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Ep 335 – Selling Cannabis Above Market Rate? Here’s How…

sam ghods connected cannabis 1

At a time when most cannabis cultivators are competing on price, this company is commanding a premium on their sought-after flower. Here to tell us about it is Sam Ghods of Connected Cannabis.

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

Key Takeaways:

[1:00] An inside look at Connected Cannabis, the largest branded flower company in California

[1:27] Sam’s background in tech and how he got into the cannabis space

[5:01] How Connected Cannabis commands a premium on their flower in a competitive market

[11:26] Differences between the cannabis market in California vs Arizona

[12:07] Connected Cannabis’ unique cultivation team

[15:37] Why most retailers don’t cultivate their own cannabis

[19:29] How California’s notorious black market is changing thanks to developments in the legal market

[21:37] The grow technology Sam finds most useful

[23:53] Where Sam sees cannabis cultivation heading in the next 3-5 years

Click Here to Read Full Transcript

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

At a time when most cannabis cultivators are competing on price, this grower's commanding a premium on his sought after flower. Here to us about it is Sam Ghods of Connected Cannabis. Sam, welcome to CannaInsider.

Sam Ghods: Thank you. Thanks for having me. Love the podcast, I'm excited to be on.

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

Sam: In San Francisco, personally. A lot of our operations are based out of Sacramento, California, but as I've been here for some time now. We have a pretty geographically distributed team, but I'm in San Francisco today.

Matt: Okay. What is Connected Cannabis on a high level?

Sam: We focus on growing and selling the world's best cannabis. We're vertically integrated in California and last year, we launched in Arizona as well. We are the largest branded flower company in California, as well as the highest priced as well.

Matt: I want to get into highest priced piece in a minute, but you've got a pretty interesting background here, Sam. Can you tell us about your background, your journey and how you got into the cannabis space?

Sam: Yes, totally. I started out in the tech world. I co-founded a company called Box, specializes in cloud sharing and storage over 14-15 years ago, with three other friends. We grew that from the four of us to 3,000 employees worldwide. We took it public in 2015, led that primarily as head of technology. Right around 2017, 2018, decided to take some time off, look for something new.

I knew I always had a real deep passion for craft and artisan consumer goods and wanted to explore doing that professionally, but I never knew cannabis could be like that, until I met Caleb.

Caleb Counts is the founder of Connected Cannabis. He started the company by opening the first dispensary back in 2009 in Sacramento. It was actually the first unanimously approved dispensary in Sacramento. From there, he started cultivating a year later in 2010, and with really out of a need for a consistent supply of really high-quality product. It was really hard to find great product consistently back then, so he just decided to start doing it himself.

From there, he and his partners have built this empire over the course of a decade. They added indoor grow, outdoor greenhouse, multiple moar dispensaries, distribution sales marketing, and that being fully vertically integrated in California. By the I found out about them in 2018, within the first few minutes of speaking with Caleb, I found out what I like to say is everything I needed to know about the business, which is for years they have been selling out of their product at two to two and a half times what Rio was selling theirs for. That immediately peaked my interest. I was like, "What's going on here with this company and this industry?" I just dove in head first. I really was blown away by what I saw and what they have built.

At the time, I joined on first as an adviser, helping them consolidate the company and get it prepared for fund-raising. They were also looking for a CEO, so in September of 2018, I joined full-time as CEO.

Matt: For listeners outside of California, can you describe how much a pound of cannabis is? What's the market price for a pound of cannabis?

Sam: Usually, we talk about it in terms of the wholesale price per pound is most common. It's been moving to price for eight, but in the price per pound range, for most cannabis for indoor, it's probably in the $2,000 to $3,000 a pound, then with this you double that to get to the retail price. We have been selling, for the past couple of years, an average of around $4,000. Recently, we've been selling for over $4,500 per pound.

Matt: That's the part where most people are like, "How in the hell?" That's what piqued your interest when you talked to the founder, and you were like, "What exactly is going on here?" Sam, how do you command a premium here? You've got something special going on here, but what do your clients say, what are your customers? When you talk to them and they say, "What are you buying this for?" Is it just like, "Hey, this is just next"? Or what's going on here?"

Sam: At the end of the day, it comes down to product. We spend a lot of time and energy developing the product and pushing it to it's absolute limits. There's two big components there. One is the genetics, and one is the cultivation. On the genetic side, a lot of people think that cannabis genetics are like wine bridals, where they're pretty common, pretty shared, there's no too much differentiation between different brands and products and it's really about obtaining different kinds, versus developing. Instead, we see them as something that we develop over the course of years and expresses our taste in world view about where the product is going.

One example is we've actually bread a total of, over the last decade of the company, bread over 10,000 different bridals and strains and we've only brought to commercial reality a small handful. That shows how much time and energy is going into our genetic development and expanding and breeding our line of strains and creating these strains like the biscotti, or gelonade, or baklava across our brands, that you just don't see anything comparable on the market. That's one of the biggest reasons that we end up with this premium is because we only make so much product because of the incredibly high-quality and high exact standards we have and that product because of the genetics in large part is of just a totally different kind of product than what else is on the market.

The way that shows up, it shows up in nerve structure, it shows up in the smell. Really, really unique terpene profiles. The flavors, the way that it smokes, the effect that it ends up having because of the unique combinations of terpenes and cannabinoids, all these things go into a really holistic end-to-end process of a product experience, that's really unlike anything else in the market.

The genetics power a lot, but then on the cultivation side, there's, let's say, 10-15 major steps or factors that goes into an average cannabis indoor harvest, and every single one has to be extremely well-executed every single time. What we found is one step in that process misfired one time, and you can instantly go from a $4,000 pound to a $2,000 pound. That product usually doesn't end up or will never end up in one of our branded packaged products that we sell. We only take the best of the best of what we cultivate and we put it on our brands, which then creates an incredibly powerful brand because customers know that when they come to Connect Cannabis, it's just not gonna be someone else's weed, thrown in a jar with our label on it. It's not just going to be whatever we just happen to grow, it's going to be what we believe is the best of what we represent. That's how we've created these brands that have such power and weight in the industry, it's through all these three things. It's the genetics, the cultivation quality, and the brand that results from that.

Matt: You mentioned when you first got involved, you were seeing the products sell-out. Is there an intentional strategy where you say, "We make just a little bit less than demand to keep the demand high," or are you pumping out as much as you can and then the demand just meets it at that price?

Sam: More of the latter. It's more that we only put out the best of what we can make and at this point, it so happens that demand is far exceeding the supply. We're going to keep trying to bring more and more products to more and more people, make it more accessible and available, but for the time being, we're not going to compromise any of our standards to just sell more volume, which is one of the kind of real key tenets of our company and strategy. At this point, demand is very much outstripping supply.

Matt: Okay. You have three retail stores in California, and how many other retailers do you sell to?

Sam: Right around 250 give or take, at this point.

Matt: You mentioned there's some in Arizona as well as California?

Sam: Yes. Last year, for the first time in the company's history, we opened up a new market. What was really critical for us in going to Arizona or to any other state for that matter, is we are doing our own cultivation with our own genetics. When you get a Connected or Alien Labs products, our two brands in Arizona, you can be confident that it is the same product you're getting in California, which is extremely rare in the cannabis industry because as your listeners likely know, you can't take product across state lines. You have to rebuild basically your entire company, like a mini version of your company in each state you want to go in.

If you see brands that are across many states overnight, the only way to really do that is to leverage other growers, other genetics, other brands and rebrand them as their own and that's a strategy we've very deliberately decided to not pursue.

Matt: Is there any differences in the California and Arizona marketplaces that you noticed right away?

Sam: I think in both markets, we found a really strong group of consumers, who really value a high-end experience. There are definitely nuances and differences. California is a more mature market of a larger size. For us, we found just as much appetite and demand for a higher-end product in Arizona as we do in California.

Matt: You have a really strong cultivation team. You talked about the founder. Can you just talk a little bit more about the cultivation team, how they spend their time and what they do?

Sam: Yes. We have two big components scope for each team. One is a genetics and research and development part of the house, where we're experimenting with new things and working with constantly introducing new external genetics into our pool and creating really cool and neat interesting stuff. We have some stuff coming down the pipeline in the next year too that's, I think, really going to blow people away. We have that whole side of the house. We're building that up now. We're working on hiring full-time genesis and plant breeders to work with the team that we have, that's been doing this for a long time.

