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What happens when vertical farming meets cannabis? The highest quality, consistency, and yield at the lowest possible cost. Here to tell us more is Raymond Chang of Agrify, a developer of highly advanced grow solutions for the indoor agriculture marketplace.
Learn more at https://www.agrify.com
[1:01] An inside look at Agrify and its proprietary vertical farming solutions
[1:53] Raymond’s background as a serial entrepreneur and how he came to be CEO of Agrify
[4:17] The different components that make up Agrify’s automated cannabis grows, from vertical farmings units (VFUs) to advanced cultivation software
[9:25] The ROI per square foot for a facility with vertical farming units versus one without
[11:45] The price range for Agrify’s vertical farming units and how they pay for themselves in less than a few months
[16:08] Agrify’s fine-tuned SaaS component and the insights growers are loving most
[19:45] Agrify University, a 3,500 square foot vertical farming facility in MA that offers extensive hands-on training for new Agrify growers
[20:27] Opportunities for cultivators to license their grow recipes to other cultivators through Agrify’s platform
[24:49] Where Raymond sees the cannabis’ grow tech and automation space heading over the next 3-5 years
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. What happens when vertical farming meets cannabis? Raymond Chang, CEO of Agrify is here to tell us. Raymond, welcome to CannaInsider.
Raymond Chang: Thank you so much, Matt, for inviting me to your show. Very much appreciate it.
Matthew: Give us a sense of geography. Where are you in the world today?
Raymond: I'm actually in Illinois visiting a few customers. As you know. Illinois is one of the most exciting states, and I'm here to see some of our potential partners and customers.
Matthew: Revenue is up big time in Illinois, tax revenue, all kinds of cannabis revenue is up. I want to hear more about that. Give us an idea of what Agrify is on a high level.
Raymond: Matt, who we are, we are an indoor events cultivation partner. We offer vertical farming solutions that help our customers to achieve fundamentally four things, higher yield per square foot, higher consistency, higher quality, but doing so at the lowest cost of production. Our solution is uniquely designed. It's a very holistic approach that involves both the hardware and software. It's a fully integrated solutions to, again, help our customers to achieve the highest consistency, quality, yield, but doing so at the lowest possible cost.
Matthew: Raymond, can you share a bit about your background and journey and how you got into the cannabis space and came into Agrify?
Raymond: I've always been a serial entrepreneur. This is actually the fourth company that I got involved with. I started my career actually in the mid-'90s, essentially created the first broadband telecom service company in Asia that I took public on NASDAQ before dot com bubble. Afterwards I went out to China and created the first home shopping or TV shopping network in China. I had another listed company in Hong Kong in the automobile space. My career has always been using disruptive technology to really advance what I call a big opportunity.
How I got into Agrify, the cannabis industry, is that, first of all, I had firsthand witness of the medicinal benefits of cannabis through one of my family members. That's what really fascinated me to look more into the industry. Afterwards I went out to MJBizCon in 2018, and while there, what I saw was that there were a lot of solution providers, but everybody was what I call it looking at the solution from a silo perspective. For example, you got the lighting fixture companies, but they only care about the impact of lights on the plants, or you have people that only care about, for example, dehumidification.
When you actually talk to the growers and the cultivators, what I realize is that they're looking for a total integrated solution that just works. They don't want to worry about all these things. Thus providing them with an integrated solution is what I believe will be driving the future. That's what Agrify is all about.
Matthew: Paint a picture of what someone would see if they walked into a cannabis grow and there is Agrify VFUs or vertical farming units and a software installed, and the whole package is there. What would they see?
Raymond: They would see a fully automated solution that takes advantage of every inch of that square footage inside of any facility. If you actually walk into a typical cannabis grow facility today, you would immediately notice few things. One is that half of that vertical space is not being utilized. Most of the time the lights are hung from the ceiling. What that does is basically forces the plants to grow the stems because plants actually stretch towards the lights. Instead of actually using the energy to grow the nice flowers and buds, oftentimes he actually ends up growing the plants, in the stems and that's basically waste of energy resources.
What you also would notice is that typically you have multiple environmental pockets. Temperature, humidity are not going to be the same. There's also a huge [unintelligible [00:05:38] security risks. You're also going to see that people have to move the plants around a multiple number of times. Now with Agrify solution, first of all, every inch of that facility is stacked up with what we call, the vertical farming units. We take advantage of every single inch inside of our facility.
What's even more impressive is that each of these vertical farming unit, it's like a LEGO piece, but it's a customized LEGO piece so that, for example, temperature, humidity, light intensity, light spectrum, could be customized depending on the specific strain that you have inside of each of the VFUs, and also depending on the growth cycle. It's like allowing the growers to really dial it in so that they can produce the highest consistent crops, the highest quality crops at all time. That's really what you will see. It's an automated system that basically use less labor, but achieve higher yield, higher efficiency, and obviously better consistency and quality.
Matthew: What are the rough dimensions of a VFU or vertical farming unit?
Raymond: It's a four by eight by nine feet tall. It would take up, for example, a 32-square footprint. Given that there are actually two levels of grow space inside of each of VFUs, immediately it would turn 32-square footage to 64-square footage. However, these vertical farming units are actually stackable. A stall is actually three units. Literally, you could turn from a 32-square foot floor space to as much as six times the amount of grow spaces by stacking them up 3X. Three times two is six. That's essentially what excites most of the growers is that vertical extension going from as much as 6X, the amount of the grow space.
To be frank, we're not the first company to actually attempt to go vertical. Where I think most of the people make mistake are the followings. Number one is, when they go vertical, they forget that the environment changes. You're going to end up with stratification. Basically normally at the top, temperature is higher, airflow is probably better. What we basically do is we ensure that when we go vertical, we can still dial in the environment so that if you want it at, for example, 72 degree precisely, that's what we would deliver to you, 72 degrees.
The other big issue with going vertical is being able to provide a very productive, but safe working environment. Most of the people when they go vertical, they end up having to work with these [unintelligible [00:08:52] that frankly speaking are just not very safe and not very productive. We have a very unique solution so that when we go vertical, it's still a very safe and productive work environment. We introduce what we call a peripheral catwalk. These are all basically proprietary designed so that we solve the typical problems of environmental stratification productivity and also safety issues with going vertical.
Matthew: A lot of advantages there. Tell me, can you give an example of the return on an investment per square foot and how much more that would be than say a typical grow with just one tier that's just a big open space instead of a VFU?
Raymond: Basically, we have a customer here and this is a perfect case study. The customer had a 50,000 square feet facility. If they're doing one-tier grow obviously, you also need to have the back end, the dry room, the administrative offices and all that. Typically for a 50,000 square feet of facility, you probably only have about 16,000 or 18,000 square feet of cannabis grow space. You look at that, 50,000, but only 16 to 18 of the grow space is not very efficient use of that space.
Same with that customer, 50,000 square feet, by going vertical, we can actually increase the amount of cannabis square footage by as much as 3X to 4X. All of a sudden, you get 3X to 4X, the amount of grow space. What's even more impressive is even on a square foot basis, we can actually have as much as 1.6 to 1.7 times yield. All of a sudden, you go from 4X the amount of grow space, and then you multiply that by 1.6, 1.7, then you're looking at 6X to 7X return.
On top of that, because of the automation that we introduce into the system, actually, you get to have much lower OPEX. Overall, you get as much as 7X to 8X higher return on investment by using Agrify solutions. It's basically, just stack it up. It's first of all, 4X the amount of growth space, and then even on that square footage basis, you get 1.6X, 1.7X better yield, and then on top of that you get a much lower cost due to automation and, all of a sudden, your ROI is as much as 7X to 8X. It's a very, very impressive system.
Matthew: What's the range for a vertical farming unit? What do those go for if it's loaded with all your solutions in it?
Raymond: The hardware, we're selling it, it's about 20,000 per piece, but each of these vertical farming units could probably produce somewhere around 40 pounds of flowers on an annual basis. Let's call it $2,000 per pound, which is not on the high side, you would basically get $80,000 of production out of each of the VFUs. 20,000 investment and you get $80,000 back. That's a very, very good ROI.
Matthew: Are you seeing leaseback situations where companies are buying your units, and then they want to have someone buy the units from them and they can lease them back? Does that happen? Or not seeing that?
Raymond: No, we're actually financing some of our customers ourselves because we're a public-listed company, and we do have pretty decent balance sheets. Very recently, we launched what we call a total turnkey solution program, whereby essentially, we're leasing our units to our customers in return for-- we have a fixed software SAS component, but we also get a revenue share arrangement, so it's basically complete interest alignment. The more they produce, the better they are, and the better we are. That's the complete interest alignment there.
Matthew: That's a great business model, Raymond.
Raymond: Thank you.
Matthew: Good thing that you thought that out. Now, what is the SAS component there? We went over the cost for VFU, but what's the SAS component cost?
Raymond: We're only charging about $200 per VFU per month. Now, this is actually what we call the Agrify Insight, which is our complete suite of software and is really a ERP solution. What comes with it, first of all, basically, are these unique, proprietary, what we call the grow recipes so that it basically automatically sets the temperature, humidity, the entire environmental setting, throughout the entire growth cycle. It basically has AI to help you to continue to optimize that. That's basically is on the grow side.
It's also for example, for task management. Every day you show up at the facility, the manager would have, for example, 10 or 15 different plant-touching tasks already identified, and they will automatically assign these tasks to the workers. In fact, we have motion study that shows you that, "Hey, you know what? worker A is more productive in, for example, doing trimming, worker B may be better at doing, for example, task in the dry room, et cetera.
You would actually basically assign these tasks to the available worker of that day, and basically continue to do monitoring and also measure productivity. It's really a very, very advanced workflow management solutions, and it also has all kinds of business intelligence built in so that, for example, it helps you to meet all the compliance requirements on metrics, as well as getting third-party test results back from places like Confident Cannabis so that you know basically how good the production of the flowers are. It's a complete ERP solution that just basically makes the management of any cultivation facility that much easier.
Matthew: You think with the Agrify Insights-- All the variables are important because they work together in concert so you know the complete picture, but is there one or two variables that cultivators say, "Oh, now that I have this, this is so helpful to me"?
Raymond: Yes. In the past, a lot of these master growers, supposedly, they have these special grow recipes. It just happens by chance. Maybe one out of 10, or two out of 10, they get really this amazing harvest, but it's hard for them to really pinpoint exactly what happened during that growth cycle. We actually record everything going on inside of each vertical farming unit on a minute-by-minute basis.
You can actually go back and say, "Wow, this particular batch has basically 2% higher THC. Well, on day 57, I basically decided to increase the light intensity," or, "We actually increased the temperature and lowered the humidity between day 56 to day 59, and as a result of that little tweak, we got 2% higher THC." You could actually say, "Oh, wow, then, in that case, we should adopt this new growth plan for future production." Basically, it would produce the same exact result every single time because now you're putting the plans through a different grow plan.
It's basically a continuous optimization using AI, and to help the master growers to basically be better at what they're doing and also be able to go back and understand exactly what happened. That's really what makes the Agrify Insights so special.
Matthew: Were you surprised at all how your clients have adapted the units or your technology at all to their specific needs?
Raymond: Well, obviously, there's a learning curve, but for those that actually really embrace this technology, and appreciate the automation and the robustness of the data available. They continue to thrive, in fact, even more. We have a customer in Nevada, WhiteCloud Botanicals, and their flowers continue to be one of the best in the industry. They sell higher than basically average wholesale price in Nevada, and basically at a premium and getting into some of the highest-ranked dispensaries and have one of the highest sale force.
