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Ep 287 – This Dose-Controlled Device Is Launching Cannabis Into the Wellness Arena

gunner winston dosist

While thousands of new cannabis products hit the market each year, most fail to create product-market fit due to a lack of differentiation or clear-cut benefits. 

Today’s guest is CEO of Dosist Gunner Winston, who has simplified cannabis consumption with targeted formulas and precise dosing to create a product that is catapulting cannabis into the wellness arena.

Learn more at https://dosist.com 

Key Takeaways:

  • Gunner’s background in cannabis and how he came to start Dosist
  • An inside look at Dosist and its mission to simplify cannabis consumption with innovative delivery devices
  • How taking the guesswork out of cannabis is attracting more people to the category
  • Variables that are important to luxury brand consumers
  • Customer reactions to Dosist’s new dose pen and dose dial
  • The thought process behind Dosist’s high-end yet minimalist retail environment
  • Why Gunner believes brick and mortar stores remain valuable in the age of online shopping 
  • Where Dosist is in the capital-raising process
  • How Gunner is planning to evolve Dosist in the coming years as consumer preferences change
Read Full Transcript

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 cannainsider.com. Now, here's your program.

Thousands of new cannabis products hit the market each year, but most fail to create product/market fit because they can't communicate the benefit or differentiation of the product to their prospective customers. Today's guest has simplified cannabis consumption and netted everything out to simplicity and clear benefits with his brand. I'm pleased to welcome Gunner Winston, CEO of dosist to the show. Gunner, welcome to "CannaInsider."

Gunner: Thanks for having me, Matthew.

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

Gunner: Right now, I'm at our global headquarters on the iconic Abbot Kinney Street in Venice, California.

Matthew: Okay. That's becoming, what do they call it, Silicon Beach now, that area?

Gunner: Close. That's in the area and I'm looking at the wonderful sun and pretty warm weather right now, so not a bad seat.

Matthew: Great. And what is dosist on a high level for people that aren't familiar? I know most people in California for sure are, but give us a little background on the brand.

Gunner: Yeah, sure. dosist is a leading global wellness company that is on a mission to empower people to naturally manage their health and happiness. We do this through, really, two primary ways. It's our award-winning devices and our target formulations. And so when we talk about formulations, unlike traditional cannabis companies that think around strain names oftentimes, OG Kush or Durban Poison, or a variety of different strain names, we focus on the need states to which people often use cannabis to help with. So we have six different formulations, bliss, calm, sleep, relief, arouse and passion. And we have two award-winning delivery devices in our dose pen and now the dose dial, which houses our dissolvable tablet.

Matthew: Okay. And Gunner, can you share a little bit about your background and journey and how you got into the cannabis space and became CEO?

Gunner: Sure, Matthew. So unlike a lot of people in leadership positions in cannabis, I actually did not have a history with cannabis before joining dosist. I spent my entire career, professional career investing as a professional investor. Right out of college, I worked at Morgan Stanley and investment banking and then went to work at a large hedge fund and then co-founded my own hedge fund in 2007 to 2014. I retired from that space in 2014 largely because, and you can't see me now. I have a scruffy beard that just really didn't work on Wall Street. But really, it was a chance for me to explore other opportunities.

And when I came across cannabis as an investor, personal investor in 2016, I was fascinated by the category, but really what motivated me about dosist's narrative and when I met them, the narrative was less around intoxication and recreation and was far more focused on science and innovation and a true narrative of wellness and how to use cannabis to help people as opposed to just getting stoned.

Matthew: Okay. That makes a lot of sense. And what do you think about the transition from New York City hedge fund and then to, you know, Silicon Beach area where you are now? What's the culture difference? How do you feel about it?

Gunner: Yeah, exactly. It would look very different if you can imagine, you know, besides the fact that I'm able to wear, you know, sneakers and jeans every day, you know, clearly the LA versus New York dynamic's different. Including just the emerging space in which we're operating in, be it wellness or cannabis or both, right? It's such a progressive industry or industries, right, when you're thinking about cannabis and wellness, that it's really a wonderful platform to explore and think about so many creative and innovative ways to address health and happiness. You know, I think the difference in sometimes for New York and finance in particular, it's more regimented, more structured. The expectations have been set.

One of the beauties of the cannabis space, including what dosist is doing, is we are changing many of the codes and stereotypes that have existed for decades as related to cannabis usage. And that's really exciting for me. And I think LA, honestly, and California broadly is at the forefront of so many changes in the world, particularly as it relates to wellness, whether it was yoga or the way you eat and healthy diets. A lot of it starts out here so it's really exciting to have, having had launched this brand, dosist, in California

Matthew: At a high level, do you see the cannabis market as a whole... When you look at it, the flower will always be there, but people seem to be reaching for more innovative solutions and, as you talked about, kind of dialing in specific benefits, like you're kind of pairing a solution to a perceived problem, you know, with bliss or passion. How do you think the market as a whole is kind of moving and where do you see it kind of going around the corner next?

Gunner: Yeah, I think when people have historically talked about cannabis, it was from such a myopic view, right? It was someone in often a, you know, two guys sitting on a couch, I often say, eating Doritos, watching "Wayne's World," and particularly high, right? And what we've realized, and other brands, is that there is a world of people out there who are either scared of cannabis, who are against cannabis usage, but at the same time are either taking prescription pills or drinking heavily and don't even really understand why they don't like cannabis. And there are a variety of reasons, as we've explored it, for that. Some that you just can't fight, right? The government, the broader society, not just in the US, but globally has demonized cannabis usage, has associated obviously cannabis usage with a lack of productivity when we obviously know and most people who are fans of the cannabis plant understand that it can be uplifting and empowering.

The challenge sometimes is around the delivery mechanisms. So not just seeing a flower, which unfortunately has been connected to all of the ills of cannabis usage. And I'm not saying appropriately, but those are the facts, to also the ability to control that product. So someone gives you a bong or a joint. For most new consumers, it's extremely intimidating. And so what dosist has brought to the category really is science innovation. And part of that is taking the guesswork out of the cannabis, out of cannabis usage. So by that, I mean if someone passes you a joint, Matthew, the first question normally is where did it come from, what's in it and how much do I take? And so what we have worked on is we do know most people are coming to cannabis, whether they're high potency users or a new user for a reason, or they might wanna feel blissful, they might wanna deal with anxiety, they might wanna deal with sleep issues or pain issues.

The challenge when you have flower is creating that repeatability of the experience. As we think about a brand, a brand has to mean something and there's the repetition of that narrative. And so when you go to...when you go to New York and get a, you know, a Big Mac, it's normally gonna be the same as when you go to California and the same, whether it's Corona beer or whatever traditional consumer product, consumable product. The challenge with flower, as you know, is the growing conditions can be very challenging even when it's in the same location.

So what we've brought to the table using our formulations, so targeted formulas that are using different cannabinoids and botanical terpenes as well as our delivery devices where we've taken the guesswork out of the usage because we deliver the same amount every single time. It's allowing people to explore the category who maybe would have never considered cannabis before. And then we add a lot of design to that, right? So our devices are obviously medically forward in their presentation, and we're using medical grade materials, obviously have been gone with white products to connote sort of a more medical sense. All of these things help bring people into the category and make it a little less taboo.

Matthew: Okay. When people compare commodities, they usually compare by price. With a luxury brand, price is always there, but it's not as important. You know, you mentioned a little bit about consistency with a brand, but is there anything other than price and consistency that are variables that are important to luxury brand shoppers?

Gunner: Yeah. And I think, you know, Matthew, when we think about representing dosist, we actually eschew the word "luxury" and favor more "aspirational" because "luxury" immediately connotates separating a certain segment of the market, right? Saying you're only gonna appeal to people who have a certain amount of money. You know, we have a variety of different products at different price points. We do sell a premium product, but premium doesn't just mean price. Premium is the experience. Premium is the innovation. Premium is the experience outside of just the product, right? It can be in, you know, whether it's a shopping shop that we might create in a store, whether it's creating our own stores. My only point to you is when I think about the greatest brands, you know, from Nike to Apple to Starbucks, think about consumer brands, innovation is often at the forefront of what they do. Just the way you stay ahead to ensure that pricing isn't the only way that you can beat. Because to your point, when I think about a commodity, the essence of a commodity is it's somewhat fungible, right? It moves around, people are not purchasing it for any other reason than that it's the cheapest. Whereas we think about investing in the brand and investing in innovation, so quality becomes important, right?

Ensuring that, whether it's our dose control pen or a dose style, that we're representing the product appropriately. We explain to people what's in it, what's not in it. So safety is one component. Broader innovation, right? Making sure we don't stand still. Our dose pen, which has won many awards, came out in 2016. We have our next generation of dose pens coming out in Q1 of this year, sorry, 2020, but we also have other dose control products because we have to innovate and stay ahead. So my only point is when I look and really compartmentalize what separates a commodity from a brand, it's really that investment in the brand and that investment has to be around innovation and experiences and safety and trust.

Matthew: Yeah. Now one of the problems you're solving with dosist is obviously the dosing piece. This is nontrivial and keeps many potential new customers away. In fact, I have a lot of people I know that it keeps them away. And existing cannabis consumers that accidentally overconsumed, you know, they kind of shy away, too, because they had a bad experience. What's the reaction you get from people that are kind of in the, the kind of cannabis-shy or had a bad experience and you give them the dosist pen, what's kind of the initial reaction? What do they come back to you and say consistently?

Gunner: I think the key word and reaction I get is one of empowerment that they now know that cannabis isn't maybe as dangerous as people have referenced, right? It was always the common assumption that if you try cannabis, you're gonna become a stoner. If you try cannabis, it's gonna be a gateway as opposed to how to make cannabis part of your life to elevate you, right? So we look at our brand very much as a performance brand. When you sleep better, you perform better. When you have less anxiety, you perform better. When you're able to find calm or bliss, you perform better. When you're able to mitigate your pain, you perform better.

And so to your point, when people use our products, they first realize that, "Wow, using THC is not always going to get me overly intoxicated," right? We know there are the explicit elements of intoxication that come from THC, but when you dose control it, right, combined with having the same repeatable formulations every single time, you're able to step into a brand and not have the unanticipated outcomes that often came with cannabis usage. So that's really important and it's been really, I think, changed people's expectations of cannabis products and we're really happy to be a part of that.

Matthew: Curious, which of the pens sell the best?

Gunner: Sure. So of our six formulations, bliss and calm are our bestsellers in California. And part of that reason is really because I think, one, bliss is the more THC-forward product. It's one of our, we had the core four originally, which was bliss, calm, sleep, and relief. passion, arouse came out a little after. And then calm is our more CBD-forward product. So between those two, I think you really have a healthy mix of some people looking for a little less THC, right? Which you can get in our calm product, which is heavily skewed to CBD, a 10 to 1 CBD to THC ratio, and our bliss, which is an 8 to 1 THC to CBD ratio kind of gives you, as we say, the right amount of good.

Matthew: Right. Right. I haven't been in your retail stores yet, but from what I see, they look really polished, minimalist, high-end or aspirational.

Gunner: Thank you.

Matthew: What's the thought process when creating a retail environment?

Gunner: Yeah, for us, Matthew, it was really less about economics and it was more about three things. It was, number one, to inspire, right? We wanna have a brand, if you're gonna be aspirational, you have to have people inspired by your brand. We wanna make sure that we educate. So the challenge of any brand is you walk into a wholesale channel, are they gonna represent you correctly? Right? If you throw us in the backhand corner near the bathroom on the third bottom shelf, right, you're not gonna see us. You're not gonna understand what dosist is about. And the last is to engage. By that, I mean we have really, really wonderful guides. Those are our sales associates in our stores who aren't paid on commission. And their job is to engage you and if you choose to purchase that day, it's your choice.