On the other side of the house on the cultivation side, we have some of the most talented growers in the world when it comes to cannabis. People who've been doing it for years and years. Combined with newer hire that we've brought on, such as our head of cultivation, a gentleman named Ian Justice, actually came over from Driscolls, which is the largest berry grower in the world, measured in the billions of dollars of annual revenue, who is colloquially in the company known as our plant whisperer, who is really helping us push the limits and discover entirely new depths of where we can take this plant.

It's really hard not just for any cultivation team, but for any company to seed in cannabis without what I think of as both sides of the equation. The one side is the cannabis experience. There's not a lot of experience out in the world with this plant. Stemming all the way back to the prohibition, the complete and total prohibition in the early 1900s from federal level, there's been very little research, there's very little understanding. We understand this plant less than just about any other plant in the world, especially the ones that are developed commercially like, let's say, berries or corn or soybeans or anything like that.

Experience with the plant is extremely valuable. You have people like Caleb. We have a number of GMs in our company, who've been doing this a long time. You also want to combine it with the absolute latest cutting-edge plant science, from other plants that can be applied and unique and specialized as cannabis. If you don't have both sides and a lot of companies, in fact, I'd say just about every other cannabis company I see, ends up biasing heavily towards either just being purely a cannabis company without the business or growth or traditional parts, or you see a lot of business-oriented companies, where there's virtually no cannabis experience in the leadership level or cannabis product or anything like that.

What we've really created in the cultivation team and then beyond in the company more broadly, is a company that integrates both sides of that equation in a way that ends up being really really powerful, in terms of delivering scale along with a great product.

Matt: I'm just trying to understand why retailers don't do a better job with their own in-house brands. Do you have to have an absolute obsessive need to be creating the best possible plants and also a sense where the culture is going, then a vision and just a lot of retailers don't have that trifecta? Why do you think they just don't go where you've gone with Connected?

Sam: It's really, really hard. Creating great cannabis consistently is probably the most ironically underrated thing in this industry right now, especially when it comes to the mainstream conversations around MSOs or national cannabis markets or the development of those. The bigger companies that exist in cannabis right now, generally got there by being more portfolios of assets, than a focused company delivering on a specific mission.

Cannabis, it is one of the most complicated plants that's being grown today. It's one of the most counter-intuitive and the way it responds to different stimuli and environments. It's really easy, again, to go from an extremely well-crafted cultivated product with exotic and advanced genetics, to something that's just run-of-the-mill. That's what anybody can do. It's like a high-wire act effectively. I see it in every single harvest that we produce.

We're measuring things down to not just the nutrients or the frequency or how we water, even the temperature of the water of the way the nutrients are delivered, needs to be consistent. The amount of detail that exists is just really underappreciated, I think. You ask why a retailer or another cannabis brand or these MSOs can't get it right, well, it's really hard. We make sacrifices all the time, in terms of where our dollars go, where our focus goes. We're hiring a team just exclusively focused on post-harvest development, not even on the cultivation part, but just what happens after cultivation.

Matt: Talk about that a little bit, like curing and so forth.

Sam: Curing, trimming, packaging, storage, the way the product is stored after harvest, can dramatically affect the final product. That can eliminate or enhance all the hard work that came before it. Just the storage piece alone, for example, not to mention curing and trimming and those other pieces. There's whole dimensions to this. We don't even understand yet, but we believe we are on the cutting edge of and it's not your day job. It's like a full-time job to figure this out and push the boundaries, there's barely even hope to even create a premium product in the first place. It's really hard.

Even if you do crack the code and you can create a premium product, it's one thing to do it out of one facility or one team or with what certain limit to the amount of scale or even in one state, but to do it again and again in larger and larger facilities and more and more markets, that's a herculean task. From what we can tell, we're one of the only companies pulling it off right now.

Matt: California is notorious for having this huge black market. How is the legal market changing that dynamic, if at all?

Sam: It's definitely helping, overall. I think the state of cannabis is making it more accessible, safer. The testing standards California's put in place, some of them are a bit extreme, but at the end of the day, it's creating a much more regulated and safe environment for consumers, which is a really big win for consumers. One of the reasons the black market and gray markets continue to exist is because the barrier to entry is incredibly high. The amount of time and capital you need and the regulatory landscape that one has to navigate to be able to succeed in the

legal markets is a lot. It's really hard. It's really, really hard and it's a big struggle for us. The problem is if it's a big struggle for us, we can only imagine how hard it is for someone just getting started.

I think that's putting an artificial limit on the amount of growth and innovation that could exist in California and in many other states. In some ways, it really helps with a lot of the safety and quality and accessibility to bring cannabis and help it mature as an industry. Obviously, the tax revenue that we're providing is a huge boom to the state as well, but it's still too hard. It's largely from what we can tell because a lot of the programs are just under-resourced.

You have these agencies that are struggling to do a good job, but they're not given the resources of the frameworks that make sense to keep up with the scale of the industry.

Matt: Okay. Given your background with Box and technology companies, are you putting in some high-tech solutions in your gross to help sense and organize and do a bunch of different things and maintain them? Can you talk about that at all?

Sam: Yes. Ian, our head of cultivation likes to say, "This isn't just about putting processes and procedures in place that every time guarantee just manufacturing the same product. It's more of an ongoing relationship that we have with the plant, that we learn what the plant likes and how it reacts." A lot of technology we're focused on now, it's about monitoring, not just environmental monitoring of temperature, humidity or things like that, but monitoring what the plant is experiencing, the pH levels of the soil itself or the moisture levels or integrating how the airflow is going throughout the room, the CO2 levels in different parts of the room and what the plant's measuring. The light levels that the plant sees at different parts of the plant, all these things is data we're beginning to gather in a really high scale way, that enables us to really understand what the plant is experiencing through a typical cycle.

Every cycle has small differences and nuances that we have to react to in real-time. Every strain can react differently to different environments. We pay attention to that and try and optimize the environment for the different strain mixes that we have in the trip. I think we're at the very, very, very beginning. Unfortunately, the technology landscape for cannabis is not very flushed out yet. There's not a lot of options, but we are looking at more traditional [unintelligible [00:23:43] systems, the ones that are top of the line for monitoring indoor agriculture and applying many of those throughout the stack.

Matt: Okay. If you were to close your eyes, pull out your crystal ball and look three to five years out, what do you think cannabis cultivation is going to be like then? How will it have evolved?

Sam: As there are more companies who are able to focus their time and resources on cannabis cultivation, it's going to be pushed to heights that we can't even conceive of right now. You could say a theoretical ceiling on this plant, is incredibly high and none of us know where it is. You'll see $200, $300, $500 hits on the market. You'll see a tearing in a quality level that is based more on the intrinsic quality on the product, versus the brand, than any other consumer that we know of including wine, including spirits, including anything like that. We're going to see a higher ceiling and more potential of this plant to have differentiation in the product itself, than any other mass-produced consumer good we know of today.

That's what's most exciting for me about this company, this space, this industry is that I think we're on the very, very, very beginning of exploring and it's not going to go in the direction of [unintelligible [00:25:24]. It's going to go in the direction of the highest and most artisan and craft consumer goods we know of.

Matt: Now, obviously, you've got a big presence in California. California has had some challenges lately. Do you think they're going to turn it around or do you think it's going to hit bottom first, before, maybe, some of the government officials get a sense that they need to adapt or respond in a different way like some of these hungrier states like Nevada or Florida or Texas?

Sam: I'm not sure. I definitely hope it gets better before it gets worse. I don't know. I think that's a really good question and I really hope that some change comes to help push this industry along its growth trajectory because you still have a very small percentage of Californians that have easy access to legal cannabis. It just doesn't make sense. It's such a high-potential industry. It's such a great product that has so many benefits holistically. It's such a better alternative than other recreation methods. I really hope it does get better.

Matt: Sam, I want to ask a few personal development questions to give listeners a better sense of who you are. Is there a book that's had a big impact on your life or way of thinking you'd like to share?

Sam: Yes, for me, one of the things that I've spent a lot of time on is how to build culture inside of companies. Even though, at Box, my main role was to focus on technology and specifically, computer science or computer engineering and then coming over to a cannabis company has been a shift in a lot of ways, in terms of what's done day to day in terms of the actual product. The thing that has carried over the most, has been building a culture for a company that's experiencing a tremendous amount of growth developing and producing a great product. A lot of things that come with the culture is how people interact with each other when there's conflict, when there's disagreement, when there's really hard problems to solve.

