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How to Avoid Pathogens in your Cannabis

cannabis pathogens eric lachance PathogenDx

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Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

Cannabis testing is becoming a big business and for good reason. As companies compete to have the best, safest and cleanest cannabis they are searching for testing protocols that will help. That is why I’ve asked Eric Lachance of Pathogen DX onto CannaInsider today to help us understand the latest in cannabis testing. Eric, welcome to CannaInsider.

Eric: Thank you for having me.

Matthew: Eric, to give us a sense of geography can you tell us where you are in the world today?

Eric: Yeah we’re in Phoenix, Arizona. Our corporate headquarters is in the Scottsdale area, and our lab is down in Tuscan.

Matthew: Okay. And what’s your background? How did you find yourself in this business?

Eric: Actually my background I served in the military for 20 years and involved in a lot of research and development. And the cannabis business frankly is an exciting, new area into research and development which is why when I met my team, the CEO Milan Patel and Chief Scientist Mike Hogan, it was just a path to continue what I have a lot of passion for.

Matthew: Okay. What is Pathogen DX do exactly?

Eric: So Pathogen DX has developed a test, a DNA based test for tracking or finding pathogens that are inside of the cannabis product whether it’s the flower, the edibles or the oil. We’re based on a human diagnostic testing. We were spin off from a company that has a lot of years of NIH grand funding work.

Matthew: When you say DNA based, can you just familiarize us with exactly what that means?

Eric: Yes so let’s just think about this terms of the CSI which we’re all familiar with on TV. In CSI you use DNA to find who the bad guy is. In this case we do the same thing since fungi, mold, bacteria are all living organisms they have DNA. And so we find that DNA inside the test when we’re conducting the test. Much like you see in any forensic lab.

Matthew: And who are clients? Labs or individuals or who are your clients?

Eric: Right now our primary client is the labs because each state has requirements for testing cannabis for pathogens and other things and so they have a third party requirement which is the lab which is who we sell our test to.

Matthew: Okay, can you give us a snapshot of the lab requirement and the biggest markets in the United States?

Eric: Yes, sure, absolutely. So you know the testing market in 2020 is supposed to be about $850 million market and of that probably about a third of that if not more is pathogen testing. Each state requires, not each state, a majority of the states require testing for molds, yeast, mildews on your cannabis product. Now each state is a little bit different, but in general they all test for (4.05 unclear) mode, e-coli and salmonella.

Matthew: Okay, and what’s an acceptable amount? I mean is there a minimum threshold. I mean because this probably occurs in nature pretty often and it’s not always a cause of concern is that right?

Eric: That’s correct. So there’s a threshold for e-coli and salmonella which is 1CFU. So if you can pick up one colony for (4.32 unclear) of e-coli and salmonella, then it is fail. On total yeast and mold, total of aerobic bacteria and others there’s a level that’s 10 to 4th if I remember correctly CFUs and that’s really to allow for that natural occurring fungi/mold in the environment.

Matthew: So CFUs is that in layman’s term kind of the ability to create more of whatever the pathogen is so it’s something to look out for.

Eric: Right so each colony, so if you think back in the day of the Petri dish when you put your material on a Petri dish, when it grows it grows in little colonies and you count the colonies and that’s the measure, the unit of measure of Colony Forming Unit.

Matthew: Okay. And when you grow say organically versus conventionally, do you see more pathogens or is there any correlation there?

Eric: You would expect to see organic grow more pathogens such as pseudomonas and xanthomonas but those are healthy pathogens out there and that’s the one thing about our test that allows us to do is decipher between the healthy and the unhealthy pathogens. So we test, when we go out and do our testing we provide the labs to do the testing they can differentiate between the good and the bad pathogens.

Matthew: Okay. So apart from DNA what is the key differentiator for Pathogen DX as a testing medium than compared to other testing companies would you say?

Eric: Honestly that’s truly where we provide a lot of value. You can complete our test in six hours. So in other words from start, from receipt of the sample, running through the process six hours later you will have results back unlike the two current methods of Petri dish which can take on around 48 hours to 96 hours or real-time PCR which takes 48 hours approximately. You can get our test back, our test in one day.

Matthew: Is it all done online or when you say you get your results back how is it typically delivered?