Most importantly, we want you to leave having had a good experience because if you tell 10 people about having a wonderful dosist wellness experience, which is what we call our stores, that's more valuable oftentimes than you buying one or two products from us that day. And so really, those are the three fundamental elements of our stores. So everything you see should feel like the visual representation of our brand and our products, right? Our store, our products are very, as you said, polished, minimalist, and aspirational, and so is our store. But those hallmarks that I just referenced are what are key to us when you engage with us.

Matthew: Okay. So, dosist came on my radar because I've heard you were doing so well on the LeafLink platform, that is, a lot of the retail dispensaries were, you know, want your product. So if one reaches out to you, it's not just like, "Hey, I wanna sell dosist pens." They have to show, like, a willingness to have it in a, kind of a certain position in the retail environment?

Gunner: Yes. So when started, I took over the company in May 2017 as CEO. The company launched September 2016. And when I came in, we were in 250 stores in California. Within two months, after surveying the landscape, visiting a large portion of our stores, we cut 40% of the store base from 250 stores to about 150 stores within two months because we wanted to make sure, and this is important for any brand, you properly align your brand positioning and presence with the ultimate retail experience.

And so I always say there's a reason Chanel doesn't sell in Macy's and Kohl's. It's because they're going to demolish the integrity of the Chanel brand, whether it's price discounts, whether it's not putting them in good visual merchandising locations, whether it's having, you know, inappropriate education on the products. And so all those things we look at in a similar light for dosist.

And so when you go into an account and it's only focused on potency and getting people really high, you might not be a fan of dosist and we're okay with that. But when we do partner with you, we truly partner, you know, and what we ask for is prominent visual merchandising so we can educate appropriately on what we're doing and then being able to educate the sales associates because we do sell a premium product that is often or sometimes more expensive than other products because we're investing so much in our quality and our safety that we need someone to be able to explain why you might want to pay more for something and all the things that we're doing to protect the consumers.

So my point is when we get those two things, Matthew, we then work really hard with them to help drive people to those stores, so between co-marketing and education outside of the four walls to help them drive in. But you're right. We very much curate the number of stores we're selling into really so we can find alignment. I'd happily sell in 300 stores in California. We just haven't found 300 good partners.

Matthew: Okay. Gunner, I have this feeling with the ease of online delivery of cannabis products that retail experience is really going to have to be so special, tactile and visually stunning. Otherwise, well, people will just eventually order everything from their phone. Do you feel like that's where we're going, and how do you deal with that?

Gunner: Yeah, I think to your initial comment about the direction of where the cannabis industry might go, I think it's somewhat analogous to where retail in general is going, right? If you don't have a credible experience, to your point, retail is very challenging. That's happening across the board from obviously book sales to purchasing luggage to wherever else, right? The convenience is key. But that being said, right, even digitally-native brands are realizing that retail is still a very viable methodology of reaching consumers, of educating consumers, and e-commerce on its own is not the end-all, be-all.

With that being said, I think the keys for me are going to always be location, right, for retail, and then, to your point, experience. And I think the retailers that are winning are combining those two, making sure you're in well-trafficked areas and simultaneously offering the consumers a reason to drive often in traffic, get out of their car, find parking, pay for, you know, maybe a meter and then go into your store. So I think it's gonna continue to force retailers to get better. We certainly understand that. You know, we look at where a lot of our consumers are going, they don't wanna be inconvenienced. And I think as this industry evolves like every other industry for consumer products, you're right, it's gonna put more pressure on retailers to continue to elevate that and not take for granted that the consumer has choices.

So for us, you know, we continue to look at reaching our consumer as the ultimate decision making point. But the challenge of online is education, right? When you have the online experience, the piece that is difficult to bridge from the store to online is how do I communicate with a new or existing consumer, right? So if you know you already like dosist, well, it's no problem to reorder, but what happens when we bring out new products, right? And there's education around that. And certainly for the new consumer, I think we have still years and maybe decades of introduction to the category where retail really can be fundamental to cushioning someone's introduction to cannabis.

Matthew: Yeah, it's good points there. You know, you mentioned that, you know, adding new products. How do you decide which products to greenlight? Is that based on feedback from existing customers? Because sometimes customers say they want something and then they, it's different than what they said. And, you know, sometimes they wanna be surprised or they want something totally new or they have higher expectations of your brand and they don't want a "me too" product. Like for example, I think of like Apple's new, you know, TV, it's like people that have Apple products like it, but they weren't necessarily looking for, like, Netflix from Apple. They wanted something that's, like, exceeds their expectations. So how do you look at which projects to greenlight?

Gunner: Yeah, perfect. I think that's a great question. And for us, Matthew, it starts with our mission. Our mission is to empower people to naturally manage their health and happiness. Now, we first have done that through cannabinoids, right? THC, CBD and other cannabinoids. We first did that through our dose pen, our award-winning dosing device. What's important, though, as we think about future innovation is, number one, you have to innovate to continue to stay relevant, especially in a competitive category. I always say, could you imagine if Nike only had their 1975 Nikes today and never came out with Nike Airs? If Apple only had the iPhone 1, I think they're on the iPhone 11 now. My point is innovation is so fundamental to any developing business because once you find success, people try to find ways to knock you off. And the best solution to competition is to have someone chase a moving target.

But what's just important in this space is also knowing what you shouldn't do. So if our brand is to empower people to naturally manage their health and happiness, and we do that through two main verticals of targeted formulations and dose control products, what don't we do is where we often start. So we don't do flour and we don't do pre-roll because the repeatability of those products is really challenging combined with having a wellness narrative, right? When people are taking either, you know, bong hits or smoking a joint, we have no problem with that, but it's really hard to stick to our brand ethos.

And then you focus on what can you do. And so long as it fits sort of the two parameters of targeted formulations and dose control, we'll consider it. So, an edible, certainly dose controlled. Can we do targeted formulations? Those are decisions we make. A topical, you know, potentially a spray, things like that, Matthew, come into the equation and then it's about, can dosist offer the consumer something that doesn't exist today? So it took us 18 months to bring out our second product, which is the dose dial, the dose dial is the first certified child-resistant packaging or, rather, device for our dissolvable tablet, a 3.7 milligram, low-dose dissolvable tablet. And the reason it took so long is because we were trying to do something different than another mint or a gummy that's in an Altoids-type container.

When we think about the fundamental challenge for the edible category, it's whether it's your kids or adults taking a product that they didn't know was THC-infused. And so anyway, my point of all that is as we think about innovation, it has to fit our guardrails of precise dose formulation. And then we have to bring something different to the category. If we can't, we tend to just pass.

Matthew: That makes sense. Can I tell you my wishlist for dosist?

Gunner: Please, please.

Matthew: You know how there's these glucose monitors now that monitor blood sugar. I would love to have something like a smart patch and then something that integrates with my phone or like an Apple Watch that I can...it monitors, you know, my blood and I can kind of give, like nudge it where how I'm feeling a little bit. And then it says, "Okay, based on your, you know, your heartbeat and your blood and all these different variables, you know, this is what your smart patch can do." Like, it gives me 10% more calm or 10% more bliss. I mean, that's a little bit...that would require some R&D, but, and I don't know if people are gonna want that...

Gunner: No, fascinating.

Matthew: ...but I would love something like that.

Gunner: I think, Matthew, that's a great challenge for us.

Matthew: Yeah. Well, cool. Well, tell me, Gunner, where are you in the capital-raising process right now with dosist?

Gunner: Yeah, so we launched, as I said before, in September 2016. The capital-raising process, which was before me, started at sort of inception of the business in late 2015 and '16. And so we've had several different capital raises to this point in time. We don't disclose the exact amount, but for us, you know, we've tended to be pretty private as it relates to capital-raising because you see a lot of times companies have these splashy headlines when they raise money. When you get to see one from us, you know, the key for us is continuing to raise the right amount of money that allows us to fund the business on its path to growth and also becoming self-funding, which is a key dynamic in this business or any business, right, is how do you transition to be dependent on outside funding to funding yourself. And that's a journey that we're obviously on as well as we look to move into a lot of new categories and new geographies. But what I can tell you is we fully balance the opportunity, which is big, versus the need to be financial responsible along the way.

Matthew: Okay. If there's accredited investors listening that are interested in investing, is that an opportunity or no?

Gunner: You know, I think, for us, we've been very fortunate to have a fairly dynamic group of investors where we haven't had to do a lot of outside fundraising. But, you know, I think, as always, you're always looking for the right investors, Matthew. It's less to me about money or the absolute number of investors. It's about finding people who understand the vision and simultaneously understand what we're trying to build, which takes time. And so to your point, I think for anyone, you know, once again, they can reach out to us on our website or through customer service. If there's always an interest, we're always looking for, more so than the exact amount of money or the pedigree of the person. It's finding the person who understands the vision of where we're going.

Matthew: Okay. So if you're going to identify yourself as an accredited investor, say why you think you're a good fit beyond just money.

Gunner: Sure.

Matthew: Okay. Okay. And I wanna ask a couple personal development questions, Gunner. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Gunner: Oh, good question. So there are a couple but one sticks out to me that I read maybe 10-plus years ago. It was called, "Pour Your Heart Into It." It was written by Howard Schultz, the former CEO and chairman of Starbucks. And what was fascinating, it was less of a business book and more along the lines of the title about finding things in life that you're passionate about. And when you find passion and match your skillset with that particular endeavor, you're really positioned for success. And for me, like I'm a complete passion guy. Like people have asked me in the past about my ability to disconnect and everyone who kind of works with me knows that I'm normally always on, like anything that I see. If I see sort of a off-white image on a street and I might reach out to our CMO and go, "Hey, have we thought about, you know, changing the color of our pens to off-white?"

I'm making this up completely, but I just live in the world of what I'm doing at the time and, which is the reason I didn't work formally for three years. So I think that book is a reminder to me of, you know, you'll be most successful when you do things where you really do wanna pour your heart into it. And then the challenge for each individual is managing obviously what's going on in their life outside of work and their stress with that ambition. But I do think for me, "Pour Your Heart Into It" is fundamental to everything I do. Whether it's being a dad, whether it's working, whether it's being a husband, I think those are just really life lessons that extend beyond business.

Matthew: Oh, that's a great suggestion. I haven't heard that one yet. So what would you say is the most interesting thing going on in your field besides what you're doing at dosist?

Gunner: Yeah, sure. I think, you know, for me, what's fascinating about the field is as we, the industry develops from an illicit market to one that's heavily regulated, are all of the elements that go into creating not just a large and regulated business, but one that's sustainable. And the ability for businesses to develop and thrive, you know, so overregulation can stymie that, too little can lead to a lack of distrust from consumers and people outside of the space. And so for me, what I find continually fascinating is that unlike, or it's actually similar to most other spaces, you're going to have to invest in your quality and safety, especially as you have an ingestible product. Because irrespective of where the regulatory environment is, the best brands that I have come across particularly for consumable products are ones where consumers trust them, right? They trust that they're gonna adhere to standards that are oftentimes higher than what's required by the industry, right?

And as I look at what's going on, you have this sort of jigsaw puzzle of regulations that exist at the state level because of the lack of federal infrastructure. And to me, it's fascinating to see us developing as an industry, but simultaneously realizing that if you don't adhere to dynamic and appropriate regulation, one group of people is gonna lose and that's the consumer.