For me, one of the most helpful guides along that path has been a book that I frequently say called Crucial Conversations. I really love that book. It's a step-by-step guide on how to have conversations where the stakes are high, whether it's a conversation between you and your boss or you and your partner, where there's a lot of either context or history or emotion involved and it's like a tricky spot to be in and how to navigate that. It's been a really helpful tool for me to develop on that front. Crucial Conversations, I'll recommend really frequently, especially for people struggling to have a bigger impact in the organization or to be more persuasive or influential in the work they do.

Matt: When you look out of the cannabis landscape, apart from what you're doing at Connected, what do you think is just super interesting in the cannabis space?

Sam: One of the things I'm really excited about is the research that's beginning to happen. As the federal laws around cannabis will, hopefully, continue to get more lax and permissive, there's some opportunities for research opening up, more traditional university back research. There was a paper published recently around light levels and cannabis, how cannabis reacts. I think one of the things they found was they weren't even able to find the limits. Even at their highest levels, they were finding there were still gains in the production of the plant as related to a light level.

There's so much more to learn about this plant. I think traditional research and science getting involved has a lot of potential benefits, not just the quality, but also the benefits, the health benefits and other benefits to the human body and the endocannabinoid system that we're yet to discover.

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

Sam: I think I would come back to just the importance of having both sides in a company. Most people get fed up really quickly when they're trying to integrate the cannabis world in the business world, and they would see it not as a valuable partnership, but one that drives a lot of conflict and it isn't worth it. I think the people who have been really experienced and historically are knowledgeable in the cannabis place look at the business people and say, "They don't know what they're doing. They're never going to understand it. They're never going to appreciate what we're doing or create something that's really high quality and amazing."

People in the business world look at the cannabis people and say, "They don't really understand business. They don't traditionally train. They don't have what it takes to scale companies and make it bigger." That attitude, it was also in a lot of the companies that you see. Whether either they're growing and scaling, but they don't have any products that nobody cares about or they're product-oriented companies that have a really hard time scaling. Neither of those make a recipe for pushing the boundaries and limits of what this plant can do.

At the end of the day, the only reason our products is priced how it is and our company is grown the way it is is because it allows us to invest more, and more, and more dollars back into the plant, back into the product. Like Apple or Tesla, driving profitability in their companies, allows drive all that profit and revenue back into their R&D to create even more incredible consumer products. I think that's something that's really not appreciated in this space is that blend and the hard work that takes to make a culture where both sides are really appreciating what the other side brings to the table. I think it's really underrated right now in the space.

Matt: Sam, as we come to a close, can you tell listeners how they can find Connected Cannabis if they're in California or Arizona and maybe, you even suggest a strain for someone that's trying it for the first time.

Sam: Yes, totally. We have our three retail stores in California, which are great spots to grab our product. San Francisco, Sacramento, and Stockton, those are three locations we have stores. Also, you can find our product at many, many partners, hundreds of partners and countries around the state. Weedmaps is a really good way, as well as [unintelligible [00:32:41], are both great ways to find the product and where we're carried.

In terms of strains, on the Connected side, Gelonade is one of our more newest strains that is a little bit more [unintelligible [00:32:58] leaning, a little more energy. If you just want the traditional, old school, a lot of the brand of was built off as biscotti. That's on the Connect side. The Alien side, we have a new strain that recently launched, biscotti, that's getting crazy, rave reviews. Keep an eye out for that one. It's pretty limited right now, but if you can get a hold of that, it's pretty magical.

Matt: Sam, thanks so much for coming on. You really educated us. Sounds like you have a great business. Well done. Congratulations and come back on once you have this curing and drying everything worked out with that team because that's really interesting stuff.

Sam: Absolutely. Thank you so much for having me. I'm really happy chat with you today and look forward to chatting with you again soon.

Matt: If you enjoyed the show today, please consider leaving us review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five star review helps us to bring the best 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 guest as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Emotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider.

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

Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye

[00:35:19] [END OF AUDIO]

Ep 334 – Master Grower Shares Secrets of World Class Cannabis Cultivation

ryan douglas cultivation

Commercial cannabis growers are notoriously tight-lipped when it comes to their growing methods, but not Ryan Douglas. Today this master grower shares all the secrets you need to take your grow to the next level (including what not to do).

Learn more at https://douglascultivation.com/about 

Key Takeaways:

[00:54] An inside look at Ryan’s new book, From Seed To Success

[1:35] Ryan’s background as CanopyGrowth’s expert cultivator when the company was still named Tweed

[3:01] How Ryan helped CanopyGrowth get its start as one of Canada’s first and largest licensed growers

[6:05] How Ryan went about choosing the best genetics to grow at CanopyGrowth

[7:42] The efficiencies required for a large commercial grow

[11:37] The most common mistakes commercial growers make and how to avoid them

[14:33] Ryan’s advice on how to approach a commercial grow and determine what needs to be done on a high level

[17:22] How to determine a reasonable budget for your commercial grow

[19:02] Best hiring practices for commercial grows and what to look for in staff members

[20:34] How to mitigate pest issues

[26:34] The best type of lights for indoor grows

[27:57] Where Ryan sees commercial cannabis grows heading over the next 3-5 years

Click Here to Read Full Transcript

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

Often, commercial cannabis growers are tight-lipped about the best practices that used to grow world-class plants and customers want and to bring in profits. Today, commercial grower Ryan Douglas is going to pull back the kimono and share all the secrets you need to take your grow to the next level. Ryan, welcome to CannaInsider.

Ryan Douglas: Hi Matt. Thanks for having me on, it's a pleasure to be here.

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

Ryan: I'm in Florida on Vero Beach, so it's about two hours north of Miami.

Matthew: Okay. Can you tell us a little bit about your new book, From Seed to Success?

Ryan: Sure. This is basically a guide book for anyone from any industry that's interested in launching a commercial cultivation operation. It's basically set up as a step-by-step guide for not only planning and designing but also executing and expanding a successful commercial cannabis grow operation.

Matthew: Okay, so it's not just for someone that's about to launch one, it's also for people that currently have a commercial grow too?

Ryan: Exactly, exactly because there's as many companies looking to expand as there are looking to start from scratch.

Matthew: Yes. This is important stuff. I want to dig into this, but before we do, can you just give us a little background about how you got into this business, what you were doing prior, and so forth?

Ryan: Sure. My background, my training is actually in traditional horticulture. Before even touching cannabis on a commercial scale, I was a greenhouse grower of ornamental and edible crops for about 15 years across the US. Then as cannabis slowly became decriminalized, I started looking to transition basically the crop I was growing, but keep the same line of work.

What I found is that 90% of the techniques and principles used for cultivating flowers or vegetables or herbs are directly applicable to cannabis. As cannabis became more and more at least decriminalized, then I became more interested in entering that that line of work. I was lucky enough to land a job as the head grower for a company called Tweed, which is today known as Canopy Growth Corporation in Canada.

Matthew: Yes, gosh, that's one of the biggest success stories in the cannabis space now publicly traded. It's one of the biggest, and we had CEO Bruce Linton on when it was called Tweed. There's a throwback for listeners that want to go back to those original-- That was a long time ago. That seems like it seemed like cannabis 1.0, so I'm glad we're going to hear some of the Genesis here. Most people have heard of Tweed that now became Canopy Growth, but what were you doing when you first started with them? How did you set up a-- That's an enormous grow I imagine. What was that like?

Ryan: That was exciting. Bruce hired me over a dinner one night in Ottawa back in 2013 and I just never looked back. That was a really exciting ride. At the time, I was a cultivation manager for a small dispensary in Maine. I was thrilled to be working with cannabis legally, but compared to the greenhouses I'd been operating, it was a relatively small grow area. Almost immediately, I started looking for something that would be much more challenging, but still in the cannabis world.

I read that Tweed was looking for a head grower and I just followed the typical paths of landing a job through reaching out with a resume and phone interview, and then I landed the in-person interview with Bruce in Ottawa and we took it from there. You're right, it was a massive undertaking because we were one of the first licensed producers in Canada. I think we were the seventh.

We not only had consumers that were waiting to purchase product, but we also had Health Canada, which was the entity responsible for regulating the program. They wanted to have some licensed producers actively growing and selling cannabis. There was never a dull moment for the first couple of years at work there.

Matthew: Okay. Bruce goes big. He likes to go big. How many plants were you growing?

Ryan: Yes, so at that time, we were restricted by the amount of grow rooms that we had licensed. The way that Health Canada set up the program is you received a cultivation license, which gave you permission to cultivate, but you had to have individual grow rooms okayed by Health Canada. At the time, at the beginning of that program, it was a relatively slow process.