Eric: So the process is the grower or the distributor will take his product to the lab, the sample. The lab, from the start that they receive that sample and they start doing the test they will then run through our process and we use our software as a SASS model which is online. So you run it through the scanner, scanner shoots up to our software as a service and then it provides back the report giving what CFUs were found in that sample.

Matthew: So let’s say we find some colony forming units in a sample do we have to throw everything away or is there a mitigation plan or does it vary state by state?

Eric: It varies state-by-state. Some states are far more stringent where you could lose your entire harvest. Other states are you can take that and turn it into oils and other states if you just mitigate that mold with a spray or a fungicide, you can do that as well. The challenge with doing that, with just doing the spray is you can’t be sure you got it. So that truly is a challenge because remember you’re only doing a sample and if you find it in that sample, that means your whole product has got that e-coli or salmonella. The best way honestly, which we find a lot of growers are doing today or wanting to do today I should say, is test their product throughout the life cycle, through that 12 week life cycle of the plant prior to harvest. And by catching it early enough then you can get rid of the fungus early in the process prior to harvesting your flower.

Matthew: So you’re saying that if you can test early on in the grow cycle and see something that may not be visible at all but it comes back positive in a test, it’s much easier to manage and solve that particular pathogen problem early on.

Eric: Exactly. That’s exactly, and where we’re going to is, because remember pathogens also hurt your yield in your crop. So by being able to test throughout the cycle you can reduce any loss of yield thereby returning a higher value per plant.

Matthew: You mentioned that sometimes if your test comes back and there’s a pathogen in there the plant might be acceptable for oil but maybe not for dry flower. Why is that? Is there some way that it’s salvageable and there’s no harm passed on once a conversion to oil is made.

Eric: Yes and now we’re really going a little bit farther past my knowledge. I can tell you that one of the things we have seen is that if you take and inhale a flower, smoke it, put it in your lungs and it’s an aspergillus for example, you can cause yourself to have lung damage and so you really don’t want to do that. The oil process allows you to kill a majority of all of that fungus. The challenge is you still have that DNA in there and it can’t be guaranteed that it’s completely safe. Much like you would have if you think about Blue Bell or Chipotle or any of those things like that where they actually cook the food and yet when they cook the food they don’t kill everything, and people still get sick.

Matthew: Yeah. Gosh I have no idea if this is true but I’ve heard there’s some speculation about sabotage in Chipotle, again total hearsay and opinion, but who knows there. I mean there’s some pretty powerful forces that don’t want the GMO movement to thrive and some speculate that that’s how that happened, but again total speculation. Don’t know if any of that is true. Certainly it could be a form of effective corporate sabotage because it’s certainly taken the wind out of Chipotle’s sales when they get salmonella problems all throughout the country which stinks because it does have a huge impact on psychology which I guess is a lesson for growers and cultivators to take away is that it’s such a huge hit to your reputation when you know the public gets wind of the fact that you have salmonella or e-coli that’s at a dangerous level and has caused harm. So I guess that’s a takeaway there.

Eric: Exactly and just think about it this way. The cannabis community is a very tight community and it really cares for its clients, but the problem is outside the cannabis community there’s the world of naysayers that do not believe in the value of the product. So if you have a tragedy happen where some young or some man or woman who has cancer who is taking cannabis because it alieves five separate distinct symptoms as a result of chemotherapy and they pass away due to an e-coli poisoning, could you imagine the impact across the industry because now we’ve just added ammunition to those naysayers and this industry cannot afford that because it has such huge value to its client base.

Matthew: Which is crazy because you think of all the people that die of alcohol issues every day but that doesn’t get highlighted or you think about the slow death of the way the modern diet is and it really doesn’t get that much attention. It’s starting to get more attention now, but you’re right it would be a devastating blow to have that happen. You mentioned that growers are kind of using this as a tool or considering using it as a tool in the 12 weeks or so from when they start to when they harvest. Is there any other motivations that you see for the testing other than just trying to catch things early?

Eric: In reality when I talk to growers it’s been because they want to make sure that they provide the best quality product for the client, the best medicine possible. And one thing I absolutely love about this industry is everybody loves to make a profit, but nobody as I’ve met in this industry takes profit over responsibility to the client. That to me is what truly what makes this industry so special which is why we see growers wanting to talk to us about either doing some sort of testing their plants early. We’ve even had growers come and talk to us about testing, environmental testing because the way our test works it doesn’t have to be a plant, it can be a tape hole off of your HVAC system, your ventilation system. It could be pulling water out of your water distribution system inside your grow. It could be taking soil samples and us doing testing on soil samples.

