that's, I mean, beer is what 5%. I guess some of these microbrew beers are more than that, but a Budweiser is probably about 5%, which is very, very low, I would equate to like a low dose edible. Even beer now has become new. We've kind of gone past that to these alcoholic seltzers, those have just taken the world by storm over the last year. You're still seeing incredible innovation and alcohol with a very tight set of consumption ability, which is sort of drinking. I think that there's an incredible opportunity in edibles and that we'll see a lot of really interesting things are on the come. From a use case, we've been really focused at first on how do we create products that will integrate into people's every day into their everyday rituals? It's a very personal product, and I think that that is where Mr. Moxey succeeds really well. It's something that I don't think there's lots of people choosing Mr. Moxey mints today. It's more of a product that you would take on your own terms, in your own time, but with that said, I think one of the next big frontiers will be products that fit into social situations, times when you'll products that are specifically developed to be had with friends, and that's been really, really tricky with cannabis because there are no-- I mean, for the most part, there are really no consumption lounges or if there are there, there's only a few of them and they're really focused towards inhalation, I think today. I think as the industry develops, there's tons of opportunity and especially I think there'll be a big opportunity around socialization.

Matthew: Okay. Where are you in the capital-raising process?

Chris: Thank you for asking that question. I feel like cannabis is this industry that's always starved for capital. Right now we are not raising cash. We've been really focused on getting to profitability and have achieved that. We've made some pretty big cuts at the end of last year to just tighten our belts and really get focused. We're on a path to break even. In fact, we broke even in the last couple of months, and to build a more sustainable business albeit a slower growth business. Once we've achieved that, we're really thinking about raising growth capital that we can then add to what we have now on a sustainable basis to take the top line up.

I think one of the biggest areas that we're interested in is on the CBD side. We play both on the THC side and the CBD side with the Mr. Moxey's brand and have found that it's really interesting on direct to consumer. In our limited experiments, we've seen a real uptake in the states where our THC brand already exists. You see great usage for our CBD brands. We're looking at around the summer, maybe early fall going out to raise our series D. We'll be looking to raise between 5 and 10 million. I think a decent portion of that will go to fund the CBD side of the business for our direct to consumer play.

Matthew: Well, Chris, I'd like to ask some personal development questions now to help listeners get a better sense of who you are personally. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Chris: Yes. It's interesting with the virus going around, obviously, we're all shut up in our homes. We love the public library. With that shutdown, I've turned back to my small personal library. There's this book that I've read several times. I started reading again recently, which is called The Art of Learning. It's by this guy named Josh Waitzkin. He was an eight times national chess champion and burned out and took up Tai Chi and then went on to become a martial arts world champion.

Now, I'm not a big chess player or do I do any martial arts, but what's so fascinating about this book and I think why it has had a really big impact on me is, like the title, he's super into learning and had the building blocks of how you learn something to really become a master and think about that. With someone who could be so cerebral and non-physical as a chess master to then turn that around and become martial arts expert is quite an extreme transition.

He has this amazing way of describing the learning process and it really gets back to this really understanding the fundamentals of anything that you're studying. If you can master the fundamentals then those fundamentals basically become inherent in your thinking. Then you can move past thinking about the fundamentals and incorporate those fundamentals to create new avenues of exploration and new ways of thinking really. I, as a person, I'm just insatiably curious and I love to learn. I think as it relates to the cannabis industry, it's been one of the amazing things about the industry.

By getting involved with it, it's a never-ending process around learning. That makes it incredibly difficult on some levels. Given the patchwork quilt that we have around regulation in every state, we have different competitors in every state we go to, there's different regulations around those saying, you name it, the packaging. Then on top of that, to obviously be successful with the business, you've got to understand marketing and sales and manufacturing and culture, how do you incentivize your people to do their best?

I've had to learn so much. This book really come into my thinking a lot. Just recently, it's been a pleasure to pick up and begin reading. Every time I read it, I learn more about learning, which is cool.

Matthew: What's the most interesting thing going on in your field, apart from what you do?

Chris: As someone who's intensely interested in brands and interactions with consumers, I think that the shopping experience is something that's under great change right now and I think it's really exciting. Really my eyes are on California. MedMen with their open style footprint in the store. And the ability to go up and actually grab a product off the shelf and read the back of the package has I think really opened up the industry to a brand new set of consumers.

We're seeing other retailers take that model and make it their own like Harborside, talking with the folks at Harborside. They went from that model where you had to go up to the counter and talk to the budtender and learn all about the product through this third person. When they changed their floor to be actually something where you grabbed a little cart or a little basket on your way into the store, and then you could browse the shelves and pick up products and put them in your basket and then check out, I think they said something like their first Friday that they changed their store layout was bigger than any 420 they'd ever had in their store.

As I talked about that blink of the eye and this idea of going mainstream, we're just not even close to being mainstream yet. The consumer experience in the store, I think is a big piece of that. The consumer is dying to understand what is cannabis all about? How it's going to make you feel? What are these products? The more that they can have interactions with the products, I think the better off that they'll feel about buying them.

Both from the way retailers are beginning to orient, and I think especially in California with this ability to actually shop it by touching it as well as the delivery services that are being developed in California, whereby we work really closely with Caliva. They are a partner in California that they manufacture Mr. Moxey's for us and they sell and distribute it for us. They're investing a ton of money into delivery systems.

They're creating a home page for Mr. Moxey's whereby the customer can go to the Caliva website but they can go within the Caliva website, go to the Mr. Moxey's page and learn all about our brand. I think the more access the customer has to like really educate and learn about what is going on here, the more likely it is to go mainstream. For me, it's just really all about that shopping experience and that development that we see going on at a very rapid pace right now.

Matthew: What's one thought that you have that most people would disagree with you on?

Chris: I think the hard way is the right way. My co-founder, Tim is going to laugh when he hears this because he's always saying, "Chris, you love the hard way." It's somewhat counterintuitive. We're in a culture right now. Amazon, everything's so easy. There's something about doing things the hard way and developing something that takes a long time that actually then you're able to stand the test of time. I've got a couple of examples in my life where I've chosen the hard way. It felt like I was crazy and people around me said I was crazy, but it worked out really well for me.

When I graduated from Tuck Business School, 70% of my class took jobs where the business came and did interviews on campus. It was very easy, not very easy, but it was right there for the taking. 70% of my class went to work for either consulting company or an investment bank. I had it in my head. I really wanted to do something different. I'd worked in investment banking, and I just wasn't interested in consulting because I wanted to be able to make decisions rather than Coke's decisions.

I really wanted to be an investor. I had to do all my networking off-campus. At that time was right about the time when, this was 2001 to just update myself here, the economy was in pretty bad shape, but the hedge funds had done quite well through the downturn. The hedge funds were hiring. I got a job through networking and fast forward five years hedge funds became one of these places where everybody wanted to work. I had all my classmates calling me and say, "Hey, what are you doing there? How is it? What's going on?"

I think by taking the path less traveled, I was able to find an opportunity where I could do something and really accelerate versus a lot of my classmates that were doing something that was a bit easier to do and I think the same can be said for cannabis. We were talking about when we first started it was so scary. If you thought about what it could be and I think as we're beginning to see what it is today, there's just this incredible opportunity to develop something and do something and at the time it was very much off the beaten path to go do it.

It feels like now that I've got six years under my belt in the cannabis experience, I can honestly say I feel like I'm just getting my feet underneath me. It is such a wild industry, and one that needs so much time in to really understand it and excel in it, but I feel really lucky to have gotten the start that I've gotten.

Matthew: Chris as we close, let listeners know how they can find your mints and also for accredited investors how they can reach out to you for your Series B.

Chris: For sure, thank you so Mr. Moxey's on the on the THC side is available in Washington State in Oregon, in California and we just launched in Massachusetts with our partner Revolutionary Clinics on 420, nice day to start. Then we also have a line of CBD products that's available online. It can be purchased anywhere in the country. You can find that at Mr. Moxeys.com M-R M-O-X-E-Y-S.com. Then please reach out to me if you're interested. chris@botanicaglobal.com B-O-T-A-N-I-C-A-G-L-O-B-A-L dot com.

Matthew: Botanicaglobal.com, that's what you said.

Chris: That's it.

Matthew: Okay, Chris, thanks so much for coming on the show. We really appreciate it and good luck in the rest of 2020.

Chris: Awesome, Matt. Thanks for having me. I really appreciate it.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guest to you. Learn more at cannainsider.com/ iTunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report of canninsider.com/trends.

Have a suggestion for an awesome guest on CannaInsider, simply send us an email at feedback@cannainsider.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

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Lastly, the host or guests on CannaInsider may or may not invest in the companies, entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle or listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.

[00:43:24] [END OF AUDIO]

Ep 302 – The Future of Hemp and Consumer Packaged Goods

Michael Cammarata

While hemp-derived products are already big business, they’re set to skyrocket as hemp begins to take market share from traditional wellness and household brands. 

Here to tell us about it is Michael Cammarata of Neptune Wellness Solutions, one of Canada’s leading cannabinoid extraction companies.

Learn more at https://neptunecorp.com 

Key Takeaways:

  • Michael’s background in hemp and how he came to be the CEO of Neptune Wellness
  • An inside look at Neptune and how it’s evolved from biotech to health and wellness since founded in 1998
  • Why hemp is becoming so popular as an ingredient in consumer packaged goods
  • The most popular hemp-derived products in the wellness industry right now
  • Neptune’s partnership with Jane Goodall and their upcoming line of hemp-derived hand sanitizers and essential oils
  • How Neptune is innovating new technology that will make hemp goods more cost-effective for customers
  • How COVID-19 is affecting the hemp wellness and household industries
  • Where Michael sees the hemp industry heading over the next few years as it continues to make its way into the wellness arena
Click Here to Read Full Transcript

Matthew Kind: Hi, I'm Matthew Kind. Every Monday, I look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now, here's your program.

Hemp derived products are already big business, but they're set to become even bigger as hemp will start to take market share from traditional wellness and household brands. Here to tell us more about it is Michael Cammarata CEO of Neptune wellness. Michael, welcome to CannaInsider.

Michael Cammarata: Thank you for having me.

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

Michael: I'm in southern Florida.

Matthew: Great. What is Neptune Wellness at a high level?

Michael: It's a health and wellness company that originated almost two decades ago as biotech company and now what we focus on is we have, in Canada, we do legal cannabis, in the states we do hemp. We also have a business unit called Biodroga which is a turnkey solutions for a lot of brands. Hundreds of brands come to us, they want to develop products to help with sleep or they want to develop products that help with stress or digestive and then we formulate with our scientists and our teams the products and we manage the supply chain for them.

Biodroga is a turnkey solution for a lot of big brands. Then we also have our portfolio of our own brands then could force remedies and ocean remedies that are really led with purpose. Like forest remedies is about planting trees with every purchase and ocean remedies is about cleaning up the ocean and giving nutrition to people in need. Every purchase in omega-3 product in an ocean remedies will give nutrition for a year to somebody in need.