Matthew: Great points. Great points. What is one thought you have that most people would disagree with you on? That's a Peter Thiel question.

Gunner: You know, the biggest pushback I've had initially, and maybe a little less so now, has been my viewpoint on when you have a big space, most people view it as it's a gold rush and you almost treat it like real estate where you have to grab as much land as quickly as possible. We at dosist have taken a very, very divergent path is we recognize the opportunity.

We said this is not a land rush or a gold rush. It's a rush to get good. And so oftentimes, as you know, spreading yourself too thin is the enemy of getting good, right? It's the ability to kind of spread yourself out and hope someone buys you. And instead, dosist has treated this as if we're never going to sell. We've treated this as we're trying to create a forever brand and we invest far above where regulations are today and far above what our actual business can fully support because we're trying to build a brand that answers to one group of people and that is the consumer. And so that's been the challenge initially. I think people are now seeing scaling this space is really, really hard. And while people got out of the gates very quickly in this space, they're having to retrench now or they're going out of business. And so that has really been the biggest dynamic is big opportunity doesn't always mean rushing. You can't go slowly, but you have to service the customer first before you serve as anyone else.

Matthew: That's excellent strategy and it's obviously served you well.

Gunner: Thank you.

Matthew: Gunner, as we close, just a few questions to help listeners. Where are dosist products available right now if...for listeners that want to try one?

Gunner: Yeah. So right now we're available throughout the entire state of California. We're available in Nevada and Florida.

Matthew: Okay. And what states are...do you see yourself expanding to next that we should keep that a lookout for?

Gunner: This is really an exciting part of our journey. As I said before, we've really taken three years and a very pragmatic and measured approach to growth, but simultaneously looking at our long-term vision of becoming a global aspirational brand. And we've really put the infrastructure in place to now scale pretty aggressively.

We launch in Canada in six days, the first legalized international market for dosist. That's quite exciting. We'll be represented throughout the country in a fairly prominent way. Also in the first quarter, we'll be launching in Colorado and Arizona and targeting Michigan for the first half of 2020. So it's really exciting for us because we do believe through all these different geographies, we're learning how to scale and that most of these markets, unfortunately and fortunately, are like their own little countries. But as we're learning how to do them, the ability to scale is getting a little bit easier as we go forward.

Matthew: Sure. Well, Gunner, please give out your website so listeners can find you.

Gunner: Yeah, so www.dosist.com. And if anyone wants to get in touch, just click "Contact Us" in our bottom navigation of dosist.com and you can speak with us or email us.

Matthew: Great. Gunner, thanks so much for coming on the show. This has really been fun and you guys are really crushing it, so well done. Kudos to you.

Gunner: Thanks for the great questions, Matthew. I appreciate you having me.

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 on feedback at cannainsider.com. We'd love to hear from you. Please do not take any information from "CannaInsider" or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

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Ep 286 – Cannabis Trends To Watch in California Regulation from a Sacramento Insider

khurshid khoja greenbridge

California is arguably the cannabis industry’s most impactful market with more and more developments taking place each month.

Here to tell us about it is Khurshid Khoja, a business attorney constantly interfacing with Sacramento regulators and politicians to help his clients see what’s just around the corner. 

Learn more at http://www.greenbridgelaw.com 

Key Takeaways:

  • Khurshid’s background in business law and how he came to start Greenbridge Corporate Counsel
  • How the California cannabis market is coping with high taxes and restrictive regulations 
  • The biggest obstacles the cannabis industry faced in 2019 and those to come in 2020
  • The Interstate Commerce Clause and how it’s affecting the cannabis market
  • How Oregon passed SB 582 and the doors it opens for licensed businesses in-state 
  • Exciting new developments Khurshid foresees taking place in 2020 as well as areas to practice caution
  • Whether or not Sacramento politicians can remedy the budget deficit and debt situation in California
  • Khurshid’s advice to those looking to enter the California cannabis market
Read Full Transcript

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 cannaninsider.com. That's cannainsider.com. Now, here's your program.

California is arguably the cannabis industry's most important and impactful market both in terms of cultural impact and innovation. Today's guest is an attorney interfacing constantly with Sacramento regulators and politicians to help his clients to see what is just around the corner. I am pleased to welcome back Khurshid Khoja back to the show. Khurshid, welcome back to CannaInsider.

Khurshid: Thanks for having me back, Matt.

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

Khurshid: Well, I'm often on the road, but today I'm pleased to say that I'm in my home office in what's usually sunny Sacramento and we're getting some much needed rain today in the Capitol.

Matthew: Okay. It's been several years since you've been on the show to help new listeners. Can you share a bit about your firm and your practice areas and what you do day-to-day?

Khurshid: Sure. So I'm the founder of Greenbridge Corporate Counsel. We're a business law firm representing license plant touching and ancillary businesses in multiple jurisdictions, including California, Oregon, Washington, Hawaii, and Canada. We serve businesses from startup phase all the way through advanced operations. So we represent some multi-state operators and publicly listed companies with international operations as well. You know, I think when we last spoke, we were still fairly small. You know, we've grown from 3 attorneys to a team of 21 lawyers now, and we serve clients on a broad range of business law matters, including licensing, regulatory, corporate finance, mergers and acquisitions, intellectual property, tax, and real estate matters.

Matthew: Okay. And I think, what, Southwest has a direct flight from Sacramento to Hawaii now. Is that right?

Khurshid: It does. I have not been able to take advantage of that boondoggle yet. As one of my colleagues workshops in Hawaii work, but, you know, I'm looking for an excuse.

Matthew: Yeah. Geez. You're slacking in your obligations here, Khurshid. Okay. So add a 10,000-foot level, where is the California cannabis market right now?

Khurshid: Sure. So I would say that we're still experiencing a lot of growing pains. The market is still burdened with regulations that are hard for some operators to comply with, even with the best of intentions. You know, not everything is spelled out in the regulatory regime yet. It's still new. There are still unanswered questions and the regulators themselves are overworked, understaffed, and unable to respond in a timely manner to all of the ambiguity that continues to remain out there. And, you know, that adds up to significant costs for the operators who are in the market now and hampers a lot of forward progress.

So, you know, there are dozens and dozens of different ownership transitions that have been filed with the various regulators to, you know, essentially authorize mergers, different mergers, acquisitions of companies where new owners are being added to the roster of legacy owners and trying to consolidate operations and grow market share. And that's all very difficult to do when the regulators cannot respond in a timely manner to a lot of the filings that have to be made in connection with those types of transactions.

So there's that, which seems to be kind of a drag on the market and its development. There's also the high tax burden. Taxes are slated to actually go up at the beginning of 2020. And so there's a lot of consternation justly so around that issue. Given how difficult and costly it is to operate in this market, the tax burden isn't helping things. And we're getting perhaps further away from the goal of ending the illicit market.

Matthew: Yeah. The illicit market's kind of interesting there because there's such a huge amount of cannabis that's coming through, I guess, from the Emerald Triangle, is that Mendocino, Humboldt, and Trinity counties in Northern California. There's just so much coming out of there and probably other places in California too. It's like if you're somebody that's like, "Hey, I can buy this from, you know, a local farmer and it's half the cost and, you know, come by my house," or, you know, whatever, it's like, "Why wouldn't I do that?" It's like, I know where this guy's farm is. It's, you know, sun-grown a mile away from me. Do I want to like go through all this headache and hassle and pay twice as much? And that's a legitimate issue because the regulations and the taxes and everything, just, there's no way to compete on price, the overhead. So, I mean, is that message resonating, do you think, though, in Sacramento?

Khurshid: I think so. And I think, you know, what actually also helps is the current public health scare over vapes, right? I mean, a lot of problems there are emanating squarely from the illicit and unregulated markets, right? Illicit markets for cannabis and unregulated markets for things like e-nicotine, nicotine e-juice rather, and even CBD vapes as well. So, you know, I think that that is helping legislators and decision makers to understand the value of the regulated market and why we need to, you know, we need to be deadly serious about stamping out the illicit market not only to assure the success of our licensed operators who are following the rules and paying their taxes, but also, you know, to protect the public health.

Matthew: Yeah. For sure. Yeah. The vaping crisis is kind of a tough one because it's like, if all these regulations come in, that kind of makes it so that only big players can afford and raise capital to, you know, be in the business, in the vaping business. And he would say, ''Well, I want those things. I want, you know, all those things.'' But perhaps, you know, couldn't we just have more stringent lab testing and that would allow for smaller players, so it doesn't all get consolidated? I think about these things a lot because I know people in the industry and in California and they're like, you know, "Is this all gonna go to a few huge players that can afford, you know, 10 or $20 million to, you know, check all these boxes?" I mean, what do you think about that?

Khurshid: I think that's a valid concern. You know, I think the more regulations you layer on, the more expensive you make compliance, the harder it is for less well-capitalized players to continue to compete. And especially when they have to still deal with 280E and with the lack of banking access, you know, it's very hard to raise capital in the cannabis industry. And, you know, I'm concerned for small mom and pop operators, minority-owned businesses who don't have access to those avenues for private equity. You know, are they gonna be able to do a subsist and survive? I'm not so sure.

So, you know, yes, it's burdensome, but at the same time, you know, we do have to balance the fact that there are legitimate public health concerns that we need to address including lab testing as you mentioned. So, you know, a while I think, yes, it's always burdened some and always hurts the smaller operators to have a heavy regulatory burden, sometimes it's also necessary, right? So we have to strike the right balance there.

Matthew: Yeah. Khurshid, what questions do you get asked the most from your clients and potential clients and just people in the ecosystem?

Khurshid: So, you know, we get a lot of questions currently about hemp CBD. There are a lot of folks in that market and there's still a lot of ambiguity as to what folks can do, what ingredients they can use, not withstanding repeated FDA warning letters saying, "Hey," drawing some at least some bright line rules, right, about making claims and using certain substances such as CBD isolate in foods. There are some bright line rules, but there's still a lot of ambiguity, and the fact of the matter is there's not enough enforcement there. So that leads to a lot of questions from clients asking what they can and can't do and what their potential risk is for enforcement actions.

Matthew: Okay. And, you know, looking back at 2019 and then looking forward to 2020, what do you kind of see is kind of the biggest issues both in 2019 and then the biggest to tackle in 2020?

Khurshid: So we talked about, you know, taxes, right? So, I'll guess I'll start at the state level. We talked about taxes and how that has been, you know, it's been really challenging for licensed operators in California. And there have been, you know, for the last two years, efforts in the legislature to try to roll back some of those taxes, reduce some of that tax burden to give the industry a fighting chance to get up on its feet. And, you know, especially the smaller operators and minority-owned businesses, giving them an opportunity to succeed before they have this huge tax burden.

Now, you know, those efforts haven't been successful in previous years, but given that the taxes are slated to increase at the beginning of the year, there's increased attention to that. And again, legislators who are urging action to reduce that tax burden and to help these licensed businesses, you know, get up on their feet and be in a position to continue operating.

So I think that's one huge issue at the state level for licensees under MAUCRSA. I think there's also the legislation that was introduced last year to essentially legalize the use of hemp CBD as a food additive in California and allowing regulated businesses to incorporate hemp CBD into their production and supply as well. And so that, unfortunately, did not pass last year, but it's going to be reintroduced this year in the legislature. And so I think a lot of folks are watching keenly the development of that bill, AB-228, and hopeful that it will pass this year.

