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Foria hits below the belt with their cannabis intimates. Find out why customers are so curious about this budding new market category of the cannabis industry.
Jon Brandon is the Co-founder of Foria, listen in as we discuss a wide range of topics.
– Defining a category
– Using Customer Feedback to Iterate
– Sexual wellness and invigoration with Foria
– Can cannabis help menstrual health?
Limited Time Offer:
Jon and the team at Foria Wellness have generously offered a coupon code for a limited time for 10% off their products.
Use Coupon Code: insider
What is the one company that comes to mind when I say Topical Vapor Rub for your chest and nose when you have a cold? If you said Vicks VapoRub, you're correct. I mention this because it's increasingly important to be the first in your prospect's mind providing a certain benefit. Our guest today, Jon Brandon, CEO of Foria has accomplished what Vicks VapoRub has done and captured a market category I call intimate cannabis. Jon is going to tell us about intimate cannabis products as well as some other exciting developments in the space that you'll definitely wanna hear about. Jon, welcome back to "CannaInsider."
Jon: Thanks, Matt. It's great to be back.
Matthew: Give us a sense of geography. Where are you in the world today?
Jon: I am speaking to you from Boulder, Colorado.
Matthew: Great. And I'm in Edinburgh, Scotland. For people that have never heard of Foria before, Jon, can you just give us a little high-level overview of what Foria is?
Jon: Yeah, absolutely. So Foria is a five-year-old company, we're a wellness products focused company, in particular, sexual health and wellness. And our mission is really to create plant-based products that help people feel both more pleasure and less pain in their lives, with, you know, an eye towards them feeling more connected and in touch with themselves, as well as the people in their lives. So we take cannabinoids and we use them for primarily non-psychoactive purposes.
Matthew: Okay. And for people that are not familiar with your background, you were on the show two and a half, three years ago. Can you just give us an overview of your professional background and how you got into the cannabis space?
Jon: Yeah, happy to. So professionally, most of my focus, prior to Foria, was in some combination of real estate, finance, and law. I did graduate work in both law and business schools. And, you know, what kind of got me into this opportunity was going through some pretty intense things in my life about eight years ago, including getting divorced. And, you know, really starting to ask myself a different series of questions, largely centered around what mattered to me, what did I really wanna put my time and energy into.
And I used to hold it that doing good for other people or doing good in the world, was something that was...you know, that was called charity or philanthropy. And, you know, maybe you write a check or you volunteer some time or something. And then there's business, and that was all focused on profit and building something that could make money. Living here in Boulder, I got challenged on that way of thinking, and you know, meeting a lot of people who are doing things in the world, both with a profit orientation as well as doing good in the world, and sort of bringing those two things into alignment with something that became a really important thing in my life. And so, I was looking for opportunities that had both of those elements present.
At the same time, my co-founder, Matthew Gerson, was himself kind of looking for partners to step into this opportunity. He had a notion of using cannabinoids for intimacy purposes, or sexual health and wellness outcomes. And so our two paths kind of collided at that point or crossed at that point, largely through the social entrepreneur community here in Boulder. So that's kind of how I got going on this path.
Matthew: It's funny, you mention that kind of, you know, multiple bottom lines, not just the Milton Friedman approach of, you know, shareholder value only, there's also this new bottom line. It's like how can I benefit my environments and my ecosystem. You know, like you had mentioned before, you know, writing a check to a charity is kind of like a one-time transactional thing. But if you can create this ecosystem with reinforcing virtuous cycles, it can have a much more sustaining and powerful impact for society. So it's nice to hear this way.
And I am definitely the first to say like I don't always...you know, it's not always the first thing that comes to mind, but when it can happen, it's an amazing thing. And you're seeing more companies particularly in Boulder that have... I forget what kind of corporation that is when there's like another layer of responsibility. What's that called, you know?
Jon: Yeah, B Corps.
Matthew: B Corps. Yeah, so that B Corp is kind of becoming this new thing that is gaining popularity and awareness. So I really hope that takes off. But back to Foria here, I mentioned in the intro, we're talking about Vicks VapoRub and capturing a category. I really watch what you do closely, and I think the way you come to market with intriguing products that define a new category or subdivide an already existing category and make it something where you can be the primary player to provide benefit, is very interesting. Related to that, let's talk about what you're doing with suppositories and how you're kind of going into that category to create maximum benefit for your customers.
Jon: Yeah, and you know, just the outcomes...you know, we're trying to measure wellness outcomes, right, not just profit outcomes. And I think that that's an interesting challenge, frankly, is to orient yourself too. Hard to define, hard to quantify, but you know, something that we're tracking, really amongst the community of people that have engaged with Foria over our first five years now. So we're trying to develop a currency, maybe, you know, call it trust, as the currency, so that we can introduce products that are used in very intimate fashions.
And so, you know, our initial product is called Foria Pleasure, and that's a topical oil that is used to enhance pleasure, primarily when applied vaginally. And so for women, the opportunity to use Pleasure kind of led us to the suppositories in the sense that we were focused initially on pleasure enhancement, and the way that pleasure activates increased blood flow, can create an enhanced sense of sensation, or sense of presence, which typically, leads to very pleasurable outcomes.
What people started sharing with us as people were using our first topical was that they were also finding benefit not just from a pleasure enhancing context, but also from a pain relief context. And so that was really interesting to us. And it was both from people who would just experiment and share how they were using the topical oil, as well as from the medical community. People came to us with their own perspective, their own anecdotal information in terms of how patients that they were seeing were able to use our pleasure topical for pain-relieving purposes.
And so that's kind of the ideation, and kind of the creative inputs that led us to develop the suppository formulation. And, you know, it's really just a delivery system to get the cannabinoids into more direct contact with smooth muscle tissue, in this case, intravaginally in the uterine walls, for example. And the benefits that people were experiencing were either kind of an antispasmodic or reducing cramps, was one of the primary benefits, as well as reducing inflammation. And, you know, there's a lot that's being looked at now across the board for cannabis in terms of its anti-inflammatory and antispasmodic benefits.
But the suppository for us, kind of was an interesting breakthrough mentally, just in terms of how we could position and utilize and harness the power of both cannabis and other synergistic botanicals for these types of wellness outcomes. So yeah, and we focus we like to say below the belt so far in our first few years. And so whether it was the topical oil or the suppositories, you know, that was the initial focus, and there are really profound benefits to be harnessed there, again, non-psychoactive benefits of cannabis.
Matthew: Okay, so you started with Foria Pleasure, which is an adult wellness product for the bedroom. And there was kind of this feedback saying, "Hey, this has really helped with pain as well as kind of being a titillating experience for the bedroom." And so is that where the spark was like, "Hey, we're getting this feedback a lot. Let's look at this a little closer. Like, what other applications are there for discomfort?"
Jon: Yeah. I mean, there's no roadmap, obviously, that we're following here, in terms of...
Matthew: If you are, I was gonna say, I wanna see this, I wanna see where we're going.
Jon: Yeah, I think, you know, at the end of, you know, the Foria story there may be a good tale to be told. You know, in terms of just the different pivots and how our both product creation and scale expansion of the company has evolved, really has been a co-created experience with our community. And that's been... You know, part of the importance here is holding what can otherwise be a very taboo subject, right, when you're talking about sex. And, you know, certainly, in the U.S. culture, you know, not always easy to discuss sex, or cannabis, or drugs. Let alone combining those two together and kind of having the double whammy of, you know, potentially taboo or difficult to discuss topics.
So, you know, for us, we've really oriented from a place of empathy and compassion to this opportunity. And, you know, Matthew and I hold ourselves as stewards of something that's really bigger than us. This isn't about us, this is about helping people. So when people share with us how they're finding benefit, that's something that we can both learn from, look at more closely, push, pull, and poke on. And then ultimately come back in a way that lets us broadcast more widely what some people have already found, we can then share that information out to the community of people that are paying attention, and really interested in what types of benefits our products in particular, or you know, cannabinoids, in general, can have for them. Specifically outside of getting high, right.
I mean, I think that the cannabis industry gets a ton of attention, you know, related to that. But increasingly, the opportunity set certainly from our perspective is around how do people use these products in their lives in a very practical and real way that's profound and impactful, and not strictly a, you know, recreational or pleasure seeking in and of itself activity in the normal sense.
Matthew: Yeah, gosh, you're right. You know, having the sexual component plus cannabis is like...perfectly said, like, it's a double whammy. I feel like the church lady from, "Saturday Night Live" skit is about to appear and just say, "Who inspired this, could it be Satan?"
Jon: Satan. Dana Carvey, yeah, well said. It feels like that sometimes. I mean, for the most part, things are embraced really well. It's just that we have to hold things with a degree of integrity and sacredness, right, because it's easy to screw it up. You know, when you're talking about those things, you can trip over all kinds of whether it's taboos, or just, you know, being kind of inarticulate about what you're trying to convey. You know, we hold a higher standard, I think than a lot of products do in terms of providing information.
I mean, one of our primary functions, one of the most important things we do is really to educate and create awareness. Because for a lot of people, the first notion of, "Wait, that's a thing? What?" Like, you know, you get this kind of, you know, incredulous responses. And that was my initial response when Matthew kind of pitched me on the idea that became Pleasure. It was like, "Wait, what? Are you serious?" And then, you know, you kind of tease into it and once you get past that initial kind of head scratch, and you look at the science behind it, and the reality behind it, you know, there's very substantive benefits here that I think we're just at the cusp, frankly, of harnessing.
The products and the areas that we might get into in the coming years probably will surpass the things that we've already done, just because our knowledge base will grow. And I think as the federal position changes, and just culturally we were sort of past, or at this tipping point of consciousness around embracing the medical or, you know, the wellness benefits of cannabinoids. So as that's embraced as research becomes more open, as everything kind of increases here, the opportunity to create even more effective products will increase.
Matthew: Now, you've a few other products I wanna go into, but I think it would be helpful for people to understand like, what's a dispensary only product, and what's a product that's available, let's say online on your website. Can you just kind of just divide those for us real quick so we can understand?
Jon: Absolutely, and it's a great distinction, it's probably the most important distinction in the history of our company. Because we started out, you know, with this focus where the products, Pleasure and then our relief and explore suppositories do contain THC, and therefore, have to be introduced, you know, via the regulated THC markets. And so we started in California, I'm based in Colorado, so we expanded to Colorado. We subsequently licensed our THC product, the Pleasure Topical to our partners up in Canada Canopy Growth.
And so the expansion of the THC path for us was California, Colorado, and ultimately Canada. And then we kind of paused, because what we saw was that the THC world, you know, as it's evolved over these past several years, is an incredibly difficult animal from a just scale perspective. How do you reach people? How do you make sure that the information that's getting to consumers via the dispensary channel is what we want it to be? And it kind of ties back to what we were just talking about in terms of having this challenge around education, information, and awareness.
And so the retail environment, the dispensary environment for our brand and our products, is not the easiest. When people go into a dispensary, they're not typically thinking about the things that our products are used for. And so for us, we wound up engaging directly with consumers who were writing into us via our website or calling us, and really not just across the country, but from around the world.
And that got us thinking about, okay, people are curious about the benefits of our products on a global basis. We know we can't distribute THC products on a global basis. But we also got curious around what were the real efficacy, what were the things that were driving these outcomes within the products? And what we were able to do is to start to create analogs for our products that do not contain THC. And that we can distribute across the country and around the world. And so, that really was a giant pivot for us in a business sense.
Which is not to say that we're not gonna continue to develop THC products. We have a new one coming out later in December. And, that we want to have our products be available in more THC products. So that's an active business development path for us. But the opportunity to serve a global e-commerce world was so exciting and the development of products for that channel became so interesting to us because what we're able to do is synergize botanicals, not just, you know, from cannabis, or from hemp.
And so we started to introduce, and this was with the assistance of some incredibly talented professionals that are master herbalists and naturopathic MDs. And so we got some new inputs into our product development which enabled us to launch an analog to our first product, the Pleasure topical called Foria Awaken. Which is an organic coconut oil infused with seven botanicals, not just cannabis or cannabinoid botanicals, but that product includes things like vanilla, and cacao and cardamom, ginger, mint, cinnamon.
So what we've done is basically take other plants, other botanicals, synergize and harmonize them with the cannabinoids. So there is hemp derived CBD in the Awaken product. And basically create a product that we could get to people that has similar if not better efficacy, because it's got aphrodisiacs beyond just the vasodilation or the blood flow enhancing components. So it operates as an aphrodisiac, both from a smell perspective, from a taste perspective. It's really just in my mind the most delicious product that we've ever created.
And so that blend of other plant botanicals is something that we've then used as a basis for other products. And so at the moment, we've got two products available in our e-commerce and sort of non-THC channels, the Awaken Topical. And then we just launched what we're calling Basics Tonic, which is kind of a straightforward CBD product, organic coconut oil. And CBD for people who are looking for the general applications of CBD, not just the ones, you know, in kind of a below the belt or specific to sexual wellness or intimacy enhancement.
So that's been an interesting breakthrough for us is to expand the product offering, expand the marketplace opportunity. And I can tell you that from just a quantitative perspective, you know, at this point about half of all the products that are sold...you know, Foria products that are being sold, have quickly become the non-THC products. And that's just we have a much bigger audience, a much bigger marketplace. And so it's now accounting for call it two-thirds to 70% of our revenue is actually coming outside of the THC channel, which is a really interesting thing for a brand that was kind of born in the, "Cannabis industry" and started with THC products, you know, we've really crossed over to more of a mainstream lifestyle wellness focus. And I think our mandate is, therefore, broader in terms of what types of products we can deliver.
People usually find out about us because of the sexual and intimacy products, or the pain relieving products, but we're excited to see what else can fit under the Foria brand. And once...you know, we kind of talked about trust earlier, once you establish that trust in the consumer mindset, that, you know, we're gonna go through the process of making sure that our sourcing is done as responsibly as possible. We're gonna provide as much education, awareness around CBD, and all of the other botanicals that we're sourcing and be as organic as possible. And why does that matter?
You know, so that's now the mandate, right? We have a bigger opportunity. And I can just quickly touch on the fact that this past Black Friday, the Cyber Monday timeframe, was our most exciting or most successful from reaching more and more people than we ever have. We've got thousands of people coming to the website. Lots of people are curious about what our products can be in their lives. And so, things are growing in a really exciting and interesting way, faster on the non-THC side than the THC side.
Matthew: Yeah, I don't think there's enough awareness around what's possible with using cannabinoids other than THC and combining with terpenes or other compounds and creating incredible effects. I mean, the same cannabis consumed with a different terpene profile, can be just a totally different experience. So I think that really hasn't settled on the marketplace. I mean, certain manufacturers and brands like yourself are understanding that difference, but I don't think that's totally dawned on consumers yet, what's possible there.
Jon: I would agree with that. I mean we're in an age or an era of expanding awareness, and you know, being a thought leader, putting information out there not strictly for our... You know, this isn't come buy a Foria product. This is get yourself educated about what you're putting in your body and why. And making health and wellness, you know, decisions, purchase decisions is such a...is, you know, arguably one of the most critical decisions that anyone makes in their life.
And so, you know, with all of the kind of fervor around CBD and the kind of lack of understanding even of what, you know, not all CBD is equal, right? And so we're following it all the way from the plant level. You know, how it's cared for, how we work with the plant, how the different cannabinoids or different elements of the plant are extracted, and then combined. These things all matter in terms of, you know, the outcomes that people experience, what they experience in their bodies when they use these products.
And so I think that there's an explosion of like high-level awareness, and then there's gonna be a responsibility, frankly, on the behalf of companies such as ourselves to continue to provide deeper understanding to people so they can make well-informed intelligent choices. And you know, if they choose our products, great, but if they choose some of our peers' products like that's fine too. We just want people to be really knowledgeable about what they're doing. You know, it seems kind of weird to us to eat a gummy bear for example, that's made with artificial sweeteners and call that like a wellness, you know, thing, right? It's like really, you have to combine your wellness things with things that are decidedly unhealthy, like how does that work?
So the responsibility to deliver products that are, throughout, well considered, very intentionally designed, carefully handled from design through creation, over time that will matter. You know, I think there's a lot at the moment where you can...you know, there's a lot of people who are basically selling anything just because there's like this, "Oh my god, CBD, I'll buy it." You know, so there's just some of that going on, but that'll settle down. And ultimately, that's not who we are. You know, we're...and as you can see, if you look at any of our front facing materials, you know, we're gonna push information as the most important currency here and establishing trust.
Matthew: Now, I know that picking the milligram dosages for your CBD products, I mean you kind of just go with kind of industry standards of what people are purchasing in terms of what they want in milligrams, or how do you pick that out? Because I talk to a lot of different people, and there's just...it's a difficult thing because people's body react differently. I mean, how do you arrive at that?
Jon: Yeah, I mean it's interesting. I mean, there's a few different lenses that we try to put on that question. One is the... So the consumer experience, I mean, just strictly from a price point perspective, there's kind of a strategy which is to say, you know, at what dollar point are people priced out of even, you know, getting access to meds. So, in other words, putting more volume into a product and therefore it necessarily being a higher price point might have someone not even able or willing to try something, right.