It's really beneficial for our customers to take advantage of everything that we offer to them and being able to repeat the same consistency and quality every single time. Ultimately, it's all about building brands. What you don't want to give customers is just volatility. You want them to basically enjoy your products and be able to basically come back for a repeat three peak purchases.
Matthew: Do you offer training? How do people get up to speed after they buy the VFUs?
Raymond: Yes, we have a training center in Massachusetts, we call it the Agrify University. Basically, every single customer of ours will go through basically a training, and that's a very intense three to four weeks training that we teach them everything about the hardware, everything about the software, basically, workflow, SOP, et cetera. It's a very comprehensive training to get people with a good jump-start.
Matthew: You can create a grow recipe that you can repeat over and over again, control the lighting, CO2 levels, all these different variables you can control so you get the same output over and over again, which is very helpful. Is there an opportunity to share recipes between clients? Or is everybody saying, "Hey, that's my special sauce, I'm not going to reveal that"?
Raymond: We column the data with our customers, but obviously, we respect the intellectual property behind it. What we encourage our customers to do is basically consider licensing opportunities. For example, if you are a single-estate operator in a state of let's take Massachusetts, and if you do really have a very special grow recipe, why not license it to a non-competing cultivation facility in let's call it New York, or Connecticut? Basically, we encourage our customers to consider these cross-licensing opportunities. We facilitate that, in fact, but we don't ever share the data with other customers because we have to respect the intellectual property and that's how we can grow.
Matthew: That's a great way for additional revenue streams especially if you don't plan on expanding to that stage or something like that. That's pretty cool.
Raymond: I think basically, our customers are taking advantage of that. Like this customer in Nevada, they could definitely license to, for example, another customer in Washington State or California. Actually, in fact, some of these MSOs, the advantage that we're giving them is they have a facility in Massachusetts that are really just doing excellently with, call it, purple punch, then basically, we'll replicate that recipe for basically their facility in Colorado, and it would have the exact same result because everything has gone through that same 75 or 80 days of grow cycle under the same grow environment.
Matthew: It's crazy. This is crazy how much this has changed over the years. You probably hire a lot of people. It sounds like you have a growing company. I get emails every day, people saying, "How do I get into this industry? I want to get in. I'm passionate about it." What are the skills you think are the most important to you when you're going out making hiring decisions now?
Raymond: I completely agree with you. In order for Agrify to continue to be successful, we need to really hire the best and train the best. We typically work with recruiters. We like to especially get people with industry knowledge, industry contacts, et cetera. Obviously, that comes with a huge advantage, but it's not a must. Obviously, if you already have industry contact, industry knowledge, that's a big plus. We also have seen basically, talents that had zero cannabis industry knowledge in the past but they're just still motivated to learn. It turned out to be [unintelligible [00:24:01] for example, top sales.
I think it's very important also internally to develop very, very good training programs. For example, we do training once a month on our latest VFUs. Basically, it's not just training the salespeople, the marketing people but even our finance, legal, et cetera because I want to build a culture where basically customers come first. Being able to relate to some of the challenges that our customers are facing is just so important. That's the mindset that I like to make sure that every single one of our employees has, which is customers are always right and they always come first.
Matthew: How do you think the growing tech in automation space in cannabis is going to change over the next three to five years?
Raymond: I think we're still, I would say, at the ground level. Obviously, what Agrify is doing it's on the cultivation site. There's still a lot more automation that we can bring to the table. As we collect more data, we're going to become even more intelligent and perhaps we're going to know that, "Hey, you know what? besides airflow, temperature, and humidity, light spectrum, light intensity, there's other things that we have not considered that are actually super important to the plants." We need to basically just continue to use data to get smarter.
Beyond just the cultivation site, if you look at any facility, right now, I think there's still a lot of inefficiency in the post-production. For example, a lot of space has been dedicated to drying. To me, it's a big, huge waste of space and it takes two weeks, 14 days. Can we use technology to shorten that? Can we improve the curing process? Can we improve the trimming, et cetera?
I think that we will still see more automation and more technology being developed to basically make this a more efficient process end-to-end. I also think that on the front end there may be some new breakthrough on the genetic side. For example, if you look at other crops like corn crossbreeding. Corn basically, there's been so much work that's been done on the genetic site that makes the corn grow cycle reduce as much as 60 days but tastes sweeter and more flavorful, and all that.
I think we're going to see something very similar with cannabis. I really believe that there's just been still very little research going into this beautiful plant species and I'd like to see more. We're going to see basically, new technology, new breakthrough, across the entire vertical chain.
Matthew: You mentioned there's a hardware component and a software component to your business. We just got an inflation print of 5.4%, I think, from the FEDS estimates today. We know there's a bifurcation between things that are getting cheaper and things that are getting more expensive. Do you see any kind of supply chain stresses or distortions causing price increases?
Raymond: Oh, yes. It's definitely also hitting the industry as well. I knew this was coming so we actually bought a lot of the key components ahead of time but some of the things that we did not expect, for example, right now, extrusion metals, because our vertical farming units are made of aluminum frame. Aluminum prices have gone out the roof. Even PVC pipings, everything, it is actually impacting everybody.
I think in the long run those things will eventually subside. What is actually most important is to help our cultivation partners to use automation to have lower production costs because right now, the industry is still looking at $450 to $500 per pound, obviously depending on what's included, but typically, it's around $450 to $500 per pound. I really believe that price needs to come down to maybe in the sub $250, $300 range because obviously, we're going to see price depression. Overall for this industry to thrive, I really think that the price per pound needs to get down to the 200, maybe even sub 200 range to have long-term sustainability.
Matthew: Raymond, I'd like to ask a few personal development questions to help the listeners get a better sense of who you are personally. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Raymond: Yes. Some of my favorite books include the Three Kingdoms, The Art of War, and also even, for example, Lean Startup. The Three Kindgoms was very interesting because it talks about human nature. [chuckles] It also talks about what happens when you get into a conflict situation, not only on a one-to-one basis but one-to-many. That was something that I really, really enjoyed.
The Art of War, obviously, again, dealing with human nature, talks about how to have these personal relations and also just in a conflict situation, how you get into a negotiation, most prepare, and et cetera. Obviously, Lean Startup because what I actually enjoy is basically building company from scratch. All of these things actually have made a huge impact in my life.
Matthew: Now, one of the big themes of The Lean Startup is this idea of a minimum viable product or MVP. Did you create an MVP for Agrify to test or see if customers would buy?
Raymond: Yes. Obviously, I would say the 3-6 is probably the reiteration of multiple rounds of MVP products. Every time we want to introduce a new feature, we go into MVP first, we test it out, we make sure that it delivers what it promises to deliver. Sometimes maybe it's an overkill, maybe sometimes it's not sufficient. The only thing you're going to know is basically put it out there, get customers' feedback.
The other thing is that you also have to be completely transparent with the customer, you got to build the right expectation from day one. You don't want to over-promise. You want to let them know that, "Hey, this is an early MVP. We'd like to get your feedback. Don't expect it to work perfectly from day one. This is continuous investment, continuous reiteration towards excellence."
Matthew: Build, measure, learn, that's the attitude with your MVP. That's how you make it better, better. Do I have that right? Build, measure, learn, I think that's the MVP-
Raymond: You're absolutely right. You're absolutely right.
Matthew: Second question. What is your favorite unhealthy comfort food, Raymond?
I love ice cream. My children always tease me about it as well. I have very sweet teeth. Sometimes I just can't help it, but I especially love ice cream.
Matthew: What flavor and brand? Let's get specific here.
Raymond: Oh, everything, trust me. Typically, sometimes when we go on these road trips, I would look it up and say, "Hey, what are some of the local best favorite restaurant, best shops are?" I would drive miles and just to have a taste.
Matthew: What is one aspect of the cannabis industry that you feel is really important but perhaps the public is not appreciating how big or important it's going to be?
Raymond: I really believe that this industry just like all the other consumer stable industry, it's going to-- Consistency and quality, it's going to really make a difference in the future. As I typically like to say, we're hoping to Pepsify this industry. What that means is every time when you open up a can of Pepsi, it tastes exactly the same, and that's what we're hoping to deliver. It's just that once you figured out the optimal grow recipe, let's repeat it so that consumers can expect to have the same results every single time.
Matthew: That is a huge expectation because once a consumer finds something that really scratches their itch, they'll bolt to a different brand if you can't deliver that over and over.
Raymond: You're absolutely right. For any brands to thrive, it's especially important to pay attention to just being able to deliver consistency and quality over and over and over. That's what we want to focus on.
Matthew: Awesome. Raymond, thanks so much for coming on the show today. We really appreciate it. You're a publicly listed company. How can people find your stock ticker, and how can they connect with you if they're interested in learning more about what you do?
Raymond: Our ticker is AGFY. We're listed on National Stock Exchange, again, under the symbol of AGFY. If any investor or customer has any questions, basically you can just reach us at email@example.com or firstname.lastname@example.org and we're always here to help. Matt, thank you so much for inviting me to your show. I enjoy it so much and I look forward to stay in touch.
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 email@example.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. Emotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider.
Lastly, the host or guest 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 we'll 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.
[00:36:44] [END OF AUDIO]
Does indoor cannabis cultivation have to come with environmental drawbacks? Not anymore. One company has found a way to minimize its emissions AND cut costs in half – all with the power of the sun. Here to tell us about it is Edward Dow of Solar Therapeutics, the first energy-independent dispensary in the world.
Learn more at https://solarthera.com
[2:17] An inside look at Solar Therapeutics, the world’s first energy-independent cannabis cultivation and retail facility based in Somerset, MA
[2:57] Ed’s background in engineering and what led him to become CEO of Solar Therapeutics
[5:55] Solar’s unique indoor cultivation facility, including its extensive solar arrays and centralized heating and cooling systems
[8:32] How Solar implemented its own microgrid to create a 100% self-sufficient, energy-independent facility
[10:40] How Ed was able to bootstrap what’s now a multi-million dollar operation entirely from private investors
[15:25] Solar’s collaboration with Fluence to earn over $1 million in energy efficiency rebates
[17:30] The advantages of broad-spectrum LEDs for energy costs and crop yields
[19:56] How Solar significantly offsets its costs through its heating and cooling systems
[22:36] Solar’s energy costs versus other similar vertically-integrated dispensaries
[25:15] The cannabis industry’s growing carbon footprint and what it will take for companies to implement more sustainable practices
[28:21] The best-selling products in Massachusetts and new trends to look out for
[30:12] Solar Therapeutics’ goals to become a multi-state operator, from Rhode Island to New York and beyond
Matthew: 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.
Hi CannaInsiders, just a quick note before today's interview gets started, that my colleague Sinead Green will be interviewing today's guest.
Sinead: Hey Matt.
Matthew: Sinead is-- Oh my God, you scared me. Sinead I didn't realize you were in the sound booth.
Sinead: Sorry about that Matt.
Matthew: Sinead, since you popped into the sound booth here, this is a great time to just say hello to all the listeners since I was talking about you.
Sinead: Sounds great, I'd love to. Hey everybody, I'm Sinead Green. I've actually been working with Matt behind the scenes for a couple of years now. I'm so excited to put on my hosting hat and really get a chance to engage with you and bring you some more great interviews.
I just want to say, if there's someone you'd like us to bring on the show, please feel free to email me your suggestions at firstname.lastname@example.org. I'd love to hear from you, and I really hope you enjoy these upcoming shows.
Matthew: Gosh, I want to get a hosting hat now that you've mentioned it. I'm picturing a huge purple velvet hat, what do you think about that?
Sinead: I think that would look great on you Matt.