So that being said, you know, the FDA just came out with a new round of warning letters on hemp CBD and kind of up the ante a bit as well with this last round of letters that are issued in the past week. And so that could complicate things. One of the things that the FDA said is, ''Hey, you know, hemp CBD is not generally recognized as safe in terms of being a food additive.'' They hadn't said that previously. And now they're saying that explicitly. They're also saying that, ''Hey, we believe that there are side effects that are from hemp CBD that are not being accounted for and could lead to things like liver injury.'' And so that's also new. And that, you know, is both a signal as to where the FDA is potentially going on hemp CBD regulation as well as an obstacle potentially to passing this legislation in California. So I think, you know, those are issues that folks who are watching keenly, in addition to...you can talk about federal as well, unless you want me to hold off on that.

Matthew: Sure, no, please.

Khurshid: Sure. So I think, you know, being on the board of the National Cannabis Industry Association and serving as their co-chair of the board, I'm really happy about the passage of the Safe Banking Act in the House of Representatives. That's something that NCIA has been working actively for for several years now. And putting an effort year after year to see this even brought up to get a vote, right, which have we not had that good fortune in the past years. And this last year we actually not only got it up for a vote, but it passed overwhelmingly in the House of Representatives, and so it's on its way to the Senate now. And so that is gonna be something that everyone watches in 2020 to see how the Senate addresses the Safe Banking Act.

The Senate committee that is gonna be first in line to review the Safe Banking Act has already indicated that they are inclined to give us a vote and they are also inclined to seriously engage with language and suggest edits that they might wanna see in order to pass this through Congress. That would be huge if we were able to do that. And that is no small part, thanks to the efforts of the NCIA staff, both our executive director, Aaron Smith, as well as our GR team Michael Correia, Michelle Rutter, and others that work diligently on this banking bill for the past several years.

Matthew: Can you summarize what the interstate commerce clause is and how you're thinking about that in the cannabis industry?

Khurshid: Sure. The interstate commerce clause, essentially, it's a clause in the constitution that gives Congress the authority to legislate in matters that affect interstate commerce. Interstate commerce, obviously, you know, commerce between states. It forms the...you know, it's the basis upon which the federal government has enforced the Controlled Substances Act even against, you know, purely intrastate operations. So there's a case called Gonzales v. Raich that was heard in the Supreme Court in the '90s, which essentially...sorry, early 2000s, which essentially stated that the DEA can and the feds can enforce the Controlled Substances Act against medical cannabis collectives that were operating solely within California. Because the entire premise of the Controlled Substances Act is that these illicit markets and controlled substances are interstate in nature. And, you know, the Congress is empowered to do anything it needs to, to effect and shut down those markets, including shutting down intrastate activity.

So, you know, it's the reason why states that are neighboring states that have legal cannabis regimes are not able to trade with one another, right? There's no trade between Oregon and Nevada. There's no trade between all these states, among all these states in the Northeast that have medical cannabis or adult use cannabis regimes because that would violate the Controlled Substances Act and it would certainly trigger some federal enforcement on those grounds. So that's why it's so critical that we see that impediment, you know, torn down as best we can.

Matthew: Okay. And Khurshid, on the topic of interstate commerce, can you talk about how Oregon passed SB582, and what that means and why that's important?

Khurshid: Sure. So SB582 was a state bill that essentially says that Oregon licensed businesses, licensed cannabis businesses, are going to be able to do business with licensees in other states as soon as there's some indication that the federal government will not enforce the Controlled Substances Act against those licensees and assuming that there's an agreement between those states regulating those types of interstate transfers. And so, you know, what SB582 is banking on is something along the lines of a Cole [SP] memo, right, that says, ''Hey, we are not going to... We, the federal government, are not going to intervene in any kind of lawful commerce that's happening between cannabis businesses in different states where they're operating legally and there's an agreement between those states.''

So, you know, if we get that type of trigger, either a memo from the DOJ indicating that that's, you know, the enforcement position or federal legislation as well, right? The Oregon delegation did introduce a companion bill in Congress that would essentially recognize interstate commerce between legal cannabis states. So if we have that type of federal trigger occurring and that condition comes to be true, then Oregon can start doing business with neighboring states that have legal cannabis. So, you know, when you think about not only Oregon, but California also potentially passing similar legislation and you think about the states in the Northeast passing similar legislation, you know, you are creating a massive interstate market that is really going to change the face of the cannabis industry in the U.S.

Matthew: Okay. Wow. So as we finish 2019 and we look to 2020, what is there to get excited about and perhaps what should we be cautious about?

Khurshid: I think we should get excited about banking. You know, it's not a slam dunk, but I think we have gotten closer than we've ever been before to actually passing the Safe Banking Act. And so I think we need to be, you know, all eyes on the Senate on the banking bill to, you know, hopefully, we will see the beginnings of equal access to the banking system for the cannabis industry. So I think that's something that's very exciting. I think the advancement of social equity in the industry, to me, is also very exciting. I serve on the board of the Minority Cannabis Business Association and as co-chair their policy committee. And so we are very much invested in seeing the advancement of social equity legislation at the local, state, and federal level. And so we're watching the MORE Act and, you know, we are very hopeful that we're going to see some movement next year in Congress. And if nothing else, I mean, we started the discussion at multiple levels on social equity and folks who are a lot more aware of how we can work to redress the casualties and injuries of the war on cannabis.

Matthew: Now, you see some states that are losing population and have some fiscal troubles. New York, New Jersey, Connecticut, these are states that have a lot of assets, intellectual and businesses, and some say perhaps they're not competitive, they haven't looked at their cost structure, and there are some huge obligations that they're kind of ignoring. California is not in the best position, but it's not in the worst position. Do you think there's the will for Sacramento politicians to really do something about making the, you know, budget deficit and debt situation in California more sustainable?

Khurshid: You know, I sure hope so. But politicians in Sacramento, as elsewhere, you know, have their own constituencies. They have folks who put them in office. And so I really hope that there is the political will to get it done. But we live in an age when politicians are constantly disappointing us. And so I'm a little more cynical than I used to be about folks acting in the best interest of the country and of the state.

Matthew: Okay. It seems like...I mean, my perception is, is that, you know, unless there's a crisis, you know, where the public says you must act now, there's really no upside for a politician to take away something from their constituencies. Okay. Because I mean, we've kind of built in this where we don't want any long term planning. Everything's gotta be short term. And that's unfortunate, but it seems to be the case everywhere.

Khurshid: Yeah. I mean, you see that with the climate change movement, right? We are in a bona fide emergency and, you know, and the world is crying out and we see, you know, the youth especially taking to the streets and that's not moving folks as quickly as it should, especially in our country, unfortunately.

Matthew: For business people that may be listening, what areas of hemp and cannabis do you really focus on for people that need some legal help? What's a good fit? You know, for some that's listening, wondering, "Hey, am I a good fit to work with Khurshid and his team or am I not?" What would be your kind of ideal client that you feel like you can help the most?

Khurshid: Well, so we work with a lot of startups, but we've also seen a lot of our startup clients grow into thriving businesses and we've taken on businesses that are, you know, a lot more advanced. And I've gone through several rounds of financing and have been operating for a while. And so, you know, the maturity of the company doesn't really matter as much to us. What we're really looking for is folks who are doing this for the right reasons, right? And that's been a consistent theme for our business because we started as...you know, we started in the Drug Policy Reform Movement back in 2012, you know, well before we had what we have today in terms of the market. And so I am, you know, used to be that I would ask businesses, you know, what their involvement was in advancing the ball, right?

And that's still very interesting to me. And I, you know, wanna know what folks are doing to actually improve market conditions for themselves and others. And so, you know, it used to be, "Hey, you know, how much money did you give to normal, or how much money have you contributed to DPA in the past or SSDP or MPP?" And today those questions are still relevant. But I also wanna know, you know, what folks are doing to advance the ball in DC, especially being on the NCIA board. I wanna see some commitment. And I wanna see businesses that are, yes, they're doing this because it's lucrative, and we're not gonna fault them for that. But at the same time, you know, they need to care about issues like social equity.

And, you know, not come to us with designs to game the system or to, you know, do things that are going to advance their interests at the expense of others, right? We're still very much, you know, while we are absolutely dedicated to our clients, you know, we are also keeping an eye on market conditions for the industry and we're very much invested in the growth and the success of the industry at large, including our clients.

Matthew: I wanna go to some personal development questions. Before we do that, you know, you work with a lot of clients. You work with a lot of people who are successful in the cannabis industry in California and probably seen a lot who have failed, too. You know, for all our listeners, most are interested in staying in California and being successful or, you know, maybe perhaps bringing their business into California and being successful, too. What's kind of the attitude and kind of game plan that one needs to be successful in California that you feel like sometimes new participants may not think about?

Khurshid: Time. Time. Everything takes a lot longer than folks expect. And I don't think that, you know, their expectations are necessarily unreasonable most of the time. Some of the times, they are unreasonable, but I think people are underestimating the amount of time it takes to get through, especially regulatory approvals in California, right, and things that should be sort of commonsensical. You know, we have to remember that the regulatory regime is still, you know, very new and still developing and staff at the regulatory agencies are still developing and still learning and still, you know, customizing the system and, you know, solving for some of those ambiguities that we talked about before.

And so I think that's one thing that you need to note is be prepared to wait sometimes, right? It's not so much getting a license is gonna be...take that long, although that can be a lengthy process as well. I mean that's a relatively, you know, short wait compared to some of the recent mergers and acquisitions that have happened in the industry where, you know, regulators have not responded yet to some of the filings that you need to file to say, ''Hey, we've changed our ownership roster and we've added a few new folks here. Here's all their info." You know, we're not seeing responses to that on a timely basis. And so if you're planning to come in and, you know, acquire a stake in a licensed business or find seasoned operators that you can do business with and integrate into their existing licensed business, you know, you are gonna be in for a bit of a wait.

And that's not something that most folks necessarily expect. They think about the licensing timelines, but they don't think about, you know, some of these filings that have to be done and the amount of time that it takes to get through with those. So that's something that... You know, and with time, I mean, if you have to wait longer to get a result that you're looking for, you're gonna lose revenue. You're going to have additional costs that pile up. You know, let's say you've got a new premise that you're trying to launch with, you may be paying rent on that for some time before you're able to actually use it, right? So I don't think most folks understand how difficult it can be in California. But that being said, you know, we want those businesses. We want to see the development of the industry in California. And, you know, I'm hoping that things improve from that perspective.

Matthew: Okay. So Khurshid, a few personal development questions. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?

Khurshid: Sure. So I think that the last time I was on, you asked me this question as well. And I mentioned ''The New Jim Crow'' by Michelle Alexander, and I'd still recommend that for those who are relatively new to the cannabis industry and wanna understand the roots of the industry and the Drug Policy Reform Movement. And in that vein, I'd also recommend CBDs...Steve DeAngelo's book, ''The Cannabis Manifesto,'' and Doug Fine's book, ''Too High to Fail.'' But those are all, you know, for folks who wanna understand kind of where we came from and where we're at.

In terms of, you know, personally, what's had a big impact on me, I'm thinking totally outside of the cannabis realm. You know, I thought about this and I think I'd say Dale Carnegie's books on human relations, right? So "How to Win Friends and Influence People," "How to Stop Worrying and Start Living." I read these at age 12 because my dad was enrolled at a Dale Carnegie course. He was in food service management at a country club corporation. And so he was enrolled in these, and after he got through the course, I inherited those books and I read them cover to cover. They were the, I think at the time, the first nonfiction books that I'd read cover to cover at that age. And, you know, those lessons have stayed with me and I would certainly recommend them to other folks who want to understand how to, you know, treat yourself and others with respect, but also how to lead. So highly recommend those books.

Matthew: Do you have any morning rituals that help you, that you'd like to share?