Our goal initially was to set up six rooms of about 2,000 square feet each, and you would stick about 500 plants in each of those rooms. The short term immediate goal was to grow with 3,000 plus plants that we could load up half a dozen grow rooms and that was actually the foundation of the cultivation program at Canopy.

Matthew: Okay. Eventually, it moved into a Hershey factory in Ontario or something like that. Did I get that right?

Ryan: Yes, that's where we started. When they hired me in 2013, the company didn't have a license so part of my job was to help the group identify a facility that would be appropriate for building out into a commercial cultivation facility. What they found was a former Hershey chocolate factory in Smiths Falls, Ontario, which had been empty for seven years. It was huge, there was plenty of space. There was a lot of electrical power, a lot of water, and it was actually the idea of location. Because it had sat empty for seven years, the price was right on point, so that's how we ended up there.

Matthew: Okay. How did you pick the genetics to grow?

Ryan: Well, at the time the regulations prohibited us from acquiring genetics from any source that was not already licensed to grow them. At that point in Canada, for several years prior, they had a medicinal cannabis program for home growers. With the new program is basically licensed to large commercial growers, but we had to acquire genetics from those home cultivators.

It was so while I was busy, designing the facility and hiring the team, and planning production, we had people that were reaching out to these licensed home growers to see if they'd be interested in selling their genetics and then seeing what they had and in what quantities. Once these folks reported back with their findings, then I was able to select what I thought made sense to really launch the cultivation program with.

Matthew: Okay. Are you just getting cuttings from mother plants then? Is that what was happening?

Ryan: We had more luck finding seeds. The risk with starting from cuttings from other plants is that you bring in everything that's on that plant. There's a high likelihood of either a disease or an insect coming, hitching a ride with that plant. Since we had just built a brand new custom-designed facility for cannabis, really didn't want to start off with two strikes against us by inviting in potential problems. By starting from seed, we eliminate that risk to some extent.

Matthew: Okay. Yes. What kind of efficiencies are required for a grow that large?

Ryan: Those six grow rooms, relatively speaking, it wasn't that big, but my goal was to design a production facility that had the capacity to really expand relatively quickly and relatively seamlessly. From the get-go, there was a couple of systems I put in place that would really increase the efficiency, but also would support a much larger expansion. Just quickly, two of those were the environmental control system and a fertigation system.

An environmental control system, what that does is it allows either the owners or the head grower to view on one screen, monitor everything that's happening in the production facility, and make changes as well. With the click of a button, you could look at a grow room and see how the HVAC equipment, the dehumidification equipment is functioning. If the lights are on, how many lights are on, if the fans are moving, carbon dioxide levels, and it lets you adjust those so you can do that remotely or on-site.

The second piece of equipment was a fertigation system. Fertigation is simply the adding of fertilizer to irrigation water. Watering irrigating plants is a task that happens just about every single day in a production facility, and the amount of time it takes to fill a tank, measure, fertilizer apply the fertilizer empty of the tank. It seems like a pretty straightforward process, but it can consume 10% of a person's workday. You multiply that day after day, week after week for years and you're spending a lot of money on labor on that one task. By automating the irrigation we free up the labor and it ensures that we have a relatively lean production program in the future as they expand as well.

Matthew: Okay. What about harvest cycles then? Do you have a different harvest period for different rooms to make it easier on yourself or how does that work?

Ryan: Yes, so really the most efficient way to set up a production facility is to that have a perpetual harvest cycle. Whether we're talking about an indoor grow up or a greenhouse, if you were to load up that facility all at once and harvest it all at once, you need a really big space to dry it, a really big space to process it. You need a lot of people all at once to do the trimming. Then once it's done, you don't need that empty space, and you have to let all those people go. It's much more efficient to harvest smaller quantities but do so regularly. Really just about every two weeks is ideal.

Matthew: Okay. Did you use trimming machines or trim by hand or how does that work?

Ryan: Yes, so we did both. Initially, we started out by hand. Once you get into really big volumes, that really eats into your labor costs. Towards the end of my tenure there, we automated the trimming.

Matthew: Gosh. Can you tell us anything about the drying and curing process?

Ryan: Yes. It's a critical step because it's actually possible in a week or 10 days to ruin all of the previous couple of months of work if the drying process isn't done correctly. It's simply a balance of the correct temperature and the correct humidity and slowly allowing the moisture to leave the plant. If it's too hot and too dry, and it's done too quickly, it can negatively affect the quality of the flower and it can destroy some of the active ingredients, the cannabinoids or terpenes that the plant has.

On the flip side, if it's done too slow, or the temperature is too cold, and the humidity is too high, the crop can easily begin to rot in the drying room. It's a question of finding the balance between temperature, humidity, and airflow. Generally, a crop should be dried within about 7, maximum of 10 days from the day it's harvested.

Matthew: In your mind, what are the most common preventable problems commercial growers could avoid but don't?

Ryan: There's a couple, probably the biggest two, I think are especially for startups, selecting a really complicated grow method. There's lots of different ways to grow cannabis. What I find, oftentimes, are groups that are new to the process, they do a lot of reading and investigating and they find that certain ways of growing produce the most amount of product, grow the plant the fastest, and have the least likelihood of disease or insect infestation, which is great, but there's some really advanced methods of growing, which are inappropriate for startups.

If you think in a new facility, you've got a new cultivation team, you likely have new genetics, everything is brand new. If you start with the most advanced, most difficult method of growing, it has a very low margin for error. Because most startups in any industry are not pretty, you really want to eliminate potential risks or things that could go wrong.

There's methods of growing called Deep Water Culture, or Aeroponics. Basically, the plant is suspended in water or it's suspended in the air and the roots are misted by a nutrient solution. There's so many valves and tubes and pipes, and there's so many variables that have to come together just perfect for that crop to get pulled off that it's really risky for a startup to go that way. Probably one of the biggest mistakes I see is that companies from the get-go, elect a very advanced, inappropriate method of cultivation to start with.

Probably the second mistake I see right behind that is selecting too many genetics to start with from the get-go. I've had clients that have wanted to start between 50 and 100 different varieties from seed to launch their cultivation facility. That's extremely unlikely. Even a world-class skilled grower is going to have a very difficult time pulling that off. I tell people to start with maybe five or eight, maximum of 10 varieties because if you can't launch a cultivation facility successfully and quickly doing it with five varieties, you'll never do it with 50.

Matthew: It sounds like there's a lot of biting off more than you could chew because you don't know the level of difficulty when you're doing it for the first time?

Ryan: Yes, and there's a lot of excitement. Especially if you're new to the industry, there's so much technology and information and equipment, everything sounds good. There's a tendency to want that implemented all at once so you have just the best, most efficient production facility but, if you're not from the industry, you really need a consultant or a head grower that can really point you in the direction of what's necessary and what is inappropriate at the moment.

Matthew: Well, that's a good point. If you are the business owner or master grower, lead grower, what are the things you should be thinking about at a high level when you're creating a commercial grower for the first time? How do you organize your thoughts about what needs to be done?

Ryan: From the get-go, it's probably a good idea to start at the end with the end product. We really want to determine what is it that we're going to sell. If we're growing dried flower for sale at a dispensary, that's going to dictate how we grow that crop. In a dispensary, you walk in and you've got dozens of varieties behind a glass counter. The visual appeal is very important, it actually makes up a big part of the sale process. If we're growing dried flower for sale at a dispensary, we're likely going to be growing indoors because that gives us the most amount of control over the crop and it results in really the best-looking product.

If we're growing for an extracted product, if we're going to sell oils or vape pens or edibles, then the visual appeal of the flower doesn't really matter because the consumer never sees it. We're growing the flower as a source of biomass from which we extract the active ingredient. In that case, actually, outdoor growing or greenhouse growing might be appropriate.

We want to start by looking at the end result and then once we determine what our final product is, then we work backwards from there. We look at the regulations to see if the regulations dictate that we have to grow in a certain way. For example, in Canada, when we started in 2013, we were only allowed to grow indoors. Now, eight years later, we've got people growing indoors, outdoors, in greenhouse, so we were don't look at the regulations.

Then probably the last part of that is really look at the climate. Even if you decide that growing outdoors makes sense, if you're in New Hampshire, you've got a really small window of time to make that happen. Whereas, if you're in Southern California or Arizona, you could have two or three crops during the course of the year just because the weather is different.