Matthew: Okay, really important Sinead, we want you to do a good job but not better than me, does that sound fair?
Sinead: We'll see about that.
Matthew: All right. Well everybody enjoy this episode with the host Sinead.
Sinead: As indoor cannabis production grows, so does the industry's carbon footprint, and it's worse than you might think. To put it in perspective, studies show growing an ounce of cannabis indoors can emit as much carbon as burning a full tank of gas.
But it doesn't have to be that way. One company has found a way to minimize it's carbon footprint and significantly cut costs, all with the power of the sun. I'm pleased to welcome Ed Dow of Solar Therapeutics, the first and only energy-independent dispensary in the world. Welcome to CannaInsider Ed.
Ed: Thank you very much for having me.
Sinead: Give us a sense of geography, where are you in the world right now?
Ed: Sure, we are located in Somerset, Massachusetts. Which is the southeast coast of Mass.
Sinead: Okay, great. And what is Solar Therapeutics on a high level?
Ed: On a high level, we are a off-the-electrical-grid cannabis manufacturer and retailer. We get all of our power on-site from both an array of solar panels on the roof and the rear of the property. As well as our microgrid, which also consists of two co-gen, combined heat and power generators upfront.
Sinead: Great, I'm really looking forward to getting into Solar Therapeutics and your facility later on. Before we get into that, can you share a little bit about yourself and what you were doing before Solar Therapeutics?
Ed: Sure, immediately prior to Solar Therapeutics, I had started another company primarily focusing in the underwater exploration space. Primarily underwater autonomous vehicles, AUVs and ROVs. My company was a part of the manufacturing supply chain for these vehicles. Prior to that, I worked for a company, Woods Hole Oceanographic Institution, heavily in the mechanical engineering side, and mainly in the oceanographic exploration world, hence why I went into the other company thereafter.
A lot of the same systems that we have to deal with in that space, either indirectly or directly relate over in the cannabis space. Oceanographic exploration is a real hands-on problem-solving mentality. You're coming up with a question of what you're trying to search for, or how you're trying to search for it. Then you need to basically figure out the instrumentation or equipment needed to get there or to find something. That's a throw-you-in-the-deep-end approach, which was great, and I loved it. Awesome, awesome place to work.
Sinead: That's amazing. Your background in engineering was really fascinating to me because obviously it's come in handy for Solar Therapeutics here. What kind of edge do you feel that's given you in the cannabis industry?
Ed: Truthfully, when I first entered in, tremendous. There's a lot of people that came from the financial world that were jumping into the cannabis space. This space is so heavily involved with not just engineering, but also executing and designing and building-- or building actually, what you've designed. So I think early on it gave me a pretty solid edge. That coupled with I built a company prior that was heavily based around mechanical engineering and systems, I think it translated very well into the cannabis space.
Now there's a lot more like-minded individuals. There's a lot of folks that I deal with who are great, it's great to see coming into the space, both on the electrical and the mechanical side. It's fun to see and fun to work with them, and push boundaries, is what I'm hoping.
Sinead: Okay great. I read that you're not only the CEO at Solar but you also played a big hand in conceptualizing Solar Therapeutics. Could you give us a walk-through of the facility and give us a sense of the inner workings there? I know it's a very unique facility.
Ed: I think the most unique part of us is probably now the microgrid aspect of us. To commit to a large-scale grow off the electrical grid is daunting, but I think the bones of Solar came from a number of engineers. I would agree with you, the vision came from me, but I think I had to work with six or seven-- probably more than that by this point in time, engineers. It was really a collaborative effort, I would say.
Inside Solar we're a centralized heating and cooling plant which is substantial in that all of our cooling or heating ability is created in one plant, out in the front of our facility. That's then circulated throughout, through our various grow rooms, our various operations. That's unique to say, a mini-split, or a point-of-use heating and cooling system, which is really largely the norm.
Building in the fashion that we did is much more mechanically and financially intensive early on, but it's much more efficient in the order of magnitude once you scale up. It's a much more efficient way to produce your cooling and your heating, and then transferring it around to your points of use than it is to build these little HVAC systems that are used for each grow area.
Again, so I'd say that's the main differentiator from the way we're designed. That, and then we really try to take sustainability at our real core ethos. We try to maintain sustainability throughout, including we save all our water from our condensate stream. We're recycling at least 90% of our water. It's not necessarily a big dent on the bottom line. If anything it might cost us a little extra but we think there's no need to waste thousands and thousands of gallons per day when we can recapture that and re-use it. Which we chose to do.
Right down to the packaging, we really try to weave it in throughout our whole facility. It's part of our core ethos, I'd say.
Sinead: That's great, I want to get into your heating and cooling system later on, because I know you guys offset a lot of your costs using your system there. I want to talk a little bit about your microgrid first. I know you built that yourselves, it took you about a year to do it. Just wanting to really give the listeners a sense of how you use that to power your facility, and what the process was like getting that up and running.
Ed: It's arduous for sure, committing to a microgrid for 100% of you power was not-- Just so we're real clear, was not my intent set out at the gate. The intent was to subsidize ourselves with the solar, have a significant electrical connection to the grid and build upon our microgrid resources and assets as we moved.
Then we found out we couldn't get the power that we needed from the grid for about two years and millions of dollars, so we had to pivot quite substantially. I'll say this, designing and building from the ground-up or a build like this from the ground-up, and if you choose to go from the microgrid, is probably a much more clear-cut approach than the way that we ended up here. That said, it's still a huge undertaking. If you're committed to cutting the cord, so to speak, you're talking six months minimum design. You're talking a year of implementation. I love how you said it took us a year to finish the microgrid, I would have to say we're still not done with the microgrid. We're still optimizing, there's still points of times where our load, our energy demand profile will peak so heavily that it can cause issues with our own internal microgrid, whereas if we were part of the larger electrical grid, it could absorb that bump, no problem or that spike, no problem but I would say we're continually to this day, including right now improving our microgrid on site. It's not really done with its full commissioning.
Sinead: Wow, man, that's crazy. You guys had a lot of upfront costs but yet you were still able to bootstrap what's now a multi-million dollar operation entirely from private investors. How did you go about doing that? How did you secure those early investors?
Ed: Well, I'm super proud of that and to this day, we're still privately owned all, no institutional money. I was the starter of that. I think I poured all my own money into it. I'm the CEO and founder here, but I did not have anything substantial to do the build-out that we needed here is basically enough to cover legal costs initially if you really looked at it.
I think one, leading by example of putting my own money on the line probably instilled a bit of confidence into the folks that I was talking to initially. Two, getting involved with, it was initially a number of doctors for myself, there were six of us who started this whole thing, financially, anyways, bootstrapped the initial seed money.
We were fortunate in that they believed in the vision that I showed them and the building that I found, and it took a few of them to commit and then it really, it was very tough. You've probably talked to a number of these entrepreneurs, bootstrapping these companies, it's not all yeses in the beginning, but then you get a few yeses, and that really turned into a snowball effect.
The other real big part of it was taking the seed money we had and executing in a way that got people really excited. Now it's so much different, now we have people actively knocking down the doors to get involved, which I'm happy to say we're closed, we don't ever anticipate to do more equity funding, which is great.
It was tough. It's a process and it's really-- If I could say to anyone, it's networking, networking, networking, and really having, you might not have the full vision of the company. In fact, if you say you do, it's probably not really truthful but if you show a really good start and a solid foundation on what you can build, you're not going to know it all out of the gate, but you can certainly build the plane as you're flying it, which is what I've been doing here.
Sinead: Wow, and you said most of your early investors were doctors, was that a challenge finding doctors who were on board with the medicinal cannabis space or was it easier than you thought?
Ed: I think back then, this is-- remember, this is almost four years ago, actually, probably is four years ago, there was so few doctors in the space, but the ones that were in it, they were really passionate about it. They wanted to speak to the benefits of cannabis. They were vocal about it, doing conferences.
My first two doctors that I had are prominent rheumatologists and speak all over the world. Prior to meeting me, they spoke all over the world as to the potential future benefits of cannabis in their studies. These are really limited funding studies so they had to be passionate about it. They were the first two.
Now I'd say there's a number more involved in the space and it's piquing more and more interest in the way of studies and doctors that are interested in getting into the space now, which is great to see. No, they were on board with cannabis from the beginning, and then I was really fortunate that they introduced me into their network and that was the snowball effect that I was discussing earlier. It started with the doctors and then evolved into more--
Obviously, we needed to deal with High-Net-Worth Individuals. It was all privately funded, and they got me into those pools of capital. Again, then we started hitting the ball, we started building out and then gaining more traction but yes, to this day, I think it's now officially over a third of my investors are doctors.
Sinead: Okay, very cool. I'm always curious where things are in terms of medicinal cannabis and your more conventional medicine. That's really reassuring to hear.
Ed: Yes, thank you.
Sinead: Okay, that's cool. Can you share a little bit about your partnership with Fluence and you guys have outfitted your entire facility using their LED lights, and you've earned quite a rebate using their technology? Can you share a little bit about that with us?
Ed: We have yes. Fluence was, I guess we're not partners on paper but we really are partners in the sense that I vetted all the products early on, we didn't think we could afford LEDs early on, and really, we couldn't, I intended to upgrade to LEDs as the technology proved itself a little better and as we had more cash in the coffers, but I made the conscious decision to switch to LED early on, which actually affected the whole design of my facility in a positive way, which I could talk about later. Fluence was just a standout product then. It was really one of the only standout products that I had dealt with that I really liked.
I did not think I could afford them, they made an offer to me that I couldn't refuse, they basically helped me get my lights. Eventually, obviously, I had to pay it back, but at a cost that I couldn't turn down. I am so happy we did that.
Now we've brought on additional grow rooms, every time we bring on more grow rooms we're buying large orders of more Fluence lights. It did kind of form into a partnership. I am happy to promote them because I really, truly believe in their product and I think that that's paying dividends because now they promote us as well so it's fantastic.
We actually have an event coming up here, the Cultivator Cup coming up Labor Day weekend, where they're going to be a major part of it. A major sponsor for it. We're thrilled to have them and a few other key vendors that we work with. Yes, it's definitely formed into a relationship and more of a partnership in that sense.
Sinead: Oh, wow, that's great. You mentioned broad-spectrum LEDs, you discovered that they are the preferred lighting solution. How did you figure that out and what are the advantages there for energy costs and crop yields?
Ed: Yes, as a long-time grower myself, I actually tried to adopt LEDs early on and had terrible, terrible results. They weren't really engineered properly at all at the time. The broad spectrum LEDs that you speak to, Fluence and other folks now have, they've really studied what the cannabis plant absorbs, and the spectrums that it does not absorb and they've basically prioritized all of the spectrum that these lights generate into only what the plant does absorb.
Theoretically, you should then have the least energy input for that light with the maximum output to the plants and I'll say that's what we're seeing firsthand. The other huge benefit for us, for LEDs versus metal halide or high-pressure sodium or any of what they call, affectionately the gas and glass lights is just the heat.
The heat is well over 100 degrees, 140 easily on those old metal halide and HPS. In the LEDs, I actually don't know what the high side threshold is, but it's got to be under 110 degrees but where I measure it is on the heating load to the building that we're trying to then get remove all that heat. Obviously, it takes a lot of cooling.
Don't hold me to the number but it was well over a quarter, I think it was a third of the heat. It was half the heat, I'm comfortable saying from a comparable metal halide or HPS, which is huge. That means all your HGH systems are smaller, you're heating loads are much smaller, therefore you need less cooling. It was really a trickle-down effect that redesigned and re-engineered our whole entire early-on build. We were able to reduce at least 500 tons of [unintelligible [00:19:51] which is substantial.