So there's a pricing strategy and we haven't perfected this by any means, but we're asking the questions and we're looking at it, which is, you know, if the goal here is to get someone to experience the wellness outcomes, you wanna make it an initial step that they can take. And so whether that's an aggregate amount of the product, or like a smaller...you know, a one pack or a two pack, a single serve, you know, if you will, of different things, we're experimenting all the time with that just for people to try.
In terms of the question of efficacy and potency, you know, for us, industry standards, there really isn't a notion of industry standard, because 10 milligrams in a suppository consumed rectally or vaginally, doesn't perform the same way as 10 milligrams that you might eat. And so to normalize things across, you know, edibles, for example, is not doing anyone... It's a disservice frankly, to people.
And so what we try to do is educate people as best we can around this is an experiment. Your body as you come to any of these experiences, who you are on any given day is different and would, therefore, vary as to what your, you know, kind of desired dose might be. And so the variables as you correctly point out are almost too many to control for. And so what we've tried to do with our products is make them reasonably titratable in the sense that, you know, you can take a small increment.
So for example, the Pleasure Topical can be put on in very small amounts, it can be increased as desired, and as people are finding, you know, good use themselves. The suppositories don't really have an upper limit, it's not like you've consumed too much, right. So that's not typically a problem, but it's more of a price point thing and just making sure that people, you know, are willing to spend $8, $9, $10 for a single use product at that point. You know, one of the more interesting things that we're about to launch into which again gets into this notion of how much can you as a consumer control your experience, is vape pens. And so, we're about to launch the first Foria vape pens.
Matthew: Let's talk about that. Is this the Flow?
Jon: Yeah. So the first one is gonna be called Flow, and that one will not have any THC in it. So it will be available to everyone everywhere. And what we've done with Flow is harness the terpene profile of the Awaken Topical that we talked about earlier. So it's got vanilla and cacao, so it tastes great, it smells great. It's a very pleasant experience to ingest. It's not cut with anything at all. We don't put in any of the fillers, or PGs, and even MCT oil. We're not using anything other than the botanicals themselves, and so it's got a lot of CBD in it.
But again, it can be controlled at the user level in very small increments. And so for people who are looking for a vape experience...and the reason that we're making it is not because the world needs another vape pen. I think we can all agree that there's plenty of vape pens in the world. But our vape pen has a decidedly different focus, you know, well, starting from the hardware. We certainly don't wanna have people ingesting plastics, and glues, and any of the things that some of the, you know, kind of more rudimentary and entry-level hardware that, you know, is in the vape universe.
So, we've sourced...you know, it's glass and ceramic and metal. So, you know, just from what's actually going into your body perspective, we try to keep it as pure and healthy as possible. And then, you know, the opportunity to kind of harness our unique flavor profile and botanical profile, if you will, into something that people can consume. And probably we'll pair with our Pleasure Topical, or our pain-relieving suppositories, for example. It's the most requested item that, you know, over the years, people have said, "When are you gonna make a vape pen? You know, I would really love to have a Foria vape pen."
And so we've taken that feedback to heart. And so we're, you know, as we've said before, we're extending not just below the belt, we're now expanding to things that are being inhaled and consumed orally, mostly because our consumer base and our community has requested it. And because we think we can add some value there in terms of... So for example, the analog for our Flow pen is going to be called Empower, and that is a four to one CBD to THC ratio. So it's a micro-dose of THC.
Again, we're not out there putting products, you know, with the intent of having people get really disassociated or out of their minds in a psychoactive or high way. What we're trying to do is introduce people to the notion that you can consume things, even in the vape context, that are facilitating tuning in a greater level of embodiment. And so that's the opportunity for us, as Foria, as a brand, is to stay consistent with... The reason that people look to our products, is to feel better in their bodies, feel more present, more aware, more tuned into themselves, and then, the ways that they connect with their partner, so from a more relaxed and available place. The way that people connect, you know, in a partner context, is benefited from that sense of embodiment and relaxation. And so the Foria pens both Flow and Empower are designed to promote relaxation, and to promote a sense of inward focus. And that's kind of our different take really on the vape pens.
Matthew: That's kind of helpful too, because, you know, everybody reacts differently to cannabis. And if you have a much higher...you said it was four to one CBD to THC?
Jon: Yeah, correct.
Matthew: Okay. Because there's some people, you know, when I've been around them especially if they don't consume cannabis very much and they get a vape pen, and they take a few hits, or maybe it's a flower vaporizer, and they blast off, they might feel a little bit paranoid or overwhelmed. This is much more of an easier glide path to just, you know, get your sea legs and be at a much more comfortable level, where, you know, when you drink a beer, you kind of know what a beer will do for you. Sometimes the same can't be said for, you know, consuming dry flower, or even a very potent vape pen. So this is kind of... It's nice to see kind of this filling this gap in.
Jon: Absolutely, yeah. And that's just staying true to who we are, right. You know, the products that we'll put out there under the Foria name are designed to help people stay in an embodied state, or you know, really shut out the distractions not to increase the mental chatter and noise. And again, these are not the heavy duty psychoactive products that cannabis industry typically sees.
Matthew: Now, I feel like, "Rain Man" sometimes because I focus in on what seems like maybe tiny details. But I wanna circle back to the glass cartridge. There's always a trade-off for everything, so glass cartridge, ceramic parts, all those things, higher quality components more cost, and that leaves some people behind. Because there's some people where...you know, obviously price is a factor for everybody you couldn't sell $1,000 vape pen. Actually, you could, maybe to somebody to see and take these over to the Middle East or something, and some princes might be buying that.
So there's a trade-off here with price point. So when you say, okay, price is important, but maybe it's not the most important thing. When you look at that, like, how do you look at the trade-offs? Like, I want to get this to a affordable price, so as many people that would wanna participate in this can. But you know, I don't want there to be any health detriment as small as that may be, or maybe it's not small, by having plastic components. I mean, tell us a little bit about how you think about the profile of your customers, and how they look at those variables and why you made that decision?
Jon: Yeah, it's a really fair question. I don't know that there's a perfect answer to that, other than to say that we are extremely cognizant of wanting to create products that are available to as many people as possible. I think that the...what we are committed to doing is not trading off on health-related decisions on account of making something, you know, less expensive or, you know, "More available" at a certain price point.
At the same time, we're trying to produce products... I mean, if you look at, you know, kind of our pricing relative to some others pricing, especially with CBD, we think that there's a lot of... You know, people are taking advantage frankly of the frenzy and fervor around CBD. And we think that the pricing in general, can and will come down. And we wanna be at the front end of that, in terms of just responsible pricing, if you will. And so, you know, it's very difficult to do anything at the moment, whether it's with hemp or cannabis.
And so there are a lot of things that you drive costs from the compliance and regulatory perspective. And, you know, certainly, the availability of hardware is becoming better and better. But, you know, we've had a difficult time in terms of sourcing any of our packaging components over these first five years of our existence. And ultimately, you know, for us to be sustainable, and to do a better job of creating products and making them available, this isn't being done, you know, at a loss, right? We do need to be sustainable from a corporate perspective.
But as you mentioned earlier, there's a virtuous circle there that the more successful we are, the more we can invest into the products, and also, you know, create products at a more attractive price point. And so we think that we're at the lower end of the spectrum in terms of price. That's certainly our goal. And we think that over time, as the markets mature, there will be some price compression, and people will be, you know, providing products at, you know, attractive pricing.
The consumer profile for us is a really tricky one. I mean, we have people really across all ages, certainly both sexes that the brand does speak more directly I think to the feminine and to females. And at the same time, there's plenty of men that are both using the products and/or, you know, connecting with the brand because they have females in their lives that they want, you know, them to receive the benefits for.
So it's tough for us to strictly archetype or stereotype, our typical consumer, other than to say that they have a high degree of consciousness around intimacy, around wellness, a curiosity around botanicals, not just cannabis and cannabinoids. And so, you know, we try to appeal as broadly as we can, we try to be very fair and responsible with our pricing. We will not sacrifice, you know, quality essentially. And so, you know, what people can expect from us is that we are putting, you know, our attention on how to create things that, you know, at each phase in the game are as healthy or designed to achieve the purposes that they're being used for as we can.
Matthew: So we've talked about suppositories, we talked about pleasure, vape pens, is there anything we missed? Oh, the Tonics?
Jon: Yeah, the Tonics, you know, for sort of general CBD consumption. So, you know, our Awaken Topical is specific to, you know, kind of sexual use. So, for people who are looking for the general wellness benefits of CBD, I think the CBD suppositories, the Basics suppositories, or the CBD tonic the Basics Tonic, are our first step towards that. There are a couple of really exciting...you know, so both the vapes and the tonics, and the suppositories, are kind of in that general use CBD category.
We do have a couple of... I'm gonna just leave it as a teaser in this conversation, but what you can look for from us, in 2019, will be at least one very innovative, unique application of cannabinoids for wellness purposes that is certainly not on the marketplace currently. And I think will be for us a really exciting product extension. I gotta keep it under wraps.
Matthew: Oh, my gosh. It sounds like... So it's safe to say it's another kind of new category?
Jon: It is. It's one that people are gonna say, "What?"
Matthew: You guys love this, you love this. This is great.
Jon: Yeah, that one's gonna... And, you know, I mean, what's really fun for us right now, in addition to the fact that more and more people are paying attention and curious and, you know, trying products, and then sharing the impact. I mean, I can't overstate to you and your audience, like how meaningful it is when people share with us what using our products has been for them in their lives. The depths of people sharing that you've literally saved my life, you've saved my marriage. Like, thank you, thank you. I mean, the gratitude that people express to us, from the benefits of the products that they've been using, is so moving. It's so meaningful. It's really inspiring. And it's what gets us up and excited about doing what we're doing.
I mean, we feel like we're stewarding something that's far bigger than ourselves, and it's working. And so the opportunity to embrace our eye level in terms of, you know, if we're impacting thousands or tens of thousands of people currently, the opportunity for us to look at, you know, hundred thousand, millions, you know, that's getting more and more real for us. And so as an entrepreneur who has a very, you know, mission-based focus, things are getting really exciting for us now. And the opportunity seems to get bigger and bigger.
So we're gonna... What you can look for from us is continued innovation from a product standpoint, but really just a focus on earning the trust and respect, and providing that education and awareness to people. Because I think that that's gonna be the key for people who are experimenting with any of these types of products. And that's all that this really is, this is a giant social experiment and I think that, you know, what you're seeing on a legislative level, you know, kind of at the ballot initiatives and as well as the legislature's around the U.S., and you know, soon to be hopefully some movement at the federal level with respect to the Farm Bill and hemp coming off of the Controlled Substances Act.
And you know, all of these things are trending towards a more expansive mindset, a bigger opportunity, and as a consequence, more responsibility to hold this with integrity. And so hopefully, you know, that's where things continue to evolve.
Matthew: Tell us a little bit about the research for menstrual pain relief, and the connection with cannabis there?
Jon: Yeah. I'm glad you brought that up. So you know, over time...and we talked about this a little bit before, is like the medical community has reached out to us with some degree of curiosity or some perspective to share, and that's really been fantastic. Because it helps advance the knowledge base, it advances our internal thinking, it helps for people externally to at some level ground or validate what's actually happening. A lot of people, you know, really need that stamp of approval.
And so the participation of the medical community has been great. I think it's only going to increase, certainly as the federal position evolves. And in particular, we were approached recently by a Harvard Medical School researcher in conjunction with the McLean Hospital to do an observational study around our menstrual cramp relief product. So this is the suppository that has both THC and CBD in it.
And we're at the early phases of the...essentially, the protocol has been established and what the study is designed to do is just to look, you know, from a medical lens, look at the impacts that the use of our relief suppository is having on people around their menstrual cycle. In particular around, you know, painful cramping type conditions and other inflammatory conditions. And so that's something that is underway, sorry. And will be, you know, ultimately published in the medical journal. And that's a first of its kind opportunity.
And so when this was, you know, brought to us, and we were requested to, you know, participate in that. We said, "Absolutely, you know, this is exactly where we want things to be evolving towards." So that study is, you know, kind of, at its early phases, about to kick off, there'll be between 2 to 400 women. I think we're focusing in Northern California just to make it more manageable. So the N group, the data set will be, you know, pretty significant.
And we're just excited because what folks have shared with us, is worth looking at, from, you know, a more rigorous perspective, you know, more of a clinical perspective. And then having that, you know, essentially broadcast externally to the world. We think there's real value to people in hearing it from that type of a source.
Matthew: Jon, I like to ask guests a personal development question or two, to help listeners get a better sense of who you are personally. With that, is there a book that has had a big impact on your life or way of thinking that you'd like to share?
Jon: Yeah, thanks for that one. That's definitely a thought-provoking question on my side. And I would say that in the last couple of years, there's a book called, "Stealing Fire." Are you familiar with that?
Matthew: I've heard of it, but I don't think I know what it's about.
Jon: So the audience should kind of, you know, look it up, find it on Amazon or Audible, wherever. But "Stealing Fire," the essence of it...and if you think of the analogy to Prometheus stealing fire from the gods and bringing it down to mankind, essentially, you know, what was happening there was sharing a technology, in that case, it was fire. And sharing it at scale and therefore changing, you know, the world for having done so.
And what the book does is it kind of looks at...you know, that's sort of the larger frame. And the book goes into some interesting examples, including military as well as just all of the different modalities that people have been seeking non-ordinary states. I'm being a little bit vague and probably not doing the book justice in terms of pitching it. But what it means for me, and how I think it's relevant to the question, is that I kind of view what we're doing as stealing fire from the gods and bringing it to mankind. In the sense that, you know, we now know something, we don't know it...you know, we know it because of what people have shared with us.
And so when I was talking before about how powerful the sharing is, when someone expresses what using our products has been for them, we hear that, we feel it, we have tremendous compassion, empathy, and excitement around that. Our job now as stewards of that information is to broadcast it widely, it's to scale the availability of our products. So that more people have the potential to benefit from it, and have access to unlocking, you know, greater pleasure, or diminishing pain.
And so that book has really inspired me, you know, from that perspective of taking something and bringing it and making it much more widely available, and therefore, the potential to impact millions of people's lives. And, when I say impact people's lives, when people respond that they, you know, go from a debilitated, painful place whether it's cramps or inflammatory conditions, and then, you know, feel the absence of that, feel, you know, more present, more healthy and vibrant in their lives.
What they then go do in the world is... The vibrational, you know, aspect of that is increased. And so they show up as better parents, better partners, better colleagues, you know, they show up differently in their lives for the absence of that pain, or for the enhanced excitement, and enthusiasm, and pleasure. You know, when people are experiencing more pleasure, they tend to be more creative, more patient, more kind, right? So, the reverberations from people experiencing those two dynamics in their lives then has even more of an amplifying effect to their communities, and to, you know, basically to society at large.
And so I kind of hold it that we are modern day Prometheans trying to take the technology of the plants in this case, and broadcast it at scale to people all over the world. Say, "Hey, there's these things that can really help you." And you know, that's the path that we're on. "Stealing Fire" does a great job in my mind of kind of framing up that paradigm. And so it's had a big influence on me over the last couple years in terms of how I'm approaching what we're doing, frankly.
Matthew: Cool. I'll put that one in the show notes, the "Stealing Fire" book for anybody that's interested. Jon, is there a tool that you or your team use that you consider vital to your productivity?
Jon: There are a couple. You know, my co-founder is based in California, I'm here in Colorado. So we don't often...yeah, we get together in person as often as we can. But we wanna be in direct communication more often than that. And so we use video conferencing, and in particular, we use Zoom for video conferencing. Not just with each other, but with all of our key partners that are in various markets in different states. That's become an essential tool for us to be face to face with people, rather than just relying on email, text, voice type communications.
So I would say that video conferencing can really bridge a gap and create that more human and personal connection, both internally and externally. That's been pretty vital to our productivity. And I would also add that we use project management tool called Asana or Asana, I don't know how they pronounce it, probably Asana. And that has been probably the single most up-leveling of our productivity just from a tracking of all the different, you know, project management type things that we're trying to do concurrently with different team members that are located in different physical places. With external partners that are all over the place. So that's been a hugely important aspect of helping us be efficient and increasing our productivity.
Matthew: You know, since you mentioned Zoom. There's one app that people who like Zoom a lot I hear are using, it's Marco Polo. Which is like a...it's a video app where you record a message like a walkie-talkie, and then the other person listens to it whenever they want, but they reply back with a video message too. So it's kind of like, this asynchronous communication mode with video, but adds more color and context than just an audio could. I don't know if that's of interest but for anybody who's into the video chats, and so forth.
Jon: Yeah, it is. And it's a good extension. So there's another tool I really like called Voxer, you know, V-O-X-E-R, which is exactly what you just articulated, not with the video component, but the asynchronous, especially across different time zones and stuff, the ability to leave voice but in a really user-friendly way. So it feels like, you know, click like a walkie-talkie. And they've really figured out the user interface there, and the ability to time shift your voice recorder...you know, maintain a conversation essentially over a long period of time, but when it's convenient for people. That's become an important productivity tool for me as well. So I'll definitely look at the video version of that Marco Polo.
Matthew: So final question. What is the one thought that you have that most people would disagree with you on?