Even before we look at growing the plants or the technical stuff, we really want to look at the bigger picture things like the end product, if there's any regulatory prohibitions, and then also. what makes sense in that certain geography or climate.

[music]

Matthew: Just like Zillow lets you browse for properties to buy or rent online, there's a company doing the same thing in the cannabis and hemp space. 420 Property lets you browse cannabis and hemp real estate and even businesses that are for sale. Get started for free at 420property.com. That's the numerals four, two, zero property.com. Now back to your program.

[music]

Ryan, how do you orient people in terms of budget? I know different projects have different budgets but is there any general guidelines you can help listeners with?

Ryan: Yes, so that's a critical piece of the puzzle because what I have found is that if you don't have a budget, then everything is too expensive. The risk is that you have a lot of these companies that sell turnkey solutions, specifically for the cannabis industry. HVAC systems that have the capacity to remove lots of water, which is the case with any kind of cultivation site, there's a lot of evaporation and transpiration. You have companies that offer turnkey solutions in terms of fertigation systems like I was speaking about before. These may be a little bit more expensive upfront, but what you get as a result is really low risk and limited downtime, and you give yourself the greatest likelihood of launching your facility on time successfully.

In terms of budget, if you're doing 10,000 square feet, you really want to have a couple of million dollars at your disposal. Anything larger than that, then you're looking at raising upwards of close to $10 million. What I tell clients in the beginning phases, if you're going to build something from scratch, if you're building an indoor facility, plan on spending about $250 a square foot to build that site out. If you're doing a greenhouse, plan out about $75 a square foot. Anyone can do the math on that as you approach 10,000 square feet or more, then we're definitely in the several millions of dollars.

Matthew: Okay. How about hiring? How do you pick staff that can really make an impact?

Ryan: Well, that's another key element to really establishing a successful cultivation program. Two things, I would say one on the head grower. The head grower in my opinion is arguably the most influential person in determining whether that business is a success or failure. I tell people to look for someone that has at least 10 years of experience. Not necessarily with cannabis, but at least with commercial plant production experience because they already come to the table with years of experience with facility management, production planning, and people management.

Sometimes if you hire for cannabis knowledge, what you get is someone that knows a lot about cannabis but doesn't necessarily know how to plan production or manage a team or orchestrate all of the nuances of a facility. As far as the head grower, I say look for someone with experience. You want someone that at least has a decade of experience growing anything but on a commercial scale.

Then for the rest of the team, you really don't need someone that has experience in the cannabis industry. Whether they're plant technicians or trimmers, you really just want to look for the same kind of characteristics that you would want when you hire anyone for any kind of job. That's really someone that has a track record of showing up on time, someone that can learn new skills quickly, and probably more importantly is someone that's really passionate and interested to get into this industry.

Matthew: You talked a little bit about pest issues and how a pest can get hitch a ride on cuttings of a mother plant, but how do you mitigate pest issues when they do get in? Because invariably, it seems like they do get in and you want to minimize the opportunity, but how do you deal with it once pests are inside a grow?

Ryan: That's a good point because that's the best way to look at it, not to be too naive. We need to anticipate that we're going to have pest and disease problems because every single monoculture in the world is attacked by something and eventually, it's going to happen. Of course, prevention is always less expensive and more efficient than curative measures, so we can prevent introducing diseased material into our grow up by either starting from seed or if we do accept cuttings or genetics from another grower, we could put that through a process of micro-propagation or tissue culture.

In the process of duplicating plants through tissue culture, you actually eliminate any disease that's inherent in the plant. It gives you an opportunity to really start fresh or at least establish a stock plant or a production system that's really clean at the base. Then during the course of growing, it's all about really maintaining schedules in terms of scouting the crop for potential issues, but then also either applying organic-based pest control products or releasing beneficial insects to really keep any potential outbreaks under control and really mitigate the damage that they might cause in the event of a crop failure.

Matthew: Can you talk a little bit about what actually is happening in the tissue culture process that you mentioned?

Ryan: Unfortunately, I can't get too specific because even I don't understand how that works. It's much more common in traditional agriculture. There's dozens of crops that are duplicated that way. Basically, traditional asexual propagation involves the taking of cuttings or clones. You have a mother plant, you cut off a shoot that's about four or six inches long, you stick it into a substrate, and two weeks later you've got roots and now you've got a genetically identical clone to that mother plant.

With tissue culture, it's somewhat of the same process, but you need much less plant materials. Really just a fraction of a centimeter of material is sufficient in order to start the process of propagating a new cutting. If you look at a standard mother plant, it could probably generate one or 200 cuttings every couple of weeks. With tissue culture, you could literally generate 10,000 cuttings from one plant at the same time.

Matthew: Wow. You mentioned a little bit about the automation you set up at a Tweed or Canopy Growth, but I'm interested in what kind of technology you think has the most positive impact in terms of making sure the automation is working correctly and managed correctly. Is there any names of products or anything that you could throw out there in terms of the best practices in terms of software or automation systems?

Ryan: There's so many out there. Really the most important thing I would direct people to look for is any kind of technology that helps you create the optimal growing conditions for the plant. That means really guaranteeing just a few factors and that is light intensity, temperature, humidity levels, and airflow, carbon dioxide to some extent too. If we can provide those four or five basic growing needs for the plant and have it right inside of those optimal ranges every single day, whether it's the lights on or lights off-cycle, then that makes growing a lot easier. If the plant is healthy, there's much less risk of insect or disease infestation.

I would say any technology, any equipment, or any software that helps the grower to better control the grow environment is going to be well worth the investment.

Matthew: One that probably sends you text messages or something. If it happens in the middle of the night you get alerted, right?

Ryan: Exactly. When we set up Canopy Growth, I was the first call on that list of phone numbers. When something went out of range, it would immediately call my cell phone until I picked up and acknowledged that there was a problem. Then if I couldn't remedy the issue from my computer at home, I'd run over to the production site and really dig into what was going on.

Matthew: Does that happen often or is that a rare thing? Like carbon dioxide level, too high, that's gone outside of range or something like that?

Ryan: Or maybe an HVAC system that has shut off, but the lights are still on, so you can literally see the temperature rising as the minutes go by. That's why I lived three minutes away from the production site when I moved to Canada because I knew I would be dedicating a lot of time there. To answer your question, it is common especially with new facilities as you're commissioning the equipment and trying to get all this new stuff to work together, but it's less common once you get going.

Matthew: I imagine if you're doing an indoor grow, you have to have alternate energy source like a natural gas backup or something like that or generator?

Ryan: Exactly. Exactly. It would be unlikely that a production plant, the size of Hershey's, that you would have a generator that would allow every single piece of equipment to continue running. You really have to identify what are the most critical elements in a grow operation to keep running in the event of a power failure.

Matthew: A lot of people, it's like the Hatfields and McCoys with lights. People have their preferences and they get angry at people that have other preferences. What kind of lights do you like for indoor grows?

Ryan: For indoor grows with a relatively low ceiling height or those indoor grows that are multi-tier, LED lights work really well because they have a really thin profile and they can get really close to the plant. If you're growing in a grow room with a low ceiling height, you know that these plants are typically cultivated on benches that are about two feet tall, the plants grow another three feet so you have five feet already. Then if you've got a short ceiling height, you can't have a light that's going to generate a lot of heat because you're going to burn the tops of your plants and there's nothing that you could do, so low ceiling height or multi-tier growing, I think LEDs work really well.

If you've got a high ceiling or if you're in a greenhouse environment, then I still like a lot of the HIDs because they're just so powerful. They can really penetrate the crop and they have a carrying power. If you're in a really high ceiling indoor grow-up or a really high gutter on a greenhouse, then these HID lights they're going to reach the plant and do the work that they need to do.

Matthew: Where do you think commercial grows are going and how are they going to evolve in the next three to five years?

Ryan: Well, I think that we need to anticipate that growers will come under increasing pressure to really minimize their carbon footprint. On the one hand, it's great that we've got more and more states and countries that are legalizing cannabis cultivation, but we don't want our legacy as an industry to be that we've created this energy-consuming hog in a sense.

I think as we look to the next three to five years, we should anticipate as responsible growers that we'll need to do more with less, which means that we need to continue producing cannabis but doing so using less electricity and less water. I think we're going to see a lot of technology that's going to allow indoor growers to do that, but I also think new projects and expansion projects are going to be looking to greenhouse production because it's a much more environmentally friendly way of growing cannabis.