Sinead: Wow. That's amazing. That's so cool. You guys not only save a ton just on energy costs, but you mentioned earlier, you are able to offset a lot of your costs through your heating and cooling systems. Can you tell us a little bit more about how you do that and ballpark how much you're able to save offsetting those costs?
Ed: Sure. As far as a dollars and cents, what we're saving, that's going to take a year of trend analysis to get to. I can say this, we're recapturing all of our heat. Rather than just venting our heat to the atmosphere, we're recapturing it in our, what we call our ERUs, our energy recovery units. We're doing the same with our cooling. Anywhere we can recapture our free cooling and free heating we are doing so in the HDAC system.
We also are integrating our co-gens, the combined heat and power generation units I spoke to, which are really the backbone of our energy production for the facility. We're currently calling that heat-- Right now the heat is going through a series of heat exchangers and it's not yet plumbed into our system. Once we reclaim that into the facility, that's a further way to reduce all the heating loads we need.
In addition to taking that what otherwise would be waste heat from the grows, we're reabsorbing that into our central heating system. I guess what I'm trying to say is on the microgrid, we're doing the same exact thing. Our ultimate goal is that we'll never have to run our boilers. Those are substantial boilers. You're talking 3.7 million BTUs times two. We were trying to never have to turn those on, again, unless we have a failure and there's some reason we need to have those on. That's on the heating side.
On the cooling side, we've also integrated free fluid coolers, so that anytime-- In the northeast, we have a very cold climate in the winter. A lot of times, obviously, we're heating through the whole winter, we need to keep the thermal load up, but you still need cooling. It sounds counterintuitive, but these lights, they put out a lot of heat. Also, you need to get rid of a lot of humidity that these plants give off. You need cooling.
In the winter, we have these two big free fluid coolers that actually take all the cooling from the atmosphere anytime it's below, I believe, it's 44 degrees outside. The atmosphere cools those cooling coils. That's fired right back to into our central cooling system. That's a huge win for us too in that we don't have to turn our chillers on in the winter. That's a little bit about our heating and cooling load.
Sinead: Wow. You mentioned it's going to take about a year to really look at the numbers and see how much you guys are saving. If you had to ballpark it, what would you say solar saves on energy costs in a year compared to similar vertically-integrated dispensaries?
Ed: I can say, specific to electricity costs what we'd be paying to the grid, we save about half. That's pretty substantial. Then what do we save on energy costs? That's the thing I'm referring to, that's going to take a year. That's where we really start seeing really big efficiencies.
We're now I might say, I'm comfortable saying we were maybe 60% of the carbon footprint that another facility would be. We're really targeting a lot higher than that. We're trying to offset 75+% of our emissions, 80%. There's a possibility if everything treads out properly, we integrate the free fluid coolers properly, we take all the waste heat properly, there's a scenario in which you can see 90%+ efficiencies. That's really where we'd like to get to.
That's not just efficient for the cannabis space, that's efficient for any big manufacturing space, be it pharmaceutical or what have you. That's a significant offset of both Co2 production, as well as efficient energy usage. That's where we're trying to get.
Sinead: Okay, great. You did have a lot of upfront costs and I'm sure just the maintenance of these systems requires some costs of their own. How long do you think it will take for those costs to pay for themselves? Do you think that'll happen in the next few years or what would you predict there?
Ed: Without the energy rebates, it's still a few year ROI. It's a little under a few year ROI, depending on how you fund it et cetera. It makes financial sense. It's just a very heavy lift and it's a lot of work that you don't have to do if you just plug into an outlet, so to speak. It's a lot easier to just plug your phone into an outlet than to make the generator that's running that outlet.
Sinead: That's a good point.
Ed: You did allude to the energy, the rebates and for the microgrid, we are targeting a rebate for that. To date, we've gotten just overall the facility 1.1 million in rebates to date. That's substantial. So that really helped. It speeds up the ROI that you were speaking to.
Sinead: That's huge. That really ties into my next question for you. As indoor cannabis grows, facilities are, in Massachusetts alone, they're currently responsible for about 10% of industrial electricity. As the sector grows, this could really skyrocket.
What does it feel like to be leading the charge there, in terms of more sustainable practices? What do you think it will take for companies to jump on board?
Ed: Well, one, it feels it's fantastic. I love it. We're not trying to let off the gas. I'm trying to let you know, we're trying to keep pushing forward. Battery storage is a big part of that. In short, I love that we had to own our own microgrid. In hindsight, it was tough, it was certainly a challenge, but really happy that we do own this in this space.
What's it going to take to push forward? The change is, I think it's all regulatory. I think, from a business standpoint, like I said, it's much easier just to plug your facility into the grid. It just is. It's a fixed cost that you work into doing business. There's not much of a motivation to go to a microgrid. In fact, in a lot of respects, there's probably a lot of detractors to going with owning and operating with microgrid.
I'm not sure it is for everyone, in truth. When you look at these large manufacturing plants like Kellogg's or these huge pharmaceutical companies, they do their own microgrids. That must mean it makes financial sense when you're at scale. A large-scale operation, they almost all incorporate them. I think it is the way of the future. I think microgrids are a real solution to our heavily-taxed and ageing electrical infrastructure, but there's not a heck of a lot of incentive to do them.
Going one step further, it seems like there might be some incentives drying up from microgrids. If they're more allocated to say, solar and wind turbines, then there's probably going to be less available rebates for natural gas co-generation units. That's just a theory, but it is something I'm dealing with with the current utilities. I guess my short answer is, I don't know how we get there. I think it's got to be regulatory. Otherwise, there's not much of an incentive short-term to go with something like this.
Sinead: That's a really great point. I'm hopeful that as you said, the regulatory side comes up with some solutions here. That's really interesting to hear what challenges you faced there.
I want to shift gears here Ed, and discuss just Massachusetts in general. I know guys have had pretty thriving cannabis market over the last few years. What products are selling best at Solar right now? Are there any surprising new trends in Massachusetts listeners should know about?
Ed: I don't know if it's surprising new trends but seltzers are-- Everyone's interested. Seltzers are big in general and then couple it with the THC space and it's no wonder why they're a big hit with consumers. Believe it or not, the biggest sales segment is still just cannabis flower. Everyone still really just loves the actual flower. That makes up 50% of the sales.
Then it's followed by vape cartridges, edibles. The tinctures are a much smaller section. Yes, seltzers. That's one to look out for. We're working on one right now that we're trying to drop for September. People are really loving the infused beverages.
Sinead: Definitely. Is the seltzer you're working on, is it a CBD seltzer or is it a THC?
Sinead: Oh, very cool. That's awesome. That seems to be a thriving sector there.
Ed: Consumers want it. Not everyone wants to smoke the flower, the raw flower. I have a feeling as the space progresses less and less people are gonna want to do it. Everyone's a little bit more conscientious of what goes into their bodies and their lungs. I think there's big future market for it.
Sinead: Definitely. Yes, for sure. It's very cool. Ed, I have read you have some multi-state operator aspirations. I wondered what are your goals for expansion? Are you looking to replicate what you've developed in Massachusetts in other states?
Ed: That would be ideal. Our first foray is Rhodes Island's obviously in our backyard so we did apply there. We have three pending applications down there. We're hoping. If any of them are pulled-- Let's say all three are pulled from the lotto, you're only allowed one. That's our first hopeful entry into another market.
The other markets, everyone knows New Jersey and New York are on the horizon. Ageing electrical infrastructures like there really ties in perfectly to our solar model and we have been dealing with utility providers down there. This would be an ideal model for climates like that.
Yes, we are actively trying to work on those markets. We're being selective about we don't have the funds some of these big MSOs have to apply into every state as they come on board so we really target the ones that our energy model would translate over to really well. That's where we keep our core focus on.
Sinead: Very cool. Okay. Ed, you've spoken a little bit about where you see sustainability and cannabis heading over the next few years. Where do you see the industry as a whole heading over the next three to five years and what would you say you're most excited about?
Ed: I'm excited about all of it. It's growing exponentially. I know that's a bit of a cop-out of an answer, but there's just-- The space is moving so fast that a month from now, we're going have another hot topic to discuss.
I'm most excited, I'd say, for something like the Safe Banking Act going forward and making it a little bit easier on all of us, for the retailers. Instead of giving away equity for cash, it would be nice to be able to do traditional debt raises, which we're starting to see. I think in the short term, I'm most excited to get just this banking stuff squared away so that we can get some federal tax relief like every other major business to be validated as real business, legitimate business. I think we're going in the right direction there.
One of the most conservative Supreme Court justices just spoke to that. Within the last couple of days, he spoke to this disjointed federal and state policy. That will be great to get that all cleaned up. As an engineering junkie myself, I love equipment, I love automation. I think there's going to be in two years from now we're going to see a whole different way of us growing.
That's something that I'm pushing and something that I'm actively working on that I can't wait to see the systems that we come up with and optimize. I'll let you know as I get a little bit more info on how I think that looks. The AI is there, the electrical side of it's there. It's just we need more mechanical automation.
Sinead: Absolutely, yes. There's so much upswing and I think there's a lot to be excited about. Before we close, Ed, I wanted to pivot into some personal development questions. The first one, is there a book that's had a big impact on your life or way of thinking that you would like to share?
Ed: And old school book in this space was the Marijuana Bible. I think everyone thought that. That was a great book that got me in the right direction some 20 years ago. That's probably the most impactful book I've read in this space and I think it probably still carries some weight to this day.
Sinead: Oh, yes. That's a classic. Very cool, okay. Ed, next Ed development question here. What is one thing going on in the industry right now that you think will have a big impact, but might be a little underappreciated?
Ed: That's a great question. Again, I think I'd go back to Safe Banking Act. I think that's going to be-- That will be extremely appreciated and welcomed. I don't have an answer on that yet. I think every evolution in this space, I think we all greatly appreciate it because it's all--
We're paving the way as we go, and it's getting a little easier here and there. I think any change, we all see the impact and we all really appreciate it. I don't have an answer right now on that at the moment, unfortunately.
Sinead: That's fine. I totally agree with you. I think the industry is so new, every development is just groundbreaking so definitely agree.
Ed: Very impactful, yes.
Sinead: Absolutely. Okay, Ed, this might be the toughest question in the interview. You're stranded on a desert island and can only bring three movies. Which do you choose?
Ed: Lock, Stock, and Two Smoking Barrels, Snatch, and I don't know the third one. That's a great question. Those are my top two by far. The third one-
Sinead: Those are great. [chuckles]
Ed: -Fight Club.
Sinead: Fight Club. Oh my gosh, that's great. I love that movie. I think that might be my top three as well.
Sinead: That's awesome. [chuckles]
Ed: That's it.
Sinead: That's a great answer. Awesome, okay. Ed, as we close, can you share with listeners how they can find you online and connect with you?
Ed: Sure. You can check out our website and then there's hello@solarthera is a great way to get hold of us. It goes to marketing. We all see it. That's probably the best way. If there's any people that are specific and they want to reach out to me directly, it's email@example.com.
Sinead: All right. Ed, thank you so much for coming on the show. We really appreciate it and we wish you the best of luck with the rest of 2021.
Ed: Thank you so much.
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[00:38:06] [END OF AUDIO]
While cannabis banking still has its challenges, Safe Harbor Financial is on course to make those challenges a thing of the past. Here to tell us about it is Safe Harbor CEO Sundie Seefried.