Jon: Oh man, that is a tough one. What is it? Well, I don't know if they would disagree with me. But I think that we've been called by the plants. This is something that Matthew my co-founder, he and I have connected on since the beginning, is that we have been called to serve by the plants. The plants have an innate wisdom that they want to communicate and impact in people's lives. And so we are here in service of the mission that is actually the plants' mission for us. Not our mission for the plants.
Matthew: Oh, God, interesting, it sounds a little bit Ayahuasca, like Mother Ayahuasca is calling me.
Jon: Kind of, you know, I think that if you look at the history of cannabis, right, and especially cannabis as an aphrodisiac, you know, there's thousands of year old history there. We've been living in an era where, you know, kind of a prohibition mentality has prevailed locally for the last little bit. But if you zoom out even a little, you can kind of see that the plants have really been there, and been doing their thing for a while. They've been through a tough patch in the U.S. for the last 70 or 80 years.
But I think that we're kind of at the dawning of what I think will be regarded as the golden age of plant medicines. And so whether that includes the Ayahuasca's of the world, you know, I tend to agree with that, frankly, that it's not just cannabis. But I think the plants are having a reemergence, and embracing opportunity...you know, culturally, there's an opportunity to embrace plants in a way that, you know, existed previously and will exist and maybe be enhanced by modern technologies as well.
Matthew: Yeah, I really hope the next chapter here is psilocybin being legalized too, because it seems like there's so much momentum with cannabis now that politicians can only lose by trying to keep it illegal at this point. It's finally crossed that line. I'm really hoping, you know, psilocybin, maybe the micro-dosing psilocybin becomes legal in different outlets, because that has huge potential as well, so [crosstalk 00:54:39].
Jon: Totally agree with that. Yeah, the mycelia they're calling us. They've always, you know, done their thing. And so the relationship between humans and plants is, I think, gonna kind of hit a new...in a good way, a new level of interactiveness and mutual benefit. So I would agree with that.
Matthew: Well, Jon, we covered a lot of ground here. You gave us a teaser that you have another product coming out. We're gonna have to get you back on to talk about that, maybe we can talk some more about micro-dose dosing and the plants calling you, because I want to hear more about that. But before we close, can you tell listeners how they can find Foria, and connect with you online?
Jon: Yeah, sure. So, for most people, the best connection point would be our wellness site, which is foriawellness.com. That is our kind of non-THC portal. And on the THC side or just kind of a general brand side, our original website is foriapleasure.com, F-O-R-I-A P-L-E-A-S-U-R-E. So those are probably the two best places. There's also kind of an email link in there, firstname.lastname@example.org, if people have a direct question they wanna communicate to us, we're happy to engage with people that way as well.
Matthew: Well, Jon, thanks so much for coming on the show and educating us. Have a very, very happy holiday season. And we look forward to seeing all the cool things you come up with in 2019.
Jon: I appreciate the opportunity, wishing everyone a good holiday season as well. And I look forward to the next conversation. Thanks.
Matthew: After we recorded this interview, Jon and the team over at Foria Wellness were kind enough to extend a coupon code Insider for 10% off your order at Foria Wellness. So you can use that Insider, I-N-S-I-D-E-R as a coupon code at foriawellness.com.
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Cannabis businesses need to understand what is selling in dispensaries so they can make informed decisions.
Cy Scott, co-founder, and CEO of Headset.io delves into how to get this data and use it to make actionable business decisions now.
– What is selling in cannabis dispensaries now
– How to properly use data to make informed decisions
– Why it is better to create a new market category than be a fast follower
– Insights as to how the market is evolving
– Career advice for entering the cannabis industry
>>> Get This Podcast With Cy on your iPhone or Android HERE
We also cover some cannabis items that are hot sellers right now.
Learn more at https://www.headset.io/
As more and more capital floods into the cannabis space, it's becoming increasingly important to make data-driven decisions, to chart your course, achieve product-market fit, and ensure profitability. To help us understand how cannabis businesses are leveraging data, I'm pleased to welcome back Cy Scott from Headset.io. Cy, welcome back to Canna Insider.
Cy: Thanks Matt. I'm happy to be here.
Matthew: Where in the world are you today?
Cy: So today I am in Seattle, Washington, which is where we're actually headquartered.
Matthew: Okay. And I'm in Edinburgh, Scotland and I think it's about 40 and rainy here, so we probably have pretty similar whether, I imagine.
Cy: Yeah, very, very close. We're definitely in that time of year where it's a pretty cold, pretty gloomy.
Matthew: Yeah, except it's 3:00 here and it's almost completely dark.
Cy: Oh, my gosh, yeah. We get dark about 4:00, so we're right behind you.
Matthew: Okay. Okay. Now tell us what Headset is at a high level. You were on I think once or twice before and we talked about Leafly. And if anybody else wants to get a backstory on Cy and everything he's done, please check out past episodes. But today we're gonna talk about Headset. Can you give us an idea of what Headset is at a high level?
Cy: Sure thing. So Headset is a data and analytics company designed for the cannabis industry and we turn retail data into what we say is real time insights. So we look at a lot of retailers across a variety of markets. And we aggregate and anonymize all the transactions. And we paint a picture of what's going on in the industry. So if you're a product manufacturer, an investor in this space, or just an interested party into the cannabis industry, you can see the competitive landscape, really understand a brand positioning, and identify opportunity in the market.
Matthew: Okay. And so you were a co-founder of the popular strain and cannabis culture app and site Leafly. I know you exited that business to privateer holdings. And you've transitioned to become the CEO and co-founder of Headset. You're definitely an OG in this space. From your vantage point, how has the industry changed? I mean, let's say the last five years, what's your big...if you were to sum it up in a few sentences for people that don't understand where it's come and where it is now?
Cy: Sure, yeah. We started Leafly back in 2010 and it definitely was a very different world. We were based in southern California at the time and had access to a number of dispensaries. And we saw this proliferation of dispensaries happening. But when you'd walk into a shop, it was really a lot of dried flower and jars with labels. You didn't really know where it was sourced or if it was tested and so on and relatively simple. Packaged goods didn't really exist or maybe one or two at the time. And you fast forward to today and it's just unrecognizable. We're in a world with, you know, everything is a packaged goods, a good item in the cannabis space. You're seeing interest coming from, you know, not only people that have licenses. But we get, are asked about our data from, you know, traditional CPG companies or alcohol companies, finance companies. So a lot of people are interested now. So it's very different on the level of sophistication and interest.
I think another big difference is the number of states and countries at this point that have legalized. You know, at that time it was strictly medical in a number of markets like California and Colorado and Washington. But in 2012, you know, with the legalization, we saw this incredible wave of new markets opening up. So that's been pretty surprising, at least the pace of adoption. You know, we always knew that this was the direction it was gonna go. That was our, you know, thesis originally with Leafly. And we're surprised at actually how fast it is moving.
And probably the last thing I would say is, the amount of investment dollars or capital that's poured into this space. With Leafly, it was really hard to raise money. Not a lot of people saw the opportunity or if they did see the opportunity, they were hedging a little bit wondering if it's just a California thing or would only be medical. But you fast forward to today where you have, you know, what's going on in Canada and the number of states that have legalized. And you're seeing a big outpouring of investment dollars coming into the market, which is really great for the space. You know, it really helps these operators and groups like ourselves scale up pretty rapidly.
Matthew: Okay. And remind us how does Headset collect data? How does that mechanism work?
Cy: Sure. So we work with a number of retailers in a variety of markets. We connect directly to their point of sale system. We, in exchange, give the retailers a lot of great analytics about their own operations and including bench-marking data, once we have enough retailers on the platform. So the retailers are really motivated to better understand their operations, whether it's inventory carry, you know, sales trends, how their bud tenders are performing. And we make it really easy for them to dig in, whether it's top line numbers or really get down to, you know, a particular product and understand what's going on. The Headset interface is really good for that.
And then what we do is we aggregate all of that, all those retailers, in a particular market and we normalize the data. So when different retailers are selling the same product, we have to do what's called product coding or normalization. And then we can paint a picture of what's going on in the market from the skew level or the individual product level through the brand to the segment and category and so on. So it's all real time. Given that we're connected to the point of sale, so we can see on the platform, you know, what's happening. Right now while we're having this conversation and things are transacting, it's all getting normalized in the system and available for our customers.
Matthew: Just on the logistics of that, is that a difficult thing to get that all the information from the dispensaries? I mean, it sounds like it's or it's just a huge, huge, Herculean task. Is it or have you made it easy somehow?
Cy: It's definitely difficult. You know, we've tried to make it easier over the years. And there's a lot of things that we do like working with partners in markets that can help us get adoption, developing kind of growth hooks into the products themselves to make it easier for groups like vendors to invite retailers to the platform. So we've done a lot to accelerate adoption. But you know, when a new market opens up, we definitely, you know, have to reach out to the retailers, understand who the license holders are, start those conversations. So it does take some time.
And then once we do have the retailers, the product coding effort is pretty significant. We've also developed some pretty clever systems that can do it in real time at this point. But in a new market, you know, the machine learning, it doesn't have the training data it needs and we have to kind of train the system. So it definitely is a challenge. I think that, you know, we've solved it pretty well at this point. But, you know, lots of room to grow. And as new markets open up and in the US and even internationally, you know, we kind of have to continue that adoption, something like what we're seeing in Canada right now.
Matthew: Okay. So you started in your home state of Washington and then the second state was California.
Cy: Right. Yeah. The second state that we went live in was a Colorado and then, yeah, Nevada then California. California we just launched this year, you know, with the new adult use market. So, you know, it's been a little bit of a slow start for that market. You've probably seen a lot of the headlines with licensing issues. And then in July they have the new regulations on package size and potency, which required all new products to be put on the store shelves. So it's getting there certainly as a market. But we wanted to wait until things normalized a little bit before reporting on it, just given the volatility of that market. We have retailers in a number of other spaces, including medical markets, like Illinois, for example. But we're not providing the wider market intelligence service in those markets quite yet. But that'll be coming soon in 2019.
Matthew: Okay. When you talk to brands or businesses that are making decisions with your data, what kind of insights or aha moments are they having the first time they look at it that they don't expect?
Cy: Sure. I think a lot of our customers are the brands, the product manufacturers, the processors. And they really like to look at the data to understand the competitive landscape. So they'll look and, you know, identify some of their competition. They'll look at their competition's assortments or product mix and really, you know, be surprised on, you know, sales numbers for certain product lines that they carry. So I think that's a pretty big use case for us. When I ask about kind of like, you know, what type of aha moments or surprises to our clients, they also mentioned just the frequency of product introductions. Given the real time nature of the platform, we have a dashboard that is a new products dashboard.
So as soon as a new product sells in the market, it gets flagged and displayed on this dashboard and you're seeing upwards of 10 new products a month, you know, depending on category, depending on market which is pretty, pretty frequent, very frequent. It's like if you're in a grocery store and if you walk down the cereal aisle and you saw 10 new cereals, you know, every month it would be a pretty surprising. But in the cannabis industry, just the pace of growth, the pace of new brands coming to market, everyone's trying new things, new form factors. It really does surprise people when they see, you know, how many products are being introduced at any given time.
Matthew: Now let's go around some of these geographies where you collect data. Can you tell us some of the most popular products in the biggest markets you monitor?
Cy: Sure. You know, I would say kind of in general a lot of unit sales go to more inexpensive products, which is not that surprising I suppose, but things like single grand prix roles that might be, you know, under $10 retail price. You know, seemed to move a lot of volume in kind of a variety of markets. And every market is a little different. Although, you know, most markets have, you know, roughly 50% of market share goes to flour based products or just flour, I should say, you know, roughly 10% goes to edibles and so on. But I think that yeah, unit volume you're seeing, you know, a lot of inexpensive products, whether they're throwing at the checkout or point of purchase or people are just going in, you know, to buy them because they're relatively inexpensive. We do see that with things like prerolls.
But then when we look at kind of revenue and total dollar sales, some surprising things are like in Washington, the state of Washington, I'm the number one selling product by revenue is actually a topical. It's a THC and CBD based topical. It's, yeah, it's a higher price point item. I think it retails for around $50. So that does attribute to it, but it is pretty surprising given the top schools are relatively small market share. But this particular product just seems to really resonate and that's kind of what you're seeing in the news and the news cycle and people talking about CBD, whether it's hemp-based CBD or THC and CBD. There's just more and more interest in things like that. So that's pretty surprising when we saw that.
Matthew: Okay. And I understand you have some demographic data on California. Is there anything you can tell us about the demography of California cannabis consumers?
Cy: Sure. So we get demographic data from loyalty programs or in medical markets. We're able to see, you know, gender and age and we can overlay that across any transaction data we have. So it does give us a good sense of what's going on in the market. So it's a little different than getting demographic data from something like a survey. We get it from the actual customers at the location, so nothing identifiable. No, I'm what they call PII or Personally Identifiable Information. But with gender and age we can kind of paint a nice picture of what's going on in the market. I think in general, you know, what I would say about, you know, California, some interesting trends as we're seeing a lot of growth in the generation x or the baby boomer share market increasing. When the market started, it was a lot of, you know, millennials.
So a younger demographic for whatever reason, maybe more has a higher acceptance rate of cannabis, more willing to go to the stores. But we're seeing that market share of the generation x and the baby boomers continue to climb. So I think that just kinda shows it's getting more and more normalized. Cannabis is not some fringe product anymore or just something for a younger audience. So that's pretty exciting and integrate trend. You know, when we look at a gender breakdown, it's still skewed towards the male gender. When we look at male to female, it's still about two to one. So you know, 66% of sales going to men and about 33% to women. You know, that's relatively flat that it's like an aggregate, but there are certain segments where a women purchase products a bit more than men. Things like topicals for example, where you're seeing a little more of like a one to one ratio. But when we look at an aggregate, it's about two to one. So you know, we continue to watch that and we can layer those over different brands and different products, which is great for our customers to kind of understand when they look at marketing campaign opportunities or how they position their brands. Kind of knowing the demographic data is critical.
Matthew: Yeah. I wonder how that's gonna turn as there's more beauty and wellness focus products in dispensary's. I mean there is some wellness products already, but just to kind of more, more general, more people coming in for that reason. It should be interesting.
Cy: Exactly. You know, I think that we're gonna see it normalize like any, any industry where you're going to see a little more of a one to one ratio. You're gonna see a broader mix of audience as far as age groups and I think that much like alcohol, you know, people are buying it, whether they're baby boomers or 21 years old. Cannabis will be the same mix once things kind of settled down and it continues to normalize, which we see happening every day.
Matthew: And any initial comparisons between Canada and the US? I know there's a lot of things different. Something's the same. Any thoughts about Canada? How do you think about it when you think about in terms of the purchasers purchase and they're different from US consumers?
Cy: Sure. Canada is an interesting landscape. There are some nuanced differences between what we see in the US, particularly given that it's run by Health Canada and they started with their medical cannabis program out there. The product form factors are limited to only flour and oil. And oils in Canada as is almost like a tincture. And so you don't have things like vapor pens, concentrates, you know, a lot of the form factors that we see in the US. And so that's a big difference. I think another thing that's quite different is the number of brands that are out there. There's a, you know, a fat 100 LPs which are the processors in Canada. And they have, you know, a number of brands underneath each LP. But I think that the brand landscape is relatively limited compared to something like Washington where, you know, there's hundreds of brands out there.
And so that drives some nuance. And then I think purchasing is different as well, depending on the province. You know, you see a lot of these provinces run by the provincial liquor distribution boards. And so they're actually responsible for distribution, but also for sales to the end consumer. For example, in Ontario, everything is sold through the Ontario cannabis store. There are no brick and mortar shops. It's all ecommerce-driven, so you go online, you order and it gets shipped to your house. And it's brick and mortar will be coming later on in the year where in the US, you know, everything is brick and mortar. In California, there is some ecommerce, I kind of say that with quotes around it, given that you can go online, purchase products and then it actually gets delivered to. So it's more of a delivery service. It's not kind of like traditional ecommerce, like the Amazon model. So you know, we're still working on collecting a lot of that data. We worked with a number of private retailers. Right now we're talking to a lot of the liquor boards right now to get access to the transactional information.
Some assumptions we can make, we think that the age breakdown is gonna be pretty different because there's less of a barrier to entry to going into a store. I think that, you know, there's still a bit of that stigma. There's still a bit of a fear of walking into a cannabis retailer. People don't wanna look like they don't know what they're doing and it can be a bit overwhelming if you ask any new consumer that goes into a cannabis shop for the first time. They're just overwhelmed by these different strains and different products. And so going online, doing research, checking out, I think it's a lower barrier to entry so we're probably going to see an older demographic purchasing products. And then the product mix, you know, it's gonna obviously be very significantly flower-driven just based on the number of products that are on the market right now.
In oil is a small amount of market share, especially given what we see for like oil type products in the US. So, you know, it's early days, again, kind of like California, it's a bit of a rocky start. You know, we're in November here, tail end of November. They've been online for about a month. We're hearing about supply chain issues, you know, people not getting products, a lot of private retailers not being able to open up. But it's not uncommon from what we see in other markets. So we kind of just have to be patient, hang in there and see how it unfolds and hopefully, you know, in the US we can learn a bit about how they're successful up in Canada and then bring some of that ideas down here, including things like the ecommerce model, which is pretty exciting.
Matthew: So you've dispensaries that are customers, you have brands that our customers. Who else is the ideal customer or prospect for Headset where they want this data and it helps them grow their business?