Khurshid: Sure. So, you know, I used to read the news first thing in the morning when I got up or my emails. And after the 2016 election, that got a bit...I got a little tired of that. That was a lot of doom and gloom. You know, but what I do instead now is I watch videos of my daughter and her schoolmates singing. She goes to a wonderful public international baccalaureate school that has a bimonthly assembly where all the kids from kindergarten through third grade sing songs to welcome the morning and to start the day off with positive energy and optimism. So they sing songs like "Good Morning All Over the World" and "Jump Up It's a Good Day." And, you know, I'd never miss it when I'm at home and I'm always in the front row of parents who are attending that. I have it recorded too for those times when I'm traveling or I need a little bit of a pick me up between assemblies.

So, you know, to me, it's an antidote to all of the gloom and doom and, you know, it's a good way to start your day without kind of infecting yourself with that, right? I mean, it's not to say that the gloom and doom isn't warranted, but that watching those kids, you know, it does bring a tear to my eye and it kind of reminds me of that, you know, our country, our planet are still worth fighting for.

Matthew: Oh, that's great. You're so right too because the, you know, starting your day with, you know, whatever the news is, it's like they've got that banner in the bottom that was like... I remember when that banner, the bottom first started, it was like really only for like the worst kind of breaking news that was like really bad. So when you saw that, you're like, "Oh shit, some of the terrible has happened." But now it's there all the time, scrolling across the bottom, like, "Oh, one crisis after another." After watching the news for a little, it's like, I wanna take a cold shower and then go on a sensory deprivation tank. So I think the way you're doing it is definitely the way to go. It's like I may not be as fully as informed as I could be, but I think I can, you know, bring something more positive to the world.

Khurshid: Yeah. I think it will work watching any little kid singing, you know. So you don't have to be in Sacramento at my kid's school. It's, yeah, it's pretty amazing.

Matthew: So I'm gonna ask you a Peter Teal question here. What is one thought you have that most people would disagree with you on?

Khurshid: Interesting that you'd mentioned Peter Teal. I'm gonna say social media, especially Facebook, I feel has been a detriment to maintaining a vibrant democracy. I think it's like an anti-civics class for the world. I used to say that it was a necessary evil for kind of modern communication. And everyone's on there. Everyone's doing it. But I'm not so sure that I believe that anymore. I've been relatively quiet on Facebook. I wil,l from time to time, still go on and post things about, you know, different NCIA events or MCBA events. Once in a while when I've got an interesting quote in a story, I may post that as well. But generally like I've just stopped you know, posting to Facebook and don't really follow it very closely and I feel better for it.

I don't think it's hurt me in any way, although people would definitely disagree and say, "What are you doing? You need to be on social media platforms to do business." You know, and there are still some that perhaps are better than others. And, you know, I still like LinkedIn, but generally I'm not a fan of social media and maybe that makes me a bit of a dinosaur.

Matthew: No, I definitely hear you. Okay. Well, Khurshid, this has been very informative. Can you let listeners know how they can find you and connect with you and, for potential clients, how they can reach out to you?

Khurshid: Sure. So my email is khurshid@greenbridgelaw.com. And our website has my bio and contact info as well, and that's greenbridgelaw.com. We have our full bench listed there and including our partners in Portland at Emerge Law Group. And yeah, I'd be happy to hear from folks.

Matthew: Great. Well, Khurshid, thanks so much for coming on the show, educating us, and good luck to you in the rest of 2020.

Khurshid: Thank you very much. Appreciate the opportunity.

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 best guest to you. Learn more at cannainsider.com/itunes.

What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at feedback@cannainsider.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

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

Ep 285 – Hemp is Disrupting This 654 Billion Dollar Industry…

melissa jochim high beauty

Hemp and cannabis are getting ready to disrupt one of the biggest industries in the world: beauty and skincare.

Here to tell us about it is Melissa Jochim of High Beauty, a cannabis-infused cosmetics brand that’s hitting shelves in stores across the world, including the multinational beauty chain Sephora.

Use promo code “Insider” for a discount on your purchase at https://highbeauty.com 

Key Takeaways:

  • Melissa’s background in cannabis and how she came to start High Beauty
  • An inside look at High Beauty and its mission to make canna-beauty products mainstream
  • Current perceptions surrounding cannabis in the beauty and skincare space
  • How hemp benefits the health and appearance of our skin
  • The different products High Beauty now has to offer from masks to moisturizers
  • A breakdown of the chemistry involved in creating cannabis-infused cosmetics
  • Where High Beauty is available for purchase, including Sephora and Macy’s
  • How Melissa sees the canna-beauty market evolving over the next few years
Read Full Transcript

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

There is a massive industry that has been around for centuries or longer, and hemp and cannabis are getting ready to disrupt that industry. What industry am I talking about? Beauty and skin care. Here to tell us more is Melissa Jochim of High Beauty. Melissa, welcome to "CannaInsider."

Melissa: Well, thank you. I'm excited. I love talking to you. I've had great conversations and look forward to one today.

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

Melissa: Well, I'm at the High offices in Santa Rosa, California, in Northern California, just Northeast San Francisco in the wine country.

Matthew: Oh, that's a great area. Okay. And what is High Beauty on a high-level?

Melissa: You know, I think of High Beauty, and we are skin care and serious skin care, you're go-to skin care. And we're actually working with seed derivatives from the cannabis plant because they're jampacked with antioxidants and nutrients and have so many different benefits. So, that's what I would say we are, high-level.

Matthew: Okay. And can you share a little bit about your background and journey and how you got both into the beauty space and started High Beauty?

Melissa: I've been in the beauty industry for 32 years, and that's a long time. I'm 52. I grew up in the world of hair salon, a beauty salon. My mom owned a hair salon, and I swore I would never get into the beauty world. And it's crazy, I went to school, I studied chemistry and had no idea what I wanted to do with it. I thought I was actually gonna fly the space shuttle. And needless to say, that did not work out. And straight out of college, my first job was actually with Robert Tisserand, and he's the father of aromatherapy. I mean, this was before there was even a term aromatherapy, and that's where I went, "Oh, aha, this is why chemistry's in my life and why I formulate." And I'm one of those crazy people that was working with terpenes when I was 21, 22 years old and had an understanding of that level of ingredient.

And it kind of, you know, led me through my path. I actually worked for 13 years with some of the major brands that are found in the natural products world around the world. You know, I have 5,000 different formulas in markets still at this point, and brands like Avalon and Alba and Beauty Without Cruelty, and a lot of these brands were brands that were really doing things first. You know, Beauty Without Cruelty was the first to really bring to mind that, you know, products were actually tested on animals and that you look at that today, and today, that's an expectation from consumers that their products are not tested on animals, and even so far as animal ingredients aren't used in their skin care products. You know, those are just some of the key brands that kind of led me along the way.

We were the first with Avalon to actually use an organic base instead of water. Most products are made with water and, as you know, water, I mean, has great, you know, great value when you drink it, but it doesn't have a whole lot of benefit to the skin. So, we started actually working with bases that were organic aloe juice or organic lavender hydrosol. And again, that was like a first, and we worked with ingredients that were very prominent and well known in the natural world for supplements or food like CoQ10 and vitamin C. And it just...it gave me this kind of entrepreneurial spirit because my early years, those first 13 years, I really was working on 8 brands at once. And that constant, you know, that excitement like launched something, moved to the next. And, you know, that was my early history. I'll kind of stop. I'm blabbering away, telling you my whole life.

Matthew: No, no. That's great. Well, give us an idea just how big the beauty and skin care industry is?

Melissa: Oh, it's crazy. I mean, it's one of the largest, you know, growing percentage-wise annually. It's almost 2% in gross. But, you know, at this point, you know, it's a $654 billion industry globally. And I mean, you think of that and you look at some of the numbers even around cannabis and that market and the global market and how we've got this overlay of beauty and cannabis, and I mean, it's just unbelievable to think of, you know, just even capturing a portion of that market, quite large numbers to be able to tap into.

Matthew: Wow. That is enormous. Okay. So, what are the current perceptions in the beauty and skin care market around cannabis and hemp right now?

Melissa: You know, I think it is a trend that everyone's very excited about and I think there's a lot of willingness to try and experiment. I think that that's carrying over. I think that there's a lot of education that's needed. Most of the products that we see in market have really jumped on the CBD bandwagon. And I don't think people have a lot of understanding of the different ingredients that come from the cannabis plant, and CBD being just one entity, you know, one cannabinoid, and how many others there are, and even how many others ingredients there are available from other parts of the plant. So, I think a lot of education and knowledge is needed, but I see that consumers are getting more knowledgeable. There's a lot of brands educating. There's a lot of information out there, and it's just getting the consumer up to speed on what's available and why even use it? Why is it good for their skin? Why do I want this ingredient?

Matthew: Well, it sounds like you have a deep background. What did you bring over from Juice Beauty over now to High Beauty?

Melissa: You know, Juice Beauty was, you know, part of my history, when I left that the first round of brands, I really was like Juice Beauty was my next brand. I was partnered and actually the founding formulator. I was active at Juice Beauty at a very interesting time. It's when natural ingredients were becoming very prominent, like 2004. You know, Juice Beauty was one of the first brands that actually went on the natural set in Sephora. And this was, you know, back when Sephora only had 180 stores here in the U.S. And it was before its time. I mean, you know, I like to think a lot of things that I've been involved in are, you know, 18 months early. So, you know, working with Juice Beauty, Juice Beauty, I actually formulated using organic fruit juice as a base. I actually, I hold 12 patents on that chemistry.

And I think, you know, the key thing that came from Juice Beauty that's really a part of my DNA as a formulator is how can we do things naturally and organic and have them work and have...you know, be good for the customer. You know, the customer wants to use it again. You know, I think at that time Juice Beauty, when we launched it, really, people didn't have any idea if natural was gonna work for them. They were used to using, you know, cosmeceuticals and nutraceuticals and ingredients that were much more active. They didn't know how to read the back of a package and understand an ingredient listing and make their choices based on what the product had in it. I think that, you know, that's something that I've had as a part of me formulating forever, but really it's the basis of everything I do with High Beauty. Anytime I can use natural or an organic-sourced ingredient, I am, you know, beyond that, even our packaging and the sustainability that we do, our products are made with 100% solar power. You know, our forest stewardship partners, where we're not, you know, harming, we use no animal ingredients, of course. There's just so many things that really make up that, I think, I carried over from my years of work there.

Matthew: And what was the impetus to leave Juice Beauty and the opportunity you saw in High Beauty? Was there something that just made you feel like the time was ripe and ready to start then?

Melissa: You know, I was active till 2011 and actually sold my shares in that team and was no longer a shareholder in Juice Beauty, but I left really because I had an idea and I wanted to also kind of lead and be in charge of my own creation. And the brand that I actually launched upon leaving Juice Beauty didn't have a cannabis piece to it. It was Blossom Organics, which is an organic-based personal lubricant that's 510(k) filed. So, it's a medical device that actually can stand next to K-Y on shelf, but it's giving you a pH balanced natural alternative for women to use. And that product's still in market. So, that was really my next idea. There was a major white space needed there for a healthy alternative.

And I really felt that that was something that was needed in market. Beyond that, you know, I've always worked with cannabis sativa seed oil. I've always had it as an ingredient in my kitchen, even. You know, you look at hemp oil and hemp protein and hemp milk, I mean it's amazing as far as nutrient value. And I always had that in the back of my mind is, you know, these ingredients in my skin care to some extent, but never really a focus ingredient or an active ingredient where it's a go-to ingredient like, you know, women understand, customers understand vitamin C, they look for products with vitamin C or look for products with hyaluronic acid. They look for these key ingredients. And I really felt it was the time as the trend was coming into the forefront and people were a little more accepting of the ingredients that could become a go-to ingredient for healthy skin care.