Learn more at https://shfinancial.org
[00:57] An inside look at Safe Harbor Financial, a fintech banking platform that provides cannabis companies a safe and 100% compliant place to bank
[1:22] Sundie’s background in the credit union industry and how she came to start Safe Harbor
[2:21] How cannabis banking has evolved over the last few years and where Sundie sees it heading
[4:46] The Safe Banking Act and what it means for cannabis banking
[7:36] Compliance challenges cannabis companies are facing right now
[9:08] What lending in cannabis banking could look like in the next few years
[14:06] How Safe Harbor Financial has grown since its inception in 2015 to manage over 500 cannabis banking accounts
[14:54] Safe Harbor’s onboarding process for new clients
[19:14] How cryptocurrency and stablecoin are changing the cannabis banking landscape
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.
Cannabis banking is still difficult but improving. Here to tell us more is Sundie Seefried, CEO and President at Safe Harbor Financial. Sundie, welcome back to CannaInsider.
Sundie Seefried: Thanks for having me. Good to be back. It's been a couple of years.
Matthew: Give us a sense of geography. Where are you in the world today?
Sundie: I am still in Denver, and I have recently changed companies over to Safe Harbor Financial, which is a subsidiary of Partner Colorado, where we're focusing 100% on cannabis banking solutions and service.
Matthew: At a high level of Safe Harbor Financial, then would you say it's a bank? Is it a credit union? What is it exactly for people that want to know?
Sundie: It's really more of a FinTech model, and we do everything from services to compliance, lending, same staff, same service. We have about 35 employees at this time. We just have bigger plans to grow the enterprise now.
Matthew: Since it's been a few years since you've been on, can you just give us a little background about you professionally and how you got into the cannabis banking space?
Sundie: Sure. Way back in January of 2015, we decided that there was a lot of issues surrounding safety in Colorado, and so that was really what prod us into the industry, and actually take the risk and bank the cannabis industry. We started with that, but what really sold us on it was when we started meeting the owners, and the owners were really pretty sophisticated and they were compliance-driven. By that point in time, we really just thought they deserve to have a bank account. Credit unions were formed to actually serve the underserved and the unbanked, so it was perfect for us to step in.
Today we've processed over $8 billion in cannabis-related funds, and we're estimating $4 billion alone in 2021.
Matthew: Look at that. You go. At a 10,000 foot level, where are we in cannabis banking today? We've got a lot of people that are not sure, a lot of people that are deep in the weeds and know all the pain points and a lot of people in between. Maybe you can give us just a very high-level overview of where we are right now.
Sundie: I would say the industry is in a pretty good place at this point in time. That's because it's getting competitive in the finance world. We're starting to see a lot more financial institutions actually move into this space. It's a two-edged sword. While the options are there, it also causes the situation where the competition is driving pricing, which is good for the industry, but it also brings in financial institutions who may not be prepared and start cutting corners, which means you may have that situation where they enter it. They don't have enough resources, and they exit the industry at the same time.
Pricing pressures and lowering costs for the cannabis clients is definitely a good thing, so I think that that is going to remain one of the factors that everybody is looking at this point in time. Then mainstream lending is starting to be a great option for real cannabis businesses without having to give up equity.
Matthew: Oh, great. What's the banking environment like for cannabis companies outside of Colorado, is it different?
Sundie: No. Actually, it's pretty much the same. It's getting standardized at this point in time. The regulators are more educated, but there's still discrepancies there. It's still a difficult situation to be in, but they could remain to be the roadblock in terms of cannabis banking moving throughout the country. FIs cannot manage the funds into the system plus regulate the product.
FinCEN was pretty clear on that, and the guidance said that you can rely on the state for that information, but regulators seem to be pushing a little further to say, you got to know all the regulations in all the states. If FinCEN says we can rely on the state, they regulate the product, we need to see the licenses, then we should be monitoring the financial system and protecting the financial system from illicit dollars entering. I still think it's all really good positioning for the industry to get more banking at this point in time.
Matthew: What is the SAFE Banking Act, and where are we on that?
Sundie: As we know, the SAFE Banking Act is through the House at this point in time and being considered in the Senate, but we know also that there are a lot of politics going on in DC, and it's not a top priority. It provides access to banking for the industry in short. It also eliminates the exclusion of financial institutions from the main systems, whether it be the Federal Reserve across the country, or even insurance, that type of thing.
They can't exclude us just because we bank cannabis. The SAFE Banking Act doesn't take all the risk out of banking. It takes the prosecution out of the bankers and officers so that they won't be prosecuted simply for banking the industry that is illegal at the federal level. That's important, but the real risk is BSA risk, and that doesn't change. That is monitored and enforced by FinCEN, and those are the fines that we really fear the most, and that is what causes the compliance work in terms of reporting.
The SAFE Banking Act will propel more financial institutions to enter the industry. May even open up major credit cards, but I even wonder if the major credit cards are going to be able to fight some of these closed-loop systems that have been put in place because they're coming in a little bit lower costs, and they've taken a foothold in some of the states. It might be a good, interesting thing to be watching in the next couple of years.
Matthew: We think closed-loop systems for people that aren't familiar, could you just give a little background on what that means?
Sundie: Sure. A lot of closed-loop systems were created whether they involve ACH payments or EFT type of payments, and they stay out of the mainstream, not using credit cards, not using different venues where it isn't fully approved, mostly in the credit card world, and go straight from consumer to the bank or the financial institution that will bank it. It's kind of closed outside the mainstream financial institution where it has to be at this point in time, but they are able to facilitate payments, and it was a really big deal during COVID when so many people had to--
The delivery systems were put in place and nobody wanted to carry cash all over town. These closed-loop systems made some really good progress during that time, and kept the safety factor high in order to still facilitate the transport of cannabis itself.
Matthew: You're in more of a compliance business than a banking business in some ways, what is compliance like for the average cannabis business, a grower, a retailer, or a processor? What is their lifelike from a compliance point of view?
Sundie: It still remains pretty intense with the greatest level of compliance happening during the onboarding stage. This is really important to know your customer, the KYC aspect. If we're charged as financial institutions to protect the financial system and not allow illicit dollars or illicit players to have access, it's important for us to know the clients coming in the door. It's a really good gatekeeping mechanism. This won't change.
There's still the requirements regardless of what happens with SAFE Banking Act. They're still going to be monitoring on a regular basis. There's still going to be validating and verifying funds that they're from legitimate businesses. Those aspects won't go away for a long time. Probably even not after that, because if you look at casinos and their banking relationships, they run into the same problem where there is black market activities that mar the reputation of the whole industry, whether they're involved in that or not, but banks and financial institutions always have to be watching out for those funds.
Matthew: Is there lending going on in the cannabis banking system now or not really?
Sundie: I think that COVID really helped move lending ahead and credit to the actual cannabis companies. I think this because so many other companies were struggling during COVID, and cannabis businesses were put in the forefront because they were essential. The cannabis industry really performed during that timeframe. We watched our own portfolio continue to grow and thrive, and once they made the adjustments to the shutdown or to curbside pick up or whatever it is, they really performed and continue to perform like a recession-resilient enterprise. I think that gave them a lot of credibility with lenders out there and access to capital but, the thing to remember is forfeiture and seizure is still an issue, and it remains illegal at the federal level, so there's still going to be a premium on the rates, but we're making our loans and commercial real estate at this point in time, between six, six and a half percent. I approved one this morning for six and a half percent on commercial real estate. It's still getting the attention it needs and moving across the country.
Some financial institutions want to move directly into lending and not do the depository relationship, but I would caution against that, because it's necessary to know the customer, know the money, and know the business, and you learn a lot about that in the depository relationship. We're also issuing line of credits to all of our clients in the next couple months so that they can have a little room in their income statement because cash in transit can be an issue if it's delayed in any way, shape or form.
Matthew: Some of these FinTech companies like Kabbage and Square, and they offer kind of like, since they've already KYC'ed their customers, they just say, "Hey, do you need an extra $5,000? Or some amount of money?" Because they look at their cash flow since all the money flows in and out of them to these businesses. Do you see that come into the cannabis business or cannabis industry, where you'll just be able to say, "Yes, I'd like $50,000 at 6% interest rate with a three-year term," and just say yes, and it's instantly approved, because you're seeing the cash go in and out, you have a sense of the cash flow?
Sundie: I don't see it becoming that easy for the industry. I think, though, you'll see it become more mainstream, like getting a normal commercial loan from a financial institution. Commercial loans have so many different facets and layers that they have to jump through so many hoops to get those loans. I believe that the financial institutions will play a bigger role.
The FinTech companies can facilitate operations, but they aren't a depository relationship, which means they are not always directly doing the lending themselves and rely on their financial institution relationship as well to get this job done. I think, though, that again, in the last seven years that we've been in the banking, FinTechs have really improved and really added to the cannabis industry and moving them forward. I really think that the time that it was illegal, and the launch of FinTechs into the cannabis industry provided a lot more services for the cannabis industry.
Matthew: You said that you approved a loan this morning for like around 6%. Is there like a 2% or 3% premium, because it's cannabis industry? You said it's a seizure risk so you have to get some additional yield the cover for that risk. If it was a non-cannabis business, would it be 3% or 4%? Or what would it be?
Sundie: It would definitely be a couple percentages lower. In this instance, again, go back to the fact that this is still illegal at the federal level. On a normal business or commercial loan, you would probably have to do an annual review once a year, on that company. With cannabis, you're still going to the BSA level in order to take the fear out of it, and you're doing a quarterly review on those loans, and making sure that everything is in order, and not major changes, and think about the speed at which this industry is growing and changing.
If you're always doing mergers and acquisitions, and then you're changing operating agreements, just to keep up with this continued emerging market itself requires additional monitoring. That's where you're getting that premium to do that BSA work.
Matthew: Do you have a lot of cannabis companies reaching out?
Sundie: We still do have a lot of cannabis companies. There was a period of time where we were stressing our balance sheet, and we were just growing organically with the clients we have. In the recent last year, we decided to increase, and we're taking on 15 new accounts per month and keeping them on the balance sheet in servicing them, so we have been fortunate to write off our reputation.
In this next phase, the company you're going to see us do a little more aggressive marketing and show ourselves to the industry, and be there for them, and expand the service base for them so that they have a pretty good one-stop shop for services.
Matthew: For potential clients that are listening either in Colorado or outside of Colorado, can you give a sense of what the due diligence is and the paperwork required for onboarding?
Sundie: Sure. For onboarding, again, one of the most important aspects of the entire relationship. If you were to compare it to what you've been through to get a commercial loan in your past, that's similar to what you're going to go through to onboard. Now, if you add cannabis to that, and the FinCEN guidance, it requires you to go into an enhanced due diligence mode, which means more, just more of this and more of that, more understanding of the business, more understanding of the funds that started that business, because again, we can't let illicit dollars get into the system.
Your startup funds become very important to us and the beneficial owners, and making sure that we understand those owners are not coming out of the black market. Add cannabis and alignment with the state that's required and licensing understanding, then you're going to go through, probably, 25% more intense onboarding than a commercial loan.
Matthew: Can you just talk about what kind of disclosure of beneficial owners means and why some clients might view that as a pain point?
Sundie: It is actually one of the bigger pain points in the industry when it comes to onboarding. It requires the disclosure of all owners, and this is a regulatory requirement at this point in time across the country for all commercial businesses to disclose. It's based upon a 25% ownership. Now, a lot of people don't want to be affiliated or known as part of the cannabis industry, but it's also to make sure that there's full disclosure and full transparency. When we talk about enhanced due diligence, financial institutions find themselves lowering that threshold.