Cy: Sure, sure. So in addition to the brands, the product manufacturers and the dispensary's in the cannabis space specifically, we see a lot of distributors that are interested in being customers or our customers, as they look for brands to target for their distribution work. You know, you can go onto a Headset and if you are a distributor and you wanted to identify the top performing brands to potentially carry as part of your distribution network, it's pretty quick to go in and see who's performing really well in the market. So distributors subscribed to really understand that.
You know, more recently some very exciting trends for us here at Headset our end for the industry I would say at large is just more interest from the financial sector. So a lot of hedge funds investors in this space that are becoming subscribers, really looking at the data, you know, as they make investments, that's a good way to do a due diligence on a brand, a to see how they're positioned in the market. You know, a lot of brands will say, how are the top brand in the market or our brand really resonates with consumers and most likely it does. And it's good way to double check in Headset to see, you know, how are they positioned? What are the competitors look like and so on. So a lot of financial sector clients coming in.
And then also a CPG or Consumer Packaged Goods. So I think given the changes in Canada, um, I think this is really what's driving a lot of bats is, it's giving a lot of traditional CPG companies a bit of a safety net to be able to look at the cannabis space as an opportunity for growth for them. So they're subscribing to the data to better understanding of form factors, the type of brands that seem to be resonating with consumers as CPG companies that, you know, like make topicals or make lotions of looking at, well, what is the impact of CBD-based topicals on my business or maybe they're an alcohol brand and you're looking at making a dealcoholized beer that has cannabis instead. You know, you wanna look at the beverage market beverage segment and see how they're performing.
So that's been pretty exciting trend of just this wider audience of parties that are interested in the type of data we have. And I think, again, it's just really good indication for this industry, you know, it used to be very much, you know, Canada's Canada, Canada's the only cannabis operators, but now there's a lot of interest coming from outside. They're not customers per se, but also the media, the media and the press is very interested in our data. You know, we work with them like we just did an analysis for a group on Green Wednesday, which is right around the corner of the day before Thanksgiving, which we've seen is the second highest sales day in the year, right behind 420. And so the media is very interested to kind of back up some of their assumptions about the market or as a position a certain claims about the market. They can look at our data and, you know, back it up with numbers. So it's kind of our audience currently. And, you know, it's really exciting to see the growth there.
Matthew: Let's talk about the data a little bit more. So if there's an optimal way to use the data and then there's an optimal way. So if I were to jump into the data right now, let's just say hypothetically, gummy bears showed he's very popular and vape pens should it be very popular. I'm a new brand, I've just raised some capital and I wanna make a vape pen or a gummy bear because they're selling well. So I, you know, I'm kinda, I'm just following the market saying I, you know, I wanna sell what's selling. But it doesn't necessarily tell you everything and it might not be the best bet because it doesn't take into account brand loyalty. If I buy a gummy, I'm only gonna buy them from this one band brand or they have a really strong loyalty or it doesn't tell me if the market's flooded with vape pens, were there so many choices. I'm just gonna go with what I went with last time because I don't. I have decision fatigue. So let's say we don't want to do that. We wanna stay away from the me too stuff. What can you say about creating a new category or a new sub category? So, for example, a, perhaps a dissolvable gummy or a hangover type refreshing and revitalizing vape pen that can perk you up after a late night. How do you feel about this idea of creating a new category or a new subcategory?
Cy: Sure, sure. I think Matt, you need to go into product development. Those are some good ideas actually. Yeah, totally. You're absolutely spot on. I would say that, you know, there's still plenty of opportunity and things like gummies and vape pens, by no means is the market I'm settled. By no means are the players that we see today gonna be the players that are the brands that will last 100 years from now on. But you're absolutely right in that it will be very competitive. So if you make a new company, you put it on the store shelf, you're gonna really one. I mean, to even get the store shelf space is getting more and more difficult. There are so many brands now that there's finite retail space, these retailers have relationships with these product manufacturers at this point. And it can be really hard for them to swap out a company that has known sales for your gummy unless you can really differentiate it and whether that's through price or form factor or some positioning in the market.
So, you know, there's still a lot of growth and things like gummies and vape pen, still a lot of opportunity, but it is potentially gonna be a challenge to go in and fight head to head with some of the groups that are there have made headway, whether that's through their brand loyalty for the consumers that they now or just working with retailers to convince them to even carry your product. So yeah, moving into a new category or subcategory or developing a new segment is absolutely something that we see happening. We like to joke that it's like people are throwing everything at the wall to see what sticks because we don't really know. And so you know, if you can consume it, you can probably infuse it with cannabis in some manner. And so there's, there's plenty of opportunities for the hangover type of product or a dissolvable gummy or a chewing gum that's, you know, low dose five milligram or what have you.
And we do track hundreds of sub categories and there's some that are, you know, pretty funny and pretty interesting, that are surprising I would say that are out there. So yeah, I would definitely encourage that. You know, consumers are looking for new form factors or retailer might be more interested in carrying your product if it is something that they don't currently carry. And it's a Greenfield is wide open. You can go out and not have any competition in that space.
Matthew: I gotta think it's gotta be harder for dispensary owners to just deal with coming in and triaging these opportunities of all the different people wanna be on their shelves. It seems like it's probably more important now to be vertically integrated where you're, you know, you're controlling your whole supply chain if possible because you know, you really don't have any sway unless with the dispensary owner unless customers are asking for your product by name. So some tough challenges there maybe for certain brands and things that don't have brand recognition yet, but I'm sure the creative ones, we'll jump that hurdle with ways we kinda just talked about there. So any interesting partnerships or things coming up you wanna talk about?
Cy: Sure. We've got a lot actually coming up by the end of the year. So this is, I guess we've got about a month left in 2018, so I would say stay tuned for some exciting news there. You know, what's really exciting is these partnerships are with groups that are non-cannabis vertical operators that are coming into the market given kind of the new landscape with countries like Canada legalizing. You know, they are very similar to us in the market intelligence space. So some exciting stuff to talk about soon, but a little too early to announce. So stay tuned, watch for the PR to land before the year's out.
Matthew: Great. And Cy, I get emails everyday from college students, professionals already in the workforce and they wanna transition to the cannabis space. And I give kind of general information, but sometimes I feel like I'm not giving enough value back. Do you have any examples of a candidate or someone you saw that made a transition into the industry successfully that maybe you could highlight to tell people, you know, just an example of how it might be done successfully?
Cy: Sure, sure. Yeah, I think again, not to keep picking on Canada, but we've been spending a lot of time up there. We have an office in Toronto at this space at this time. And what's really exciting about Canada has given the, the lack of the federal overhang. Like in the US we have the issue of it being a schedule one substance. So it kind of precludes a lot of people from more traditional industries jumping in just because of the risk or potential risk. In Canada, you know, that that doesn't exist as much. And so at this point, you know, in Canada we work with a lot of the LPs, the brands in the space and it's, it's interesting when you're sitting across the table with some of these large, large brands, whether it's the canopies of the Afri is or they were ours. The other side of the table is full of people that come from a beverage alcohol. So a lot of the beer companies, the Molson Coors of the world and they've jumped over and we kind of joke like, who, I don't think anybody is left in Canada and making beer at this point. I think everybody's jumped into cannabis.
So I think that, you know, a variety of experiences in that world, whether it's alcohol, whether it's CPG, I think is very beneficial to the cannabis space. I'm also seeing a lot of operators like project management, you know, people that are used to, you know, fine tuning operations. I think that in this industry, operations is kind of a huge opportunity because a lot of the cannabis product manufacturers, you know, started as, you know, growers or, you know, had a recipe and now they're scaling up and looking at, you know, multistate operations and they need support to be able to do that. But, you know, that's through my lens and kind of the world that we're in. I would say that, you know, no matter what you do, I think there's a huge opportunity in this space for you. It's just finding the right company to jump into.
Then I would encourage everybody to do it. I think that, you know, given we've been in it for eight years at this point, which, you know, eight years is some time, but in cannabis years it feels like forever. And another eight, I can only imagine, you know, where we're gonna be or you know, actually have trouble imagining because I think it's gonna be so much beyond what we're seeing today. So, you know, I like to say there's never been a better time to be in cannabis. I've been saying that for probably the last five years. So, you know, it continues to get better and better, but I think that now is definitely the time to jump in.
Matthew: Yeah. And I feel like the risk is largely gone, whereas a few years ago still felt kind of like phrase this is a little bit risky. You leaving something behind. Now it's just, I feel like that's gone. You know, the launch sequence has been initiated in this thing is taking off.
Cy: I think when we started, yeah Leafly, you know, we would always caveat when I would explain to neighbors or friends, you know, I would say, or even family are in the cannabis space, but we don't touch the plant or we're just data.
Matthew: You upon it. No, no, no, no, no, no, no Jack, no, I'm not. I pass on grass all the time.
Cy: Or look at the app, you know, it's this mainstream app because I think there was a lot of that stigma and people are afraid to have things like a cannabis on their resume. But today I think when you say, you know, I'm in the cannabis industry, people look at you with a bit of jealousy, like, well, how do I get in, you know, this, I wanna jump in, where do I go? And I think it shows that you're forward thinking and uh, you know, ambitious and risk taking. So yeah, I totally agree with you. It's definitely normalized at this point.
Matthew: So Cy, at this point in the interview, I like to ask a few personal development questions to help listeners get a better sense of who you are personally, and you're gonna get a couple extra because it's just because it's you.
Matthew: So here we go. Is there a book that has had a big impact on your life or way of thinking that you'd like to share?
Cy: Yeah, you know, I read a lot of I guess nonfiction certainlyand fiction, but I'm a pretty avid reader. I think reading is just the best, fastest way to learn from a lot of smart people out there. You know, some that I guess kind of where we're at today, you know, a more recent book that really has been resonating with me enormously is the ''High Growth Handbook,'' by an individual Elad Gill who's a very well known startup individually has been in Silicon Valley for a number of years. But there's something about this book, at least for the point of our businesses in. So, you know, we're in this kind of inflection point going from early stage to growth stage.
It's kind of where you've got product market fit, you know, you've got a validated product, you have customers and you're now it's all about kind of scaling it up and all of the things that that entails, hiring new people, you know, dealing with dynamics internally, you know, things like fundraising. So I think that that one seems to be just kind of like a playbook for where we're at right now. I wouldn't necessarily recommend it for everybody if you're just starting a company. It's probably not totally relevant. I think it's a good window into your future. But for where we're at right now, it's like every chapter it's like written just for me, I feel like, so it's called ''High Growth Handbook.'' I would really recommend it for anybody in the startup world. You know, additionally, a good startup book that I recommend that is recommended by probably everybody is ''The Hard Thing About Hard Things.'' You know, that...
Matthew: By Ben Horowitz?
Cy: Ben Horowitz exactly. That one is I think also a good kind of reality check, you know, this is not even our second startup, myself and my cofounders, you know, weekly being the early certainly, but we had a number before. And to say it's a hard thing is an understatement and I think it's a good way to kind of brace. So you're not surprised by a lot of things. So I definitely encourage that. You know, so those two books are great if you're kind of in this world and I'm currently reading ''Blitz Scaling'' in the messy middle. ''Blitz Scaling'' is Reid Hoffman, so the founder of LinkedIn and it's really about just kind of scaling your operations up quickly to get that market share and just the best practices to do it if there are any best practices that also. So a lot of kind of startupy businessy books, but it's kind of nice to have just to kind of help guide us through it because even though we've done it before with Leafly, you know, it's a different business with headset, different dynamics in the market and so new challenges all the time. So having books like that are invaluable.
Matthew: Is there a tool besides Headset that either you or your team use that helps with your business or productivity?
Cy: Sure. You know, we're all concentrated more or less than in Seattle with the exception of our Toronto office in some field reps essentially in markets like California and Colorado. So we definitely like using Slack, which is a communication tool. You know, I'm sure most companies are used to using that. You know, to keep everyone on the same page, I would encourage operators to develop kind of not a Wiki for say, but some sort of knowledge base where people can share their information in the organization, whether it's documentation or just project management. So we use a service called Quip that's Q-U-I-P. We really like that. It's kind of like Google drive, very similar but a little more bells and whistles to make it easier to communicate, to have kind of more dynamic documentation.
So that's been pretty helpful for us to keep everybody on the same page, especially as we scale up, you know, you kind of lose a lot of that tribal knowledge and the organization. You can't ask everybody for everything. So if you can go to one place and kind of figure that out, that's been great. But I can go on and on. We'd like to use a tool called Intercom on the platform. Intercom is great for customer engagement. It really gives us a good sense of well, one, it's a great way to connect with our audience, so if someone needs some help, they can just jump on Intercom and start messaging us, but it also provides us some great analytics on usage of the platform so we can kind of identify, you know, who's a power user of the platform, who hasn't logged in a little while and really helps us with things like customer retention and just really understanding our customer base. So those are some three tools, top of mind, you know, there's probably hundreds of others that we use certainly, but, you know, those are three of the big ones that really helped push everything forward.
Matthew: Well those are great. I got two more questions for you. You've given me a lot so far, but we got two more to go. So I'm gonna ask you a Peter Teal interview question. What important truth do very few people agree with you on as it relates to the cannabis industry or all in general?
Cy: Sure. That's a tough one. I think that I'm tough one. That's probably why it's a Peter Teal question. You know, I think, I guess I would have said, you know, that the cannabis industry is something like any CPG industry will turn into that. You know, I think that I, you know, at this point I would say that probably a majority of people would agree with me on that maybe a couple of years ago less so. I think when we were starting Headset, I think that. You know, people were questioning or would question is there really a need for that, you know, sales are always up and to the right with cannabis in. Do people really need that level of data. Or you know, maybe more recently or since the beginning of headset, you know, our operators sophisticated enough to look at numbers. And I would say that, you know the truth is, yeah I do believe that they are sophisticated enough or they do recognize that they need to look at numbers, whether they're a mom and pop a hole in the wall store. That gets enough information out of our daily email summary that comes out to them every day based on their operation or if they're, you know, wanting to dig into their inventory to identify the performers, you know, I would say that these, these operators do look at the data and you'd be surprised you don't need to be a multistate operator with a staff of 100 and having analysts full time. There are people in this space are pretty much everybody in the space recognizes that that data is important.
And know if that's just a big sea change that's happened with the era of big data and metrics and analytics and you know, I think something in the water, people recognize that, but they wanna stay competitive. They need to stay ahead of others. And so looking at the data is important. And so I think that would be the truth that people, few people agree with me on that, you know, even the smallest operators need good data to drive their businesses, which is very much true from what we see from our customer base.
Matthew: Last question Cy. If you had to go to a dispensary this week and purchase $100 in cannabis products as gifts, how would you spend the $100 and who would you give the gifts to? Don't have to give names, just relationships.
Cy: Sure, sure. Yeah. Certainly can't give to myself, I assume. So I think it's a great question, particularly for this week or you know, given that we're moving into the Thanksgiving holiday here in the US and in green Wednesday as it's coming to be known as such a popular day for sales. I think kind of in the lens of this week, I would purchase most likely and edible, probably some, a low dose product, something, you know, five milligrams per serving or even less and something with a really nice packaging, really great brand positioning in the market. And I say that because I would take it to, you know, Thanksgiving dinner where, you know, potentially I'm gonna meet some new individuals and you never know their opinions on cannabis. Most likely they're, they're pro-cannabis. But it's a good way to introduce people to the market without, you know, to kind of de-stigmatize a bit where they can see a product that looks like something that they would purchase that at whole foods that they can try without any risk of consuming too much cannabis or having something to potent, and, you know, really, uh, hopefully to help change their mind. So I think that that's the route I would go. So probably an assortment of edible products, low dose things like mince, things like single serving cookies that, you know, come a nice packages that I think would resonate with a Thanksgiving dinner crowd.
Matthew: Good. Very portable stuff. I like that exact. Cy, as we close, tell listeners how they can find out more about Headset and learn about the data and the services you offer.
Cy: Sure, sure. So head over to our website at headset.io. You can learn about the different products that we have, whether it's Headset Retailer. Insights, which is our market data product, and a headset bridge, which we didn't really get into, but it's pretty interesting if you're a product manufacturer. We also published a best seller lists that's refreshed daily, so it's the top 10 products in the markets that we do track by category. So if you wanna dive in and see, you know, who are the top 10 pre roll or what are the top 10 payroll products in Nevada today, you can go and see that it headset.io. We also published some great industry reports that are, you know, a few pages. We kind of do deep dives and different segments. The most recent one we did was beverages report before that we did a Canada analysis and assortment analysis of who the players are, what the product mix looks like and so on. And so I'd encourage you to check that out. Those are free, um, and kind of give you a great insight into the type of data that we collect and how we can use it to help our customers drive decisions.
Matthew: Well, Cy, thanks so much for coming on the show and educating us and I wish you all the best the end of this year and into next year.
Cy: Sounds good, Matt. Thanks for having me again. Appreciate it.
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Dennis O’Malley is CEO of Caliva Dispensary in San Jose California. Listen in as Dennis shares how difficult but rewarding it is to run a thriving vertically integrated cannabis company.