If we look at every other crop that's grown in the world, we're the only ones that do it indoors. If they can do it successfully outdoors with something like tomatoes that has such a small profit margin, then we can certainly learn how to do that successfully with cannabis, given that some of these markets are commanding $4,000 a pound wholesale.

Matthew: You're seeing a lot more adoption then of the greenhouses in Canada it sounds like?

Ryan: Well, those are my recommendations. It's hard to say on a whole if new businesses are going more indoors or outdoors, but my recommendation to clients more and more is to look at greenhouses because they're less expensive to build, they're less expensive to operate, and in three or four years in the event that there's some very strict regulations regarding electrical and water consumption, if you've built a really expensive indoor grow up, it's going to be even more expensive to retrofit that thing to comply with the new regulations. I honestly think greenhouse is the future of large-scale cannabis cultivation.

Matthew: For people that are interested in your book and they're on the fence like, "Hey, am I going to read this book or am I not." Tell us what's the biggest benefits from reading your book?

Ryan: The person that could benefit the most is someone that is not from the cannabis industry but recognizes the business opportunity. What my book is going to help these folks do is really avoid the typical starter mistakes so they end up spending less and they come to market much more quickly.

Matthew: Okay. Makes sense. Let me ask you a few personal development questions here, Ryan. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?

Ryan: Yes. For a long time, I always wanted to be an independent consultant. There's a book that I read that actually helps show me the way, showed me how to become a consultant and how to be the kind of consultant that I wanted when I was a Head Grower. It's a book called Getting Started in Consulting by Alan Weiss.

Matthew: Okay, and it worked.

Ryan: Yes. I can owe a lot of my success to that book.

Matthew: Okay. What do you think the most interesting thing is going on in your field?

Ryan: I think that kind of piggybacks a little bit on my previous answer in terms of really lessening our carbon footprint. Greenhouse and outdoor growers of cannabis, we can't rely on the pest control products that other growers can use, like pesticides or fungicides. We've got to get much more creative in growing these commercial crops by doing it in a very clean organic method.

What's exciting to me is seeing the way that growers are using, I would call biological agents, so beneficial bacteria, beneficial fungus, beneficial insects, in a way that prevents their crops from being exposed to potential disease, but also prevent or mitigates the potential damage from a crop failure. I'm excited to see in the next few years more and more companies implementing these products and really replacing pesticides with the use of organic methods and products to protect their crops.

Matthew: I feel geothermal's a big opportunity, especially in some of these environments with huge temperature swings, because you can be pulling the Earth's temperature into your grow and then the HVAC system just does the final last part instead of all the energy. It doesn't have to take everything to this extreme temperature that we can-- The Earth's temperature is at 50, I think once you go down 15 feet or 20 feet, and so if you could pull that temperature up into the grow and the HVAC has to consume a lot less electricity. Is there something I'm missing about that or is it just not widely thought of or is it difficult to implement?

Ryan: No, no, that makes a lot of sense. If you're in an area where you can take advantage of that principle, then I recommend it. I mentioned before that I'm from the traditional horticulture world and vegetable growers and ornamental flower growers, oftentimes, you'll have businesses that build these greenhouses right next to a power plant, or right next to an industry that generates heat as a waste product. When you look at places like the Northern states of the US, a large part of their operational expense is going to go into heating a greenhouse.

If you are connected to an industry or facility that generates heat as a waste product, then it dramatically drops your operating expenses in the same way that geothermal heat would. So if you're in an area where you can take advantage of that, I absolutely recommend it.

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

Ryan: I get a lot of pushback when I tell groups that their head grower should be the highest-paid person in the company. Like I said before, I think he or she has the greatest influence on determining whether that cultivation business is a success or a failure because the business makes money from growing plants. If your head grower is not a professional, skilled, experienced person, then you're raising $10 million or $20 million to bet on something that's very unlikely to pay off in the end. I always tell clients to find the best grower that they can afford and anticipate paying six figures and up for the right person.

Matthew: Okay. That makes sense. Ryan, as we close, tell us again the name of your book and how to purchase it.

Ryan: Sure. The book is called From Seed to Success: How to Launch a Great Cannabis Cultivation Business in Record Time, and both the paperback and the Kindle version are available on Amazon.

Matthew: Great stuff. Well, thanks so much, Ryan. This has been really helpful and informative and I know there's a lot of listeners out there that are looking for ways to improve their grows and also how to create an effective grow out of the gate. You mentioned you do consulting, are you still doing that?

Ryan: Absolutely. Anyone is welcome to reach out to me through my website at douglascultivation.com. I have a number of free resources for people that are thinking of getting into the business, but they're also welcome to contact me directly and I'd be more than happy to speak with anyone about their cannabis project.

Matthew: All right. Well, thanks again Ryan, and all the best to you in 2021.

Ryan: Thank you, Matt. It's been my pleasure.

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

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

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

[00:37:09] [END OF AUDIO]

Ep 333 – Iconic Cannabis Company Harborside Taken Over and Moving in a New, More Profitable Direction

matt hawkins harborside entourage effect

The end of federal cannabis prohibition is on the horizon as we enter a new, more mature phase of growth for retailers and growers.

Here to tell us more is Matt Hawkins of Harborside and Entourage Effect Capital.

Learn more at https://shopharborside.com 

Key Takeaways:

[1:20] An inside look at Matt’s work as Chairman of Harborside and Managing Partner of Entourage Effect Capital

[3:56] How Matt’s background in private equity has helped him make Harborside a success

[8:14] The potential for reverse takeovers in cannabis over the next few years

[11:41] Why Matt urges cannabis companies to “be more humble and get deals done”

[14:16] What would happen to the cannabis market if we eliminated 280E, a regulation that prevents cannabis companies from deducting normal business expenses

[17:15] What the new administration in DC could mean for cannabis

[18:32] Vertical integration versus specialization and which will gain more popularity as the cannabis landscape continues to shift

[23:55] Why Matt predicts the first national cannabis brand will either be in the edible or liquid categories

Ep 332 – The Zillow of Cannabis Properties?

ryan george 420property

How do you find real estate for cannabis businesses? Here to answer that question is Ryan George of 420 Property, the Zillow of cannabis.

Learn more at https://www.420property.com

Key Takeaways:

[1:43] An inside look at 420 Property, the world’s largest hemp and cannabis real estate marketplace

[2:06] Ryan’s background in cannabis and how he came to start 420 Property

[8:51] “Green zones” and where to find them

[10:06] Why both businesses and investors are choosing Ryan’s platform as the place to buy and sell cannabis and marijuana businesses

[11:36] The most active locations on 420 Property, including cities in California and Oklahoma

[15:15] Key considerations when selling a cannabis property and how to get your listing noticed

[18:20] Practical advice for buyers on what to look out for when searching for a cannabis property

[20:50] Where Ryan sees the cannabis retail space heading in the next few years

Click Here to Read Full Transcript

Matthew Kind: Hi. I'm Matthew Kind. Every Monday I look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot om. Now here's your program. How do you find real estate for the cannabis businesses? Here to help us answer that question is Ryan George of 420 Property. Ryan, welcome to CannaInsider.

Ryan George: Hey, Matt. Thanks for having me.

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

Ryan: I'm in Northern California. Specifically, I'm at my home office in Sacramento.

Matthew: A lot of people from the Bay Area moving out there? 

Ryan: Oh, my. It is one of the hottest housing markets in the world right now. It's amazing. Just to see home values rise as fast as they have in my immediate neighborhood is just amazing to see. Over the last year, we've seen homes go up over 20% in my immediate neighborhood.

Matthew: Oh my gosh. Yes, that's nuts.

Ryan: I was telling a good friend of mine that is currently shopping for a home in the Bay Area, what's going on up here and we were discussing, if I were to buy my house today for the prices that they're currently getting, I would say, "Forget it." I'd move somewhere else. It's just amazing the prices that people are paying for homes in the Sacramento area.

Matthew: Wow. It's an amazing time. We'll get into more about this type of thing later on in the show, but give us an update on what is 420 Property on a high level, just to give us an orientation, what that is? 

Ryan: 420 Property is an online real estate and business listing platform. We've often been called the Zillow of Cannabis. I'll admit it's not my favorite analogy, but for the purposes of an elevator pitch, it gets the point across pretty quick.

Matthew: Tell us a little bit about your background and journey, how you got into the cannabis space, started 420 Property, and so on.