Instead of 25%, they'll move it down to 10%, and some even 5%, because again, we are having to protect the financial system from ensuring no illicit dollars run into that financial system. To do that, we've got to know the owner sufficiently at an enhanced due diligence level. It's usually the last paperwork we get back because not everybody wants to disclose that, but it is one that cannot be bent as far as rules go. It has to be completed, and financial institutions don't have a choice.
Matthew: Gosh, it just sounds like oceans of paperwork here. If you could wave a magic wand and change one thing about cannabis banking in the industry in general, what would it be?
Sundie: I think it would have to be regulator oversight. Now that regulators are becoming more aware of cannabis and have educated themselves, the difference between what FDIC does or NCUA does or OCC does, they are not totally aligned, which means they're throwing different expectations on different financial institutions, which can hinder the expansion of banking.
That being said, though, regulators are responsible for their financial institutions and to make sure that they're fulfilling their obligations and meeting regulatory guidelines. It is open for interpretation. It's just a matter of how far they take it. The place where I see them taking it too far is that banks and credit unions need to not only monitor and manage the funds and protect the financial system, but you need to know the product.
I disagree with this, and it's impossible for a financial institution to go out there and understand and know everything that's happening with that product. It's the state's requirement to know the product and know the business as it pertains to cannabis. It's the financial institution's responsibility to know the money. That's their biggest responsibility here.
Matthew: We've talked about innovation a little bit, but there's a ton of innovation going on in FinTech and cryptocurrency, stablecoins, blockchain, in particular, stablecoins, which are cryptocurrencies that are pegged to an asset like a dollar or a euro or a yen. What do you see going on in the space? I know it's growing billions of dollars a month, but do you see anything going on there or what are your thoughts about it?
Sundie: I do see our cannabis companies moving into virtual currency. The stablecoins I see more on maybe state levels where the state is trying to do something, and we're involved in a couple of projects, but they're still in their infancy stage at this point in time so I can't say a lot, but stablecoins is really a no-brainer to me at this point in time if I can get involved in those projects and facilitate the transfer of funds, whether it be for taxes or movement of money or bill payment.
I think that that's a great opportunity for financial institutions. I know that when you say virtual currency or you say crypto, that it's a kiss of death with cannabis, but I believe the systems have caught up. I believe there are some really great companies who can help facilitate the use of virtual currency in the cannabis industry. One of those particular uses would be moving it on an international level.
The only issue we run into is the level of transparency and being able to track the money start to finish. If you're not in a stablecoin environment and a contained environment, we've got to be able to answer to that money moving into the system and moving out of the system, again, which makes it a little more complex for financial institutions.
Matthew: I understand the regulator's needs as you regulate it to make sure there's not a lot of failure, but can you really ensure there's no failure and when you try for that as a goal, then you end up suffocating and sucking all the oxygen out of the innovation. Where are we on that spectrum of over-regulation versus allowing innovation and competitiveness?
Sundie: Financial institutions have always been regulated and for good reason. You want your banker to be conservative with your money. You want the financial institutions to fulfill these regulatory guidelines. There is definitely a burden every time there's an issue within the consumer arena or a commercial arena. It goes back to the financial institution. It's like a mortgage loan. How many people really need all that paperwork, but we're still required to give it.
I think the FinTech model is going to help facilitate new channels for us to do things and work with FinTechs arm in arm to get the job done in a faster pace. The question is going to be, will regulators get more involved with FinTechs, which they will, they're already starting to, and will the financial institutions try to level the playing field between financial institution regulations and FinTech regulations?
If they're going to get access to the financial system, you're going to find that FinTechs will also be subject to a lot of the regulations that we are. It can slow it down, but it can also once again, if you're in a FinTech model, it can also provide more comfort and security to those using those FinTech solutions. It's good for the consumer, good for the business.
Matthew: A lot has changed since we talked a few years back. How do you think cannabis banking is going to evolve over the next three to five years?
Sundie: I think there is a rush to action at this point in time with, again, SAFE Banking Act pending, but I don't know if that's going to happen. Also, that there are enough financial institutions in the market, the rest are starting to follow, and not as slowly as it was. You saw all the legalization in the last couple of years and that legalization or even the discussions of legalization in the states is driving a lot more financial institutions to prepare for it rather than follow. We're seeing a lot of institutions who are shopping around, looking for solutions, how to get into it safe and sound. It's the learning curve those financial institutions need to remember.
What I think you're going to see are a series of entrance and a series of exits due to the regulatory oversight and the requirements and resources necessary to manage cannabis banking. Maybe it's the new sexy hot topic to get into cannabis banking. I don't know, but the fact of the matter is it is still very labor intensive. We still file a good thousand reports a month and that is labor intensive. That's the compliance burden that goes with it.
Matthew: A thousand reports a month? Okay. Let's pivot to some personal development questions here, Sundie, so people can get a sense of who you are personally. You're not this rigid formal banker after hours, you've got a personal life, let's talk about that. What is your favorite unhealthy comfort food, Sundie?
Sundie: [laughs] I have to laugh at this one. It's so very obvious to all my staff members. I have this little problem with Dairy Queen like five days a week and the amount of exercise I have to do to keep up with that bad habit. It's become my go-to pleasure for the year, but I am managing to keep up with it but how long can I do 75 minutes of exercise a day? Even my Dairy Queen knows me way too well.
Matthew: You're talking about are they Blizzards? Is that your thing?
Sundie: [laughs] Yes, the Chocolate Blizzards with peanut butter and cocoa fudge, oh yes. Now you're going to make me want one after this.
Matthew: I think it's a good reward for being on CannaInsider. I think you should treat yourself. I'm going to speak for the audience and I think they agree. Now, let's move on to another question. If you had to be in a totally different career field, just for fun, besides banking or cannabis, what would you do?
Sundie: True story here. I drove to Dairy Queen yesterday, and they have a hiring sign up there. If you ask my siblings, I kid you not, ask my siblings, the only thing I wanted to be growing up was an ice cream lady because there's so much fun and joy in ice cream. It's a family joke to this day. When I drove to Dairy Queen and saw the hiring sign, and the young fella in the window had my Blizzard and I said, "Tell me. If you work here, do you get a free Blizzard every day?"
Matthew: Oh my God.
Sundie: Really I did this. It's sad but maybe someday I'll have my ice cream shop.
Matthew: I think Dairy Queen needs to make a stablecoin and that you would buy that.
Last question here, Sundie. What was the last song that made you sing out loud?
Sundie: Music is a great motivator for me, and I actually make a playlist every year based upon what's going on in that year. Recently, in terms of trying to retire, not being able to retire again, and being so involved in this project, I've been singing along with Chris Stapleton, I got nobody to blame but me.
Matthew: Okay. Good. Sundie, thanks so much for coming on the show. We really appreciate it. Also, thanks for educating us. This is a complex topic, and everybody is always asking me about it so I'm glad you could come on and clear the air on what's going on. Thanks for coming on. How can people find out more about you and connect with you, and find out about how to bank with you?
Sundie: Sure. Thank you for having me as well. I really appreciate you going through all this with me, but if you go to shfinancial.org, so SH for safeharborfinancial.org, that's where you can get more information and inquiries, and we'll speak with you.
Matthew: Great. Good luck in the rest 2021, Sundie.
Sundie: Thank you.
Matthew: If you enjoyed the show today, please consider leaving us 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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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.
[00:29:20] [END OF AUDIO]
Some of California’s most sought-after cannabis flower also happens to come from one of the most sustainable companies in the US. Here to tell us about it and share a few of her secrets is Julia Jacobson of Aster Farms.
Learn more at https://www.asterfarms.com
[2:02] An inside look at Aster Farms, a sustainable cannabis brand based in northern California
[2:20] Julia’s background as an entrepreneur in the tech space and how she came to start Aster Farms
[3:40] Aster’s unique proprietary genetics and how they curate their popular line of flower
[7:49] The “5 phase approach” at Aster Farms and how this allows them to grow smaller, more high-quality batches
[11:29] The substantial damage Aster Farms suffered during the 2018 Mendocino Complex Fire and how the company successfully rebuilt themselves
[15:48] The pros and cons of being vertically integrated in the cannabis industry
[17:33] Why Aster Farms chooses more sustainable practices despite various challenges
[22:19] Why we’re seeing an upswing in craft cannabis brands across the US and where Julia sees this sector heading over the next few years
[25:08] The challenges in scaling a sustainable, small-batch cannabis company and how Aster Farms has gone about navigating this
[27:54] How Aster Farms differentiates themselves through unique branding and marketing
[29:58] Julia’s advice on how to build unbreakable brand loyalty
Matt: 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. Hi, CannaInsiders, just a quick note before today's interview gets started, that my colleague Sinead Green will be interviewing today's guest. Sinead is [crosstalk]--
Sinead: Hey, Matt.
Matt: Oh my god, you scared me. Sinead, I didn't realize you were in the sound booth.
Sinead: Sorry about that, Matt.
Matt: Well, Sinead, since you popped into the sound booth here, this is a great time to just say hello to all the listeners since I was talking about you.
Sinead: Sounds great. I'd love to. Hey, everybody. I'm Sinead Green and I've actually been working with Matt behind the scenes for a couple of years now,. I'm so excited to put on my hosting hat and really get a chance to engage with you and bring you some more great interviews. I just want to say if there's someone you'd like us to bring on the show, please feel free to email me your suggestions at firstname.lastname@example.org. I'd love to hear from you, and I really hope you enjoy these upcoming shows.
Matt: Gosh, I want to get a host hat, now that you mention it, I'm thinking of a huge purple velvet hat. What do you think about that?
Sinead: I think that would look great on you, Matt.
Matt: Okay. Really important, Sinead, we want you to do a good job, but not better than me. Does that sound fair?
Sinead: We'll see about that.
Matt: All right. Well, everybody, enjoyed this episode with the host Sinead.
Sinead: California's most sought-after cannabis flower also happens to come from one of the most sustainable companies in the US. Here to tell us about it and maybe share a few of her secrets, is Julia Jacobson of Aster Farms. Julia, welcome to CannaInsider.
Julia: Hi, thank you for having me.
Sinead: Give us a sense of geography where are you in the world right now?
Julia: Currently, I am in Oakland, California, but on any given day, I can be found pretty much anywhere all over the state.
Sinead: Great. What is Aster Farms on a high level?
Julia: We are a sustainable cannabis brand. We are based in California, sold all throughout the state, and we grow our own. We have a farm up in Northern California where we grow beautiful organic sustainable flower.
Sinead: Awesome. I know cannabis farming is a family tradition of yours so I'm really excited to get into that in a second here. Before we do, I wanted to ask you a little bit about your background. Can you share a little bit about yourself and what you were doing before Aster Farms?
Julia: Before Aster Farms, I began my career as a buyer in the retail industry. I was a buyer for Bloomingdale's for about four years and left there to start my first startup, my first entrepreneurial venture, which was a technology company that bridged the gap between retail and some of the online social media and influencing that was happening.
Sinead: Very cool. Julia, what would you say differentiates Aster Farms from other cannabis brands out there?
Julia: A few things. I think it all comes down to substance and transparency. We are third-generation growers with really historic legacy in the cannabis space, which I think we're going to go into in a minute. We care about those ethos being stewards of the earth, caring about our consumers. We're conscious consumers. For us, it's not just about organically growing sustainably, it's about caring about our community connecting and being more than just bud.
Sinead: Absolutely. The demand for Aster Farms flower in California is just amazing right now. Can you tell us a little bit about the strains you grow. How did you land on these particular strains, and what all goes into your growing process at Aster Farms?