We've had great partners like Dr. Jane Goodall Institute, One Tree Planted, and Vitamin Angels and others that have joined us on these journeys to really turn around consumption to a force of good. I think if consumers can go to a store, and they have an option of picking a brand that may be designed very well, and have all the right ingredients, that they can actually pick a brand and it not only has all the key, the transparency and all these things but actually can make a difference in somebody's life on this planet or on this earth, they're going to go with that.

I think that as natural products and health and wellness products and hemp become more readily available, it's going to allow us to really create that plant-based revolution that's happening inside the household.

Matthew: Okay. Michael, can you share a bit about your background and journey and how you got into the cannabis and hemp space and became CEO of Neptune?

Michael: Yes. I was dyslexic as a kid and and, honestly, I started looking for a solution to survive. I played a computer game called StarCraft when I was 11 years old, got really good at it and put my passion into it and ended up joining a gaming clan and that's back before you were again paid millions of dollars to be a top player. Now, people get paid that. What it did teach me is really community online.

I started my first web hosting company when I was 12 years old and sold that for into the millions and was really very successful part. Then I went to online advertising at 17. I was one of the largest providers of inventory to a company called advertising.com, which then sold very well for 498 million. At 17, is when I started investing in companies. Keep in mind my motive as a kid was really to try and make it, try to show self like be able to prove to teachers that said I wasn't going to amount to anything or knowing that I wasn't the best academic. I was really trying to prove my self worth. Then I started investing in companies.

There's a turning point in my life probably when I was about 24. I went from web hosting to advertising, then I started investing in companies, and then with my family office random occurrence. Then 24 was when I started -- I always wanted to manage rock band. I ended up with a pop band, Big Time Rush. I was working with Sony and Viacom and learned very quickly about brands, and that the consumers' really looking for alternatives and plant-based solutions.

I thought like, what am I really doing on this planet? How am I contributing? I've obviously been very gifted and had that work penny by penny, dollar by dollar and build success. I wanted to make sure that from that point on, I was in this meeting with some big executives and talent and, basically, my dad was in like the hospital and they were like, "If you leave to go see your dad and you lose this negotiation, then you'd be fired."

I really had that turning point where I was like, okay, I need to start making products that change the world and have a positive impact on this planet, and working with people to really make a difference. That's when I decided to get in and research different options. I wanted to start with deodorant because I think the simple things in life make the biggest difference. There was no plant-based deodorants that were working. I tried a lot of different ones.

I look at armpits is like the exhaust for your body. For so long, people just didn't. They were putting aluminum and all these things on it and keeping all the toxins inside. I figured like that's going to be the first trial point. In 2015, teamed up with some people, we started a company called Schmidt's Naturals. Then we were pretty fast, from four people, 1200 square feet to over 180 people and we're on our way to an IPO and ended up selling to Unilever.

Unilever is like, come work for us. At that time I was like, I don't know about that. I'm the kid who never went to college. I think completely outside the box. I know that because my father ran some of the biggest companies in the world and worked his way up from starting a company all the way to be president level and then basically running the companies. I saw how long it took him and I was like, you have 160,000 employees, I don't even know what the word bit meant before that and that means like a percentage. It's not a full percentage, it's like the bits everyone by bits and I like to grow by triple digit growth.

I ended up -- ironically, a family friend of mine, Dr. Jane Goodall knew Paul Polman, he was global CEO at Unilever at the time. I was like, "You know what? I'm going to take this opportunity to really get my PhD in business." I ended up joining Unilever as one of the CEOs and focusing on my division. At Unilever, we took Schmidt's from being a deodorant brand to a personal care brand, to a homecare brand and then launched it in over 100 countries.

At the same time, I also developed out new ways to market, like using artificial intelligence and develop Alexander, which is Unilever's North American AI that uses communication to market and bypasses the traditional marketing mechanisms. Then what really led me into the hemp space was working on the hemp and CBD strategy because Unilever has like over 700 brands. What I started finding out is that with each product, there's like an ingredient story. There's a trend then there's the the substantiation, the purpose, the what it does, and all this.

This plant-based revolution that's happening and started with a meat burger, right? It's also happening inside the whole household. These categories haven't been innovated in so long, and there's some very toxic chemicals in terms of the house cleaning products, and some of that -- Even shampoo, if you use synthetic fragrance in a product, it gets paralyzed when you're in the shower because of the steam, and it can cause hair loss or potentially neurological issues if you use for long periods of time.

Getting rid of synthetics from fragrance, that is a huge thing. Then, when I found hemp, hemp was really interesting because in a plant-based deodorant, which Schmidt's was really good. Before Schmidt's, most of the deodorants were liquid-based like Tom's of Maine, et cetera. With Schmidt's, we really cracked that -- We didn't even know we did this at the time, but we made a plant-based deodorant with using different air powder and stuff that helped absorb wetness. It was actually the very strong ingredients that made the performance better.

What we're looking at is, in hemp deodorant, you can add moisturizing effect which is really good for the skin, especially in your sensitive areas. When you go in to CBD, CBG and a whole bunch of different cannabinoids and when I started learning about was there antifungal and antibacterial properties, those antifungal and antibacterial properties can make a natural deodorant last for 48 hours. That's like unheard of moreover, like the secrets in and the clinical strength type products, those are the ones that have this 48-hour claims and longer claims.

In a natural plant-based deodorant, you can only get up to like a 24-hour claim without using different cannabinoids. The reason why deodorant is so important is consumed daily with a consumer, but it's such a huge category. When I started looking like, oh my God, that hemp and CBD and CBG and all these different cannabinoids are good and they're going to allow the CPG world to start having organic growth again, like on a much larger scale.

It's going to help allegedly these master brands at the they can innovate by just adding the CBD and CBG product. Everybody in the cannabis industry has been focusing on consumption, consumption, consumption, consumption. They missed the picture at that point on the household product that move hundreds of millions and billions of dollars of revenue each year that are going to benefit from the super ingredient. When I was at Unilever, we started looking at the different companies in the space. We've looked to see which one's a GMP, truly GMP, and I saw an opportunity where there isn't many people in this place that truly have GMP.

There's a company that was in extraction in the States that had an outdoor extractor. That's no way that that could be GMP right next to Some people in Canada, they were saying that GMP processes but they're having people lug product up and downstairs. The true GMP, not just the finished process, but all the way to where it starts at the seat.

With Neptune, when I found Neptune, it was an interesting spot because it had a pharmaceutical creating facility and they've spent over $50 million developing and it was doing curl oil. It had the bye-drugging business unit. It had a whole regulatory team. It was doing international and domestic shipments for varied products. It had a royalty business. It had a stable business. I looked at Neptune as an opportunity to have the lowest cost of infrastructure in the cannabis business.

Meaning, we start addressing the needs of the CPG companies, the traditional consumer packaged goods companies, to be able to develop products for them because there's going to be a day where all other seven hundred brands at Unilever and all those P&G in nationally, they added one other skill, add a CBD ice cream which they've talked about publicly when it's allowed. Or, Schmidt's added a hemp-based deodorant, which is the first hemp product in Unilever North America.

There's so much value in this ingredient, and people were focusing on a consumption attribute. I use the capsules from Forest Remedies. My brain goes 1,000 miles an hour and I always have to slow myself down, but I use those capsules to help me when I had panic attacks and stuff along those lines. That's how I initially got used to CBD, and it's really full-spectrum and broad-spectrum that worked for me.

Then being at Unilever, seeing the market, and seeing that there's a gap and then finding Neptune, and through all this thing, I was like, "This is an opportunity of a lifetime." This is like going into the .com bust but having an infrastructure that no one else has to be able to be a leader and coming out of it.

I knew I was going into a crazy sector and a lot of people were like, "Why in the world would you want to be a public CEO when you're walking into a sector that's depressed, you're walking into people that are spending way too much money in all these different areas, the market's unproven and all these different things, and then you get a global pandemic." That one, I didn't count on, but I saw those are all the opportunities. If I can make Neptune have the meanest, meanest, fastest infrastructure, and be agile because our burn rate's very low.

Canada, we expedited our sales license to deal sub-directly with the consumer. We launched two brands in two months. I brought IFF, which is in my mind the leader in extraction for decades. Extraction is not new to them and essential oils and cannabis and hemp extracted pretty similarly, you can use the equipment for both. Bringing IFF as a strategic partner in the Neptune was a really important moment because they came with me on this journey to go into Neptune.

Then I looked at like, "How are you going to market the brand? How are we going to make that mega-brand in hemp and cannabis?" We needed an immediate partner. That's when we brought in American Media, which owns Us Weekly, In Touch Magazine because it allowed us to really start on getting to be able to start marketing our brand.

Then, I'm like, "What was the biggest success when we came to retail?" Is being able to merchandise and get your product on the shelves and have unique things. Like in Costco, you want to have a fence in there when you walk into the store, that's a high volume seller. When you look at the grocery chains, you want to be on the checkout, you want to be next to the magazines. We sat down and I'm like," Okay, we got American Media as a partner, they have this distribution company. Everywhere there's Us Weekly, In Touch Magazine, OK! Magazine, and all the properties they have, they merchandise that store twice a week.

No one's going to have the ability to touch that, even the strategics don't merchandise that many locations. There's 22.9 million places of this appointed distribution that we can get access to through our partnership with American Media. The story kept coming together and the partners were joining me on this. I spent like nine months going back and forth at looking, making sure I was picking the right partner. Obviously, everything that I do, I invest my own money into.

When I joined Neptune, the next week we raised $41 million. The unique thing about Neptune is we managed to keep our capital structure very simple because not only am I CEO and I built brands from scratch and had to always innovate and problem-solving in real-time and guess the odds on a daily basis, the thing that I always look for is I'm also an investor. I want to see how am I going to get my return, who has the right to win, and who we can pivot into the different opportunities.

Neptune had the ability to go into personal care, home care, beauty, and playing the non-vices category, which allowed us to have much bigger upside potential. It also has truly some of the largest extraction capacity in North America. We can wrap up doing 3 million kilos of extraction. We are at 200,000 kilos of extraction in Canada alone. We have 1.5 million in North Carolina. We have IFF, which has really been doing extraction for a decade, helping us, support our teams, sharing knowledge, sharing IP, helping us develop app, getting us access to their 35,000 customers around the world.

Coming into it, it was exciting. Definitely, I always knew I was walking into an interesting sector, but that was the opportunity for me. I think that when people look at Neptune, they got to understand is like my goal of building the company is to be the safest brand in cannabis. We have a CPG. We have nutraceutical business. We have this, plus the upside of cannabis. The ingredients that you can get from that cannabis plant apply to all of these things.

From the investor side of myself, I want to make sure that I had a diverse foundation that I can make stronger and that's what I was able to do it, Neptune and continue doing. We've accomplished a lot, a lot of these things were in the first six months at my tenure because I was thinking about this for a while beforehand.

Matthew: Which products are selling the best right now?