Ryan: I grew up around the real estate business and inevitably began working in various capacities in real estate at a young age. About 2010, I was a commercial property leasing agent and had a client that was pretty evasive on what their business was, and eventually it came out and they came clean what they were going to be doing, which was a cannabis testing facility in Sacramento.

I had some suspicions on what they were going to be doing because of how specific their requirements were, can't be near a school, can't be near a church, and so forth. Once they came clean, my journey of trying to track down a cannabis property began. Being a millennial, I'm very good at using the computer and finding things online, I just could not find anything that could help me find a cannabis property. I went the old school route of just picking up the phone and calling everyone I possibly could.

I ran into roadblock after roadblock and objections from the landlord and when it wasn't objections from the landlord, it was objections from the localities or it was prohibited either by the local ordinance or the landlord was open to it but he had a bank loan on the property and couldn't afford to get a hard money loan or pay off the property in the event that their mortgage servicer found out and called no do.

I remember spending a lot of time on that specific deal, even though it wasn't a very large deal and I didn't stand to make a lot of money on it, but it almost became an obsessive game to find cannabis compliant properties. They ended up finding a property through a friend, but I still had that experience of how awful it was to try to find a cannabis property. This is back in 2010, '11, '12 era where it's still the Prop 215 days. At that time, the only luck I was actually having finding cannabis properties was on Craigslist under a term I believe it was garden-friendly or 215-friendly or 420-friendly.

What was on there was really dilapidated buildings or sheds in the back of people's homes or rural residential acreage. After that client was able to find the space, they invited me to come work for them at the lab. I left my position at the leasing company and started my career in the cannabis space as the business development manager for Halent Labs in Sacramento, which now has since merged with Steep Hill Labs out of Oakland, which was the first ever cannabis testing lab in the nation.

I'll say that that time at the lab was and is my most valuable cannabis industry experience. The Prop 215 era really was the wild West. I had a front-row seat to the emerging cannabis business at that time and it still is, still full of energy and new ideas. At that time, I was looking around and saw the need or the necessity for cannabis in the space and no one was really looking towards that area. Everyone was looking at mostly plant touching things. The ancillary side of the business hadn't really started to blossom. That's about the time I registered 420 Property.com, the domain name and cannarealty.com, and several dozen other cannabis-related real estate domains.

Surprisingly, 420 Property wasn't the first business that I had pursued in the real estate cannabis space. I initially pursued Canna Realty as the first real estate brokerage that focused solely on cannabis. It went well for a very short period of time and then it didn't go well. Being in Sacramento, California, there was a point in time where the unincorporated area of our city allowed cannabis businesses.

At that time we had over about 120 brick and mortar dispensaries in the county, and they were opening up and shutting down just as fast. I had a viable pool of customers in my backyard, and then the county issued a moratorium against those businesses. The number of dispensaries I believe dropped down to nine locations. At that time I decided to shut down Canna Realty and took a little bit of a sabbatical from the cannabis space for a few years. Then you fast forward to about 2015 and that's when I really started to get back into the space and started framing out what is now 420 Property.

Matthew: That makes sense. As just your own personal need you saw the opportunity there.

Ryan: Yes, absolutely. I remember thinking at one point, well, during my calling around. It was thinking of, "How great would it be if there was just a place I can go where all the properties are cannabis-friendly?" You don't have to feel out the other party like, "Hey, how does your client feel about a certain green business?" At that time it was still very taboo and it still is to some extent especially when you're dealing with landlords and trying to feel them out like, "Hey or--"

Back then, you didn't want to just come out and say, "Hey, are you opening a cannabis business?" Because you didn't want to have your reputation tarnished with your constituents in the real estate space, but now you can call somebody up and say, "Hey, if your property is in the green zone, can we put a business there?" It's either a yes or no question, but back then it was a little dicey, like, "Hey, how does your client feel about a particular green business that's new and emerging?"

Matthew: Talk about the green zone there and what that means. I know earlier you said it can't be close to a church or a school, but for people that aren't familiar with exactly what you're talking about, can you just help them understand that?

Ryan: Zoning in properties are one of the most important things or zoning with properties is one of the most important things in the cannabis space. There's not a one-size-fits-all answer. It's going to come down to what the locality or a municipality that issues the cannabis licenses has to say about the property requirements. Sometimes there's only state requirements, sometimes they're state and local requirements, but just generally cannabis buildings can't be near schools, churches, parks, public places where there's going to be kids.

Specifically, a green zone can refer to-- Some cities have designated out areas on their zoning maps, where you can put a cannabis business ahead of time. You go down there, you see what their green zone map is, or where you can locate, and then you have to try to find a property in that area.

Matthew: Who are the participants on the platform in general?

Ryan: We have a lot of different types of users with different goals of using the platform. Everyone from real estate agents or business brokers specializing in the cannabis space, investors looking for opportunities in the cannabis space, land and property owners looking to capitalize on the cannabis space or the increased premiums that a cannabis tenant's willing to pay. Then entrepreneurs in the cannabis space looking for real estate business assets or financial resources that they can find on our platform.

Matthew: Do you keep track of how many transactions have been there so far or how many leads or what are some key performance indicators?

Ryan: Yes. We don't really publicize the number of actually closed transactions or sold versus leased listings. What I can tell you and your listeners is that we've seen nearly 7,000 transactions to date on our platform that have come on and come off. That doesn't include the 3,000 that are currently being actively advertised on the platform. Of that 7,000, that equates to about 5 billion in market value. Our users have reported a very, very high success rate on 420 Property compared to any other real estate listing website out there.

Matthew: Where are most of the properties located?

Ryan: Well, most of our properties are located in California, which is arguably the largest cannabis market in the country. I would say, second to California is Oklahoma at the moment because Oklahoma has very low barrier to entry for the cannabis space. Then from there it would be Michigan, Oregon, Washington as where most of the listings are at this time. There's a few scattered throughout the country.

We're expecting New Jersey and Arizona to be the next two big markets. I'm still undecided on what is going to end up happening in the state of Illinois. That has the potential to be a very big market for us. It's a very big cannabis market in general, but I don't know how many licenses or how many businesses are going to be in that market altogether.

Matthew: Is there anything, anything besides real estate that people list on 420 Property?

Ryan: Oh, absolutely. Let's just kind of start with real estate. We have various capacities of real estate. We have real estate that's for sale, for lease, or sale-leaseback transactions that are on there. Then real estate in the cannabis space, depending on the local municipalities, what their requirements are.t i, could either be in the green zone, or it could be just a regular piece of real estate that you get a conditional use permit from the city. It's pre-approved with that conditional use permit to have a cannabis business there. You still have to go through the licensing process to get a operational permit or operations license.

Then from there we have all stages of cannabis businesses in various types. We've seen everything from applications for sale like applications that are in the process that aren't yet a license for sale, pay for licenses that are for sale, which is basically a piece of paper that says you can operate a license or operate a licensed cannabis business at a specific location. Then we've seen turnkey cannabis businesses for sale, as well as business assets, such as extraction systems or packaging equipment, or digital assets or proprietary information or intellectual property.

Matthew: Predominantly real estate?

Ryan: It's predominantly real estate and our second-biggest category is existing businesses for sale.

Matthew: That makes sense. How many people are browsing the site monthly or annually?

Ryan: We're seeing about 35,000 to 45,000 active monthly users.

Matthew: Wow. That's good. This seems like it's really solving a problem.

Ryan: We try to create a lot of value for our users and we're constantly striving to add more features or make sure that the listings are of the highest quality. We do a lot of moderation of the site. Surprisingly, people want to try to advertise product. By product, what I mean is finished retail products on our site. We stay 100% to our core of what we do. We don't allow any sort of products for sale or anything that's outside of our core business on the site.

Matthew: Let's say I wanted to list a property, how could I make sure that it really looks good and gets noticed because you don't want to get a fade into the background? How do you do that?

Ryan: I would say, first and foremost, you'd want to do some research on the property to make sure that it is a 420 Property and can be used for the specific cannabis use that is being proposed there. For example, just because it's in the green zone, you may be able to put a cultivation there or manufacturing there, but you may not be able to or want to put a retail store there. You want to check the property to see if they allowed use or the proposed use is allowed at that specific location.

Then from there, you'd want to check to see what the state and local licensing requirements are going to be for that property, find out the fees, processing times, operating tax, if there's one from the locality and the state or both. Then from there you want to look at the specific characteristics of the property, see if there's any value that a certain cannabis business might find appealing such as, is there a lot of power coming into the property? If so, how much power's coming in? Is the property have adequate water? Does the property have security characteristics that may be appealing to a cannabis client? If it's a retail space, is there enough parking?