Julia: We have a few strains that are our proprietary genetics that we've been growing for years and will continue to grow. Those are our core strains. Those include Shishkaberry, Sour Maui, Maui OG and we double with a rainbow chip in there as well. Beyond that, we really focus on what we call fruit-forward strains. We're not doing dessert strains, we're not chasing the most popular strain that's on the market today. We really focus on beautiful fruity aromas. We focus on strains that are much closer to the original landrace strains, so connecting back to that Maui Wowie that people remember from the past.
That's how we try to curate our selection. We're also really focused on what grows well. We're not going to just try to grow something just to grow it, it all matters on the climate and your region. We are growing strains that do well in our very particular climate and region. That means sourcing from nurseries that are local, and that means paying attention to where these genetics have been bred over time.
Sinead: Great. Getting back to your tech experience, I have read that at the end of your experience in the tech space, you were ready for something just totally new. You wanted to do a 180. If I'm not mistaken, your father-in-law has a history in cannabis farming. Is that what inspired you to start Aster Farms? Can you speak a little to what just sparked that passion for cannabis in the first place?
Julia: It was a few things all pointing in the same direction. It was pretty unavoidable that I think my husband and I were going to end up in cannabis. For me, personally, I had developed chronic migraines. I had been a recreational user, but with my chronic migraines, I was using prescription medications that weren't working. I was ending up in and out of the hospital on a regular basis. One of the times I was in the ER, the doctor said to me, "If you feel comfortable with cannabis, you should try it for your migraines." I had never thought before to light up a joint in the middle of [inaudible [00:06:14]. I did, I listened to the doctor and I tried it and it completely changed my life.
For me, that was the moment where everything changed in my relationship with cannabis and it became something that was part of my health and wellness and part of my ability to actually live my normal life again. For me, it was really important to be involved in this industry because it literally saved my life. It was easy to get into the industry on that emotional psychological taboo career level because it was in my husband's family. His grandfather, on his father's side, moved the family to Mendocino in the '60s, and they started growing organic cannabis on an off-the-grid sustainable ranch. His grandfather was actually the first person to go to prison for cultivating cannabis in old Mendocino.
Julia: This piece we haven't confirmed, but legend has it, his family along with the neighbors who were all growing together up on Signal Ridge brought the first indica seeds to California. There's a lot of deep history in my husband's side of the family when it comes to cannabis. Also in the ethos that we wanted to bring to this business of caring for the land, growing and sustainable organic regenerative practices, and caring about consumers as well. We wanted to make sure we were bringing that to our business today.
Sinead: Wow. That's amazing. You guys, you're like the Johnny Appleseed's of cannabis in California. That’s so cool - I had no idea. That's amazing. Going on that, like you said, it's a multi-generational farm, so you guys have had a while to really establish your approach and your practices at Aster Farms. Can you explain your five-phase approach that you guys have at Aster Farms?
Julia: Absolutely. This approach that we have is actually a more contemporary approach and is based on the technology that we have today and also based on a type of cannabis that, to my knowledge, has only been commercialized in very recent times and that's ruderalis. With growing outdoors, you have a very finite season, and typically, with full-term plants, you can only get one harvest for one growing. In order to have a more diverse cadence, to have fresh flower at different times of the year, but still to be able to get those complex terpene and cannabinoid profiles that come from growing in live soil, we have started integrating ruderalis.
Ruderalis, there's sativa, indica and ruderalis. Ruderalis is the third type of cannabis. Correct me if I'm wrong on any of these details, but my understanding is it originated from Siberia, and it is bred in that climate to not be photosensitive. Ruderalis is a type of cannabis that starts vegging and flowering basically at the same time as after it germinates. You're getting really small plants, but you're able to get through an entire cycle in approximately 80 days. What we're doing at the farm, is putting in one crop of ruderalis while we're popping our seeds for our full terms.
We are then harvesting that ruderalis as the full terms go into the ground to make sure that we don't have any surprise males pollinating our precious flower. Then, as we're taking our full terms out, or as they're starting to flower, we're typically putting in one more run of ruderalis. In addition to that, we have some light deprivation greenhouse, which allows us to continue having fresh product in what we would consider truly the off-cycle, so in those winter months, in that early springtime. Between two auto harvests or full terms and the light dep, we're able to really consistently supply our demand.
We do clone as well. Typically, when we're cloning our full terms, we're looking for strains that we were a little bit light on so that we're able to beef up the yield in that particular strain. Those are the five various ways that we are currently growing at our farm, all using living soil, all using the same ethos and as sustainable practices as we possibly can. These are techniques, back in the day, the family was growing just full terms. Being able to use light deprivation technology, being able to utilize ruderalis genetics that have become stabilized is really fortunate for us in the commercial world today.
Sinead: That's really fascinating. You guys are located in wine country so you couldn't really be in a better place. That said, you guys had quite an ordeal with the Mendocino Complex Fire a few years back. Can you tell us a little bit about that and how you guys recovered from that incident?
Julia: The Mendocino Complex Fire in 2018 started, or one of the two fires that made up that fire, the ranch fire, started approximately 5 miles down the road from us. My husband and I were actually on the farm that day packaging, and he stepped out to take a break and saw a big plume coming over the ridge. We were really fortunate to have time. A lot of people in these wildfires, especially as they continue to grow in terms of their scale and their speed, don't have time. We had two days to pack up and to figure out what we were going to do to fire prep.
Ultimately, there's nothing you can do when there's a plant in the ground still growing. Out of 600 plants, only 13 survived the fire, which is incredible that even 13 survived. We were really supported by the community, not just the actual neighbors and the direct community that we have, but also the cannabis community. TerraVesco donated us nutrients, some really great warm casings, and compost and whatnot, and a top hat nursery down in Salinas donated us clones. With the help of our team and our neighbors and our community and our friends and family, we were able to plant the probably latest full-term harvest that anybody's ever pulled off in history. [chuckles]
We've got some teams in the ground the second week of August, I believe, and we made it through. It's really scary to see how wildfires are progressing. The drought that we're in this year, we're already seeing signs that it's going to be a very dangerous wildfire season. We're doing everything we can at the farm to continue to make it as fire defensible as possible.
Sinead: Absolutely. After that fire, you guys actually started a giveback program called Harry's Harvest. I know there's a bit of a heartbreaking story behind that program, but I hear you might be bringing it back. Can you tell us a little bit about that program and the story behind it?
Julia: Yes. Harry was one of the farm cats. He was half bobcat, which made him extra special, but he also just loved hanging around people and hanging around us while we were working. When we were evacuating the farm, the most difficult part of all of it was not being able to find all of the farm animals and Harry was one of the animals that we had to evacuate without. When we came back to the property, he was not there. It's not confirmed that he passed in the fire, but to this day, we have not seen him. We named our giveback program after Harry.
We donated $1 of all proceeds of each pre-roll pack to local firefighters. The volunteer firefighters in each local community, they are the first responders on scene. They are the people who are leaving their own house while it may burn down to come save yours and they rely on donations. We supported two of the local firehouses that responded to the fire that affected our farm. We are planning to bring this program back in the future and to expand it beyond just fire relief and focus on all different kinds of organizations and things that matter to us as a company.
Sinead: That's amazing. I love how you guys have turned a real heartbreaking situation into something positive there. That's really cool. I look forward to seeing if you guys bring that back down the line. My next question for you, Julia, what are the pros and cons of being vertically integrated with outdoor cultivation in the cannabis industry right now?
Julia: It is really important. It is a very interesting nascent industry. In other industries, typically, you have really established suppliers for all the different pieces of the supply chain. In this industry, all of these really commercial licensed operations are brand new, and everybody's still figuring it out, everybody's searching for capital to be able to keep going, everybody's navigating licensing and regulations. It's really difficult right now in this nascent industry to be able to rely on third parties. That is whether it comes to buying wholesale flour as a brand and just white labeling. There's been unbelievable fluctuation both in pricing and quality in the market for various dynamics.
In terms of packaging, there have been outages of certain packaging on and off throughout the last few years, then when it comes to co-packaging as well. Co-packaging and processing is a really tough piece of the supply chain because it's a low margin piece of the supply chain, and very intensive. The technology isn't necessarily there in cannabis today to automate certain parts of these functions. By being vertically integrated, we are able to rely on ourselves. If we've learned anything in this industry, that's one of the most important things you can do because just because somebody might be a great operator doesn't mean they're going to be around tomorrow.
Sinead: Very cool. Cannabis right now, especially with indoor cannabis production, we're seeing a huge carbon footprint, it seems to be rising year after year. Tell us a little bit about your efforts in sustainability at Aster Farms. What sparked that passion for the environment and why would you say these practices are so crucial to the cannabis industry?
Julia: For us, it really came from just the life that we live ourselves. We're conscious consumers, we care about the environment, we care about transparency and knowing who these companies are that we spend our money on. That's how we make decisions in our own life. It's also how the family's been growing cannabis for over 50 years, caring about the environment, caring about the consumer who was going to consume it at the end. In terms of our sustainability report and the way that we've gone about our practice, we believe that it's our responsibility to do right by this earth, particularly when it comes to cannabis.
A lot of people don't realize that the illicit cannabis market, when it was in prohibition, was incredibly environmentally harmful. A lot of the grow operations were literally just popping up wherever they could divert from a spring. There was a lot of water diversion, there was a lot of pesticide use, a lot of chemicals that were entering into the watershed, even animal abuse going on. When we have the opportunity to start a commercial industry from scratch, I think it's all of our responsibility and all of our duty to do it in the most environmentally sound way and to right the wrongs of the historic cannabis industry.
Sinead: Absolutely. Julie, you guys have some numbers to your name that are very impressive. I wanted to dive into your sustainability report from last year a little bit. Can you share a little bit about that and what numbers you guys recorded from last year?
Julia: Yes, absolutely. We put out our sustainability report really to take a look at how we were doing and assess ourselves so that we can benchmark and try to improve as we continue to grow as an organization. We also wanted to spark a conversation with people and see if other companies will put transparency. Open up and be transparent about this. I think one of the most interesting things is the actual waste use. There are regulatory reasons and there are also supply chain reasons that make cannabis a wasteful agricultural product in ways that others are not.
A lot of that goes back to the Track-and-Trace program. Aster Farms, for example, this last year, we used between 30,000 and 50,000, what's called a metric track-and-trace tag. Those metric track-and-trace tags are required to be affixed to the actual plants, which means using a zip tie. Our company used cuts and disposed of in solid waste in the trash, not recyclable, about 50,000 zip ties in a single year. If you start thinking about all of the licensed operations across California, you're talking about millions and millions of these plastic RFID tags and these zip ties that are used once and disposed of, and can't be recycled.
Those were some of the areas that we were the most horrified because it doesn't need to be that way. [laughs] Beyond that, we really have to be watching this industry and how regulations are being formed in regards to pushing operations indoors and into greenhouses. If you look at a study that was done in Colorado, greenhouse and indoor cannabis has produced more greenhouse gas emissions than the coal mining industry in Colorado. I don't have the data to know if that includes illicit market or if that's just commercial licensed cannabis operations, but regardless, that's not acceptable.
We need to be really having a conversation about this and trying to dig into, if cannabis is going to be forced indoors because of the taboo, because of the climate, because of local regulatory reasons, then how do we do that in a way that is not putting more stress on our climate?
Sinead: That's a great point. Cool. Going off that, we are starting to see an upswing in craft brands like Aster Farms across the US, which is great to see, not only in terms of just the quality of the product but also from an environment standpoint. Why do you think we're seeing that shift, and where do you see that going over the next few years?
Julia: I think we're seeing that shift for a few reasons. One, price sensitivity. On the consumer level, now the consumers are having to pay for taxes all throughout the supply chain that add up, it's a lot more expensive to buy cannabis on the commercial market than it was from the black market. I think that because outdoor and greenhouse cannabis can be produced literally because of the electricity costs and because of the water costs, we're pulling from a natural aquifer through a well, as opposed to pulling from city-developed water.