Matthew: And why do you think hemp is an important ingredient for your product? I mean, what does it do that really makes it stand out compared to other active ingredients?

Melissa: You know, hemp is...I look at cannabis sativa, I'm working, as I said, with seeds. And the seed is, I mean, jampacked with nutrients. So, when you start thinking of the antioxidants, the vitamins, the minerals, the essential fatty acids alone, you know, I mean it's got your daily multi-vitamin, vitamin A through E, you know, beta carotene. It really is an ingredient when you look at cannabis sativa seed oil, that when you put it on the skin, its molecular size, it actually protects your lipid barrier of your skin cells. So, if you imagine, you know, the basal layer, which is the layer that actually our skin cells are born and they pop off, and then they're in this low level, they migrate to the surface of our skin, and literally dehydrate and fall off our face. So, when you're young, you know, you're 28 years old, 30 years old, you get a new face pretty much every month. As you age, you know, that process takes a little longer.

And, cannabis sativa seed oil is actually an ingredient that helps protect that with the barrier from that cell dehydrating. And the longer that cell is, you know, it's on your face and you can keep it happy, the better it looks. You know, it gives you a beautiful face forward. So, when I look at...it's more than just cannabis sativa seed oil, though. So, you know, I'm not just filling a bottle with hemp oil and it would be really heavy on your face. It's got a large molecular size. It's, literally, I balance it out with like a whole mix of other plant oils, everything from sunflower to argon, to coconut, to red grape. I'm mixing and balancing it so that there's different sizes of oil, so you get really, really good absorption, and it's a product that feels good and wears well.

You know, I get as much possible of my cannabis sativa seed oil in each product. Obviously, my oil is the most, our High Expectations Cannabis Facial Oil has 32% seed oil in it. And then my moisturizer only has 20% in it, so that it's a little lighter wearing. It emulsifies and it really allows me to put other ingredients, like vitamin C and CoQ10 and other key ingredients, hyaluronic acid, things that are needed for healthy skin. But when you look at like my cleanser, hemp seed oil isn't the most important ingredient. It's an aloe-based formula. So, I'm working...there's a whole mix of bioflavonoids that I work with that are in there. You know, it's a different chemistry. So, each one of my products has a different amount of the cannabis sativa oil based on what I'm trying to achieve as a benefit or end result.

Matthew: Okay. And, you know, with your chemistry background, how do you leverage that day-to-day when you're going about doing your work? It sounds like it's really helpful.

Melissa: You know, it's a part of our brand DNA of all the brands that I've been a part of just because I am the one making what goes into the bottle. And I think there's a different conversation that's had. I mean, there's a reason for every ingredient that I put in. And a lot of times, you know, brands, beauty brands are just, you know, they're made, it's not the founder that's actually making the product, they hire people in to do that. And you know, my vision, it starts with every ingredient all the way to how the bottle looks, the carton looks, to the shelf display looks, to how...you know, what we wear when we meet stores, to our name tags and crazy things like that. But it starts at that most individual little ingredient that's in the bottle. I end all my formulas, when you read my ingredient decks on the back of the box, every formula ends with lemon balm, which is melissa officinalis. So, that's my kind of signature on all of the different formulas that I do.

Matthew: Okay. What do you think the other beauty companies in the space are getting wrong about hemp and cannabis, if anything?

Melissa: You know, I wouldn't...I think that there's room for everyone, so I'll kind of start with that. And I think that what's really happened is we're seeing such a trend towards CBD that we're forgetting about all of the other key ingredients that the plant has to offer. Again, just being one cannabinoid versus, you know, the hundreds available. Beyond that, you know, acknowledging all parts of the plant, the seed, you know, you look at the seed oil, you look at the seed milk, you look at the seed proteins, they're amazing ingredients for skin care. So, I think there's been a mad dash for everybody to, you know, market a brand with CBD. And I think that, you know, I'm kind of over here, you know, jokingly like the Trojan Horse over on the other side, coming into shelf space with something that I feel is really lasting. Working with the plant that's not, you know, just a trend ingredient, but that we're really focused on the end result and we're a serious skin care, a lasting skin care brand. I mean, I'm literally, you know...it's a brand that I hope to see on shelf 20 years from now.

Matthew: Now, let's go over some of the products you have. Because you've talked about a few High Expectations, but you have some more, just give us a quick run through this. Summarize each one, if you would.

Melissa: You know, we launched in market with our two, I call it our a.m. and our p.m., and High Expectations is our Cannabis Facial Oil. And it's really unbelievable, I mean, it's all these beautiful oils, 32% cannabis sativa seed oil and vitamin E, and it absorbs... I get emails all the time where people are like, "This is the best yet, you know, formula-wise," and, you know, it really helps your skin be replenished and helps really, I would say, repair it overnight. Because, again, when you wash your face at night, that's one of your most important steps. You would end with the Cannabis Facial Oil because your acid mantle or your barrier, your protective barrier on your skin is actually rebuilding itself overnight. And this is critical. This gives you all those vitamins and nutrients I spoke of and fatty acids. You know, that's more of a night product.

You're gonna find that people can also use it morning. Some skin needs a little more of a boost, especially in the dry winter months. High Five is, you know, the other product we launched with, and our High Five is our facial moisturizer. And, like I had said, it's 20% cannabis sativa seed oil. And, I named it High Five because it's like give yourself a high five because you're giving your skin everything it needs. It literally gives you all the benefits, you know, it's going to help calm inflammation. It's going to balance your skin, it's adaptogenic, so it's going to help balance your skin. If your skin oily, it's going to give you just what you need. If it's dry, it's going to give you a little more. It's going to protect your skin with antioxidants. And, of course, it hydrates and replenishes. You know, it's your daily multi-vitamin. That's what I would say.

Matthew: Okay. Yeah.

Melissa: And then, we actually don't have a big line-up. You know, I'm a person that it's more the essential, you know, that's your a.m. and p.m., you know, moisture. And we have a cleanser, which is a foam, and it's really rich in the bioflavonoids. It's gonna remove makeup and it, you know, hydrates. You don't feel dry after you use it. Excellent if you're shaving, works for a great shave foam. And then we have our eye gel, which has been kind of amazing. We really have quite the following and buzz about it because most eye products are creams, and this is a gel. So, it's really...it's instant hydration, it's cooling, it helps, you know, de-puff. It's going to help you with those, you know, puffy under eye bags. And again, it's really rich in the seed oil and bioflavonoids. And then the last step is really those are your daily steps.

And then, on a weekly basis, as I spoke of all those cells falling off your face, it's really important to exfoliate. So, we have our peeling mask, and our peeling mask is a mask that has all of the different exfoliants. So, it has enzyme, it's got fruit acids, and it's got physical, like, little actual bamboo. So, you're going to get a really good exfoliation so that you have a nice smooth surface and it purifies the skin. And it's just your kind of your weekly upkeep. So, that's really the line-up. It's not...you know, I call them funny names, like High Priority is my cleanser because it is your highest priority next to sunscreen to wash your face every night. And our eye gel is, you know, High Eye-Q, and then High Maintenance is our peel because it really is your...it maintains...it's that weekly maintenance that you need.

Matthew: So, you know, people might still visualize hemp oil being kind of this thick oil. And you said, you balance it out with other oils to make it a little gentler because it's kind of a heavier or a larger molecule. So, is it truly then a misconception that hemp will make your skin oily or is that total...that's not true at all?

Melissa: You know, it's funny because the first thing you do is if you talk to someone that has acne or oily skin, they're going to say, "Oh no, I'm never gonna put oil on my face." And it is really, lipid loves lipid and cuts lipid. So, if you imagine you have oily skin and you try to use water to clean or to pull that oil off, the water and oil don't mix. So, if you actually wash your face with something or use something with oil in it, that's the best way to actually balance your oil production. A lot of times people will use really drying ingredients thinking that they're gonna cut the oil production in their skin, and actually all they're doing is exasperating it, causing more sebum production. So, lipids love lipid, oil loves oil and oil cuts oil.

So, it's the best way for you to actually...to balance your skin and have that adapted. It's going to adapt to what your skin's needs are. Again, hemp oil, kind of a sativa seed oil, is a large molecule. So, if you were just to use, you know, that in formula, fill a bottle with it, it's not gonna be the best way because it's got to be balanced out with other oil sizes so that they become the synergy that actually can go to different levels within the skin and balance your complexion.

Matthew: Do you think skin is a window into our health, and what does that window tell us? I mean, I think about...I've seen people become very stressed out and get hives in a matter of hours and I've seen just other ways that our skin's kind of a barometer to things going on in our health. But sometimes I feel like in our society we think of like acne or psoriasis or eczema or any kind of skin condition as kind of an effect. But, really, it's kind of a symptom of something else maybe going on elsewhere. What are your thoughts as kind of...is skin a window into our health?

Melissa: Well, definitely skin is our largest organ. It's also our first line of defense. So, it's going to be first to literally show those imbalances that happen on an internal level. You know, I am a big believer, I've actually worked with so many different people on, you know, how to get, you know, even clear skin, and it never is just skin care products. It has to do with what's happening on the inside. A lot of, you know, when I was an aesthetician, actually, a lot of the client I had were, you know, going through cancer treatment or were people with acne or key issues. And I had a very unique clientele and allowed me to like work with my formulas, but my intake form was always on their inner well-being. Like, what supplements do you take? What's your diet? How is your bowels, your digestion?

And those were the questions that led me to a much better way from nutrition on the inside and then skin care on the outside. So that, again, you reach that basal layer from both sides. You know, there's actually zones on the face where you can look at different areas or on the body where people will have acne and it leads to different, you know, parts of their body or different organs. You know, you look at the chin, and the breakouts around the chin and the jawline, and they're most often hormonal. You look at the cheeks and the nose, it's most likely food allergies or food intake or overabundance, and in certain diet, you know, different things. You know, a lot of times you look at the rest of the body too, it's imbalanced. You look at fatty acids, is someone taking fatty acids on a daily basis? Are they taking probiotics to balance digestion? Are they extremely stressed? Are there hormones? Do they need some B vitamins to balance out their hormones? There's so much more to what maintains that healthy, as you say, window. You know, really that look and feel, I think, your skin is first.

I mean, think of how many people have dark circles and a lot of it can be hereditary, but a lot of it is also intake stress. You know, there's so many different ways that you can handle things on an internal basis first. Water, exercise. So, no, I agree with you totally. The skin is a window to our inner well-being.

Matthew: Where are High Beauty products available right now?

Melissa: Oh, I know, I think my last conversation with you was we were just starting and now it's, you know, crazy. We are in the U.S., we're also all over Canada, and we're actually in Europe. So, currently we're in the U.S., we're selling at Macy's, Urban Outfitters, Anthropologie's, sephora.com and, of course, on our own website. Canada, we hit Canada by storm. I'm so excited. And the Bay, we're actually at the Hudson's Bay, we're at Indigo, we're one of the first brands to actually be chosen to go on the shopping choice. And we just got our approval for Shoppers Drug Mart. So, Canada, beginning of the year you're gonna see us quite a bit. In Europe, we've partnered with Douglas, and we've launched in Germany, and we have a rollout plan for five additional countries throughout Europe, including the UK and France and some others. So, a lot happening in the first part of the year. But for now, there's a lot of places that people can actually find High on shelf.