– The price of wholesale cannabis in California vs Oregon
– How to successfully navigate regulatory changes
– Creating in-house technology
– Why delivery app Eaze is a dominating force in California Cannabis
– Building a brand
– Staying competitive
– What the future holds for cannabis operators in California
Matthew: How do you create a thriving cannabis brand in California given the immense amount of red tape and market competition? We're going to find out today in our interview with Dennis O'Malley, CEO of Caliva. Dennis, welcome to CannaInsider.
Dennis: Matt, thanks so much for having me. I'm excited.
Matthew: Give us a sense of geography. Where are you in the world today?
Dennis: Sure. I am right in the heart of Silicon Valley, so right in San Jose, California, which is just south of San Francisco in the middle of the state. What most people don't know about Silicon Valley before it was known for high tech and internet and before that Silicon semi-conductors, it was called the valley of the heart's delight and it was known for the best fruit and growing region of things like prunes and strawberries and other things, so.
Matthew: Almonds too, right?
Dennis: Almonds. Absolutely, we are right in the valley of the heart's delight.
Matthew: Yeah, that's Central Valley in California. I didn't know about it until I drove through it and I was like, oh my gosh, there's just tons of produce and things grown out there and you can actually see it from like satellite imagery, like how this huge valley, how big it is. It's pretty amazing.
Dennis: Absolutely. We've checked all around us. We're back to the farming roots
Matthew: And I'm in Paris, France today.
Matthew: Now, give us a sense of what Caliva is at a high level.
Dennis: Sure. So we are a large vertically-integrated cannabis company. We exist to make very high-quality innovative products for our consumers, and our consumers are mainly adult use consumers. And we seek to certainly be the most trusted brand in cannabis. And we really pride ourselves on a brand promise of consistency, transparency and accessibility of our products. Most people know us for our product portfolio and most people also have seen, experienced our dispensary in San Jose as well.
Matthew: Okay. Can you share a little bit about your background and journey and how you came to start Caliva?
Dennis: Sure. The easiest part about that is I definitely did not start Caliva. Caliva's a little over three years old. And I came on board a little over a year and a half ago. I always credit people from incubating and starting thing with...that it's the hardest thing in the world to give birth to anything. And those who did that I have immense respect for in any part of the industry, certainly as the founders of Caliva. I knew one of the investors in Caliva. I've had a 25-plus year relationship with them. And as I got to know more about the business, I was just intrigued with the mission that Caliva had and which was to do business the right way and have higher standards and provide a great way for, you know, newer consumers to get access to natural health and wellness options. And I really couldn't think of more of a mission-based purpose.
And so I came on board as president in early 2017 and took on the CEO role earlier this year and we're growing like mad and I wouldn't want to spend time with anybody else or you know, have any other mission. So we're thrilled about what we're doing.
Matthew: Okay. And how would you describe the California cannabis market right now for people that really don't have a sense?
Dennis: Yeah, I think there is an overabundance of press around our industry for a whole variety of different reasons. I believe that most people believe that everybody in cannabis is making money hand over fist and no one really is. You know, the adage that I've heard used in tech is it takes a long time to turn money into knowledge and that's exactly where the industry is at today. And hopefully soon we will be turning that knowledge into money.
So it is very much still in the investment mode for almost everybody within the industry. There are large billion dollar figures thrown out there, but then when you look at 35% taxes in the case of where we're at in San Jose to the expense of regulations and the cost of doing business, it is a very capital-intensive business that requires precision operations in somewhat large scale growth to be successful and we're certainly committed to it for the long term. But I also think that it's just extremely difficult to get long-term investment, longer term decisions based on uncertainty around regulations, you know, financial services challenges. So what most people don't see is the difficulty of how hard it is to run a business. But what I think we enjoy and we'd love to see is such as the new Gallup poll where a record amount of, you know, folks in the U.S. really are supportive for cannabis being illegal throughout the U.S.
Matthew: Yeah. And just so people get a sense of what the whole operation looks like, it's a vertically-integrated, grow dispensary, and then brands. Correct? Around your own brands inside your dispensary. Is that correct?
Dennis: Yeah. The easiest way to think about it is we create really great high-quality raw materials, so we have a 22,000 square foot canopy of grow. So we're producing thousands of pounds of high-quality indoor flower a year. We produce our own oil, so both crude and distillate oil that is mainly used in our own products, but also used in third-party products. So that's the first component of it in terms of grow and manufacturing. The second component of it is we produce a line of packaged flower, packaged pre-rolls, packaged vape pens. So we do a lot of our own in-house manufacturing, branding, packaging. And then lastly is we really control and manage our own distribution channels. So we have a large wholesale sales team.
Caliva brands are in about 350 dispensaries in California, and those are adult-use dispensaries. So we're in about 80% of dispensaries in California. We have our one retail store in San Jose as well, and we also enable both consumers to order online through caliva.menu and we have great relationships with other third-party distributors and online platforms such as Eaze. So that's the easiest way to think about our business. And we have other locations that we're opening up, we'll have a location in closer to San Francisco opening up next month. And then we'll have a location down in LA opening in February 1st.
Matthew: And what's the current cost per pound of cannabis in California at a wholesale basis roughly?
Dennis: Yeah. In terms of price per pound, if a wholesale buyer was looking to buy a pound or two from us, the average price per pound is anywhere between $2300 to $2,500. It goes up if there's a strain that's more exotic or higher THC or higher quality, and it drops if there's volume discounts. What we've seen at least for indoor flower is that there is still a shortage of consistent flower and consistent suppliers out there. So the price points have remained pretty stable since July 1st.
Matthew: Okay. And off the top of your head, do you know how that compares to your neighbor to the North Oregon and how much a wholesale pound of cannabis is going for there?
Dennis: Yeah. I don't have empirical evidence around this. Anecdotally, I've heard the same horror stories that most other people I've heard of a flower being sent to auctions and per pound price is wholesale going for hundreds of dollars. The worst anecdote I heard was that somebody had auctioned off their flower for $25 a pound, but that is unsubstantiated. Maybe urban legend, but I know that there has been certainly issues with wholesale flower, mainly outdoor and greenhouse I believe in Oregon. Certainly, a different market right now.
Matthew: Wow, that's crazy. If you think about us having a...if we had a national... It was prohibition ended nationally, how there will be a free flow and it would come to some equilibrium, you know, supplementing California supply. I guess since California likes to control everything, they'll probably not allow that, I would imagine. But that's a tremendous difference. That's almost, you know, what are we talking about here? That's 10 times more. Well, I mean, excluding that $25 like outlier, you know, more than 10 times in California. What do you attribute that to?
Dennis: Well, I think Oregon, from what my understanding is had an unlimited cultivation licensing structure, so the oversupply of flower, I believe, was a just unforecasted or poorly forecasted in terms of the regulatory bodies, one. Number two is given that the infrastructure it takes to, you know, to build for flower and then to be able to produce flower once you're actually invested in and it's very hard to deviate from it. So if you have a cultivation facility, you cultivate flower, it's very difficult to pivot. So I think California had learned from that and certainly try to limit some of the license is one. I think two, some of the operators still understood that in the market that that might be a tougher area. However, our forecast at least at Caliva is that there's 10 times more legal supply that will come online in 2018, then there is legal demand. So we certainly see cultivation as an area that will have excess capacity very quickly. The amount of infrastructure and large-scale projects throughout the state is just massive and we actually see majority of consumers turning to other products outside of flower.
Matthew: Interesting. So if that's the case, then to stay alive and prosper, you have to lower your production costs. And also, to maintain your margins you really need loyal customers that see a unique value in your product. How do you respond to those two dynamics?
Dennis: Yeah, great question. For us, it's always been about vertical integration and vertical integration for us meant controlling the supply and demand chain. And really the number one driver for us was to ensure quality. So we're obsessed about the quality and the customer experience. So our primary objective is how do we get the very best tested consistent product into the hands of the consumer in a very easy manner? And vertical integration for us means that we can deliver the freshest product at the lowest cost with the highest quality and the most convenient way to as many consumers as possible. Now, does that also provide some opportunity for cost optimization and driving down costs and increasing efficiency? Absolutely. And we have a ton, we have a ways to go to be doing that, but our guiding principle has always been quality first customer first and we really built Caliva around that and have tried to deliver against that promise.
So have been customer-obsessed and we still believe that if we're producing very good raw materials that go into innovative products and we have a great experience in terms of how they buy their products and whatever way that they wanna buy, whether it's through our dispensary, somebody else's dispensary, on eaze.com, on caliva.menu, they choose in terms of how to purchase the products and that it's a very convenient way for them to be able to do that. You know, that will equal happy customers. But of course, they wanna pay less versus more and will continue to try to drive, you know, cost optimizations around that.
Matthew: Give us a little background on what changed on July first and why that's important for the California market.
Dennis: Yeah. Great, great question. I was blindsided by the demand that we received 8:00 a.m. on July 1st, and I remember this just vividly. It was one of the, you know, the biggest aha moments for us. I was sitting at my computer and we had an email come in from Humboldt that said, we would like to see if you delivered a Humboldt because we are short on flower. And I immediately knew something was different. So I never thought that a dispensary in Humboldt would reach out to an indoor grower in San Jose, and that they would be short of flowers. So 8:00 a.m. on from July2 first our world changed in what we saw was that there was a complete shortage of providers that were able to provide tested product in childproof packaging through a distributor in economical and timely manner.
And so we were able to do that and there's different infrastructure type of things that we built in advance so that we could be consistent and reliable to our dispensary partners, but we complete all. I completely underestimated the amount of demand that would come into our facility for all of our products, including flower. And what that resulted in was a certainly backlog of orders that we just dug out of a couple of weeks ago. So we had been on back order for every product we've had for July through, you know, early October.
Matthew: Wow, that's crazy. And you know, speaking of Humboldt, there's a lot of black market trade and that has an effect obviously on the regulated market. How do you view that? Do you think that's a big impact, small impact, and how do you feel about in general?
Dennis: Well, I think there's two ways to answer that. One is just my personal feelings on this. My personal feelings are that we as an industry should do whatever we can to allow as many people into the legal industry as we can. So I don't believe there's been enough help, guidance, flexibility to be able to convert, especially farmers, but also manufacturers and distributors from a quasi legal market into a illegal market. So I wish as an industry we did more on that.
The second part about that is indoor flower, that there's not a large black market for indoor flower. So the most competitive market out there for black market flowers is greenhouse and outdoor. So for discerning consumers who are looking for top quality flower we haven't seen that it's been a large issue. Would we like the black market to go away? I think every industry would always say that and we and certainly we would. But we probably have less exposure at it at Caliva given that majority of our revenue is coming from indoor flower and then packaged products than outdoor flower and greenhouse flower.
Matthew: Okay. One thing I've noticed about Caliva and talking with you, maybe it's where you're situated in the world in Silicon Valley, is that you've put a lot into developing your own technology, a lot of effort and time o optimize your business. Can you talk a little bit about why you decided to invest in your own technology versus buying off the shelf and what that experience has been like?
Dennis: Sure. Well, I think a good example of that is our wholesale portal. We're in a very unique position as a wholesaler to, you know, again, you know, hundreds of dispensaries in the state is that we run a dispensary too. And we know how hard it is to maintain accurate inventory of product on our shelves. And we were certainly affected by it as a dispensary on July 1st when we didn't have edibles on our shelves for two weeks. And we didn't have really visibility in terms of when those edibles would be back up on the shelves. So we built a wholesale portal because we didn't see that there was an existing application that was out there that met our needs, that was, you know, very unique to Caliva not a marketplace. And so are, you know, hundreds of dispensary customers are able to see real-time inventory of all of our flower, not just what is on in inventory today, but also what's being harvested as well as the inventory of our products. So they can place orders online for immediate delivery. They can place orders ahead of time.
So what we've heard from our dispensary partners is it allows them to have a really good, you know, forecasting of products because we are reliable, dependable partner that we have products in stock and inventory. And then when they actually order them, we deliver them on time in a seamless process where they're getting updates and those types of things. So we've spent a lot of time and a lot of investment to develop the wholesale portal, but hopefully, it's paying off for our dispensary customers.
Matthew: And then for your menu, I mean there's a menu that's required, not required, but there's a menu that most dispensaries keep for their...just for themselves, their dispensary, for their customers, but they also want to cascade to Weedmaps or other platforms so that they can get as many potential eyeballs looking at their goods. How have you done the menu? How does that work?
Dennis: Yeah, really great, great question. So just as much as we have developed innovative technology for our wholesale business, we've developed the same type of innovative technology for our consumer business. So caliva.menu, which is, you know, our online ordering platform today has all been built in house and it's really kind of modeled after Google Express, which is a very kind of easy mobile application to be able to order products quickly. But what we saw was when I came into Caliva, Caliva and most other dispensaries, they spent a lot of time manually updating all of their menus and their specials and online and then going to third parties like Weedmaps and other places and uploading pictures and product descriptions and prices. And nobody else in any other retail industry does that.
What everybody else in retail does is they invest in a product information management system. They have one system of record for all of their products. That system of record for all their products syndicates that information to all of the end points of which, whether it's a wholesale marketplace or your consumer site and you make one change and you have the visibility to those changes and everything else is up-to-date. It's the only way to manage channel conflict and updated pricing and inventory. So we early on invested in product information management systems, brought in people who could manage APIs, Application Program Interfaces, to make sure that we could talk to other third parties.
And then we have, you know, had a pretty discerning process in terms of what third-party technologies that we work with and they all have to have open or rest APIs, so that our technology can connect into it. But it's made a world of difference for us to have great consumer experience because whatever our consumer see online, they know that we have it in stock. It's the actual accurate pricing. So we no longer have customers either ordering online and saying, whoops, we're out of the product or coming in and say, whoops, you know, the menu wasn't updated. That doesn't exist at Caliva. And that took a long time to get to, but that's why we made the investment in the technology.
Matthew: Okay. And for people that don't know API is Application Programming Interface and that essentially is a way for systems to talk to each other in a way that's universally understood by all and pass information back and forth. So did you try anything off the shelf and were unhappy with the experience there? Is there anything you can say about that?
Dennis: Yes. We've tried and kicked the tires with many different applications. Unfortunately, the amount of investment I would say going into a technology is created for complex vertically integrated cannabis companies just as light. Most technology applications are optimized for dispensaries which aren't vertically-integrated because it's a larger market share and there's just not a lot of people developing applications for large vertically-integrated businesses. So we've kicked the tires on a lot of them and we continue to build our own tech platforms. But we've, you know, we failed at a bunch of different tech platforms and applications too. So the caliva.menu and the wholesale portal are shiny stars, but we feel we've got our share of failed attempts of other things as well.
Matthew: And what about creating an ideal dispensary experience? I mean, there's some objective things you can look at like square footage, but then there's kind of soft subjective things like lighting, the general vibe and the mood and how a dispensary welcomes you. What can you say about creating a dispensary experience?
Dennis: Yeah, our dispensary experience has the same guiding principles as we do for how we think about our company and our role to consumers. So as we position ourselves, as you know, aspirationally, to be the most trusted brand in cannabis, trust is critical. Trust comes from consumer confidence. So consumer confidence really comes from education. And we know this is a highly considered purchase for most consumers, that they're gonna shop online a couple times. They're gonna ask a couple of friends, they're gonna do their research. And in this day and age for the new curious consumer, they spend about 12 to 15 minutes with our wellness consultants. We used to call them budtenders, we now call them wellness consultants, asking questions about what's right for them. So for us the, you know, the guiding principle is how do we have our consumers trust the experience within Caliva and then trust the product and the brands that they buy.
So we certainly believe that those coming into the store, spending that 12 to 15 minutes with our wellness consultants, they wanna be able to have credible people provide expertise around what their issues are and how to solve them. We have 30,000 consumers come in, you know, to our stores in a year and they're generally asking for help with pain, sleep and anxiety. And so our wellness consultants should be able to ask questions, listen and provide some recommendations on that. After they come into the store, their next order is usually a delivery or pickup order given they have found something that's worked for them, we need to have a very seamless, easy experience to be able to order any products and Caliva products on our online menu. And it has to be, you know, somewhat fun and we think we've been able to deliver that.
Matthew: Okay. When you look at the budtenders you've worked with or wellness consultants, are there any things that stand out and what makes a good a wellness consultant? Is it empathy or energy or knowledge? What are kind of the few things that stick out?
Dennis: Yeah, it's 100% confidence and knowledge. So we are obsessed with polling our consumers and getting feedback on our consumers. We have a online chat on our website and our web app that we have real-time chats from our wellness consultants and we get real-time reviews from them. But the overwhelming feedback on our wellness consultants is how knowledgeable that they are on the products, how helpful they are in terms of the products and their success in terms of recommendations.
So there's a lot of different types of personalities. There's a lot of different styles. There's some people who spend way more time than they probably should with customers. There's some people who just get to the point. There's some people who are curious and happy. There's some people who are more introverted. But in the end, we look for people who are very naturally curious, who are empathetic, but most of all, have accurate and factual knowledge for consumers and ensure that that consumer is getting, walking away with, you know, confidence and trust in the process. But it's been amazing to us to see the consumer feedback after we survey them both on our online chats and then our either retail store experience.
Matthew: Now let's talk about delivery apps a little bit. I can see why these are so popular, especially in California. People come home after a long day or they're up late at night and they got their shoes off and they're chilling, they don't wanna go out and deal with California traffic. So they pop open their smartphone and they make an order online. Which apps are they turning to the most right now? What has the largest market share in California?