Michael: In Neptune, for us, we have nutraceutical business, like Biodroga, as I explain. Obviously, vitamins are very valuable, omega-3s are very valuable, formulations happening on a level that's really good. Biodroga is doing very well. In the cannabis Canada, I would say that with cannabis 2.0 coming on this January, we're starting to see a lot of our innovations really apply to our customers like whether it be infused tea or 3D disposable products where you can actually make a tea look like a personalized tag or a Christmas tree or any object and then we can infuse it with vitamins or we can infuse it with cannabis or we can infuse it with hemp or combination,

Those things are starting to be -- the cannabis 2.0 products are really key for the cannabis market, because I think the issue when they were developing out the programs in Canada is that they were looking at people that are just going to buy it legally who are buying it illegally, but they weren't thinking about the innovations that are required and the price points.

Initially, people were charged, in Canada, you'd have to wait now in line and pay 57% more than you were getting it from the black market. That's not a sustainable business model. The industry had to self-correct to really focus in on saying, "How can we bring our cost down? How can we show innovation?" With cannabis 2.0, you can now show innovation and give consumers something that they can't get anywhere else.

Also, with the Canadian government opening up additional distribution points, it allowed the market to grow. I think that's something that, when you're in an evolving -- whether it be with .com technology, and the .com era, all those different segments at a time when you develop an app. I remember when I had to use a 56k modem, now I have a gigabit connection at my house. This has happened pretty quickly between -- I'm 34 now and I was 11 back then.

The innovation's happening on the technology world, but when everybody thought, "Oh, let's just make a web hosting company," that doesn't just work. Then it's like, "Let's just make an advertising company online." It was people that innovated and stayed ahead of the curve and made it more efficient. I think that's happening right now in real-time in a cannabis market in Canada.

I think that if Health Canada and the government legalized hemp to be put in personal care, home care, and beauty products, they're going to be able to compete and pull ahead of even the United States because I think that that is an area that people weren't even focusing on revenue opportunities, tax revenue opportunities, but that ingredient applies to almost every product a person touches from when they wake up to when they go to bed.

It actually improves the experience and the claims you can make as well as the effectiveness of these products and safer for the skin. There's a lot of great things that the hemp can do and cannabis can do in personal care, home care and beauty products, and it can also remove a lot of toxicity. I think there's an opportunity that Canada has that they can pull ahead and continue to innovate, be ahead of the market.

The US though in recent months have gotten themselves in expanding the debt. They even went to need a revenue tax revenue driver because you can't be spending trillions of dollars and not creating new revenue streams. I think more than ever, the government has to -- and it's Democrats and Republicans that support the legalization of cannabis and they're doing it on a lot on the state level. I think now that the federal government is tensely going up to 10 billion, a trillion dollars, they're going to have to add additional revenue streams.

Like a state like New York, it generate a billion dollars just on taxing marijuana. I think that it's something that the US has to look at and I think that we're well-positioned with our footprint in the US as we currently do hemp in that facility. We have 1.5 million capacity should ramp up if there was and really quickly if that was legally federalized.

I think that that's something that has real potential now to be much a quicker solution. I think there's a lot of opportunity in the cannabis industry and it's definitely something that's like a once-in-a-lifetime era where you can be at the beginning of something. Maybe you've got every company, whether it be like, we're focused on how we can make sure that we have a low-cost infrastructure, how do we invest in the innovation, a partner on innovation, so we don't spend a lot of CapEx but at the same time how do we create IP.

We have a royalty business that just on the IP that we generated and Omega-3s with maximum and we get royalty payments of customers just by licensing out our IP. How do we make sure that we grow our IP business or grow our nutriceutical and vitamin? At the same time, if Canada makes sure that we're the leading with innovation and cannabis and then in the States, make sure that we're leading with personal care, home care, and beauty product innovation to be able to service the CPG customer. Having the true GMP, having it run more like a pharmaceutical-grade facility, our very key is our business plan.

Matthew: One thing I've been thinking about with the consumer packaged goods is, hemp, is that considered a luxury ingredient still on your mind in terms of having to charge a higher price to an end-user? Is that only for upmarket still or do you feel like the price is stable enough for trending down that it can be cost-competitive with some brands that people find to be more affordable?

Michael: Well, it's like look at the beginning of the natural space right there with the sprouts. New sees it, Mother's Market, all these retailers opening a natural product for a premium product. Why my last company was so successful was because I don't believe we should gouge customers for premium ingredients. Every person should have the right to use natural products and be able to buy products that are made with natural ingredients.

I think that the people that are doing the luxury ones, there may be a unique innovation that comes out that it was a huge amount of money for the company to invest into and they need to charge a premium for it, but it should still be reasonable. Eventually, as the volume picks up for that product, it should go down to be something in the standard skew. It's like the focus that the brand should have and what we have is like you have your premium products and we spent a lot of money innovating and we need to bring the costs down and then you have your mainstream products.

I think hemp is like a super ingredient. Charcoal was a super ingredient for beauty and other categories in 2016 but hemp is something which is like the caffeine to the soda industry. This is like the caffeine to the whole personal care, the home care, the beauty. It touches so many different categories. There's never been an ingredient that actually can prove the efficacy and the performance of so many different products.

I think it is a premium ingredient that it's really a super ingredient, but it shouldn't always come with a premium price. That's the thing that we're going to be showing in Canada and in the US is that our lowest cost of infrastructure, we are going to be able to do extraction which can save customers off the 30% from what they're currently paying and have a better quality product. We invested our phase two in Canada, which is no one else had, is custom made. It's like a Ferrari of extraction.

What it really allows us to do is to be ready for that mass consumption of hemp or cannabis. It does multiple steps in one thing. A lot of the issues that we saw with farmers when we were listening to the farmers and we were listening to the different retailers and were building on models, we heard that they had a lot of problems where they would have to pay people to sit there and trim the product before they can send it to an extractor.

We wanted to develop an extractor that reduce that labor cost to that farmer, or to that LP so we can actually do it efficiently. Give us your trim, we'll do it. Phase two allows us to take multiple types of biomass and grades of biomass. It also does winterization and other proprietary things within one-step process and be energy-efficient, because one of the things that we wanted to look at is our ESG policies, and we'll be talking more about that this year.

We want it to be energy efficient. We want to be carbon neutral. We want to be gender diverse in management. We wanted to make sure that we live and breathe the missions that our brains and the products that we're developing are putting out there. It starts with the corporate structure all the way down to the brain structure and our customers.

We want to make sure that we can make efficiencies for our customers because we saw the need that Canada cannabis needs to be more efficient in pricing. Taking multiple variants could save a farmer 50 cents to a dollar a unit. In doing winterization, we can do a whole process in less than an hour, maybe two hours, depending on the specifications where competitors were taking 24 hours to turn a batch.

Phase two was really like a crucial moment. We're just starting to run the product, then we turned it on like a month ago and started at room temperature now, going with a new cooling agent to be able to freeze it now. We've also really looked at how we have -- We have a building that's amazing. If you're in Canada, you should definitely make sure you go and reach out and, obviously, there's that -- once the Coronavirus passes, but that facility is a pharmaceutical facility. No one has anything like it.

Phase two is just to start at the things that we can show that we've been developing and listening to and watching. There's a lot of people that are rushing to extract too in the very beginning, we were being, our knowledge and our lessons that we've learned was really to watch and see what the issues were. We listened to the farmers, we listened to the LPs, we listened to the retailers and the government.

We want to make sure that with phase two and onward we started addressing these unique things that can help lower the cost structure to our customers can improve so we can do higher volumes quicker and do more processes in one process so people touch the product less because we have a facility where we can pipe product. We have this four-level freezing room where we can store biomass and below certain temperatures and then we can wipe that product into the phase to extract it without people touching it. Those are the type of things that are like state-of-art.

Well, we're building for this industry to get ahead and to be able to service the big Unilevers, the CPGs, and PNGs, and L'Oreals, and whatever beauty products. We want to make sure that we can build that cost structure because I know that in personal care, every premium ingredient with a high cost ingredient limits the amount of distribution for a product. You don't want our brands that we service, our LPs, or our partners to be limited to play in only certain retailers. We know that for cannabis to work, we have to play in all of the different place for us.

It's got to be affordable and that people can pay for innovations and we have to build that industry out. It starts with extraction and it was a real big key. That's why we took a very unique approach and even some sizable investment to develop out these technologies.

Matthew: A lot of people have heard of Unilever and they know the brands that Unilever owns, but they don't think about Unilever owning them necessarily. I think of Dove soap and Ben and Jerry's and there's just tons of others everybody has heard of. Could you rattle off a few more just so we can remember?

Michael: Well, Ben and Jerry's, seventh-generation, Ali, Axe, and they even also have multiple -- they have brands that are limited to certain countries. They have so many, and honestly, to be quite honest, when I first heard of Unilever, my goal was to take my last company public and be that brand, and pick a brand that's -- Really, we were successful because we listened to the consumer. That is what made us successful.

We listened to what their issues were and we problem solved. I want to take that company public and we got offers from many different strategics. When I heard of Unilever first, I had to look into this because I didn't -- and honestly, my focus wasn't at all selling at that point, I didn't even watch it and it was a last-minute deal that ended up when I got to meet the global CEO and, the president of North America and truly see that they were going to enable me to do my ideas, and to get the products and be really supportive of them, and to build out the AIs and all the things that we're developing internally.

When I started, I realized, wow, these are brands. Don't forget they also have teas, like Tesco tea and all Lipton. There's so many.

Matthew: Tons of names will recognize.

Michael: If they're in food, they're in teas. They're in personal care, and home care products. I think that and I was cool -- happy that I was able to bring toothpaste back to the North American territory. Schmidt's launched its toothpaste and that's the first toothpaste that Unilever brought back into North American territory and we're doing really good with it.

That's a company at hundreds of years of history. The first thing that I went as a geek, is I went to the legal room and I wanted to learn everything about how the corporate structure was because everything starts with the structure. Their chief counsel was really nice to me. I was very fortunate to have all the C levels and even the company supportive of everything and my learning experiences and letting me push and rock both. I learned, during World War II, because that Andes, they actually split up and then went back together.

They had Unilever one side and other one, Unilever, the other side, they actually split up each company, down to the territory to the country. They have more like country clusters. It's a very complicated structure, but it allows them to be able to play in all different political environments. I learned so much from that experience. It was my PhD, that if I was going to go college, I don't think I would have gotten that same experience that I got at Unilever. Because they have so much history and they've been through so many things.

That's also why I like Neptune, because Neptune has had its spirit challenges, and it's been in different areas. It has a team that's very strong. When people look at -- when I invest in a company, I want to make sure that the people I invested to have been not just winning every time. I want to know that they've won when they've had challenges, because those are the people that continue to problem solve and then the companies that survive is not when everything is great.