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

Melissa: Oh, I laugh. You know, the capital, it seems like that's a never-ending process than we... You know, we brought in really our seed round in April of this year. It really allowed us to do the things that I needed to do beyond, you know, self-funding, and that was to build a team. We have a solid team of 10 people and really get all of the products I just spoke of. We have all of the products, domestic and international available, and some kits. And it really allowed us to get all of this distribution started in a very thoughtful way with the right merchandising and everything that we're needing. We just are going into our next raise. And it literally...I'm starting this process, it's just started in the last weeks, and we have a lot of our current investors. There's not that many of them, good friends and family around us, and we're going into our next raise in the spring to close in May.

Matthew: Okay. And for accredited investors that are listening, is there any way that you want them to reach out to you or are you full right now or...?

Melissa: No, I am always open to discussions. And the easiest way to reach me is just directly through email, melissa@highbeauty.com. And I'm easy to get, and if you have any skin care question, I'll help you with supplements, too.

Matthew: Well, I do have some personal development questions for you now, Melissa. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Melissa: Yeah, it's hard. I am an avid reader, and it's funny I say that because I haven't had time to read a book in the last year just because of how busy I've been. I spend most of my time writing brochures and formulas. My mind has been vamped but, you know, I think back, there's two books that probably one was really pointed in a different way and you probably can't even find the book at this point, and it's the "Mutant Message Down Under." And it was a book about a woman that went into the Australian Outback and she had a transformation and was really became one with the aborigines, you know, the people. And she actually came out and wrote a book about it, and it was very, very much something you should not do because their culture is that things are passed on verbally in stories and it's not something to be shared with the outside world. And this was really the last hold out of, you know, truly untouched culture. And that book was something that made me look at like ethics and just how you go about, you know, are you in ethic or out ethic in everything that you do.

And to have an experience like that and then to have it become something that is not in ethic, ethics is something that I kind of look at everything I do on a day in and day out basis, and just make a check and keep in line that you're in ethic from business to personal, across all aspects of your life. And, you know, the other big book I think of is Richard Bach in "The Bridge Across Forever." And I don't know if you've ever read that book, but he, literally, each choice he makes leads to a different parallel universe in his plane, he's the pilot, flies in and out of these different...from choice to choice leads to different lines and parallel thoughts. And it's another thing that makes me think daily of being mindful of all your choices and where they're gonna lead. And you know, you look back on where would a different choice have taken you, but you've chosen a path, and that choices lead to the universe being abundant. So, I think those are my two big ones.

Matthew: Great suggestions. I hadn't heard of those. Those are great.

Melissa: I don't think you can get "Mutant Message Down Under," in all honesty, I think that it was really banned. I think people really boycotted it. So, it's one of those things that, you know, the story itself is the story... Anyway, it was an interesting book but I doubt you can find it. If you do...

Matthew: I've got to read it now because it's forbidden. If it's forbidden, I must see it. What do you think the most interesting thing going on in your field besides High Beauty is right now?

Melissa: You know, I love seeing like the clinical evidence and different...just the clinical side of what cannabis can do and all the ingredients that, you know, are available, kind of catching up with the market. You know, I think that there's a lot of ingredients that flooded the market and now we're starting to see some amazing, you know, results as to what some of these ingredients and other ingredients from the plant can do. You know, also just that there's more checks and balances so that consumer safety is top of mind. You know, I think that we're seeing that actually come into fruition. It's not as much the wild, wild West in a good way, though, where it's, you know, we're not limited, but we're also paying attention to what's good for our customers.

Matthew: What is one thought you have that most people would disagree with you?

Melissa: Oh, you know, I think that people often... I'll be like, "It's going to be. If you visualize it, it's going to be." And I think that that's kind of how I've been my whole life is creative visualizer and it's like, "It's going to happen." I believe that, you know, the universe is abundant and we create our world. And a lot of times I think people are just like, "You've got to be crazy." Like, "Really, that's going to happen?" And I'm like, "No, no, it's going to happen." So, I think that's where I, most often, get people thinking I'm a little nutty.

Matthew: Now, I remember the Wayne Dyer quote, "You get what you think about, whether you want it or not." So, be careful what you think about because it's probably gonna manifest.

Melissa: No, it's true. And I wish that, you know, I could have known some of that when I was younger. As you get older, you're a little more clear on what you're wanting.

Matthew: Now, you know, I'm circling back here to your High Five...when you're talking about your product name, High Five, I was like, "Gosh, you know, I used to give a lot more high fives." If I were to look at my...you know, literally how many high fives I give throughout the ages, it probably peaked in my late teenage years to early 20s. Why do we stop giving so many high fives?

Melissa: I don't know. I think that you get a little caught up in day in, day out, and we forget to really be grateful for everything around us. I think a high five is really like, wow, like, you know, you're acknowledging something well done or something that's just amazing and great. And I think that we do need to give a lot more high fives and acknowledge the things in our lives day in, day out that are so wonderful. And maybe next time you and I meet each other, we should give each other a high five.

Matthew: Give each other a high five. Yeah, I might do a high 10.

Melissa: Yeah. Yeah, high 10. That might be actually...I'm going to use that one. That might be a product.

Matthew: Great. Well, Melissa, thanks so much for coming on the show. Really appreciate you educating us. I mean, this market is absolutely enormous and so cool to see that you're making inroads here. So, we'll watch this closely. For listeners that want to connect with you, you gave your email already, and can you also give out your website for people to find it?

Melissa: Yeah. Our website is highbeauty.com, and there's a lot of information on there, even on the science and skin and our blogs. So, definitely check it out.

Matthew: Well, great. Thanks, Melissa, for coming on the show. We really appreciate it.

Melissa: All right. Well, thank you for having me, and I will talk to you soon.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guest to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on "CannaInsider"? Simply send us an email at feedback@cannainsider.com. We'd love to hear from you. Please do not take any information from "CannaInsider" or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Emotional consideration may be provided by select guests, advertisers, or companies featured in "CannaInsider."

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

 

Ep 284 – Building A New York Hempire

eran sherin urbanxtracts

In today’s ever-evolving hemp and cannabis space, Eran Sherin has set out on a mission to empower farmers, processors, manufacturers, and developers through a unique, New York-based hemp ecosystem known as urbanXtracts.

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

Key Takeaways:

  • Eran’s background in cannabis and how he came to start urbanXtracts
  • An inside look at urbanXtracts and what the company offers as a seed-to-sale hemp service provider
  • How urbanXtracts was awarded licenses to grow and process hemp in New York
  • Why Eran chooses to work with contract farmers instead of growing his own plants
  • How urbanXtracts is converting a former prison into an extraction facility where the company will help in providing jobs to residents of Warwick, NY
  • The types of products urbanXtracts provides, including raw materials, crude hemp oil, and isolates
  • Eran’s philosophy behind his company’s collaborative, WeWork-style environment
  • Where urbanXtracts currently is in the capital-raising process
  • How Eran sees the hemp market evolving over the next 3-5 years
Read Full Transcript

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-Ainsider.com. Now, here's your program. Many new business models are emerging in the cannabis and hemp ecosystem. Here to tell us about his Hemp Service Provider is Eran Sherin of UrbanXtracts. Eran, welcome to "CannaInsider."

Eran: Thank you, Matt. Good to be here.

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

Eran: I'm in UrbanXtracts' offices in Midtown, Manhattan. We're on the corner of 39th and 5th Avenue. It's a rainy day here today, and that's where our office is. That's where I am. We actually grow upstate, but we operate out of our facility here.

Matthew: Okay. And I'm an Edinburgh, Scotland where it's 4:00 p.m. and pretty much already fully dark. So, what is UrbanXtracts at a high level? Help us understand that.

Eran: At a high level, we're a service provider. And what that really means is whether you want to grow, process, develop, or market, we've got business models that engage you and enable you to get into the industry.

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

Eran: Sure. I've been an entrepreneur since I was a teenager, and I've had two successful technology startups in the hotel technology space. I've also been a hotel developer. I've developed two boutique hotels. And I was actually working on a concept of a new glamping resort where we wanted to integrate a farming initiative into the concept. And through researching different farming opportunities, I came across Governor Cuomo's industrial hemp program in the State of New York. And I found it very intriguing at to learn about it, and so I applied to obtain one of the licenses when they first opened it up to private businesses. And I was very fortunate to receive one of a few combined licenses, which are licenses that allow you to both grow and process.

Matthew: Okay. Interesting. And where are you from originally?

Eran: Well, I grew up all over the place. I was originally born in Israel. However, I grew up in Australia and South Africa and I got to the United States in '92. And I had a great experience of living both in Texas, and California, and Florida. But I've always found New York to be home, and I've always resonated with the city and the state now. And I feel very lucky to be living out here.

Matthew: Yeah. So, what was your experience like with the American culture when you first landed here? I mean, I always like to know like what's that like? What were you kind of not prepared for that kind of shocked you?

Eran: Look, you know, growing up in Australia, you know, America being the land of opportunity, and especially, like I said, I've been an entrepreneur at heart from the very beginning at high school. And so, I was looking forward to coming here and seeking opportunity, and I've been involved anywhere from real estate to technology and now into a new emerging industry, cannabis, which is very exciting.

Matthew: You know, it seems like, I always wanted to have like a very liberal immigration policy because immigrants build so much of our economy. It's amazing. I think about like Surrogate Brin, and Elon Musk, and all these guys, and it's crazy how immigrants build stuff. But then the second, third generation, we get a little lazy. I even think about like, you know, my ancestors came over from Ireland. They were a lot more industrious than I am. So, it's like what do you think that is, I mean, because you still have that in your head? Like, you came over and you saw opportunity. What is it that you saw that you said, "I can just jump in here and make a success of it?"

Eran: So, you know, first of all, this is one of the reasons why I resonate with New York because it's such an immigrant-driven city that allow people to come here and seek and capture their opportunity. I think, you know, one of the exciting things that I saw in this hemp/cannabis industry is that it's so early on. It's seldom that you find opportunities as an entrepreneur really that you could capture the infrastructure side of the business as opposed to, you know, on-top services of an industry.

And so, what excited me specifically about this industry and really for me, it was also a big transition being in technology, being in hospitality and migrating into a new industry and identifying with that, I think, embracing that identity. You know, I knew that I needed to do that if I wanted to be a leader and innovator in this emerging industry. So, really, you know, the opportunity I saw in New York was really building a company that can service the industry as an infrastructure.

Matthew: Okay. And I want to talk a little bit about that, what Hemp Service Provider means. Now, you just gave us a little high-level overview, but give us a little more detail on what that means. Like, if we were to walk into your facility and, you know, meet you there, just walk us around virtually what that's like.

Eran: So, as a service provider, what we want to do is really build a transparent and quality supply chain. And if we capture every aspect of that ecosystem, whether it's grow process, develop a market, and we're involved and engaged in all of those aspects of the industry, we can really create quality, create transparency, and create consistency in that supply chain, which I think is what we need to do to elevate this industry and to give it the quality that it requires to produce great products. And so, specifically, on the growth side, us as a company, we own and license exclusive strains, cultivars, that yield high amounts of different cannabinoids, whether they're CBD or other cannabinoids. And so that growth side, we enable farmers by supplying them genetics.

And we have different business models with farmers. We have some farmers that know what they're doing and they just want to buy genetics from us, which we do in the form of clones. So, we produce those genetics from other plants that we cultivate. We propagate and produce these clones. And so, farmers can either purchase those clones outright if they know what they're doing. Or certain farmers, we revenue share with them on a business model where we supply the genetics and they do their part of farming, and harvesting, and drying, and then we support them in selling.