Dennis: Yeah, just, even before that, you know, if you look at the economy, it's a convenience-based economy, especially with people who are 21 to 30 and Millennials. If you look at Netflix and GrubHub and Domino's and Amazon Prime, everybody is seeking delivery. So when they look at cannabis, it's no different if you know what you're doing. So I would say for us, what we see in certainly in Northern California, there's really no competition in terms of market share to Eaze. Eaze is the default, I would say, you know, platform for most of the Northern California consumers. There's a lot of other great players that provide, I'd say, connoisseur type of deliveries and have built a good niche in terms of, you know, especially around San Francisco and those types of places. But for large market share, it's definitely been Eaze and we see Eaze also making big strides down in Southern California.
There's an app called Stony App that is getting great traction down in Southern California too. And those apps are generally for people who really know what they're doing and who, you know, really know what they want and they want their cannabis pretty quickly and they wanted a great value. What we found at Caliva is our consumers are a little bit different than that on a majority of time. So our consumers, when they use caliva.menu to order, they're okay waiting a couple hours. They actually have a bunch of questions when they ask.
And so, you know, we have about a thousand online chats a month when we're doing delivery orders because people are asking questions, you know, in real time to our wellness consultants on the app before they order. And it's just a very different consumer. And we, you know, we find certainly within the Bay Area, so south of San Francisco through just south of San Jose that our own delivery service is probably increasing about 20%, 25% month over month. But I would say those are the three. Eaze, we've certainly seen some increase in ours. And then Eaze and Stony App and in Southern California, and we're a great partner with Eaze. Our products are on their menu and we support them in a number of different ways. But they're a fantastic service.
Matthew: Now, when people use an app to have a delivery made to their house, can you talk about the difference between the current revenue in store versus on an app?
Dennis: Yeah, I certainly can give a perspective on it. Again, you can't find better deals in cannabis than you can on Eaze. So they have incredible promotions and we, you know, we see incredible delivery times from that. So in general, you would generally see, I would say, you know, lower AOS from that type of delivery platform. In terms of, you know, in-store purchases at least in our experience, our in-store purchases from new consumers that they're putting their toes in the water. So their initial purchase isn't that high. What we do see is that, you know, after that, at least from in-store to our delivery is once they found something that works for them, they feel much more comfortable and confident and they're ordering, you know, multiple of those items in two weeks later or three weeks later. So I think it's just a little bit different. It's, again, Eaze has a very, I'd say, a regular consumer that takes advantage of great deals and, you know, at least for Caliva at a much smaller scale than Eaze obviously. We see our consumer trying first deciding what works for them and then really getting on a good routine of products that they would use over and over again.
Matthew: Okay. Now, if you were to wave a magic wand and change one thing about the California market, what would it be?
Dennis: Gosh, I don't know if my answer would be different than anybody else's in the industry. But, you know, we try to look at what's best for the consumer versus what's best for Caliva. So if I'm a consumer, here's what I want. Number one, I wanna be able to pay for my candidates with a credit card. So where and how can I can do that? And it's not always easy to do. For instance, you can do that with eaze.com today. You can't do that on, you know, caliva.menu today. So if I'm a consumer, I want to pay on credit card. Number two, if I'm a consumer, I want to be able to talk to experts around cannabis and I don't wanna have to drive to, you know, an industrial area to do so. So I'd like more dispensaries. I like dispensaries, you know, zone in areas that are accessible to me.
So in, at least in our area, there's not one dispensary from San Francisco to San Jose, which is a highly populated area, but that's, you know, that's an hour from, you know, having a dispensary. So in more rural areas, it's even worse. So the number two thing as a consumer, I'd like to have more dispensaries. And then number three, I'd say, I'd like to have a better assurance of, you know, tested and quality products. And if I'm a consumer, I'd wanna know if my CBD is... Is industrial hemp CBD from China or if it's, you know, cannabis-based CBD from Caliva. I'd like more visibility and transparency of what's going into the products and I like more of official rubber stamp of, you know, saying that this product was tested under these results and to have more consistent testing. So we always try to look at what the consumer wants and if I had a one or maybe that's three wishes versus one, those are the three things that I'd look for.
Matthew: Is the market changing at all in a way that you think most business owners don't really understand, you know, there's a change that's happening that you maybe see that you think they don't appreciate quite in the same context at all?
Dennis: Yeah. Yes and no. One is I think there is no harder business in the world than to run a cannabis business. And most business owners that I know are working 7 days a week, 20 hours a day, and they are passionate about their employees and their consumers. It's just it's an amazing mission for most of these folks. So I think, one, they have their nose to the grindstone so they see every single day what's happening. But I think if you look up and, you know, pick your head up out of the trees and see the forest, there is this groundswell of a consumers who are demanding natural health and wellness options and the situation today is just not working for them. They're not looking for high THC products that they have to go in and buy from a dispensary and pay up to 35% taxes on. They want to integrate cannabis into their daily lives. They would like to, you know, micro dose as needed, have a lot of confidence in the products and they'd like to be able to receive it in a very convenient manner.
So it's difficult for, I'd say, many smaller business owners to go after where the market is going versus where it's at today. But the challenge with that is that when the market gets there, where will you be? And we certainly work and try to help our partners be able to get there and to see what we're seeing, but that's where we're headed. We're headed to not the 500,000 people that are shopping in dispensaries in California today, but we're going after the, you know, the 24 million consumers in California voted for cannabis legalization to be able to try to integrate, you know, cannabis into their lives and give them a very easy, convenient way to be able to choose cannabis to whether it's alleviate pain, sleep and anxiety or whether it's, you know, good for you products around energy and recovery or whether it's just recreational products to be social.
Matthew: Okay. Dennis, I like to ask some personal development questions to help listeners get a better sense of who you are personally. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Dennis: Yeah, it's certainly nerdy, but it's been helpful, and I've listened. I've read the book and both listened to the podcast, but it's what...it's called "What Matters" by John Doerr. And it's really about a management methodology that is aligning your business to objective and key results. And they're called OKRs and they're pretty popular now and Google has made them popular. But what I found is, is that it just translates over into life, which is what I used to call the big rocks, which is, you know, what are the big things that you have to get done and what do you need to get right. And it was really a good framework for me that we've started to implement at Caliva. So we all get visibility in terms of what we're working on, but most importantly, what's most important to us. And I thought that, you know, for me, that translated really well to life as well and it's a good system of thinking for me. So that's been my latest book and it's on audible.com and it's a fun read too.
Matthew: Oh, great. For people who don't know John Doerr's one of the founders or principles of Kleiner Perkins, a big venture capital firm right there in your neck of the woods there.
Dennis: Absolutely. Yeah, he does a good job.
Matthew: Okay. And is there a tool that helps you or your team with productivity at all that you'd suggest?
Dennis: Yeah. And my team would get tired of hearing about this from me. And they would all be rolling my eyes, but I am a Slack addict. So Slack is an internal messaging tool and I have a wonderful team of young engineers that humors me and in all of my asks to be able to get real-time information. So Slack is it's an APP on my phone that I get real-time notifications in terms of what our hourly sales are in a retail dispensary. I get out of stock alerts if we're out of stock and any products. It's a check-in basis, so I know where all of the team is at all times for location and I get, you know, real-time status updates on it. So the integrations that we've had into Slack and the notifications that I get, I geek out on that. And that has at least allowed me anywhere I'm at to really have a good pulse of what's going on in the organization.
Matthew: Okay. So you have different channels that allow you to have team members that are involved in certain details of the business communicate together. So you might have like cultivation on one, your wellness consultants on another and that way you're not bothering people unnecessarily with communications that don't need to be involved.
Dennis: Exactly. It's all about access to real-time information. So the less that I have to actually bother people and randomize them and ask them what's going on and the more that they're able to proactively signal to me about what the updates are as well as just real-time integration with other apps. It's just been a great productivity tool for people to broadcast out what their updates are. So I'm on slack. That's the app that I'm on a more than email and it's, you know, for a company that is now 330 people with multiple locations. It's an app I certainly couldn't live without.
Matthew: And would you say it's reduced your email usage and if so by how much?
Dennis: It absolutely has by 50%. I hate email. I'm terrible at email. It takes too long. It is not a critical form of communication. And you know, bite size, bite size, little updates through Slack have dramatically changed the interactions that we've had. But yes, if I could reduce my email usage by another 90%, I would.
Matthew: I don't know if you've read the study, but there, it was said that for every one email you send you get 1.25 emails back.
Dennis: Self-fulfilling prophecy for sure.
Matthew: So there's definitely an incentive there to find ways to reduce email. So, well said. Dennis, in closing, how can listeners learn more about Caliva? Find your brands, find your menus and visit your dispensary?
Dennis: Yeah, I really appreciate it. One is that if you're in the San Jose or Silicon Valley area, please come by our dispensary, it's right in 7th Street in San Jose, we love to walk you through what we're doing here. We have delivery through caliva.menu in the greater Bay area. But again, we partner with Eaze, so if you're anywhere in any part of California, just eaze.com where we have 14 to 17 products on there. And then on our website of just go caliva.com, you'll see, you know, over 150 dispensaries that we have listed in terms of where you can buy our products and through all of our great retail dispensary customers. So we are very unique to California. We're, you know, very much a California authentic brand with California roots and, you know, we look forward to continuing to expand throughout California.
Matthew: Well, Dennis, thanks so much for coming on the show today and we wish you all the best.
Dennis: Yeah. Thanks so much, Matt. I really enjoyed it.
Andy Joseph is CEO of Apeks Supercritical. Andy and his team make advanced extraction machines. Listen in as he talks about how the industry is evolving and how businesses appetite for specific methods is evolving.
– Andy’s background on Navy submarines
– Creating extraction machines while moonlighting
– Business owners are more interested in terpene preservation
– CO2, Ethanol, Butane, Propane, which extraction method is better?
– Why your finished product should drive your extraction methodology
– Monitoring and controlling extractions in real-time
– Fractionating, what is it and what does it matter?
Learn More At:
It was only a short time ago that cannabis oil extraction was an esoteric practice that people had little interest in. As the market for edibles, vape pens and infused products grow, cannabis oil as an ingredient has really taken off. Here to tell us more about it is Andy Joseph, founder and CEO of Apeks Supercritical. Andy, welcome back to "CannaInsider."
Andy: Thanks, Matt. I appreciate you having me on the show and looking forward to our second conversation.
Matthew: Yeah. Well, give us a little refresher. Where are you located again?
Andy: We are in Columbus, Ohio.
Matthew: Okay. And I'm in Paris today. Now, Andy, Columbus is becoming a hipster paradise. And for people that are in California or in Brooklyn, they'll say, ''Surely you jest, Matthew Kind. Nothing happens in Ohio," but people are moving from other cool places to go there. What is going on there and are you responsible for it?
Andy: Yeah, I am definitely not responsible for it, certainly not for the hipster influx into Columbus. But, you know, the Midwest in general has a lot of favorable things. But I have to put a disclaimer out first. The most unfavorable thing that nobody has control of, that no one has changed is the weather. So while it's not Columb-, it's not California, it's not the beaches that you're gonna find, the East Coast, it's Midwest and, you know, summers are kind of nice. They get a little hot, winters are terrible and, you know, the gray skies for two or three months kind of make it unbearable. Nonetheless, the lower cost of living, the jobs [inaudible 00:02:03] manufacturing, you know, [inaudible 00:02:06] renaissance that you can almost call it, you know, the rebirth of manufacturing jobs is Midwest. But you just don't find that kind of resurgence of jobs and economic boost in some of the other places where cost of living is just so ridiculously high that, you know, regular guys can't get a job.
Matthew: Yeah, and, you know, as I have gone around Ohio and especially Cleveland and spent time there, bicycled around the different emerging neighborhoods there, and one thing I notice is that all the infrastructure's already built for a manufacturing renaissance there, it just has to be, flip the switch and there's people there that know how to use it, too, which is, you know, other places, it's not the case. It's like this can just be turned on if we can make this happen. It sounds like it is happening there, but why are...?
Andy: It is.
Matthew: But, you know, I grew up in the Midwest, in Chicago and you cannot underestimate the soul-crushing nature of about a hundred days of granite gray skies and no sunshine. It's absolutely, I say "soul-crushing" because it is, it's just, you feel like you might be in purgatory and then the sun comes out and it's like, you're in the Emerald City from "The Wizard of Oz" or something. It's like everybody, like, rips their clothes off and runs down to the nearest body of water. Like, "What? What is this light that's coming between the clouds?"
Andy: Some folks will take the positive aspect on that light deprivation anxiety problem and say when the light does come out, you know, it makes you appreciate it that much more. The Midwest does have some beautiful seasons and we got all four seasons coming through and, you know, the price to pay of having all four seasons is that, you know, there's about a hundred days of gray. It's rough.
Matthew: Yeah. Well, I could reminisce about the Midwest all day, but I will say here in Paris, I've actually had a couple people ask me like, ''Hey, I've heard Detroit's cool now, is that true?'' And I was like, "Wow, I don't know where you guys get this information from," I guess it is rebuilding, but I think it's funny that more than one person has said that to me. And how does this information trickle over here?
Andy: Well, and it's downtown. You know, what they don't realize is that as soon as you get about maybe a mile away from the downtown of Detroit, it's still the same crappy Detroit it's always been, but the actual downtown area itself has really been revitalized. It's pretty impressive up there.
Matthew: Yeah. I know that the billionaire guy from Quicken Loans and is it the Cleveland Cavs? He's really taken it upon himself to turn that city around and I think it's fantastic. But let's jump into extraction here. What are we doing? We're just joking around, so. Okay, let's jump into extraction. And I like to welcome everybody into the conversation, not just people that are already familiar with it. So tell us what "supercritical" means and what "extraction" means so we can understand it.
Andy: Well, supercritical, and I suppose to be clear, it should be supercritical fluid that we're talking about. And, you know, basically supercritical is a phase. It's a matter of state. So everybody knows there's a solid, there's a liquid, there's a gas. Supercritical is sometimes called a fourth state of matter. [inaudible 00:05:23] just a combination of liquid and gas properties, so it acts like liquid. When we talk about extraction, it acts like a liquid and can dissolve oils from the plant material and has solvency capabilities. But it acts like a gas at the same time from the standpoint that it's gonna expand to fill the container that it's contained within. It's not affected by gravity. It also gives it a very, very low, what's called surface tension. Surface tension, if you think about it, it's like the meniscus in a glass of water. It's the force...
Matthew: It's what the water bugs float on when you see them on top of the water.
Andy: Yeah. Exactly, exactly. That surface tension, right, is the force and, you know, it's very, very hard to break that surface tension. If you can imagine, you know, a droplet of water trying to get into a very, very small groove, say, for instance, a piece of plant material, you know, it's gonna have a hard time getting in there because of that surface tension. Supercritical fluids have extremely low surface tension. And so they can get way, way deeper into these little nooks and crannies that are in the plant material that allow it access to essentially act like a solvent, dissolve out those oils. So supercritical fluid is really kind of this unique combination of gas and liquid properties that happens not only with CO2, with lots of other things. But because it can happen at such a lower pressure and lower temperature for CO2 compared to, say, like nitrogen and oxygen and other kinds of gases, you know, it's typically the gas of choice for supercritical fluid extractions.
Matthew: Okay. And give us a little about your background. You were on two years ago, and I think even people that heard that episode probably don't remember exactly your background. How did you get into this field and come to start this business?
Andy: Sure. I started, I guess to start, my career started in the Navy. I spent six years on nuclear submarines stationed out of Pearl Harbor. I was an enlisted nuclear mechanic so I essentially ran all the mechanical portions of the power plant and the propulsion systems on the submarine. And spent six years doing that, got out of the military. And went to college at Ohio State. And needed to make a few extra bucks, right. The GI Bill pays for some of your college but doesn't pay for all of it. So I started a fabrication business. I was in the welding engineering program and met a customer who needed some botanical oil extraction equipment manufactured. So I really came at the extraction industry or the botanical oil industry from a manufacturing approach. Not so much from I was already extracting these other things and decided to build the equipment because I couldn't find one. That was on me, right?
There was definitely a hole that needed to be filled. I approached it from a manufacturing standpoint. So that was all the way back in 2001. And from 2001 until 2012, Apeks was a part-time job for me. I did it on the side at the same time that I was a director of a engineering group for a consulting firm. And 2012 came legalization of both Colorado and Washington. And, you know, just the kind of the massive growth of the cannabis industry, they all came together and I was so busy at that point in time. I essentially had two full-time jobs at Apeks and I had this, you know, my real ''job.'' So I made the leap. 2012, I decided, you know what, I'm gonna focus on Apeks full-time and here we are, six years later. And just about a year ago we shipped our 500th CO2 extraction system.
Matthew: Wow. And were you on the submarines then when they would go out at sea or when they came back, you'd work on them?
Andy: No. I was stationed aboard the submarine. So I would go out and go under the water and, you know, maintain essentially all the mechanical propulsion and kind of the life support systems, the water and different elements like that.
Matthew: Do they give you some sort of screening to see if you have a good fit for this type of, like, understanding? Because I think of this stuff and it just sounds like all Greek to me in terms of nuclear propulsion and all the stuff that you are comfortable with.