It's got to be when everything is wrong, how do they prevail. Seeing that Neptune has that history of being able to fight struggles and build, it remind me a lot of Unilever, when it went from a soap company to one of the biggest companies in the world, and then how they built the structures over time. That's something that's really that we need to really take value on because not every company has. Those companies that do and the management's never been through turmoil, and they don't know and they're not as agile and they don't have multiple business units that can scale up and down with the ban.

I think that that's something that we have a lot of flexibility. I think even with our hand sanitizers that we were developing for next year, plant-based hand sanitizers, we're able to fast track that and bring it to market in a big way pretty quickly. I think that a lot of people are like wow, like a million-plus units and ramping up. I think that that's something that shows the capabilities of Neptune to be able to scale up with a ban and scale down with the ban and diversify and also innovate in categories that need innovation.

Matthew: You've launched a plant-based hand sanitizer. Is it just for COVID-19, or prior to that?

Michael: While we were developing it prior to COVID-19, we were working actually is that one of the products that we're doing with Dr. Jane Goodall, we were doing essential oils and we were doing hand sanitizers and we were also going to be doing her hemp line. We were investigating categories, when I went to deodorant, it was a category that didn't have any innovation. These same brands were there for decades and people have switched brands and naturally, we work.

When it comes to hand sanitizers, we were looking, okay. People want it, they're using hand sanitizers, but how do we make them so it's better for the skin. How do we make them so it's point efficient? That's where the antifungal and antibacterial properties cannabis come into play. We were already developing it. We did fast track but we have three versions that are hitting the market. We have our standard gel formulas and start thinking about essential oils.

Then we're going to be debuting shortly the cannabis hemp versions and CBD versions that we've developed. Obviously, there's a little bit more restrictions based on states and stuff along those lines. These are things that we're innovating. It wasn't something that we just wanted to do overnight for the purpose of COVID. It was something that we were developing this but it could help this time period right now.

Because one of the biggest things that consumers are saying, they can't go to the store and buy sanitizers. Everybody's been rushing for the government side and they've been checking up and as people have been hoarding products. We want to make sure that we build the capacity up and be able to service both the government and the first responders, but that's little, get product back into retail channel for consumers at affordable pricing.

Matthew: Okay. Now, what do you think the hemp industry will look in the next three to five years for household goods? How will that change and morph, and specifically do you think it'll be more direct to consumer post-COVID-19? Or will it be a hybrid model where retail still, retail environment targets, and Walmart are still strong? Will that breakdown by age of customer? What are your thoughts there?

Michael: That's a couple of question. I'll say that in Target, Walmart, I think that they are going to be -- I think it's really important that they develop their version of prime. They now have seen, okay, Amazon, be very successful with a two-day deliveries and that's so. I expect that some of those companies will develop their own same-day, delivery services more efficiently.

I think that consumers will still buy online, I think if they can get a product, within two days and eventually, within the same day. Those are the expectations that the consumers are having with online deliveries. It's almost a carrier service. I think that the retailers are going to adapt to be able to have the retail presence to be more of a point of distribution, but they need to be able to get products to the consumers faster.

I think that when it comes to the hemp brand, I think consumption will be probably 20% to 30% of the cannabis brand revenues potentially. I think that the majority of our income from personal current healthcare and beauty products, when they're allowed to put in, because those are the units that people consume multiple times a day as far as uses. There's only so much you can smoke in a day. There's only so much you can drink in a day but you're going to be washing your hands, you're going to be using your deodorant.

You're going to be using your toothpaste at least once a day. You're going to be using your vitamins. I think that the consumer is going to wake up to a new, we need to make sure we're healthier. Just like I did in my life. I want to make sure I was eating healthier. I was building products that made a difference for society. I think now more than ever is when you look at a company, you're going to want to know how ready are they for a bio pandemic.

Because this time, it could have been a bio pandemic but next time it could have been biowarfare. You need to make sure the retail, it just when the airlines happened in 911. They had to show security and they had to restore the confidence with consumers before they start flying again. You have that same thing unraveling right now, but they're going to have to show it in a restaurant. I want to know that the temperatures are being checked of employees and I guess, before I sit down in the restaurant.

I want to make sure if I'm getting on the plane that day and also look at biosecurity, not just security for people that could be on harm on a plane, I think you have to look at from a bio readiness. We shouldn't be allowing people to fly sick. If you're sick, stay home. Employees shouldn't be forced to go to work if they're sick. Those are the things that are going to change in the post-COVID society. Because think about it, how many more lives can we save, if every international flight there was a quick bio check just like they do for nuclear and a lot of other things, why wouldn't they check to make sure if somebody doesn't have a fever if it gets on a plane, or that is a rapid check for the known pathogen, just things that can potentially cause issues.

They need to do some type of health screening on international flights at the very least. Then domestically test to make our travel system much safer just like they did back when it came to 911 for security. Now, they need to do biosecurity. Every restaurant needs to do the same thing. Uber needs to do the same thing. All these trend, it has to be part of your business plan, just like we check temperatures before people even come into the --before they leave to go to the office, when they go into -- before they enter the office and when they leave.

If people have a temperature, they are not allowed on the facilities. Then we go back and make sure it's cleaned everywhere they were. You have to put these systems in place. Then now I'm working on getting more and more testing because we'll probably be testing employees more frequently and quicker. I think that eventually, you'll start seeing the Walmarts of the world, you'll see when you go to Costco or you go to Sam's Club, you check your ID, they make sure you're a member and somebody holds that. I think that they're going to have to switch to AI to allow them to have facial recognition, temperature check, check the person in, check the person out.

Those are the type of things that are going to start popping up in retail because right now is one part of the problem is getting us back to work. The other part of the problem is building the confidence with the consumer again, that is safe.

Matthew: Yes. Some of those technologies are already there. I went to an international flight tonight to stand in this clear gate area that just for one person, and it did look at my face and just let me in without a boarding pass and it did that for everybody on the flight. I thought wow, this is great, but also a little bit creepy. Because even if you trust the company that does it, they have your face in a database somewhere and that database can be hacked.

What assurances are there that that doesn't get out there is used for a deep fake or something like that. I guess a blockchain solution might help with that in some regard so that there's not a way that it would be forged. A confluence of a bunch of technologies coming together to solve these problems. I know in China, they have drones that can check your temperature, small drones that hover and they check your forehead temperature from a distance.

Michael: Well, I think that, if anything, what I'm more worried about now is that every country and every bad actor now knows how simple if they can hijack your bio pathogen, that they can create a pandemic. We have to put in these procedures now and then we have to make it safe and we have to protect privacy. At the same time, we have a bigger obligation, we have to protect humanity.

This was just as dangerous as a nuclear weapon if not more dangerous. We don't spend enough money on bio readiness. Because could you imagine if the intention for this virus and that a country sat there and had a vaccine that they worked on for 12 months, and then they released it, and then the only ones were the vaccine, these are things that have to be thought out now.

Because imagine if the tensions were back, or imagine if a terrorist group had a bad intention. They now know that they can do more harm with a pathogen than anything else, than a nuclear bomb, than a dirty bomb or any of those things. The governments around the world and the businesses around the world and the people that are responsible for travel have to add this into the safety. Imagine if this had a 10% kill rate, that would be horrible.

Matthew: Yes, like the Spanish flu or something, or the bubonic plague, I think was 30. That was in the 14th century that was like 30%. Michael, I want to switch to some personal development questions here. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Matthew: Yes. Being highly dyslexic, and not the best academic, books were never my favorite things in the world. I started on a journey of trying to find business books when I was younger that could show me how people actually became successful, but I like to find was business books that would tell me advice. I looked at like, even I looked at Warren Buffett's books and stuff that he's talked about, were influential in his life, and different entrepreneurs or innovators.

What I really couldn't find out was how people became successful, what is the story and how they got there, and then let me listen to their advice. It's actually been the book thing is something that's been an ongoing project that got to the point where it's like, people started asking me how did I become successful? That's when I was like, okay, I want to work with -- I actually started writing a book a couple of years ago.

Basically, working with a team of writers because I wanted people to see this is how I would -- if I could go write myself a book of how to -- If I could write a book to myself when I was 11 years old, how would I show them the path? For me, I learned by watching people, I learned by trial and error, I learned by being agile, I learned by researching and listening to consumers but real data coming in real-time.

How can I inspire myself going back all those years to be even more efficient, even faster to being successful and making a difference? I actually started on and really, that's what started me to do my own book. I had basically over 100 people in my life interviewed about me and the different stories and what they learned from me, and a great team of writers that work with me on this and a great publisher actually, I'm going to be releasing a book for the first time in this year or early next year.

The real inspiration that I get before is focusing on who changed. One of the best things was, they had to -- like the man who made America on the History Channel, watching, the different innovators of the time, whether it be Standard Oil and all these things, how they went through issues, how they adapted, how they took on competition, how the counter attacks and all these different things.

That was the things that I learned the most from is watching people that forges history, because it's very nice when you -- there's a lot of people that can become successful, but there's very few people that can maintain success and continue being successful multiple time. Very few are serial entrepreneurs. Back in early days in America, you could be a serial entrepreneur in one company because you didn't have all the technology you have today where it speeds up the process.

It also speeds up competition. I think that it wasn't one book, I think it was focusing on really listening to a lot of and learning about and researching about all these different innovators of the people who built America started with a series on the History Channel, but also digging in and actually talking to people.

Believe me, I tried off so many different books. I bought, how to look in and get advice, but these always people tell me advice, but I need to learn from how their actions were, I want to know what did they face as an issue? How did they overcome it? How did they structure things? Those are the things that you don't really get in a lot of books. That's my focus is if I can give that back so I can basically have made a book for myself. If I came back, look at this knowledge that I've learned, here's the structure, and now my brain is dyslexic to be able to magnify that.

Matthew: Well, that's really interesting. Do you have a name for the book yet?

Michael: It's not been released yet the name but it will be shortly.

Matthew: Okay. Here's a Peter Thiel question for you. What is one thought you have that most people would disagree with you on? It can be about anything.

Michael: I'm actually worried when people agree with me because then I'm like, I'm thinking I'm missing something. When everybody agrees with me, those are the things that scare me. I love that in our culture at my company and all the companies that I associate with, is that the ability to challenge ideas and to challenge thoughts. When everybody agrees, that's a problem, because we missed something.

I think that the biggest challenge that I had in the cannabis industry was really talking about personal care and home care and beauty products. They all thought I was crazy. They're like, how does cannabis play in a beauty product? How does cannabis play in a hair care product and how is like --They don't get the size or the scope.

Their focus right now is, putting in a product and devices, making a soda healthier, turning it to a cigarette, getting somebody for a calm and experiences. Then there's some great medical ones that cost a lot of money. No one was focusing and no one really believed in how cannabis can play a role in the plant-based revolution, just like beyond meat has changed in a way. It's like meat is going to be consumed as we advance and look that you can actually have a plant-based burger that tastes like a burger, which is scary.