And then we go further in certain areas and we create a proper co-operative where we share in the risk of the growing. And not only do we supply them the genetics, but we also supply them financial assistance throughout the growing season and then we share in the profits as we sell them. So, that's on the growth side. Processing, we process our own inventory that we produce with our cooperative farmers. We also toll process and revenue share with third party farmers that have produced biomass and want to increase the value of that biomass by processing with a partner like ourselves.

And, on the development side, again, we want to be a wholesale supplier. We believe that we don't need to take products all the way to shelf. We can enable brands and marketers to leverage off white-labeled products or leverage off our infrastructure to develop and formulate their own products within our processing and development center. And that's on the development side. And on the marketing, you know, at the end of the day, everything is all about sales. A successful business is about driving sales and having those distribution channels. And so, that's something that we're building and building with retail partners and distributors.

Matthew: Okay. This is kind of an interesting model and a little different. Do you feel like working with farmers in the way you do helps you kind of de-risk a bit and focus more on the big picture?

Eran: I think that's what we're ultimately trying to do, is there is tremendous risk as I'm learning more and more in farming. And, you know, so we wanted to work with farmers because, again, if we want to provide a transparent supply chain, we feel that we need to be engaged in the growing side of the business. We need to...you know, it all starts from the genetics, from the seeds, a plant coming out of the ground, us processing. At the end of the day, we get what's called a cannabinoid profile of our extract.

And so, you know, we want to manage what profiles we have so we can have the highest quality to put into our products. So we feel that we need to work with farmers. Plus, it's very important to understand that this whole hemp industry is really an agricultural initiative. This is all about farmers. This is all about the states empowering their own farmers with new cash crop opportunities and giving them an opportunity to prosper. And so, we want to be aligned with the state that's licensing us to do this.

Matthew: Okay. And how many plants total do you expect your harvest size to be or maybe kilograms, and maybe a bit better, or pounds?

Eran: So, our first year of harvest was in 2018, and we grew 36,000 plants. That covered just around 20 acres. This year, with the knowledge and experience that we had last year, we were able to scale up. This year we grew 100 acres encompassing 170,000 plants. So, that's how we've scaled up based on the experience, and knowledge, and education that we've received over the last couple of years.

Matthew: Okay. And so, I understand the State of New York put $10 million of funding in for hemp. Can you talk a little bit about where those funds are going and, you know, what you like most about it?

Eran: So first, I think it's important to... You know, there's about 30 states already that have a hemp program in place, and New York is one of the only states that's actually backed it with capital dollars to help grow and provide the infrastructure for the industry to expand. They've split the $10 million, half of it going into companies like ourselves that are building processing plants to help them with the capital support to build the infrastructure for the processing and get the equipment. And the other half is really in the knowledge and experience of growing it.

And the state engaged Cornell university to be an education hub and a resource and a data hub to gather information on what grows best, how can they best manage this industry as it grows. So, I think, you know, that commitment in New York State to the industry is very telling. And also, the other distinction with the program in New York compared to some of the other states is that it's highly regulated here, and we see that as an advantage because regulation will be across the board as this industry grows. And it allows us to really build our infrastructure with that in mind, that all, you know, the FDA regulations that are coming down the road, we're perceiving what that will be and acting accordingly today already.

Matthew: Okay. So, you have raw materials, crude, hemp oil, distillates, isolates, this is kind of interesting because you can see what's selling or where there's market interest and then just invest more in that piece as it grows. Is that part of the strategy?

Eran: Yeah. I mean, I think like any business, you see where the supply and demand is. We're growing this year our crop that's going to be dried and cared for that's going to be in a biomass format. There's demand for biomass. We're going to sell some as biomass. We're going to further downstream the rest and extract it into crude oil. There's going to be demand for crude oil. We will sell some of that, and then we'll further process that crude oil and refine it and have our distillates.

And there'll be demand for that. And, in some cases, we'll further distillate into what I would call customized oils based on customer needs, whether it's water-soluble, water...things of that nature, as well as putting it into white-labeled products and allowing brands and marketers to get into the game and leverage on what we're able to do. So, we try to de-risk throughout the whole cycle of improving the product and selling some often, and refining it, and taking it further downstream.

Matthew: You have like rework style collaborative setting. Can you talk a little bit about that and maybe some of the things you've seen grow out of it? Relationships with different farmers or different people, and what's kind of excited you about that?

Eran: So, similar to how we grow with farmers in a cooperative manner, and that helps to de-risk both ways, we wanted to do the same thing with development. Development of new products is all about innovation. And, you know, us being the infrastructure company, we want to provide the space and the opportunity for innovators to come in and leverage on the state of the processing and development center that we're building that will have the resources, and the space, and the labs to develop and formulate innovative products. And so, we don't see us doing everything, but we see us being an enabler and empowering others to leverage off the infrastructure. So, partnering with them, supporting them, and then ultimately really securing the distribution of our raw materials into various products.

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

Eran: So, we've done a seed round and a friends and family round in the past where we're in early... In Q1 of 2020, we foresee ourselves doing our series A round. That's really when we also see ourselves opening up our processing and development center. I should note this, that we were very fortunate in the farming community that we grow in, which is in Orange County in a region called the Black Dirt Region.

The town saw what we're doing with farmers and understood that we wanted to build a processing facility, and they approached us that they have a former prison in the town that they want to repurpose into a business industrial park. And we were brought in as an anchor-tenant and that received some grants and funding from the town and county as part of an economic redevelopment project to convert this prison into an industrial park.

And so that facility is opening up in Q1, and we're very excited about that. It's a state-of-the-art facility. And once we've opened that facility, we foresee ourselves doing our series A round and really having a lot more credibility in the industry by having a facility that's built from the ground up that's very, very efficient in its cost structure, able to handle 2,000 pounds on an 8-hour shift. And we're able to scale up on a second and third shift cycle. So, we're very excited about those opportunities in Q1 coming up for us

Matthew: Well, some poetic justice in there. I mean, considering, you know, that very plant put a lot of people in cages, now that prison is being transformed for the production of the same plant. So, that's really cool. Did it take a lot of architecture and general contractor work to get the insides of the prison suitable for everything you're doing?

Eran: From a construction perspective, we were actually very surprised how solidly they built these buildings back in the 30s. Some of them were very structurally sound and actually complimented the efforts that we needed to make this into a modern state-of-the-art facility. But what's interesting is as we learned more about the history of this place, we really learned that this building was originally built, these buildings in the prison were originally built as a rehabilitation center, as a school that was actually from an organization that was backed by Eleanor Roosevelt, where, in the 1930s, kids that couldn't find themselves, maybe turned to crime, were sent up there and were given an opportunity to learn new skill set and used the barn that we're converting into a processing facility as a place to learn farming practices and so on.

And so, there was a real social justice component to this facility to start off with. And then over the years, it eventually turned into a prison, and we have the opportunity to really bring it back to its purpose by providing jobs, providing opportunities for people and bringing some of that social equity component back to it.

Matthew: Okay. How do you see the market for hemp evolving over the next three to five years, not just in New York, but just, you know, on a national level, and even on global level?

Eran: So, I think, as I said, we're at the very beginning of the cycle. And, most people are turning today into CBD cultivation because the footprint can be very small and the profits seem relatively high right now. But as the infrastructure for growing and processing this plant expands, you know, the migration into other exciting components of the plant, really on the fibre side, we're really growing. The infrastructure will be there, and there's so many industries that could really be innovated and evolved using the byproducts from the fibre, whether on the fabric side or whether in construction material on the hard side. I think that's very exciting opportunities that will emerge.

Matthew: Okay. I'd like to ask a few personal development questions, Eran, if that's okay. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Eran: So, I'm actually re-listening to a book I read years ago called "A New Earth" by Eckhart Tolle. I read it years ago. It's a great book. I read it years ago and now actually listening to the audio version of it. And, you know, so often with these books, you know, as you read it a second or third time, there's so many other insights. And, you know, for me that's been a very impactful book and guidance. And really, again, for me, you know, being an entrepreneur and being very passionate, you know, my business is my life in a way. So the way I create business models and the way I create a partnership with people is really the essence of the business and of who I want to be. So, having, you know, that book and being reminded now with some of those tools is being very good for me.

Matthew: And his voice kind of lulls you into a state of calmness. It's like a cross between Stephen Hawking and Yoda.

Eran: Yes. I think that's a skill that you need to learn. And once you, you know, obviously tap into that space, you now naturally kind of resonates that way.

Matthew: What do you think the most interesting thing going on in the hemp and cannabis industry is apart from what you're doing?

Eran: I think, you know, what I've noticed as I've traveled, you know, throughout the country and gone and attended various shows and expos and education, I've really got to see how people's lives are changing, how people are finding purpose, how people have been in a different industry and are now finding new identity, new passion in this industry. How people are finding jobs that they feel comfortable, that's part of their lifestyle. And so, I've really enjoyed seeing that, and also, in my business, providing those opportunities. So, that's been, for me, very, very telling about, you know, how meaningful this industry, not only from the value that the products provide, but also that this industry is really, you know, giving people purpose.

Matthew: Yeah. Here's a Peter Thiel question for you. What is one thought that you have that most people would disagree with you on?

Eran: Putting the farmers first. You know, that's something that I've always had a hard time from an investor perspective, you know, really showing them that. A lot of people look at our business model and say, "Hey, you know, you could just buy this raw material much cheaper, and you don't need to get involved that much on the growing side." Again, I've always seen this as an agricultural initiative is about the farmers.

It is about seed to market. It is about transparency, and the way to do that is really to partner and empower farmers. And I think that's being something that we've held strong and continue to do and learn from too, you know, working with farmers. I learn every day about, you know, what can work and what can't work and how we could better, you know, be a service provided to them, but putting them first as being that an important part of our evolution.

Matthew: It sounds like you get out and, you know, you see a lot of New York State. Is there any place, other than New York City, that you consider kind of like your happy place, maybe in the Hudson Valley, or upstate, or...that you consider like, "Hey, maybe the public doesn't know so much about this area of New York State, but it's really pretty and worth visiting?"

Eran: I think the Catskills has a lot of opportunity. You know, also, with my background in hospitality, the Catskills in the 30s, 40s used to be a big destination, a resort destination, especially for the summers. So, you know, with prices so high in real estate and probably everywhere other than the Catskills, I see a lot of opportunities there. And again, this industry, this hemp industry is revitalizing some of these neighborhoods and giving them opportunities to prosper and bring in innovation as far as what attracts people to come out to these places. So, I think the Catskills is underrated. It's got some opportunities still left in it.

Matthew: Yeah. It used to be super popular way back when, and they had beautiful resorts up there and everything. And you just don't hear much about that anymore.

Eran: Yeah. That's correct. But I do think that those can reinvent themselves, and I do think that this industry bringing life to some of these regions will help with that.

Matthew: Eran, as we close, can you tell listeners how to find out more about UrbanXtracts and connect with you online?

Eran: Sure. So, the best way to find out about us is really to follow us on social media. We post really good content and educational content and our progress on how we're doing, whether it's growing, processing, developing, or marketing on Instagram, and that's UrbanXtracts. That's U-R-B-A-N-X-T-R-A-C-T-S on Instagram and also on our website, urbanxtracts.com.

Matthew: That's great. Well, good luck to you and everything you're doing. I'm really excited to see the pictures of this prison project and how you're going to get it fixed up and ready for hemp.

Eran: Well, Matt, we look forward to talking to you again, and maybe the next time we'll do it face to face at the processing facility in Q1 when it opens up.

Matthew: Oh, that sounds great.

Eran: Wonderful. Thank you very much.

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