You want to think of things kind of through the eyes of a cannabis business operator. Then from there, you'd want to make sure that it's priced appropriately. The biggest mistake that we see on our platform is because it's a cannabis property or cannabis is associated with the property, a lot of people that aren't in the industry think immediately that it's a gold mine. They will way overpriced the property or the business thinking that it's a $20 million property, when at the end of the day it's just a property in the green zone that is not really desirable by anyone, but it has some additional value, but not $20 million of additional value.

Matthew: That makes sense. Gosh, I've never heard of a seller thinking that a property is worth more than it is.

Ryan: Yes. We see it a lot.

Matthew: I've been guilty of that too. I think everybody is. It's like you're a child.

Ryan: Well, everyone's a little guilty of it outside of the cannabis space, but it's ultra inflated in the cannabis space. Like, "Oh, don't you know that cannabis is allowed here. It's got to at least add another 50% value in it." I'm like, "No." We don't really give that kind of information out on a case by case basis, because we're not licensed realtors, but that's the biggest issue that we've seen on the platform is people that'll put items on there that are ultra inflated in value or price.

Matthew: Anything additional the buyers should look out for? You mentioned electricity, water, location, price, anything else buyers want to look for to make sure it's appropriate property for them?

Ryan: Well, in any special use commercial real estate transaction due diligence is key. You're going to want to make sure that you have all of your basis covered. Specifically, you want to make sure that the zoning's correct. You want to make sure if there's a license associated with a property that the license is transferable and it's clean and what the processing timelines are for the transfer and what's required to get everything moved into your name.

I would recommend strongly to anyone trying to buy a piece of property works with a professional that is experienced in the cannabis space and that's seen numerous real estate transactions or business transactions within the cannabis space because there's a lot of nuances that aren't normal to your traditional real estate transaction.

Matthew: Sure. How do you monetize this? How does 420 Property make money on this platform?

Ryan: 420 property is what you would call a freemium service, meaning that it's free to use, but to access all the listings you would need to become a premium member which is a monthly subscription. From there we offer featured listings. It's free to add a listing onto 420 Property, but if you want the listing to be featured, get a little bit more exposure and to be viewed by everyone that doesn't have a premium subscription with us, that is what the feature listing would be for. That's $29 a month. We also offer additional marketing services such as dedicated email blast, social media boost, or guaranteed homepage exposure. Just really depends on what they have and how much their budget is.

Matthew: Okay. Which of those is the most popular?

Ryan: Definitely, the featured listing. I would say the second popular is the dedicated email blast. We just rolled out the concept of guaranteed homepage exposure, but that seems like it's going to be a pretty popular one for more expensive listings. By expensive listings I mean for the listings that are 10 to 100 billion.

Matthew: That makes sense. Looking ahead, how do you see the cannabis retail space I guess primarily out west evolving in the next three to five years?

Ryan: I would say as an entire landscape of our country, we're seeing a lot of momentum towards legalization on the federal level and we're certainly seeing a lot more states becoming more open to the concept of recreational cannabis in their states. As those states continue to pass laws that are allowing legalized cannabis, those businesses are going to need facilities to operate or processing facilities and facilities to sell.

Even delivery services need some space to operate in because most states aren't allowing home-based cannabis businesses. As the footprint of legal cannabis continues to grow, the need for real estate will continue to grow, and we'll be here to help them with every need that they have.

Matthew: Just a general California question, how does this thing seem like they're evolving there? Sometimes California seems like massive dysfunction but then again there's a ton of smart people there. What do you think is happening?

Ryan: California just because it was passed on like a statewide level like Prop 64, it was left up to each county or city to allow or disallow cannabis. We're seeing a lot more counties or cities becoming more open to the idea of cannabis sales in their area. It's a slow process. I think the biggest problem in California is the barriers to entry, which is giving a lot of black-market operators an opportunity to thrive.

Initially, they should have had lower barriers to entry for those that were Prop 215 operators that were able to make a living and give them some sort of ability to either pay their licensing fees over time or work with them in a way that it doesn't force them to the black market, help them become licensed viable businesses instead of basically pricing them out of the market.

Matthew: Yes, I've heard estimates that the black market's bigger than the regulated market in California. Is that what you hear or what's the size that you hear?

Ryan: This is just my personal opinion. I couldn't espouse any specific statistics, but I would say California is still the biggest producer in the nation of the black-market crop. I wouldn't say that that crop's been sold here. I would say most likely the Emerald Triangle is producing a lot of black-market cannabis and that cannabis is going to states that don't yet have legal cannabis in it.

Matthew: Yes, there's such an ideal growing environment up there. That makes sense. All right. I want to ask some 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?

Ryan: Actually, there's been a series of books. There's [crosstalk] oriental-- [laughs] Actually, I'll admit I'm not a big fiction fan. I have yet to read the Harry Potter books even though it's on my list of things to do. It's just very low on the priorities. It's a series of books by an author Jim Collins. There's four books that he's published in the series in total which are Good to Great, Great by Choice, Built to Last, and How the Mighty Fall.

Through these four books, the author and his research team take a deep dive into learning what sets great companies apart from mediocre companies. They also look at like why great companies that were once the leader in their space failed and how you build a great company that's built to last generations.

Matthew: It's a tough thing.

Ryan: There's companies that have been around for hundreds and hundreds of years and it wasn't by sheer luck. It was by design.

Matthew: What's the one or two nuggets that you think about the most from those books?

Ryan: There's one concept from the books. It's fire bullets, then cannonballs. The concept is derived from, you have to try a lot of little different things and then keep what works, and when you find something that works, you go all in on what works instead of going all in on one or two things that you haven't tried or tested out yet. I would say that's one of the bigger ones.

We try a lot of different things out on our platform and if it doesn't work, we trash it. We don't spend a lot of time or money on it. We just kick it to the curb and then once we find something that works, then we go full investment, full steam ahead.

Matthew: That makes a lot of sense. Apart from what you're doing at 420 Property, what do you think the most interesting thing going on in the cannabis space is?

Ryan: I find just all around the positive impacts that legal cannabis has made on communities to be very interesting. I mean, it was outlawed for so long and demonized for so long and now we have legal cannabis shops that are just as popular or just as abundant as Starbucks in California. [chuckles] We're creating tax revenue, creating jobs, and creating real estate equity. It's amazing to see along this journey from when I started the Prop 215 days to now.

Matthew: Wow. Now, final question here. Do you have a favorite comfort food?

Ryan: [chuckles] I'm a bit of a foodie and like many of your listeners, we've been in this COVID quarantine now and haven't had access to the ability to sit down in a restaurant. It used to be that my cravings were very generalized for, "Oh, I'm craving pizza." Almost any pizza would do within five or six pizza brands. Now, my cravings are getting very, very specific down to like the order. [chuckles]

To give you an idea of it, lately I've been craving just a good hamburger. In-N-Out will satisfy that craving for a little bit, but really what I've been craving is a hamburger from Hodad's in San Diego and a big cheese burger with fries, onion rings. Then they have, honestly, the best malted-chocolate milkshake I've ever had in my life. That's- [crosstalk]

Matthew: I'm salivating here. I'm having like a Pavlovian response to you describing this.

Ryan: Oh, it's super good. It's walking distance to the beach . What is it? It's in Ocean Beach, San Diego. It's just a cool environment, walk-up window, grab your hamburger and fries to go and sit on the beach. It's just all around a good experience and that's specifically what I am craving right now.

[laughter]

Matthew: Well, now that you got everybody hungry, Ryan, please let them know how they can reach out to you and who can go to 420 Property. Who's the ideal person to go there right now?

Ryan: Well, anyone that's curious about cannabis real estate. We see a lot of users that end up on the platform just to click around and look at some of the pictures of cannabis farms for sale or big grows. It's fun to take a look at non-commercial images of cannabis cultivations and you're inside of an actual greenhouse. Someone is in there taking pictures to sell it off. If anyone's curious about taking a look at the platform, all you have to do is just open up any browser on your computer or mobile device and type in 420property.com and you're there.

Matthew: Okay. Great. Well, thanks so much for coming on the show, Ryan. We appreciate it and good luck with everything you're doing with 420 Property. I think you really picked a growing segment there. Best of luck to you.

Ryan: Thank you. I appreciate it. Thank you for having me on.

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.

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Lastly, the host or guests on CannaInsider may or may not invest in the companies entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention, this little whistle jingle 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.

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