All of those things make a difference in costs, and that gets actually translated up to what the consumer pays. I think cost is truly a factor. I also think education is a factor. People thought that indoor cannabis was "better" or more potent than outdoor cannabis because of the shelf appeal, because it's not knocked around by the wind and the rain and the creatures and all of the elements outdoors, the trichomes look ridiculous. [chuckles] The bud structure is able to be much more controlled. That doesn't necessarily mean that it's a better high or even that it's more potent than outdoor cannabis.
I think there's price sensitivity going on. I think there's a lot more education about all of the benefits, including full-spectrum wellness and medicinal benefits of outdoor cannabis. I think people are starting to understand more, even if they don't know what a terpene is, that there's more than just THC going on in terms of giving you the effect of your high. I think there are a lot of dynamics. I also think that we're coming out of prohibition and for as many outdoor farmers is there have always been growing in cannabis.
The only reason that cannabis is grown indoors is because of prohibition. Now that we are legally allowed to grow, people can choose the way that they want to do. Hopefully, people will continue to choose to grow outdoors. It's harder, but we believe that it produces a better flower that's better for you.
Sinead: Absolutely. Like you said, it seems like there are lots of advantages to smaller batch harvests and craft cannabis as a whole, but you mentioned it is a little bit more difficult than indoor cultivation. What would you say have been some challenges with outdoor cultivation at Aster Farms and scaling a craft cannabis company? What would you say has been tricky there and give us a little bit about how you've gone about navigating that.
Julia: A really good example of this is the difference between the first run that we ever did in our light deprivation greenhouse and every run thereafter. When we first put our light deprivation greenhouse set up, we were racing against time and didn't have time to properly get the beds fully built out and the soil amended and turned into live soil and whatnot. We grew our first round in pots. The way that most people grow cannabis. Every single plant turned out, not identical, but pretty close to it. They were all very uniform. They were the same height, they were the same color, they were distinct bud structure.
There was uniformity. That was because it was the same exact potting soil in a very controlled environment, in a very small pot. The moment that we created really robust, deep, beautiful beds and planted straight into those beds, we began to see variability. At Aster Farms, we embrace that. We grow a significant amount of our flower from seed, which means it has bigger, but it also has variability. We see it the same way as going to the farmer's market and choosing heirloom tomatoes. All of them are going to look crazy different.
They are going to have some weird spots and colors and bumps on them, but they're going to taste significantly better than a tomato grown in a hothouse greenhouse. The variability, if you think about an entire field of soil, it's really difficult to get all of that soil to act exactly the same. Frankly, we wouldn't want it to because that would mean that there wasn't its own living ecosystem functioning down there. For us, it is a constant battle of assessing this patch versus this patch, versus these 10,000 square feet and really assessing how our soil is doing, how it's operating, what that living ecosystem is doing from one 10 by 10 patch to another.
Sinead: Great. Julia, I wanted to switch to the branding side of Aster Farms. You guys have, I think, one of the coolest brands in cannabis. I've watched a lot of your videos, and I think your marketing as a whole, but especially your video marketing really evokes this love for the outdoors. I get almost a sense of brands like REI and Salomon from some of your videos. I wondered, how did you decide your angle there, and who do you feel like you are targeting with most of your marketing?
Julia: That's a great question. We built Aster Farms for people like us. We are conscious consumers who care about what we put in our body. We care about the companies we spend our money on, but we're not necessarily composting every single thing in our backyard. I still have an Amazon Prime account. [laughs] Similarly, we're active people. We love to hike, we love to be outdoors, we love to explore, but we're not running marathons, we're not extreme spheres. I think Aster Farms is for people who are wanting to engage with their environment, whether that means getting deep in thought on an intellectual level or whether that means going out and exploring the world or exploring other people.
We want to produce cannabis for people who want to connect. We're not the kind of cannabis for getting stoned and playing video games on your couch. We really want to evoke that sense of adventure. I think California is inherently a place that has that from the mountains to the ocean to beautiful fields in Redwood Forest. We would just want to encourage people to get out and connect with the world. That's who we are and that's what we care about. We're trying to get that across, and everything from our packaging design to our brand films, to our messaging.
Sinead: Great. What would you say over the next three to five years, how do you see branding in cannabis evolving? What would be your advice to listeners who are either in the throes of starting their own startup or they are thinking about getting into this space? What advice do you have for their branding?
Julia: I would say that authenticity is everything. We are officially at the point in the cannabis market where it's a mature market when it comes to brands now. Consumers are starting to have brand loyalty and there are big operators. Even though federal legalization hasn't happened, the big money is here. There's a lot of money and a lot of flour being thrown around with nothing genuine attached to it. It's just a name that came up with on a whiteboard that was slapped on some packaging and some flour was sourced. There's big money behind those types of brands. They're going to be on the shelf.
In order to compete, if you don't have hundreds of millions of dollars, you need to be telling a genuine story and your brand has to be authentic. I think that's what we're going to start to see over the next couple of years. At first, it was just, get me on the shelf, make sure the warning label is proper so that I don't get-- The BCC doesn't pull my product. Then people started caring a little bit more about messaging. Now, I think we're officially at that point in a mature market where authenticity is going to be picked up on and consumers are going to start to really understand the personas behind these brands.
Sinead: Absolutely. It sounds like a lot of these big brands that you're talking about, you have been reached out to over the past few years from a lot of big brands and you typically like to partner with smaller, more local brands in Northern California. Can you tell us a little bit about some of your partnerships and why you like to keep things local usually?
Julia: Yes. For us, it's really about continuing to maintain our ethos. That means both from where the product is sourced, the way that the product is produced and manufactured, and the types of people who are running the companies behind the collaborations we do. We see Aster as a very farm-to-table brand when it comes to caring about the ingredients and caring about the types of form factors that you're consuming. For that reason, I'm not going to say we will never do a vape, but we've been approached multiple times about doing vape pens and we're just not interested in it because it's not who we are.
It doesn't embody what we believe our experience with cannabis is what we want it to be. We have collaborated with a few edibles brands. We have worked with Rose Los Angeles who are incredible makers of what they term a Turkish Delight. It's very similar to a Turkish delight and I would say more delicious. We've done collaborations with them. We love that they work with world-renowned chefs to create really beautiful recipes using farm-fresh ingredients. There's a lot of synergy between the things that we care about and the thought and effort that goes into the actual ingredients.
We've partnered with Potli which is an amazing and I always forget the tagline that they use because I always feel bad when I say this, but they are the infused condiment brand. [chuckles] I think they call themselves a kitchen pantry brand. Everything from Serratia to honey to olive oil, they make it infused and they make it delicious. We partnered with one of Sam's other uncles who has an award-winning or organic olive oil farm also in Lake county. With Potli, we made an Aster cannabidiol infused olive oil. We're making that into a forever collaboration. It won't always be with cannabidiol olive oil because it's a very small operation there.
We are going to be doing an infused olive oil with Potli as a forever collaboration. We have one more collaboration coming up this summer, which I can't talk about yet. It will be cannabis that you can sip. I will just leave it at that. We're really excited about the brands that we've been partnering with and hope to continue to do so with really only the best who are aligned with our ethos and what we care about in our brand.
Sinead: That's great. We're going to have to keep an eye out for that beverage this summer. Julia, speaking of your collaborations, you guys are celebrating Pride 2021, collaborating with an artist who has designed your packaging for these specific pre-rolls of yours. Can you tell us a little bit about that collaboration and what this means to you both personally and as a cannabis brand?
Julia: Absolutely. We really feel that it's important to not only support the LGBTQ+ community through regular donations and support and our messaging and our inclusive hiring, but to literally put it on our packaging and to turn Aster Farms into a celebration of pride, if not all year around, at least for this month. We wanted to partner with an LGBTQ+ artist who had-- Again, it's all about having a similar ethos and allowing them to express what Aster Farms means to them in a re-imagined design. We worked with Ludi.
She is a really brilliant, beautiful, amazing artist who has done work for fantastic organizations that we support. She designed a really beautiful reimagination of the Aster Farms' mountainscape. We are donating 100% of the proceeds to an organization of her choice.
Sinead: Great. Julia, how can listeners participate? Where can they maybe find those pre-rolls? Is it just in LA or could they find them elsewhere?
Julia: You can find them at the Sweet Flower shops in LA and they can be found at the Liberty shops in San Francisco.
Sinead: Great. Julia, before we turn to some personal development questions, I did want to ask what goals do you have for Aster Farms over the next few years? What can we expect to see from you guys?
Julia: We are currently getting the wheels moving in terms of some MSO expansion. That's multi-state operations. We believe that California is where cannabis is meant to be grown, but we also want to be able to take our brand and take our ethos and let people all over the country experience the Aster Farms lifestyle. We are going to be popping up in some other states over the next few years. It's a long road to do so, but we are getting the wheels in motion today.
Sinead: Very cool. We'll have to keep an eye on that and maybe have you back on the podcast to do a follow-up when that happens, but definitely wish you the best of luck there.
Julia: Thank you.
Sinead: Okay, Julia, I did want to turn to some personal development questions before we wrap up here. The first one, is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Julia: I don't know if there's a single book. I was a comparative literature major in college, which meant I got really, really nerdy and way too analytical with all of my reading.
My specialty, I really love modernist literature. I think one of the most interesting things about modernist literature is being able to see people in their broken, disjointed, and convoluted inner minds and just realize that everything isn't as perfectly neat and tidy and tied up as sometimes people present themselves on the outside. I think there isn't necessarily an individual book but just understanding what modernist literature has taught me. I think as an entire body has been really helpful to my life and my sanity.
Sinead: That's awesome. Julia, next question. What is one thing going on in the industry that you think will have a big impact but might be a little bit underappreciated right now?
Julia: I think recently, another university was able to start moving forward with research. I think that people underestimate, in fact, I don't even think that most consumers know that there isn't federal funding for research to be done on cannabis. A lot of the conversations that we're having are grounded in research and scientific development that's happened outside of the normal realms of what we consider legitimate research. I think that that's one of the most important things that's happening today is we're creeping closer, one small step at a time, towards the proper research of cannabinoids, of cannabis, of THC, of how it interacts with other medications, how it helps with various ailments, diseases, how it interacts with our sleep.
There's so much to learn. I think it'll really help solidify cannabis's place in the medicinal world once we start having some of that research done in a way that is legitimized by the larger population.
Sinead: That's a great point. Cool. Julia, one last question before we close and it might be the toughest question in the interview. You're stranded on a desert island and can only bring three movies, which do you choose?
Julia: That's easy for me. L.A. Story is probably my favorite movie in the whole world. I'm a big Steve Martin fan, a child of '80s. Labyrinth was another childhood favorite of mine, which never gets old. It's just unbelievably fascinating to me. Last, I would go with the Big Lebowski.
Sinead: Oh man. [laughs]
Julia: I would say all three of those are really great stoner movies too.
Sinead: That's all great. Big Lebowski is a classic. [laughs] That's awesome. Okay, Julia. As we close, can you share with listeners how they can find you online and connect with you?
Julia: Absolutely. You can find us at asterfarms.com and you can also find us at @asterfarms on Instagram. If you go to our contact or DM us, we are always responding. Feel free to reach out and be in touch.
Sinead: Julia, thank you so much for coming on the show. We really appreciate it and we wish you the best of luck for the rest of 2021.
Julia: Thank you so much. I really appreciate being on here today. It was great speaking with you.
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