When you look at the household, this same thing is happening inside every product in the household. Their big strategics know that they need to advance their formulas to be safer and plant-based and have a positive impact on humanity. The only way to get there, to get organic growth back in the consumer packaged industry is to use hemp CBD and different cannabinoids from cannabis to be able to enhance all these formulas to get rid of these highly toxic issues that are in every day.

The hidden pillars that are people using every day. There is a crisis in the household and these are plant-based solution and it needs to happen sooner than later because history will look back at these companies and say why the hell did he put this product in these products? This is a truly a solution that need to be happening. Even when you look at even the paper industry, there were people back in the earlier on, in trying to make hemp paper and hemp toilet paper and hemp, all these things but it got shut down.

Some of these rules that we have to fight today were barely so that the paper companies could process paper. They didn't want hemp because it can be cheaper. They didn't want these products in the market. We have to go back and unwind a lot of these pointless rules that are in the system now based on a time where they're trying to protect an industry. We need to bring innovation into this industry. Whether it be the industrial side of hemp and then the uses there, the personal care, home care, beauty products that can make products safer for consumers are making the vices safer, the drinks, the sodas, the calorie-free beers.

We need to get these innovations out there. We need to do it sooner than later. The government need to generate more tax revenue more than ever. We are going to have to pay for a pandemic that is going to set back generations and could potentially cost stagnation and inflation to hit the markets and future generations.

Matthew: Yes, it's going to be interesting how they undo that knot that was created here. It looks like perhaps going with negative interest rates and printing money and going with negative interest rates might be the direction taken, because we're pretty far down this path of going off the gold standard of the '70s. Now, having this money creation in debt. It's going to be interesting to see how this gets resolved. Do you have any thoughts on how our government figures this out, and it's really not just a US phenomenon, but also worldwide?

Michael: Well, they're going to have -- We're taking out a lot of debt right now that could affect many generations. There's a couple of problems too and how that we're starting to see is that people are finding out that them being furloughed and unemployed can actually make them more money than them working. That is a very big problem. Because it's going to setback industries from coming back online a lot longer as long as the employees incentivize more to not be an employee then and get paid more than actually working.

Along with that goes on, the less likely they're going to want to go back to work. The debt obviously has a lot of consequences and it ultimately is going to lead to the dollar weakness. The dollar weakness is going to turn into higher costs. Now, when the 50% of Americans only have 800 bucks in their bank account, and now they're going to have to pay more money for the products that they buy on a daily basis, and because of inflation is going to be a huge issue.

Not to mention, the yield are so low right now and the Fed is pumping so much money that needs to go to someplace in which is factually making the treasury yield zero. Eventually, it means that that's flowing in equities. There's a lot of problems that are started by some of the solutions that we're doing that need to be addressed with new income streams, new revenue streams, because you do not want to have a weaker dollar with stagflation and that combination is not good for any society, or any people or any government.

It is really important that we take this opportunity to look at how states can generate additional revenue and federal government can generate additional revenue. That is fundamentally why I believe cannabis is a very unique situation that the government could generate billions upon billions upon billions of dollars in revenues at a time where it needs revenue more than ever, so that way we can keep that dollar strong and push away stagflation.

Matthew: Great points, great points. Even just making I think the whole government structure paperless would help a lot where you're managing things on apps instead of faxing. There's still a lot of government entities that require you to fax and paperwork and all these archaic business processes could really be made more efficient. But I don't know if we're going to solve these problems here today, Michael, but you definitely have some interesting ideas about it. For listeners that want to learn more about Neptune Wellness and also check out your stock ticker, how can they do that?

Michael: Well, they can go to neptunecorp.com or they can check out our stock ticker on NASDAQ at NEPT or on the TSX. If they want to follow us on Twitter, Neptune Corp or my Twitter and Mike Cammarata. Believe me, I have problems spelling my last name when I was a kid, I don't expect most people to do it. If you go into the website, you can find my last name, you can find me on Twitter, and Instagram. But I think that we're doing our best to have a positive impact on the planet and people and look for ways to encourage growth in multiple countries in Canada, and the US.

Matthew: Well, great. Well, thanks so much for coming on the show and educating us, Michael. We really appreciate it. Thanks so much for talking about your experience with dyslexia. I think there's a lot of people out there that are saying, well, I know a little bit more about it now and what it means. I want to hear more about your book when that comes out. Keep us posted.

Michael: Definitely. Thank you for having me.

[music]

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guests to you. Learn more at CannaInsider.com/iTunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider, simply send us an email at feedback@cannainsider.com. We'd love to hear from you.

Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider.

Lastly, the host or guests on CannaInsider may or may not invest in the companies, entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye bye.

[00:56:33] [END OF AUDIO]

Ep 301 – Cannabis After Covid – 7 Ways The Cannabis Industry Will Change After COVID-19

cannabis after covid

What will the cannabis industry look like after COVID-19? CannaInsider host Matthew Kind forecasts the 7 disruptive changes that will take place in the years to come.

Check out an infographic on these 7 changes at https://www.cannainsider.com/covid 

Key Takeaways:

  • How COVID-19 will impact cannabis in the next few years, including:
  • Automated grow rooms
  • Pathogen detection policies
  • Contactless delivery and payment
  • Pre-purchase of discounts cards and gift cards
  • Results-only business partners
  • Commercial drones for cultivation
  • VR education
Click Here to Read Full Transcript

Matthew Kind: Hi, I'm Matthew Kind. Every Monday look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at canninsider.com. That's C-A-N-N-Ainsider.com. Now, here's your program.

Hi, Canninsiders. I hope you're doing well. This is Matthew Kind. I wanted to go over seven ways the cannabis industry is going to change after COVID-19 and I've put together an info-graphic for you that detail these changes at cannainsider.com/COVID, that's C-O-V-I-D. You can go there and get a visual of what I'm talking about or what I'm about to talk about. Okay. With that, let's get started. The first way that the cannabis industry is going to change after COVID-19 is automated grow rooms. Human beings need breaks, they need pay, they need benefits. Let's face it, we make mistakes when tasks get repetitive and we get preoccupied with other things and for things that can be automated because they're routine and happen over and over again, like planting cannabis seedlings and harvesting. Those things are going to start to be automated away.

Also humans are expensive. These cannabis businesses only want humans involved where they truly add value or I should say the forward looking cannabis business are. Where do humans truly add value? Well, it's not going to be so much as gardeners anymore but more as technicians looking over their laboratory in a sense. They're going to be managing the whole grow as a high level technician would be looking over an assembly line. It's going to look more like that. Humans aren't going away though. It's just they're moving up the value chain where their expense has a return on investment. That's number one, automated grow rooms.

Number two is pathogen detection policies. What do I mean by this? Well, after the wake of COVID-19 passes, governments will feel the need to respond to public outcry to do something about COVID-19 and to make sure that we're mitigating the risk. Also, insurance companies will want to know that their insured customers are doing a certain minimum to manage risk so they don't have to have huge payouts. What we'll see is pathogens detection policies from businesses and local jurisdictions to show what they're doing to manage the risk or disclose how they may not be managing the risks, so you know that too. Look for that the next 6 to 12 months.

Okay. Onward to number three, contactless delivery and payment for cannabis products. I've been talking about this for a long, but it's happening now. Contactless payment is something people are demanding. In fact, I already got a credit card in the mail from my credit card issuer even though my credit card hadn't expired yet. It wasn't set to expire for three years and they sent me a contactless credit card so I can just hold it near a credit card terminal and have it work. Many of us are already used to this with Apple Pay, but this is just going to greatly accelerate.

Also people are in their pajamas, they're looking frumpy. They just want to cozy up on the couch and they're not really wanting to interface with people when they order cannabis many times. They also don't want to be dealing with coins or dollar bills or potentially even a delivery person that's coughing or they look sick or something that's going to worry them. Look for contactless delivery and also a distanced delivery where somehow, you can acknowledge you've got the product, even if the person's 10 feet away or something more that's step one.
Step two is going to be fully autonomous delivery. I would imagine that would come to California or one of the Western States first that's a little bit more progressive where electric autonomous vehicle can come to your house and that smart locker will open up once you give some biometric information, like a fingerprint or an iris scan or something like that. Look for that to come. Okay, so that was contactless delivery and payment.

Number four is pre-purchase of discount cards or gift cards. What does this mean? Cannabis businesses are strapped for cash right now. Some are doing really well, but all of them would like to be doing better or almost all of them. The way they're going to get you and me to finance their business is they're going to offer us a hundred dollar gift card for their retail experience or dispensary or their brand and only have to pay $80 for it. Essentially a discount off face value of the card.

Why do they do that? They want the cash now to operate their business, but they also know statistically that a good chunk of the people will not redeem those cards quickly. They'll wait months, may be even years, and some, maybe even double digits will lose the card entirely or they'll have some amount on the card that they can't remember. Let's say if you have a hundred dollars gift card and you have $9 left on it, but you can't remember how much it is. All those things mean that the cannabis retailer's really not losing 20% when they sell you that a hundred dollars gift card. We know Cannainsiders are smart and you're going to spend the full hundred and not be part of that statistics, right?

Moving on to number five, results only business partners. What does this mean? Startups and entrepreneurs want to get into existing cannabis businesses and offer their goods and their services and their ideas and their technology platforms. These cannabis businesses are a little bit overwhelmed by that, but they want to stay ahead of the curve. What they're going to do is say, "Hey, I want you to come in and try this out for a month or two and if it works, we'll start paying. Otherwise, we can't really be involved." It's like a wait and see or a show me type attitude where they put all the risk on the startup to prove that they can help them.

Now I think it's really helpful if you're in this category to be a business that helps other businesses make money. Because most businesses they perceive that shedding expenses is not as important as earning one marginal more dollar. They recognize expenses are an issue, but at any given day they'd rather make an extra dollar than cut expenses. Also everybody in a cannabis business is excited about making more money and no one's really excited about cutting expenses.

If I had to start a business in this way, it would probably be something that can clearly prove that for every dollar you spend on my good or service, you're getting more than a dollar back and it could be demonstrated in some objective way. Look for results only business partners or startups to be allowed into cannabis businesses. This is look for language like a results only partner or something like that. A lean partner relationship, meaning that we only want to invest when we know it's working, that type of thing.

Okay. Moving on to number six, drones, and specifically I'm talking about commercial drones here for mostly cultivation. These are will be like the digital shepherds watching their flock of plants both indoors and outdoors and they give business owners data but also reassurance that their plants are thriving and they can look at their plants 24/7 and start to collect data and feel better just knowing in the middle of the night, all my plants are still there and they're doing well. All of the metrics look really good so I can go to sleep and not worry about this.

These commercial drones are going to be much more heavily leaned upon in the near future to provide other data like machine learning to look at potential problems in the plants and proactively mitigate those problems. Think of mold or pests or things like that on the plant. Drones are going to become a much more heavily relied upon part of a cannabis business, particularly cultivation business to know what's going on and to help business owners. All right, that number six.