All of those things all provide great benefits to the growers. Our test luckily, not luckily, it has the ability to test for pathogens no matter what the medium. The medium being a flower, the medium being soil, the medium being water. It does not matter. We can test for those pathogens because we’re a DNA based test.

Matthew: Okay. Where do you see the evolution of testing going in the next few years. I mean it sounds like you have a pretty sophisticated testing protocol here that goes beyond what most people have probably heard, but as everybody see, you know, technology changes so rapidly. How do you see it evolving over the next few years?

Eric: I see testing becoming far more important not only in the cannabis business but frankly because of Chipotle and the food and agricultural business and the water business. And who knew this, the Dial Soap business because people realize that introduction of these harmful pathogens into your body can cause massive amounts of value loss whether it’s a young kid getting and dad or mom having to stay home from work or it’s god forbid somebody passes away. Those kinds of things are making testing becoming a value contractor but a value add to the clients that we’re supporting.

Matthew: Yeah there’s a liability issue there for sure.

Eric: Absolutely and even the liability piece is not even as prevalent now. It’s I need to keep my team, my clients happy because of not the law suit per se but the loss, as you so correctly put, the loss of value to Chipotle because of a pathogen event.

Matthew: What’s the ballpark figure on cost. I mean I’m sure it varies state by state and there’s variables involved. But I mean for people listening they don’t have a ballpark idea. Is there anything you could tell us?

Eric: Yes so for our test we charge, we sell to the labs and the growers it ranges depending on which state because of the number of pathogens that get tested but it ranges between $20 and $30 and also if there’s a larger volume people get kind of a scale discount but that’s truly all it costs. Competitors charge, our competition charges about $5 to $7 per pathogen. Our test is below depending on the number but is around $4 a test per pathogen.

Matthew: What about the requirements in terms of what’s a sufficient sample size? If you have a harvest that’s 100 pounds let’s say for easy numbers, what percentage has to be tested?

Eric: That’s a great questions and it’s actually by state and there’s still a lot out there. I think if I remember correctly Colorado requires a sample for every five pounds and it might be multiple samples for five pounds. Of the top of my head I can’t remember, but it’s usually one or two samples per five pounds. When we look at the sample is for us we need one gram. Yeah so our labs need one gram to do all the pathogen testing using our product.

Matthew: Well Eric I have a personal question for you before we close. Is there a book that has had a big impact on your life as you look back that you would suggest listeners take a look at?

Eric: Absolutely. So you will have to excuse my military background, but one of the things I’m big on is a book called a Passion for Leadership. It’s by Robert Gates, and he really talks about how to institute change across large organizations whether it’s universities or the Army, the military or other such size organizations and making sure to really establish collaboration amongst your subordinates and your teams so you get really outside and progressive thinking on solving problems which is something we have had amazing, which really has led to me in this industry because this industry is so collaborative. I have had nothing but great response from growers, they’re collaborating with us, providing product or (19.30 unclear) who really are helping us with free labor and free support that’s just been uncanny. Again, (19.41 unclear) is an ability to collaborate.

Matthew: Now in your mind do you have a mental model of what leadership is in terms of how you work with a team? Like one or two things, little pearl of wisdom in terms of how you think about relating with people in a way that moves the ball forward and aligns everybody with a common goal.

Eric: Absolutely. So for me it’s first having everybody understand what the mission is or the vision for that group is and then for me as a leader what I like to think about is everybody in that group has value. From the janitor on up, everybody has value in this team and I will relate it to a story I had back when I was a young lieutenant in the Army when we had a very big problem and a young soldier gave me a suggestion and I dismissed his suggestion because of his rank. My lesson learned was, and his suggestion was spot on. It was exactly right, and I thought about it that night and I came back I realized and I pulled him up in front of all of his peers and said hey, you made this suggestion yesterday. I apologize to you and I was the one in charge. I apologize to you for discounting what you said and discounting your opinion. Great job we’re going to implement what you did. That to me is kind of the basis of all leadership is that you recognize value across all of your people because without them you’re just one person standing in the middle of a dorm.

Matthew: Yeah I hear humility in that story, recognition, good ideas can come from anywhere and it’s so true. Everybody has different life experiences and backgrounds and they look at things in different ways and they could have a different lens on a problem that can lead to a breakthrough.