Andy: Yeah. There's definitely initial screening, you know, way, way back in high school, they give you a test called the ASVAB. I have no idea what it stands for, but that basically is a preliminary screening to show that you have the intelligence to get into some of the more challenging programs within the military, not just the Navy. But then, you know, going on submarines, there's some additional psychological screening that says, you know, "Are you gonna go nuts when you're in this steel tube underneath the water?"
Matthew: Yeah. Does any crazy stuff go on down there after you're underwater for that long? I mean, I guess being in the Midwest with the gray skies for 100 days of gray gets you used to it a little bit more than people from California or Florida or something.
Andy: Yeah. A little known tactic that the military, at least the submarine service anyway, generally tends to take when you're out under what's called underway for a long period of time. My longest was 56 days. They typically run the oxygen at about 18% or 19% as opposed to 21%. And you're running the oxygen lower, basically it keeps everybody kind of, you know, a little more even-keeled and a little less active.
Matthew: Okay. That's kind of how they like put saltpeter, I think, in the water in prisons to keep everybody kind of chilled out.
Andy: Exactly, the same concept.
Matthew: Okay. Okay. Now, why did you choose CO2 as the means to extract oil from plants instead of a different medium like ethanol or butane?
Andy: I suppose it's worth pointing out at first that we manufacture equipment. So, you know, we don't do the actual extractions themselves, at least not yet. Now we were fortunate enough to win a processing license here in Ohio to start with the medical marijuana market. And so our processing entity, which is called Ohio Grown Therapies, will obviously utilize Apeks Supercritical equipment. But, you know, it's important to note that I don't believe that any one of the three main extraction methods that are commonly being used in cannabis, CO2, ethanol, and hydrocarbons of butane and propane, I don't think any one of them is better than the other. There's pros and cons, right? And I would argue that most of them are complementary, but all of them are ultimately driven by not the extraction technology, but rather what you want at the end, right? What's your final product?
As an example, hydrocarbons, butane and propane, they're fantastically efficient at making water or more commonly, more and more popular dabbing products, recreational type of dabbing products. Very, very efficient extraction method and just not very much post processing to be able to create those popular types of products. CO2 and ethanol can make them, but it can't do it as well, ethanol, certainly. On the flip side, CO2 does a fantastic job of extracting not only the bulk extraction of the cannabinoids that are there, but also doing a terpene extraction. And so, the ability to what's called fractionate, or start to separate some of the elements that are found in the plant material get the terpene separate from the cannabinoids, for instance. That gives the ability to do things like come back in and reconstitute a vape pen cartridge. In other words, you do an extraction. You get those terpenes, you set them off to the side.
Then you finish your cannabinoid extraction, you do a process like winterization, you do a distillation, and you can take those terpenes and put them back in to create a distilled cartridge that's got the full flavor of the terpenes that came from the original plant, right? CO2 affords those kind of possibilities.
Matthew: Do you find that more people are asking you about terpenes now than they were a couple years ago?
Andy: Then they were six months ago, let alone a couple of years. But you know, ethanol, and I'll address the terpene thing here in a second. Ethanol, you know, has its pros and cons as well. The biggest problem, the biggest pro about ethanol is, it's fast. I mean, it does a really great job and it's widely utilized in other industries like flavorings and essential oils. The problem with it is it's not selective at all, right? And so you have to either get really cold to prevent it from grabbing all the chlorophyll out of the plant material. And no matter what you do, you're never gonna get terpenes from it because of the fact that you have to expose it to so much heat in order to separate that ethanol and alcohol.
That being said, ethanol is a fantastic feeder. If your end product is just straight distillate, sorry, straight distillate, essentially, you know, high, high purity THC or CBD products. That's a good feedstock for edible products, for instance. So ultimately the choice between propane, butane, CO2 and ethanol really isn't about the technology. It's more about what you're trying to make at the end. And most of our customers have both, right? They're complementary. Some of them will even have all three of these different technologies. CO2 does a great job with extracting terpenes, but ethanol can be faster at extracting cannabinoids. We'll find most of our customers actually use both. And for our processing facility here in Ohio, that's what we intend to do as well.
Matthew: Interesting. So that's a great way of framing it is that, you know, "Tell me what your end product is and I'll describe to you what might be the best extraction solution."
Andy: Exactly. That's exactly right. And anybody who says, "CO2 is the best for everything," or, "Butane is the best for everything," I would run away from that because that is, it's just not true. It's not reality, it's not how it works. There's pros and cons for everything.
Matthew: Now you talked a little bit about how people are asking more about terpenes, but how have the customers that approach you, since we last talked two years ago, how has it changed? Are they more sophisticated? Are they looking at things more holistically, have they different preferences?
Andy: Well, I think that the market's changed. You know, there was this race to the maximum amount of THC that we could possibly get not too terribly long ago and, you know, how much more pure, how much more closer to 99% can we get. And I think, you know, it sounds kind of cool, but people missed the rest of the puzzle, right? Just having THC, 99% THC means that there's nothing else left. And so all of the other elements, whether you're looking for an entourage effect, whether you're just looking for flavor in a vaporizing pen, it doesn't really matter. People started to say, ''Hey, you know what? This 99% thing's not so cool. Number one, I just get so stoned, I can't do anything and it's not even fun. And number two, it doesn't taste good. It's not an enjoyable experience overall.'' And so the term "full spectrum extract" has really started to take hold in the last year, which is a combination of extracted oils and terpenes and cannabinoids from the plant material that most... How do I say this? That are very similar to or most closely replicate what was originally in the plant material to start with.
Matthew: Okay. Okay. And what type of businesses are your prospects, would you say in the last six months, the majority creating? Are they dispensaries that are vertically integrated? Are they processors selling only to other businesses? What are you seeing the most of?
Andy: Well, it really depends on what state you're in. You know, unfortunately you can't just kind of generalize the entire industry because of the licensing structures that have come across in different states. If you force me to generalize it, I'd say, you know, the West Coast and/or recreational states, you know, those are, our customers tend to be what we refer to as processors. Fewer and fewer of them are becoming vertically integrated. I would actually say that they're moving away from being vertically integrated. But the processors are a combination of either wholesalers, where they'll take oil and sell that as crude or even do some secondary or tertiary refinement and sell that as a wholesaler to other companies like edible manufacturers, for instance. And so you're starting to see kind of this segmentation of the industry start to come forward where, you know, not everybody's doing every single piece of the vertical integration, but rather just their own little piece and getting really, really good at it, getting really, really efficient at it.
Now contrast that with other states, and Ohio is a great example. Pennsylvania and New York, right? Some of these other newly medical states with new industries that are extremely, highly regulated and have licensing structures that preclude "business as usual," right? Those ones are a little bit more difficult to predict because the license structure really drives the economy of things, not so much just, you know, free market. And so those ones are a little bit stranger and you can't necessarily say that they're doing it because it makes sense. They're more doing that because that's the way the license structure was put together.
Mathew: Okay. So it sounds like there's more specialization happening. The field is subdividing and people are specializing. The specializations you're seeing is there's more interest in fractionation in terms of... It's fracturing, right? I'm saying that correctly. I feel like I always say that wrong.
Andy: No, it's fractionation.
Andy: Yep, fractionation, or fractioning.
Matthew: This is happening to preserve terpenes or to get a different desired outcome for a specific product.
Andy: Yeah, absolutely. And that's one of the pros of CO2 is its ability to fraction the initial bulk or crude extract. Whereas ethanol, butane may not necessarily have that ability to fractionate, or be selective is probably a better way to say it. CO2 is tuneable and you can make it selective as a solvent and say, "Okay, I'm gonna run parameters that aren't going to get all the fats and waxes out. I'm gonna get just the lighter oils and the terpenes." And then you can change the parameters that you're operating at to make it a more powerful solvent and pull out more from the plant material, right? So you can start to get these initial fractions. What you can't do, and this is kind of a misunderstanding why a lot of people wanna talk about fractionation, what you can't do is just say, "Okay, I wanna select just the THC," or, "I wanna select," even more popularly, "I want to select just the CBD." It doesn't work that way. You can select kind of ranges of molecular weights, but you certainly can't select individual compounds, at least not in this initial bulk extraction stage.
Matthew: Okay. Now you'll notice at the commodity exchanges, you know, a pork belly or a bushel of corn or wheat, all of these commodities are kind of defined exactly what they are, so then traders and farmers and speculators can all kind of can trade on something they understand what it is. Do you think we're moving into any kind of standard buckets in terms of what oil is? So it can be, so you don't have to go into some huge spec sheet on what the oil is that you want created? You could say, "I want this grade," and it's understood what that means.
Andy: I think that the industry is in the very early stages or the infancy of something like that. I don't know that, certainly not the medical marijuana industry and maybe even the recreational marijuana industry. I don't know that you'll ever have volumes that are big enough like corn to justify, you know, kind of trading like that. But you're certainly gonna have qualities and/or standards of quality for different refinement levels of the extracted oils, right? Now, an area where you might go to look to here in 5 or 10 years that might be closer would be more hemp CBD. So to get out of the marijuana side, start talking about hemp and CBD, you know, they're growing that in fields. They're using agricultural equipment to do that kind of stuff. I think if there was something that was gonna happen in the ''marijuana industry,'' it would probably be more hemp CBD-related.
Matthew: Okay. Yeah, I agree with you. Hemp is much more agricultural. It's just gonna be a vast farmland dedicated to it. That'll be probably more fitting. Okay. And now when a customer or prospect comes to you and says, "Hey, how do I define the return on investment or ROI?" or, "How can I put my business person hat on and look at this?" What do you tell them?
Andy: Well, we've got return on investment schedule...we actually started putting out return on investment schedules for our equipment...geez, I wanna say that's four or five years ago because that was a lot of the questions that we're getting. And today, we still publish all return on investment propositions for every one of our pieces of equipment. So it's right on the back of our price sheets and, you know, very transparent. Where people tend to fall a little bit short, though, is that's the return on investment on the equipment, just the extraction system. And, you know, if there was a pressure point or a failure point that we would see startup companies in particular going through, it's the lack of recognition that the extraction is just one piece of the puzzle, right? There has to be an entire business process that has to be put together all the way from supplying the feedstock or securing the feedstock to the extraction to refinement, to branding, to marketing, to packaging, the distribution agreements, cash management, profit and loss.
There's, you know, all of these extraction companies are businesses. And if you don't have every single piece of that business in place, you're gonna fail. And that's where talking about return on investment in the equipment is a little bit narrow-sighted. It isn't the full picture. But nonetheless that, you know, taking the return on investment from our equipment that we publish, combining it with return on investment and/or cost modeling for a business, that's really the total picture.
Matthew: Now you mentioned you're just shipping your 500th unit. Congratulations on that. Now you come across a lot of different business owners and I have, too, and businesses are just like people. They all have different styles, different strengths, some have trouble answering the phone while others seem like they're capable of accomplishing anything. When you think about the experience you've had with different businesses entering this field, is there any common trends you see amongst the ones that succeed and the ones that fail that you've kind of noticed like, "Hmm, they trip up here," or, "They're successful in navigating this"?
Andy: Well, yeah, and it varies. You know, that's one of the challenges of being in this industry. You know, there's so many people that are attracted to the green rush that they come from all walks of life and all experience levels, but very, very few of them come from the processing or manufacturing of consumer goods. And when I say "consumer goods," I mean more like food stuff or edible products. It's amazing to me still how few people have any kind of industrial manufacturing experience in a food environment. Just very, very few of our customers have that type of experience. And, you know, today the FDA isn't playing. The FDA is not involved, but it's only a matter of time before those kinds of regulations start to come in and that's gonna be a huge hurdle. The people who've had the foresight to see what's coming down the road, whether it'd be, like I said, FDA, have the foresight to understand cash management, especially in these new states like the East Coast states that are passing medical marijuana laws with extremely strict regulations.
The ramp-up time is long, right? It's not like a medical state that went recreational and there's already an established patient base and/or consumer base. Just take Ohio as an example. There are zero patients today in Ohio. And, you know, the amount of time it takes us to get from zero to 200,000 patients is a huge unknown. If you don't have the cash reserves, if you didn't have the business chops essentially to be able to manage and/or mitigate the unknown which is how long is it gonna take us to go from zero to 200,000, you're gonna fail or you'll run out of money because there aren't enough patients there. Those are the kinds of things that have to be thought through. There's definitely a technical aspect from the extraction. There's certainly a formulation aspect, but I think probably more important is understanding the long-term business aspects and also the marketing and branding. I mean, that's a really, really important element. You can make oil the best oil in the world, but if nobody knows about it, you're not gonna sell it.
Matthew: Yeah. Great points, and make it consistently so they know what to expect every time they open up a package from your business.
Andy: Exactly. Exactly. And that's not easy, right? So it doesn't mean just running the same parameters. It means knowing how to adjust to changes in incoming feedstock, right? So remember we're talking about a plant here and those plants aren't gonna be the same every single time no matter how much you want them to be. But understanding how your equipment extracts, you know, the different incoming feedstocks and then ultimately being able to modify your manufacturing process to produce ultimately the same product at the end, that's the real skill.
Matthew: Now how about throughput and maybe you could talk a little bit about how big of an extraction solution, how people get the right fit for their need. How does that work? Do you say like, "How much plant material you're planning on processing?" "Are you gonna be running 24/7?" I mean, what questions do you typically run through?
Andy: Yeah, let me tell you what a common conversation that we're having here recently will be as, you know, somebody will call in and we'll just say, ''Hey, this is Apeks Supercritical, how can I help you?'' And they say, ''I'm a hemp farmer. I've got 5,000 acres or 50,000 acres of hemp. I need your biggest extractor.'' And we say, ''Oh, okay. Have you done any extractions yet at all?'' And, you know, we typically hear a long, long silence at the end there. And then they finally come through. ''Well, no, I've never done an extraction.'' And that's a huge red flag for us. Right. That's a major problem. Bigger is not better. There's a huge misperception in the extraction space that the bigger the system is, the better it is and the more throughput that it's gonna have, and throughput and size can be unrelated. Right. The bigger the system, think about it from a volume standpoint, right? You gotta you got a 55-gallon drum and you've got a 500-gallon drum. Right. You can put significantly more material in that drum, but it doesn't necessarily mean that material's gonna be extracted faster unless there's a way to get solvent in and solvent out faster.
Right. So just the volume of the container, the "size" of the extraction system isn't the way to judge throughput. Throughput is really how much CO2 flow rate can go through, how much ethanol flow rate can go through. Right. And then it's also the secondary processing side. So how long does it take to do the secondary processing or the refinement of those oils? So bigger doesn't necessarily mean better and they're also, you know, smaller pieces of equipment have advantages over bigger pieces of equipment when you're talking about throughput and processing operations.
Going back to the submarine days, you know, submarines have two of everything, right. There's two turbine generators, two propulsion generators. There's two life support systems, oxygen generators. There's all these different systems that are onboard a submarine, have duplicate systems on them. And the reason for that is if one of them fails, our submarine can still maintain a one to one surface-to-dive ratio, right? To make sure that if we go down, we come back up every single time. If we didn't have two of everything and there's a failure, we're down, right? And that's life and death in a submarine.
Manufacturing doesn't have that life and death thing, but it can sure be a pain in the butt if your piece of equipment goes down and you don't have a backup. And so the scaling approach or the production throughput approach that we always recommend for our customers is not don't go by one of the biggest giant things you can get your hands on. It's start small, do some test extractions first, then scale to the next size up. Pick a manufacturer that has a scalable technology so you can make sure as you buy the next piece of equipment that it isn't gonna change the operating characteristics or the quality of the output.
And then once you get to a point where you just need the capability, further capability, you don't need to do experiments and trials anymore, get redundant systems, right? Buy two, buy three medium-sized systems as opposed to one large system. What that does is it gives, you know, the backup capability. And it also does things like spare parts. Right. Now you've got one kit of spare parts as opposed to three. And those spare parts can be used across all three of those different pieces of systems. Generally the systems are smaller, so the spare parts are cheaper.
And one other really, really critical point, especially if you're talking about CO2, smaller systems, smaller vessels in particular mean thinner walls, and who cares how thick the wall is of the vessel? Well, thinner walls, most of these systems are stainless steel. Stainless steel does not conduct heat very well, so you don't get good heat transfer or thermal properties. Thinner walls are able to overcome that better, faster because there's not as much material that had to transfer that heat through. So we always recommend going with smaller vessels because you can go from subcritical parameters to supercritical parameters much faster than having one giant vessel that you essentially have to think of more of a startup, it's like starting up a power plant, right? You've gotta get it going, it takes three, four hours to get the thing heated up and get it equalized. And then you have to run it for a long, long time, right. And making changes to it on the operating characteristics are very difficult. So these big systems that people are considering purchasing, that have the capability of one system doing all the throughput that they need sometimes isn't the right solution.
Matthew: Yeah, I agree with you. Mentally, I think I would make that mistake, too. Just always throw more horsepower, more cow bell at every problem. So that was a good distinction there. I appreciate you making the, like, you know, teasing out those nuances because I hadn't thought about it that way.
Andy: Yeah, and my wife is actually the one that points this out to me frequently. I tend to say, and I think men in general are like this. If a little of it's good, a lot's better, and it doesn't matter what the application is, if a little is good, a lot's better. That's really not a good way to think about extraction and manufacturing throughput.