Number seven, VR education. I don't know if you've been watching what's been going on in VR for, gosh, it feels like two decades now has really been about the promise of VR, what it's going to look like and what it's going to be. It's always around the corner and we've been waiting, waiting, waiting. Well, it looks like the Oculus Quest is the killer product that's finally arrived. It's cheap enough, I believe about $199 and importantly you don't need to connect to a computer. It's free standing. That was drag on the VR systems of old, you had to connect to a computer. This is totally freestanding. You'll see this and Microsoft HoloLens jump into the fore for education.

Right now it's mostly about entertainment and gaming and that's really fun and it works and it is extremely immersive. You can go on YouTube and get a sense of what these feel like, but until you put one on and also have the hand controls, you can't really tell.

What I see happening here is that app stores will start to arrive where third party developers will be able to create apps and specifically education apps. For example, the difference between learning in a textbook about cannabis cultivation and then having a virtual reality grow that you manage, in an accelerated harvest, that instead of months is just hours and you can go through the whole process of what it looks like, and you're also touching and moving plants with the hand controls can really give you a much more immersive educational experience faster and much more cheaply, because you're not ruining plants or taking up other employees time so look for that.

Also look for training for bud tenders, who will get training and how empathy, sales up-selling and also helping customers to feel welcome and helping them return back to a retail environment. All these things will be happening in VR education, specifically app stores that you can buy right on your headset. Take a look at the Oculus Quest and by the way, Oculus is owned by Facebook so just FYI there.
If you think I'm wrong or you think I've missed some big ways the cannabis industry is going to change after COVID-19 please let me know you can tweet me at CannaInsider and don't forget, I've put together an infographic for you at cannainsider.com/COVID C-O-V-I-D and you can see all these seven ways that the cannabis industry is going to change after COVID-19. With that, I will end the podcast now. Thanks so much for listening. Again, feel free to tweet me or send an email at feedback@cannainsider and let me know your thoughts on these different trends

Ep 300 – Cannabis Investors Are Changing Tactics Amid COVID-19 Crisis

kim kovacs arcview

How is COVID-19 impacting investments in the cannabis space?

Here to tell us is Kimberly Kovacs of The Arcview Group, the leading private investment network and market research firm in the cannabis space. 

Learn more at https://arcviewgroup.com 

Key Takeaways:

  • Kim’s background in cannabis and how she came to be CEO of The Arcview Group
  • An inside look at Arcview and its mission to forge a principled and profitable industry from the ashes of cannabis prohibition
  • How the coronavirus is impacting cannabis businesses and investor sentiment
  • Kim’s advice to startups looking for funding right now
  • Tips on how new investors can get started to set themselves up for long-term success
  • Kim’s best investments and factors that played into her decision-making
  • An update on what investors are currently funding most
  • Important takeaways from Arcview’s recent data reports on the size and dynamics of the cannabis market
  • What investors and entrepreneurs can gain from AV Access, Arcview’s new educational webinar series
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Matthew Kind: Hi. I'm Matthew Kind. Every Monday, look for a fresh, new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com, that's C-A-N-N-A insider dot com. Now, here's your program. The Arcview Group is the leading private investment network and market research firm focused on connecting high-net-worth individuals, institutional investors, and money managers with investment opportunities in the cannabis space. Here to give us an update on what investors are funding right now is Kim Kovac, CEO of the Arcview Group. Kim, welcome to CannaInsider.

Kim Kovac: Thank you so much. Matt, it is a pleasure to be here. I have to say I'm quite a groupie of the show, so I'm thrilled to be on this now and representing Arcview.

Matthew: Oh, that's great. I can't hear that enough. Give us a sense of geography, where are you in the world?

Kim: I am in my home office, I think like many of us today, in Laguna Niguel, California. It's raining here, which is a novelty for SoCal. We need the rain, and it actually makes sitting inside a little bit easier.

Matthew: Oh, that's nice. It's only like 10 days of rain, I think, a year or something in Southern California, something crazy like that?

Kim: Yes, so we're tipping it probably at 20 this year, which we desperately need.

Matthew: Wow. We've had Troy Dayton and Steve DeAngelo on the show before, co-founders of the Arcview Group, but this is your first time on the show. Can you tell us a little bit about your background and journey and how you got into the cannabis and investing space?

Kim: Oh, absolutely. First of all, I have some really big shoes to fill and also a big hat. If you know Steve DeAngelo, you'll know the reference to that one. It's an interesting journey, one that I wasn't expecting. Probably what you hear from a lot of guests on your show, jumping into cannabis was a little bit of serendipity for me, but my journey actually with Arcview is a little bit of a poster-child situation.

I got into the industry a few years ago, also listened to your show, Matt, but decided to become an investor in Arcview and become a member. I started going to events and meeting folks, then I had this harebrained idea that I wanted to start a company, which I'd done before in my past, and I'll talk about that in a second, but I started a company called MyJane, and it's a company focused on women and getting more women into the cannabis space as consumers.

We actually then funded the company through a pitching event that we did on the Arcview stage. I was actually sharked by some of my, now, team members. Then we also got investing through that and then five months later, we exited the company also through an Arcview member. I'm truly the Arcview success story.

Matthew: Yes, the circle of life.

Kim: The circle of life, it is. Before that, it was really interesting for me. I'd a whole long history in tech investing, tech entrepreneur. I've had six startups, exited all the companies, good or bad. The last one that I had, which was successful in 2012, I took some time off and became an angel investor, and I started investing in a lot of technology, women's companies.

I actually ran an angel group in Southern California, it's a branch of Golden Seeds which is a well-known women's investment group out of New York. One day back in 2017, my mother-in-law actually confessed to my husband and I that she was taking cannabis, and she was taking it to get off of opioids, and I was really surprised. I had no idea that the plant could do this, I had no idea that it could be a replacement for things like that.

Literally, within a couple of months, she was off of it completely. With a 10-year history in managing pain and now doing that with cannabis, it was remarkable. I made a decision at that point that I needed to be in this industry, and I needed to invest in this industry. My heart and soul are in it.

Matthew: Wow. We have another interesting intersection going on with the coronavirus right now. How do you think that's impacting the cannabis space in the investment world?

Kim:  I think, like all of us, we're living day-by-day and really looking at, what is this next thing? How are these things happening? What are we going to be looking at tomorrow, even our families and our businesses and our markets and looking at everything? At the end of the day, I believe and I believe our investors believe in the consumer. The consumer is really driving what this market is now and what it will also look like.

If you read any one day, consumption numbers are up or they're varying. In California, we're still up 9%, 10% over where we were last March. Last week or actually two weeks ago, we had a lot of the top CEOs from the industry talking about the market right now and what we're doing with COVID. If you think of things like going from legal or illegal to essential in 18 months, that's incredible, Matt. We don't see that in any other industry, and all of a sudden, we're now an essential business with cannabis. These shifts in consumer behavior, I believe, are creating opportunities for investors to step in right now.

Matthew: Investor sentiment, how would you describe it right now? Are they mostly waiting for the dust to settle or are they saying, "Okay, this is the time to get a better valuation on something I was interested in before"?

Kim: As you know, investors are a little bit like cats and dogs, they all operate under different theses and different situations, but I would say, generally speaking, everybody is very cautious right now, but they're also very opportunistic. They're looking at deals, they're funding deals. The public markets are very risky right now. Private companies are actually looking very attractive, especially those that have what I'd say a longer-term horizon or a longer-term outlook on the market and what they're going for. The days of the quick buck are gone, and I believe our investors are looking for those companies that are doing the right things and have a sustainable business model and product.

Matthew: Even though the coronavirus is severe, it's not been around a long time. Is it fair to say that founders aren't really ready to give up too much equity for too cheap since it's a fairly recent development?

Kim: I would say probably some but I think others who have been around for a while, for example, one of my companies that I started. We literally started in 2007 and did our first round of funding in 2008, that was not a good time to fund.

[laughter]

Kim: If you read the Death Spiral of Venture Investing by Jason Calacanis, those are the things that would just deter, I would say, many from seeking capital or having real valuations, but I believe that right now because we've had such a brutal beating in our valuation markets in the public side, I think we were ready for this reset, and I think it needed to happen. I don't think it's COVID-related as much as it was, it needed to happen in this industry anyway.

Matthew: What advice do you have for startups looking to raise funds right now if you were having a cup of coffee with a startup founder and say, "Hey, if our roles were reversed, this is what I would do"?

Kim: The first thing I would say is, do you need to raise money right now? I am a realist, and there isn't as much capital in this market. It is a little bit more challenging to find, but supply and demand, so the less that people are looking for capital, the ones that really need it and, like I said, have realistic expectations and all these other things that make a solid investment, they're going to get invested in, but that being said, I'd say get real.

I wouldn't focus on what you're going to do in five years from now and how you're going to take 5% of a $100-billion market and things, but how are you going to tactically execute on a plan over the next 30, 60, 90 and get really real about those expectations? Have a couple of scenarios, making sure that you've looked at, what if this gets extended, the stay at home order, for another six months? What do you do? How do you maintain and/or build your business in that kind of situation?

We talked about reasonable valuations, but I'd also say reasonable exit plans too. A lot of this cannabis industry was a quickie, and we can't be thinking that way. Other investors don't think that way in other industries. We always talk about a 7-year plan and sometimes even 10 years for companies in the private space. I think we're culling the herd a little bit, but I think there's great companies out there, and those are the ones that are going to not just survive but thrive.

Matthew: Do you feel like any first-time entrepreneurs, they focus, maybe, on the wrong things, like getting their logo just right or something and not focusing on the bigger picture of what the investor might be interested in and or getting cash flow in? How would you try to orient a startup founder on what's the most important thing?

Kim: I had a great mentor, he ran a venture fund in the cleantech space, so think about emerging markets, right? This is cleantech back in the late '90s, early 2000s, and nobody even knew what cleantech was. For me, if you have a shiny logo and you have a great PowerPoint presentation, anyone can put that together. Your job as an entrepreneur is to talk to the investor and convince the investor that this is the time, this is the now, this is the right team, and you're the one to lead it.

That can be done over a conversation. It doesn't have to be a flash. I think that's where a lot of new entrepreneurs don't have a lot of confidence because they haven't done it before. If you really believe in this business and this idea and "the time is now," that's what you need to communicate, and you need to do it in a way that makes the investor want to invest. It's an opportunity, right?

We always think of this in the reverse. I think of being an entrepreneur, going to an investor is an opportunity for that investor. You're allowing them to come in, and you're going to demonstrate how you're going to make them, really, a lot of money based on this, and it's going to be a good time. It's going to be a fun ride together, right? Focus on those things that you would want to see if you were also sitting in the investor space.

Matthew: Then switching it around a little bit for investors looking to get into this space, maybe they have some extra capital, they're an accredited investor, they've had some success with their own business and they want to get out and invest in the cannabis space. They believe in it, and they want to invest, but it's this nagging feeling like, "Who do I pick? Can I trust them? How do I do due diligence?" All these things jump up as these roadblocks, and they prevent the action. What do you say to someone who's thinking those things?