Eric: Absolutely, absolutely.

Matthew: Well Eric as we close, can you tell listeners how to find you online?

Eric: Absolutely. You can go to www.pathogendx.com. And so you’ll find all of our information there at our website. And if you would like to contact us we have a contact link there as well.

Matthew: Are you looking for investors at all?

Eric: We are. We currently have a round open right now and we’ve raised about $575,000 and we’re looking to get another $500,000.

Matthew: Okay and so if investors want to reach out to you, I’m assuming accredited investors, they can just do it through your website.

Eric: That’s correct or email myself. My email is on the website but it’s elachance@pathogendx.com.

Matthew: Great. Well Eric thanks so much for coming on CannaInsider and briefing us on testing we really appreciate it.

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


Eric Lachance of PathogenDx discusses pathogens in cannabis, how to test for it and mitigate it.

Key Takeaways
[1:22] – Eric’s background
[1:54] – What is Pathogen DX
[2:32] – Eric explains what DNA based means
[3:31] – Lab requirements and the biggest markets in the United States
[4:23] – Minimum testing thresholds for substances found
[5:36] – Correlation between growing organically and conventionally
[7:43] – What if CFUs are found
[9:52] – Using the plant for oil if a pathogen is found
[13:32] – Eric talks about motivations for the testing
[15:17] – Eric talks about the testing technology evolving
[17:41] – Testing amounts
[18:28] – Eric’s book recommendation
[21:49] – Pathogen DX contact information

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

Important Update:
What are the five trends that will disrupt the cannabis market in the next five years?
Find out with your free guide at: https://www.cannainsider.com/trends

Join CannaInsider For FREE & Receive
The Five Disruptive Trends Shaping The Cannabis Industry Now

Comparing CO and WA Dispensary Sales Metrics

roy bingham

Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

Every good sailor knows that when you’re charting a course from New York to England if your bearings are off even the slightest bit you could end up in France or Spain. One slight adjustment on your trajectory could have a massive impact. The same idea of knowing where you are and where you are going can be applied to early and cannabis businesses. One slight miscalculation on the type of product you offer to cannabis consumers could spell success or failure. That is why I’ve invited Roy Bingham, Founder and CEO of BDS Analytics back on CannaInsider. Roy is going to share with us some insights he’s discovered from the point of sale data at dispensaries in both mature and emerging cannabis markets in the United States. Welcome back to CannaInsider Roy.

Roy: Thank you very much. It’s really a pleasure to be here Matthew.

Matthew: Roy to give us a sense of geography can you tell us where you are in the world today?

Roy: Yeah. Today I’m in Boulder, Colorado. If you’d asked me two days ago I would have been in Rhode Island.

Matthew: Okay and Roy you’ve been on CannaInsider in the past but for new listeners that are just joining us can you give us a little background on your career and why you got into the cannabis industry?

Roy: Yeah I’d be pleased too. So I grew up in the UK and worked in the banking field in the 80s and 90s and then I came to the United States and went to Harvard Business School in 1993. Worked for McKinsey the big consulting firm and then formed my own consulting in mergers and acquisitions advisory firm called Health Business Partners and we focused on the health and wellness industry especially anything that you could buy in a Whole Foods Market for example. One of the things that we did at Health Business Partners was we invested in a company called Spins. This is way back. This is about eighteen years ago and Spins became the dominant provider of data analytics to the health food industry. They worked with Whole Foods Market, dozens of independent retailers, and retail chains in order to gather data about which products and brands were selling, which categories of products you should carry in your store. So that was my introduction to the modern world of data analytics.

Later in my career I became head of sales and marketing at a digestive care company where we did dietary supplements like probiotics and fish oil and I became a major consumer of Spins data at that time. In fact the year I joined the company it launched thirty-six new products of which five were successful and of course that was basically throwing an awful lot of stuff at the wool without a lot of data to determine which we should focus on. Seven years later when I left the company we had incorporated data into our entire product development process and we launched six new products in that year of which five were very successful, ten times as successful as those previously.

So we grew that business from 40 million dollars to 100 million dollars and a major part of that success was our use of data analytics in order to figure out which market categories to pursue and which characteristics of the products and what the competitive environment would be. So that got me into data analytics and about three years ago I paid some attention to the cannabis industry and with Mark Nottoli who is one of the Co-Founders of Canopy Boulder and I actually reintroduced him to Patrick Ray the other, one of the other Co-Founders of Canopy Boulder and they raised the fund and started the Canopy Boulder Accelerator and low and behold they called me fairly soon after they had the capital lined up and they said would you like to start a Spins like business for the cannabis industry.