Matthew: Good points. Now I know that this tax plan that went through at the end of 2017 has more depreciation or, you know, 100% depreciation the first year on a lot of capital equipment. I haven't talked to you about this, but is that something that transfers to the equipment that you're selling?
Andy: Yes. I mean, so this is a capital acquisition. For our customers, buying the equipment is a capital acquisition. And so the ability to do a section 279 write-off is there, but that's been there for quite some time. You know, the bigger challenge for our customers, particularly in the marijuana industry are the 280E tax hits. And so, you know, being creative about taking a financing structure as opposed to doing a capital acquisition is generally the approach that we'll see more savvy companies and/or more financially-smart companies will take, if you finance it, if you rented essentially. So develop a secondary corporation or a leasing corporation that acquires the equipment outside of a marijuana license and then rent or lease that piece of equipment to your marijuana licensee. That rent becomes a cost of good. And so that's a way that a lot of people will try to minimize that 280E burden.
Matthew: So they created their own financing vehicle, another company. Do you offer financing or do you have a third party financing company? How does that work?
Andy: Yeah, you know what? My financing story's kind of funny. But we don't currently offer financing. There's too many other people out there that do it. But it wasn't too terribly long ago that there wasn't anybody out there that was offering financing. Back five, six years ago when I decided to focus on Apeks in a full-time capacity, I had this piece of equipment and I had customers, and the equipment costs $100 grand, but they didn't have $100 grand to throw with the equipment. Now they could make $100 grand on it in a matter of days, but they didn't have a way to get the $100 grand in the first place. So I was basically forced into self-financing a lot of these systems that we produced in the early days. And, you know, I'm not a finance company, don't ever wanna be a finance company. But nonetheless, that's the way it had to go in order for us to survive back then. You know, nowadays there's plenty of other financing companies out there that specialize in doing financing and are much more well-equipped to do it than we are. But nonetheless, that's kind of my history of the financing.
Matthew: So you point prospects to these financing companies as you go through the process of introducing them to your solutions, I take it?
Andy: Yeah. And we've been through, you know, unfortunately, we've chewed through a lot of financing companies. It's disappointing, but as you might expect with most everything else in the marijuana industry, there's some unscrupulous players that are just trying to take advantage and make some quick bucks. The best financing companies have long-term careers and provide support. Brokers tend to be a giant pain in the butt. We try to work directly with financing companies themselves and not really involve brokers because they really tend to muddle it up.
Matthew: They delay the process and just introduce some complexities that don't need to be there?
Andy: Well, yeah, they're looking for their fees. And so, you know, the challenge with a broker is if they're shopping your deal across four or five different banks or private equity firms or whatever it might be, they're doing that. They're shopping it. While they're trying to get a good rate, they're also looking for the best deal for them. And so sometimes they'll say, ''Well, these guys are gonna give me a better deal. They're gonna give me a bigger cut of this. And while the rate may not be quite as high, I'll get a better deal. So I'm gonna push everybody towards these guys.'' When that may not be the best solution for the end customer. I look at consultants kinda the same way. You know, consultants, they should be third party, unobjective, unbiased. Any consultant who says, "Yeah, I get a kickback or I get a cut from different manufacturers, different vendors." And that subsequently is what I recommend as a solution. There's a conflict of interest there and, you know, so the financing brokers, consultants in the marijuana industry, you know, those are red flags to look out for.
Matthew: Interesting. Now, if you could wave a magic wand and solve one problem in extraction technology or take the technology to a new level, what would you do?
Andy: So real-time control is how I would probably answer that one in a short answer. One of the biggest challenges with, with any of the extraction technologies that are being deployed right now in the marijuana space and/or even hemp CBD is, it's kind of this black box, right? You load the material in, push start, it runs for a little while and makes some noise and does its thing. And then at the end, you open up the cup to see how much was there. Right. And there's really no way to tell while the extraction's happening, you know, how efficient it is, what's it bringing out, what rate of throughput is it running at, what efficiency is it utilized at and, you know, are you utilizing all of the power and energy that's been put into the solvent as it's passing through the material.
Those real-time controls and this real-time monitoring of parameters just hasn't made its way into the industry yet. And that's what we're super excited about. You know, we started doing some testing on this almost four years ago and I've kind of struggled to figure how to get it in, but just last month, we had a tremendous breakthrough on real-time processing analytics and monitoring that is gonna revolutionize the automation platforms for us.
Matthew: Wow. That sounds cool. Okay. Now, when you put on your x-ray vision, future vision here, what does the extraction industry look like? How is it different in three to five years than it is right now?
Andy: Well, one, it's bigger. You know, I think you're gonna see a delineation between recreational and medical markets, especially if there's some kind of a change at the federal level. But even without that, you can already start to point to medical companies look more like pharmaceutical operations, whereas recreational companies tend to look more like, you know, alcohol and even, to some degree, tobacco companies. And, you know, the way that they produce their products is different. Pharmaceuticals, you know, clean, pure, single compounding and, you know, taking the approaches to get things approved through the FDA, whereas recreational tends to be more about branding, logos, brand recognition, and a lot of times, cost. You'll have a smaller connoisseur market, you'll have a larger bulk market for what is a lower-quality, cheaper product.
So I think that's the way you're gonna see the market go. The extraction companies are gonna follow suit and support those things. So I don't think you'll see this combination of both, an extraction company providing both medical and recreational products. You know, I don't think the cleanliness standards for the medical side are gonna be low enough to support doing it in recreational efficiencies.
Matthew: Right. So you get a lot of customers asking you the same questions over and over, and probably they're not thinking about things the right way. Like as you mentioned, they're like ''Give me the 10,000 horsepower and one that's the size of a sperm whale.'' And they really need one that's much smaller and much more focused to the task at hand. Are there any other questions you feel like prospects should be thinking about, but they just don't even know how to frame what they're doing yet because they're new to the industry?
Andy: Yeah. You know, the scale... There's two pieces there and we've kind of touched on both of them, so I'll reiterate them here just briefly. But scale is one of them for sure. You know, if you've never done an extraction, you get no business modeling out a million-dollar or a multimillion-dollar extraction platform. There are so many things that you just don't know about the extraction parameters and the response to your feedstock without doing smaller scale testing first that...it's irresponsible. Right. You're not doing your investors or your money guys any favors by taking that approach. Start small, scale up and, you know, find a scalable platform that's been proven over time.
The other one is, that we touched on earlier, is the fact that, pay attention to what your end product is. I can't stress that one enough. Making sure you understand what you wanna make rather than what extraction equipment you wanna start with. It's so important and vitally critical to the success because you have to think through, before you start, you have to think through all of the different steps that it's gonna take to get to your end product. One of the huge, as you mentioned, lots of people call us and we get a lot of first-timers calling us, which is fine. We enjoy talking to them. We enjoy helping them through this process, but, you know, one of our qualifying questions is, "Have you done an extraction, yes or no?" And, "If you haven't done an extraction, what do you want to make? What's your end product gonna be?" When the response is, "I want to make everything, but I've never done an extraction," that's a huge red flag. Pick something. Focus on it. Start on whatever, you know, whether it's vape pens, whether it's dabs, whether it's edible products, whatever it might be, pick one, focus on it, get really good at it, then start to expand your product line. And those are the guys that we ultimately see succeed.
Matthew: That's funny that you mentioned that. I was a reading a story about how Bill Gates' mom, before she passed away, got Bill together with Warren Buffett for a dinner and they're all sitting around and Bill Gates' mom said, ''You know, what do you two attribute your success to?'' And they both at the same time said, ''Focus.'' And then laughed because it was, you know, it's not what they're doing so much as what they're not doing or, you know, however you wanna look at that. So that's interesting.
Andy: Yeah. I, for a very brief stint in my career, I did a little bit of work for Apple, and then talking to the guys who were deep-in with Steve Jobs back in the day. That was their one thing that they always went back to, on what Steve Jobs was good at and that was saying "No." He was really, really good at saying no.
Matthew: Yeah. They said there's another saying there that "Genius loves constraint." Like, if you have no constraints and everything's wide open to you, like all the permutations and possibilities, it's just overwhelming and then you can't focus.
Andy: And if you're smart enough to be able to deal with all of those possibilities and can actually think down the tracks of the different possibilities of what you could produce, you know, next thing you know, you're off in outer space someplace. I've got a partner who's kinda that way actually. He's just brilliant and if you put something in front of him, he will have 17 different ways to utilize it and different solutions for how to do it. And by that point in time, we're so far off track of where we should be as far as an operational program that it doesn't even matter. So, you know...
Matthew: But at least it's entertaining, though, right?
Andy: I mean, it's fun to watch, it's fun to listen to and it's impressive just because this guy's just so incredibly intelligent. But, man, oh, man, the herding cats saying is, that's exactly what it's like. When we're trying to have an operational conversation about how we're gonna move efficiencies from 1% to 3%, that's not the guy you want in the room.
Matthew: Right. It's good to have the dreamers, though. It's like, "Hey, this is a whiteboarding session. Nothing's off." So it's good to have both. I guess that's what makes humans so interesting.
Andy: Yep, and it takes all types.
Matthew: Yeah. Well, let's turn to some personal development questions here. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Andy: Yeah. I got turned onto a book called ''Extreme Ownership'' by one of my advisors about a year, maybe two years ago now. And it's a book by Jocko Willink and Leif Babin. Jocko and Leif are Navy SEALs and they spent a lot of time in Afghanistan and in Iraq and places like that. Recently, I guess not recently, a few years ago, got out of the military and kind of wrote a book about the SEALs and what it's like being in the SEALs and how that translates into business and, you know, kind of...the title really gives it all away. It's extreme accountability. But if I was trying to summarize it in my words, ''Extreme Ownership'' is just that anytime anything ever goes wrong, and there's always lots of opportunities for stuff to go wrong, think of it not in terms of why it went wrong and who someone else or what someone else did or what extenuating circumstance happened that ultimately came down and bestowed this problem upon you. Think about what you could have done differently in terms of extreme ownership. Take full accountability for it. Whether you really think you do or not, doesn't even matter. Think about, put yourself in the context of extreme accountability. What could you have done differently to affect the outcome?
And if you put yourself in that situation and you start thinking about all of the different reasons and all the different things that you could have done different, right? Sometimes it's tough to swallow, but when you start thinking in that context and taking extreme accountability, the outcomes start to become different. And that's the real key. If you think, "Hey, you know what? Everything that happened is my fault, right? I could've done this better. I could've done that better," things start to fall into place. And from a culture standpoint, right, your employees, your directors, the guys that are working for you, they start thinking the same way as well. "Hey, you know what? I could've done better on this, so the next time we go do this, I'm going to do this differently, right?" That culture starts to really grow and that extreme accountability or extreme ownership really starts to play out in every aspect of the business, right? It's not just producing or, you know, the individual product, it's engineering, it's customer service, it's cashflow, it's finance. When everybody starts operating at an extreme ownership mentality, you get significantly better results. And that's ultimately how the, that's how the SEALs are as successful as they are. Every one of those guys operates under extreme ownership. Every problem is their problem and they're the cause of that problem and what can they do to fix it? Never place blame on anyone else. Always place blame on yourself.
Matthew: That's a great idea because if you don't take ownership and you project blame onto outside circumstances, you can never improve because you can't control outside circumstances.
Matthew: And it also happens at an executive level where you're saying, "I make mistakes, but I own the mistakes." That's a great thing that, you know, can then radiate out to everybody that's like, "Hey, you know, we're gonna make mistakes, but we're gonna take ownership for them and we're gonna improve." I've had the displeasure when I was younger to work at businesses where the person in the highest ranks did not even acknowledge that they ever made mistakes. And that is, it's so uncomfortable. It's like, "What are you talking about? Everybody makes mistakes. We're human."
Andy: Right. Exactly. So this particular book, this "Extreme Ownership" book, you know, Jocko and Leif do a real nice job of breaking it down into 10 or 11 sections that are all applicable to business. And they tell a story, you know, from their time in Afghanistan where, you know, it's a life and death situation. And then they translate that story to a business situation that they're working with, you know, as consultants on and tie the two together and it's very entertaining. It's engaging. And at the same time, it's an opportunity to learn. I really enjoyed the book.
Matthew: That's a great suggestion. I haven't heard that one before. Now, is there a tool that you consider vital to your company or your individual productivity that you'd like to share?
Andy: Yeah, that one's a tough question. There's about a million different things that I would share. But trying to keep it contextual to the marijuana space, which is in the cannabis industry, cash is probably the biggest tool. As strange as that may sound, you know, a lot of people might say, ''Well, yeah, duh. You know, if we had more cash, then everything would be fine.'' Cash is king, and in an industry where financing opportunities and financing options are limited even for us, I mean, we've had our bank account shut down, you know, multiple, multiple times. We struggled to get banks to give us a loan for even building expansions for our business and we don't touch the plant. You know, our accountant shut us down because we got a processing license now that we do touch the plant. Lots and lots of constraints that ultimately all flow down to cash, right?
And making sure that you got enough cash on hand to be able to survive good months and bad months, but also keeping in mind that the industry is growing and evolving and getting so much bigger so fast that if you're not innovating, you're dying. And so you gotta have cash not only to support your business operations, but you also gotta have cash to be able to invest in your future, your company's future, your business's future. And if you don't do that, and you could do it by getting an investor, right, you can bring on investment. That's what a lot of people do. But if you're like me and you bootstrapped the whole thing, you gotta have a lot more cash on hand than you would normally have for any other business where you can go get things like lines of credit. And, you know, I think there's lots of business systems and processes and accounting software and all that kind of crap, but I really think cash is the tool that can make and break businesses. It does, for that matter.
Matthew: Yeah, it's funny. It's like the oxygen in the room, like, you need that just to continue. You notice when the oxygen starts to get low. So it's vital. There's a book about, I can't remember the name of it, but I'll try to link to it in the show notes that talks about that principle of cash first. And my experience has been with my own businesses and others, is that most businesses fail not because they have a bad idea, but then they run out of cash.
Andy: Yep, exactly. And that's going back to where I was talking about financing, that absolutely almost put us out of business. So we were the 24th fastest-growing private company in the US, back in 2015 on Inc. 5000, and we almost ran out of cash because I had financed so many deals that, you know, I was at a point where I was like, "Yeah, I got all this back order, we got all this stuff, but I don't have enough money to make payroll." And, you know, a huge, huge, huge problem. So that was a big eye opener for me.
Matthew: Now, where are you in the capital-raising process? Are you raising capital? Are you done with it? Where are you?
Andy: So I currently still own 100% of Apeks and I've never taken on any investments. That being said, we're actually looking for opportunities for investments. And, you know, in an ideal world, it's not so much private equity and just coming in and shoveling a bunch of money into it. In an ideal world, you know, we would look for an acquisition strategy. Whether we're the acquirer or whether we're the acquiree doesn't really matter. But as you start to see consolidation of our customers, you know, the plant-touching folks, whether they're processors or whether they're cultivators, doesn't really matter. There's a ton of consolidation going on. That consolidation is gonna carry through into the ancillary supply side, you know, the manufacturing businesses and service providers and things like that. You're gonna start to see consolidation and that's really what we're looking for. Not so much of an investment strategy, more of a longer-term growth strategy to allow us to combine with other similar-sized and complementary extraction companies and/or manufacturing companies to ultimately get into a consolidation area and become one giant company.
Matthew: Very interesting. You're looking ahead. That's great. Well, Andy, as we close, how can listeners reach out to you and learn more about Apeks Supercritical if they're interested in investing or if they're interested in becoming a customer, how do they do that?
Andy: Our website's the best place to start. And that's apekssupercritical.com. And Apeks is spelled A-P-E-K-S, supercritical.com. You can always call us, 740-809-1160. And if you wanna get a hold of me directly, feel free to email me. I am andyj, A-N-D-Y-J, @apexsupercritical.com.
Matthew: Well, Andy, thanks so much for coming on the show today. And as the winter approaches, I'll be thinking about you as you go through a hundred days of gray skies and all the best to you. And when you start to get patients in Ohio, we'd love to have you back on to hear about how you're doing as a processor.
Andy: Yeah, we're super excited about it. You know, Ohio's program has been stalled a couple of times and delayed a little bit more than certainly anybody wants. But it's coming around. You know, we expect that we're gonna open our processing facility in the March of next year timeframe. And, you know, we're really eager to provide medicine to patients. But we're not just gonna make our own stuff, we're also gonna take a opportunities from our 500-plus customers to white label and do what's called commercial kitchen manufacturing where we'll manufacturer things in our facility here in Ohio. But we'll do it according to the formulations of our customers and put it into the customer's brands and packages that might be in California or Colorado or Oregon or other places like that.
So we really see this as not just an opportunity for Apeks and/or Ohio Grown Therapies to succeed, but it's an opportunity really for all of Apeks's customers who've developed brands in other states to have an opportunity to play in Ohio without having to put up the million-plus dollars that it cost us to get this license.
Matthew: Very cool. Well, you'll have to come back on and tell us as that evolves how things are going, because I haven't heard much from an Ohio market because there's no patients, but I can't wait to see what evolves there.
Andy: Definitely. I'd be happy to come back on.