Kim: We all have that exuberance. I think a couple of years ago, it was hard for investors, especially, I would say, sophisticated investors who'd been in other industries, to jump into cannabis because it was a two-week turnaround, no due diligence or very little, nothing to really go on. It's still an illegal market, federally. There were just so many things that were red flags for most investors that they just couldn't get their arms around it.

I think as an industry, we allowed it to happen because we really saw the Gold Rush or the Green Rush happening. Investors now, especially new ones getting in, they're going to take their time. They're going to want to also buddy up. I call this a team sport. I say this every time I talk to anyone about getting into the cannabis space or investing in general, don't go it alone because you have your experience, you have your life experience, your investing experience, and you're bringing, to the table, that.

If you multiply that by 5 people, 10 people, 20 people in a room and they're all collectively doing due diligence and looking at a company, that group-think is extremely powerful. That's what Arcview offers. It's this ability to connect with others that are like-minded or have like-interests in types of companies but bring in different experiences so you guys can rely on each other to do that due diligence.

One thing that we did start this year, Matt, which I think is brilliant and something I am a big believer in, is this collective fund. It's a member-managed fund. It's run by Jeanne Sullivan, who you probably know in this industry, and also Jeff Finkle. It's for members to invest and then manage these deals together. They've made seven investments in the space already, and it's a great way to go for first-timers.

Matthew: That's great. I watched that, firsthand, at Arcview events, people coming for the first time and they're thinking about what they want to do and then they meet someone that's made investments, that's been to many of the events, talked to many entrepreneurs. They sit in and listen to the questions they ask to the entrepreneurs and then slowly, you start to develop patterns where you say, "Oh, okay, this is a good thing to ask. How come they can't answer that question?

"Maybe it doesn't mean they're a bad startup founder, but they just haven't thought about it, and they need to, and that's a hole they need to fill in their business before I can invest." Then you can whittle it down to, "Hey, I need these questions answered before I can get to yes." It's an interesting thing. I also think that the startup founders have a tough job because the investors ask a lot of tough questions, and you can't know everything.

What do you advise a startup founder if they don't know the answer to something or they get confronted with a difficult situation? Because sometimes investors, most investors are nice and very polite but some can get a little bit-- I don't know how to say. I was like, "I feel like this has gotten adversarial, and I don't know why." You have to learn how to handle those things, but it's good to know how to do it because they come up over and over.

Kim: That's part of our Investor 101 course, right? That's how we learn how to be a shark. If you think about that personality of the shark and what they're trying to get at, they're trying to get you rattled on stage. The question and the answer aren't as important as how you respond, and they want to see how you act under pressure. I always say there's a power to the pause.

It's okay to take a beat, think about it and come back with even an answer that's something like, "I don't have the answer for your exact question, but I'm going to connect with you after this meeting, and I'm going to make sure I answer that question in more depth for you," or something along the lines of, "That's an excellent question. Here's how I would answer this today but given a little bit more research because you brought up some great points, this is the way I would approach this in the future," something around there.

You want to acknowledge that they have a good question, but you don't want to get rattled, and you don't want to show a lot of animosity, which I see a lot of entrepreneurs do. They get pissed off [laughs] because they're like, "Weren't you listening?" or "Hey, why do I have to answer this?" or "Why are you asking this question? I think it's a stupid question."

Don't go there because then you're creating this situation that is unwinnable for you. They have the right to ask you anything, and you have the right to not answer. I would just be respectful and take a lot of notes. You'd be lucky to get an investment on your first pitch. I usually say it takes a ton, a 100 sometimes, to get to the right message, to get to the right delivery, and to get to the right investor.

Matthew: Those are great points. I'm hearing you say you're honest about what you don't know, but then you're going to take accountability, "I'm" going to do this to get you the answer," instead of deflecting and doing something else.

Kim: That's what they would want to see as a leader of a company that they're investing in, as the CEO. They don't want you making up stuff as you go along, they want you to be making decisions based on data and analysis, not just winging it.

Matthew: It seems like there are seasons in investing in cannabis, and sometimes ancillary products are hot, sometimes extraction is hot, and things come around, and they come back again. What season do you feel like we're in right now in terms of what investors are really interested in and looking to invest in more?

Kim: You mean besides being in the winter season where everybody's-

Matthew: We're in the winter, yes.

Kim: -indoors, bundled up?

Matthew: Winter is here.

Kim: Yes, winter is here. I think that's part of being a really good entrepreneur right now is to recognize that seasonality, not just in the investor cycle but in the consumer cycle too. My husband plays hockey, so I'm going to give him a shout out, but he always says, "Skate where the puck is going, not where it is." We as an industry and I believe as entrepreneurs and investors, we need to really look at that.

If you look at the things that are happening right now, literally today, edibles are up, flowers down, delivery is kicking ass right now, and touchless technologies are hot.

A lot of these areas of our industry that have been ancillary businesses or great ideas or hoping that consumers adopt them someday, that day is today. If we can start really looking at that consumer behavior today, that's going to dictate a lot of what happens in the future.

I had an e-comm company back in the early 2000s, and some people were like, "Ugh, everybody's going to want to continue to go to the store. Why would they ever buy online books?" Come on, right? These things change consumer behavior permanently. We are going to see a permanent shift in our cannabis consumers and how they're going to want to have product delivered.

Another thing that I found really interesting in talking with Dennis at Caliva, for example, he said that brand loyalty is starting to become prominent, and it hadn't been, before. People were looking for deals. They'd go into a dispensary, right? If it was there, it was there. If it wasn't, they'd get something like-minded or like-product, but now they're asking for brands because those brands represent something to them.

It represents a good experience, but also it's safe, and we're looking for safety right now. We don't want to take risks with our health, so if you find a brand that is going above and beyond not just sustainability but organic and clean and this, you're going to stick with it right now.

Matthew: Yes, good points. It does seem like delivery is crushing it right now. It also makes me skeptical about how and when people return to a retail environment, a dispensary. Is it going to have to be like a Cirque du Soleil experience inside of a retail environment for me to want to go there? I don't know.

Kim: You know what, I believe it probably will. If you look at just general retail, they're trying to outdo each other with pop-up shops and all these other things that are happening. There's an amusement park, literally, like you're saying, in the malls now to attract people. I was listening to your last podcast about Andrea from Sava. She was the winner on our stage back in Santa Monica.

She's crushing it right now. I believe that the consumer wants the products delivered. They want that curated experience. They want to know that there is a quality behind that and that the brands are vetted. I think her business model is right on, and I think that she's going to be very successful not just now but as this new paradigm of cannabis consumption happens.

Matthew: Yes. She does have an interesting angle. For people that haven't listened to that episode, her business, Sava, and her name is Andrea Brooks, her focus is not on getting the product there as fast as possible but getting it there quickly and having a real relationship with the customers they deliver to, so much so that they know their name, they have conversations, and they only recommend products they really believe in or have some value.

It has a feel of like a co-op whereso it's kind of they've gone the opposite way to just speed, speed, speed, and it just feels more like family. It's like a family delivery-type network vibe to it. That is interesting when people say, "I'm going to try the exact opposite," but there's a reason for it, and then it works because I know in San Francisco, on the Peninsula there, there's ridiculous delivery times like, "Okay, I just placed my order for--" and there it is. It's so fast. It's like, "Wow, I don't even know how they manage this." It is interesting because sometimes convenience trumps all, interesting about the pop-up.

Kim: You have to listen to the consumer, in my opinion. The net new consumer to cannabis is going to be less interested in speed than they are, like you were saying, in this quality and the conscientiousness of the product selections and knowing who is coming to their door. Let's be honest. I'm 52 years old, Matt, I have children, and I don't necessarily need someone who is a little random coming to my house and delivering marijuana and cannabis.

Having that discretion and knowing that the person showing up at my door is someone who I would actually invite in for lunch, that was actually the entire [inaudible [00:23:09] MyJane model that I started two years ago was to have that kind of experience. We call them brand ambassadors, and they are female drivers who deliver products to women. We were a little early.

Matthew: Yes, ahead of your time. That's another way of saying it.I just want to press you a little bit more on Andrea Brooks because she won the Best Pitch at the Arcview event in Santa Monica, as you mentioned, but what specifically do you feel resonated as you watched the investors listen to her pitch and how she was delivering and that fit there? Why did it fit on that particular day, her message with that audience?

Kim: I think a couple of things that she did really well. She was extremely prepared for her presentation. She had all of the high points that investors are looking for, the establishment of the team, the inner workings of the company and testing theses out and then having them working, repeat customers, cart size, unit economics. She had everything really laid out well, and she told it in such a succinct way that she wasn't jumbling things around.

She was carrying that investor audience through that story and very well and hitting the high points of what investors are looking for. The team, the product, the traction, the longtime customer value, or the lifetime customer value, all of these things she had really identified, how she stacks up against her competition. Like you said, she's not there to deliver it in half an hour. It's going to be timely, but it's going to be quality, and how she differentiated then. She really nailed it with regard to that.

She was very respectful with the questions and very knowledgeable, not just about her industry and what she was doing, but I would say about the industry as a whole. Because we all ride together here, if there's trouble with the supply chain, there's going to be trouble down the road. She was just really able to nail that. The other part is that the pitch on stage isn't where all the action happens, it's when you walk off that stage and you start to create these one-on-one connections with people.

I can't emphasize that enough. So many people go to these pitch events, like an Arcview event even, and they don't work the room. They come offstage and then they go hide in a corner or somewhere. You can't do that because people still want to ask their question. They may not have asked it publicly, but they certainly will privately, and they're going to want to hear from you directly. Sometimes that one-on-one connection is the most important.

She worked the room afterward, then she came to our women's lunch, which is such a cool thing. By the way, with Arcview, we have this thing called WIN, which is the Women's Investor Network. It's a separate group part of Arcview, and we focus on women investors and women companies, and she worked that room like nobody's business. She was able to get more connections out of all of those than she was just on stage.

Matthew: That's great. That's like a little whitepaper we just did on Andrea.

Kim: We did. [laughs]

Matthew: I hope you don't mind, Andrea. There's people listening that are going to say, "Okay, I'm a startup founder, I have a good business, or I have a good business plan, and I want to get up on stage and pitch to investors. What does that process look like? How do I get into consideration?" What do you say to that, Kim?

Kim: I'd say, first of all, our stage has really changed in the last couple of months. It's now Zoom, Zoom. We are all on the Zoom stage. We are doing this now every other week. It's a rapid fire. It's actually really exciting now. I love it. We don't have to wait for three, four months to go by to bring more companies up in front of investors, we're doing it every other week. What I would say to entrepreneurs is, make sure you connect with us.

We are on LinkedIn, Instagram, Twitter, you name it, but also hit our site, put in an application, get in queue, be on our new platform, which is called Proseeder. That's where you're going to get visibility in front of all of our investor members and then every other week, we select companies to present in a webinar via Zoom, and we call it Arcview Access, and you get a chance to showcase your company. To me, this is really how I think, to be honest with you, I think this is how the world's going to be from now on. Why wouldn't it be?

Matthew: Yes. Can you record those [unintelligible [00:27:44] Zoom and then people can watch highlights right after [unintelligible [00:27:47] they can watch them? Is that how it works?

Kim: Absolutely. As a member of Arcview, you get access to your own profile, and part of the platform is that we record and store, for the companies, all of these presentations, so they have that as their legacy document library to be able to add things to. The platform is amazing. Full disclosure, I'm an investor in Proseeder, and I actually helped that company launch when they were working with Golden Seeds.

It's a platform that angel investors use. There's hundreds of them, different organizations. If you think about having your company on a platform that is being used by hundreds, if not thousands of other organizations like angels, small VCs, family offices, we can share those deals across that platform. It's called syndication. We do it all the time. For an entrepreneur now coming into Arcview, this is a new world. We've opened up digitally, so you get exposure to not just our members but all of these others that we syndicate with. It's brilliant.

Matthew: That's great. Now, switching gears a little bit to Arcview Market Research, which is the data-gathering and report arm of Arcview, is there any interesting data right now that's coming on your radar? You mentioned flowers down, edibles up, anything else that you feel is important to know?

Kim: Yes. We have a deep relationship with BDS Analytics, and we produce reports cobranded together under the Arcview Market Research segment of our business. We're coming out with our new intelligent report, which is the State of the Legal Cannabis Market. I think that's coming out next week. That's going to be a very lengthy report. One of the things we're working on with BDS is, how do we do this in bite-size?

How do we make data available to our members on a more frequent basis and more relative and more relevant? Because this market is literally changing every day, sometimes it's a little hard to keep up. Data analysis from a month ago may not be as relevant, but we're working toward delivering that data differently and bringing it to consumers and our members, both, and opening it up to the public. It's pretty exciting.

Matthew: Everything is moving to virtual, you're moving more to real-time data with BDS, everything's becoming shorter and more relevant to the moment and less to the in-person. That's a little trend we're drawing on right now here right in this interview, and we're doing it virtually. Everything's moving in that direction, so there's probably a lot of business opportunities just around that, creating the infrastructure for those type of experiences.

Kim: That's a great business idea.

[chuckling]

Kim: To be honest, I think a lot of industries have moved that way. I think for us, as an angel investor group, as a network of investors and companies, that technology has existed, we just haven't embraced it that much. We really have enjoyed, and we still do, the personal interactions. I don't want to say we're going to lose that, but we need to supplement it and complement it, so when we can't be together in person, we can still get that same feeling that we're in the room together.

Technology is advancing quickly to be able to do that. There was an interesting story about Starbucks recently and how they had put their whole mobile app together and order ahead and pick it up and everything. It was okay. Some people were doing it but not as much of an adoption as they'd hoped. It is now massively being adopted.

Matthew: Yes, it's true. It's a very good app too, I will have to say. The first time, I was like, "Why would I want to order ahead?" Now, I'm like, "Why wouldn't I?" It's crazy in that way. By the way, did you know there's more than three sizes of drinks at Starbucks? There's tall, grande, and venti, everybody knows that, but there's a secret fourth one. Did you know that?

Kim: I didn't. What is it? Can you share?

Matthew: I forget the name of it, but more than one person has told me like, "This isn't on the menu, but you can order it, and it's even bigger." That made me think, Kim, how big does a drink have to be before it's ridiculous? If someone ordered that fourth size that just seems huge, what if Starbucks, as a joke, made it 30% bigger than they were expecting? At what point would they say, "I want it big but not that big"?

Kim: [chuckles] I think they do. It's the craft that you can buy. I think I'm going to start moving in that direction because, after my third cup of coffee, I probably do need the gallon size.

Matthew: It's a big gulp.

Kim: It's a big gulp. I was going to say, they're probably taking a chapter out of the 7-Eleven book. That's the point is consumer behavior sometimes needs a push to get to a place that we go, "Oh, yes, for sure. Why wasn't I doing this before?" Like the Starbucks app, unfortunately, this is a really devastating push, but I think what we're going to find is that we don't feel like we need to be in a room together as Arcview members to make really good decisions and to support this industry and to bring capital to these companies that not just need it but we want them to be here.

We want them to be here, long-term, because they're changing our health and wellness in this country and in the world, to be honest with you. We need to be there, and we need to fund them now. We can't wait to see how they survive because they're not going to, right?

Matthew: Yes. Do you have any ideas on, once it's federally legal in the United States, how that might change things? I know it's just a hypothesis, and we're just subjectively going out into randomness here and we don't know, but how do you think that would change things?

Kim: I don't know if it's all that random, to be honest. During the Great Depression, one of the things that pulled that out was alcohol prohibition being lifted so the federal government could start making tax money on that, and that really filled the coffers and got the country back on track. Could that happen with cannabis? Maybe. If it becomes federally legal, think about the barriers to entry that absolutely just evaporate.

Banks now to fund, this Care Act, we'd now be able to apply for as an industry. I think the black market or illicit market would be diminished dramatically because if you could go to your local store and buy cannabis with showing your ID like you do alcohol, I don't know about you, but I don't really buy alcohol on the street anymore. I'm over 21. [laughs] I have it available pretty much anywhere I need to find it, and the price, it's a true market system. Prices will come down. I think there's just so much benefit, obviously, for that happening, and I think in this state that we're in right now, it makes a lot of sense.

Matthew: I do wonder about, will big brands become more prominent then, in a federally legal environment? I know they're in Southern California and really all of California, some brands do have an identity where they've taken off, but I wouldn't say on a national level, I see that yet, whereas if it's federally legal, do you think that's going to happen, we're going to have a Coke and Pepsi-type situation or a Dr. Pepper in the cannabis space, people want one brand they can get everywhere and have it be predictable?

Kim: I think here, we were going to see a little bit of everything, and it's the build versus buy analysis that all the brands will do. Coke isn't just coke. Coke has a lot of brands that are underneath the Coke umbrella. I think you're going to see the same thing here, just like you do with craft beer and Budweiser. There's a market niche for each of these types of products and brands and even just a provincial brand in California. That's [unintelligible 00:36:08] started. They wanted to be identified as the cool hobby in California, and they didn't want to lose that.

I think we're going to see big brands stepping in. I think they're going to keep the brand names of the companies that they're going to want to acquire for a while and build those out nationally or globally, for that matter. That's the other tipping point, is that the World Health Organization and others, I forgot which governing body it is, but they've got Schedule I on cannabis too.

If we can get that done, globally, look at what the market then can do. I think brands are going to do both. They're going to try to come up with their own products and then they're going to also scoop up good, solid companies. Again, get your house in order right now, making sure you're doing the right things because they're looking, trust me.

Matthew: Great suggestion. Kim, I'd like to ask a few personal development questions to help listeners get a better sense of who you are. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Kim: Interesting, Matt, I've been listening to your show for a long time, and some people are really smart, and they've got great books that they can recommend. I have one that's really near and dear to my heart and actually one that I've recommended to my staff at almost every company I've started. It's a Tony Hsieh's book and it's called Delivering Happiness.

Matthew: That's very good. I've read that. Excellent.

Kim: You know what, pick it up right now, because I started rereading this last week, just because, and it is such a parallel to what we're dealing with right now, what he went through at Zappos, and really focusing on not just profits but the passion of the business and the purpose. What he had to go through, my gosh. He had Y2K, he had the dotcom bubble burst, no venture money at all, real estate going in the toilet.

He had all these things happening at the same time, and he just believed that he was on the right path. He really believed in his employees, his customers, and his vendors, and he treated them all very equally. The customer success that he does is just incredible and the focus there. That's what I believe too. You start really focusing on the customer, and all of a sudden, things start to really happen because you're listening.

Matthew: There is those famous stories around Zappos where they said you can talk to any customer as long as you want, and there's stories of talking hours with customers just about anything random.

Kim: Delivering pizza. They do all kinds of great stuff. They even do tours, still, at their facilities in Las Vegas, and the employees get to decide what the inside of that tour looks like. They do crazy stuff. They'll dress up the popcorn machine as a robot. One part of the staff might be all dressed in Dracula gear that day. It's fun but they also just keep their eye on the prize. He was early in the cultural revolution of companies, and I think we've all followed, and there's still more to go. I really appreciate them.

Matthew: A tour sounds fun, I have to check that out.

Kim: I need to go to. I haven't been.

Matthew: What's the most interesting thing going on in the cannabis field, apart from what you're doing in Arcview? If you had to jump into something else, just out of pure interest and passion, what would it be?

Kim: This essential claim in the cannabis business has really gotten me thinking of how that could be really expanded on, I would say, from an industry perspective. To me, data, I'm a data junkie. Everything I do is based in data and analysis.

I think we've got a huge opportunity with the data we're collecting, the consumer behaviors, the tools that we have right now. If I wasn't doing what I was doing, I would certainly be in the data and the science side of this industry, because I think we're just-- We've not even scratched the surface. I don't even think we can even say that. We've identified that there is a surface, and I think there's just so much that we're going to be able to do. Because this is essential now, we can start using that to our advantage to learn more and to find out more.

Matt: Here's a Peter Thiel question for you, what is one thought you have that most people would disagree with you on, a controversial thought you have?

Kim: Let's see. I don't know if it's controversial at the moment, but I always thought this before, which is, a crisis creates opportunity. A lot of people put their head in the sand, and they retrench when a crisis is happening, and I think that you need to step out, and you need to really look at what's going on, and you need to control what you can control. This world, COVID is here and yes, we're at home and yes, we need to take care of ourselves and our families, but there are so many opportunities out there to start a business, build a business, recreate a business, and we need to embrace that.

We need to stop running scared sometimes and start moving in the right direction and forward. I think the Rockefellers made their most money during the Depression or something along those lines. Then also Isaac Newton invented calculus during the bubonic plague. Let's stop running scared and look at crisis and create opportunity from it.

Matt: Well-said. Kim, as we close can you let accredited investors know how to reach out to Arcview and also let startup founders know how to reach out to our Arcview so they can connect?

Kim: Yes, for sure. Hit our website arcviewgroup.com. We have areas of the site that are designated for both founders and potential members. Send us just some quick information about you. We've got a team really on standby. In fact, we just launched our chatbot. We're able to literally live chat, and it is someone there. We've got a few people in our membership team who will answer questions and engage you right there.

The other thing we have is called Arcview Access, which is now this weekly web series that we're doing, that allows both members and nonmembers to get education, to listen to things going on in the industry. We've got some amazing guests and celebrities and talent that are coming on to impart words of wisdom, and we're collecting all of this and creating a library and adding more so that we can really deliver to our customer not just happiness but real information to make real decisions.

Matt: Kim, thanks so much for coming on the show and educating us. That was really helpful to get a snapshot of what investors are thinking about and what startup founders are thinking about. Thank you and good luck with everything for the rest of 2020.

Kim: Thank you so much, Matt, and please take care.

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Matt: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guests to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends.

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