Which was of course very intriguing because of the growth of the industry and my background in the health and wellness space had quite a lot in common with the growing cannabis industry and then the other big thing that Canopy Boulder did for me is they introduced me to my co-founder who enabled us to get a tremendously rapid start on this business. My Co-Founder is Liz Stahura who was the Head of Sales or Head of Business Development at Leisure Trends which does what BDS Analytics now does for the cannabis industry for the biking and outdoor industry. So we’re basically converging our expertise through the natural products industry with Spins and the biking and outdoor industry with Leisure Trends to create BDS Analytics.

Matthew: Wow. Yes I’ve definitely heard of Spins and BDS is doing something similar here so it’s point of sale data at dispensaries.

Roy: Yes.

Matthew: And when you compare Spins to BDS I mean these are similar offerings but in different spaces, one’s in cannabis and one’s in kind of a more Whole Foods environment. How would you compare and contrast the two?

Roy: Yeah well going back sort of eighteen years ago to the emergence of what is now the natural foods industry it was really a lot of independent stores rather like the independent dispensaries that we see today. Emerging small chains of stores and in fact when we started working with Whole Foods Market they had eighteen stores and so they were emerging majors already and who knows who may already have seen the Whole Foods of the cannabis industry being created in Colorado or Washington or California or Oregon perhaps. So there are similarities in terms of the maturity stage of the retail side of the industry.

I think the other thing is that in terms of similarities is that this is a business that is consumer driven and has inconsistent supply. If you remember back if you were around eighteen years ago natural and organic foods for example were patchy in supply. They started off with people literally bringing grocery products straight from the organic farms into those health food stores. Then gradually developed packaged goods concepts that looked pretty much like someone threw something in a cardboard box with very little branding and labeling and that sort of where we have been until very recently in the cannabis industry as well.

We did see and through Spins the very rapid emergence of new products, new categories, new brands, and we’re seeing that of course in cannabis as well and companies differentiating themselves by their positioning with regard to topics like organic, better grown, social responsibility, etc. Now there are of course a lot of differences between the health food industry and the cannabis industry. Of course we have different state by state regulation here in cannabis which means for us for example we have to have state by state data collection and state by state data organization which we didn’t have to do in the natural foods industry and then of course we’ve got the distinct markets of the medical and adult use market and again we have to categorize and organize and collect our data separately for those two markets as well and to be fair the natural products industry didn’t have the tax and banking issues that companies in the cannabis industry face. But of course we’re seeing in cannabis even faster growth than we saw in natural foods so many differences and similarities.

Matthew: And tell us a little bit about your clients and who you serve because on one side you have paying customers that want access to your research at BDS and then you also have your dispensaries too. How do you, do the dispensaries provide the data for free and they get something in return? Is that how it works?

Roy: Yeah. The dispensaries are really our partners and they have a free or very low cost service from us. So they sign an agreement with us which says they will provide data and in return they get the full service, the service that to a brand or grower would be worth tens of thousands of dollars. The dispensaries get as part of that agreement which means that they can analyze not only their own sales patterns organized by categories, sub-categories, brands, etc. but they can also compare their own performance to the market and therefore make decisions about how to change. The big thing for us with dispensaries is actionable data. Nobody wants analysis, paralysis, and getting lost in piles of information. You want to be able to make three quick decisions that day about different categories to feature more of or different brands or items to bring into your store or maybe to phase out of your store.

So that’s where we are with the dispensaries and then our paying clients are the brands, the growers, the MIPs, and they can be either mature businesses that are already the market leaders or the fast growing or companies choosing to enter the space who are trying to figure out how to differentiate themselves, which products to develop, which marketing campaigns, what pricing strategies, and they can use our data to figure that out. What we see with brands, growers, and MIPs is many of them recently the larger ones or the innovators have brought in management who’ve worked with data in other industries so they’re used to working with data in food, drug, mass from companies like IRI, Neilson, or in the health foods business with Spins or Leisure Trends for example.

And then they came into this industry and there was very little data. They’re usually very relieved to discover that we exist and that we have this data already because it means they’re not making decisions by gut feel. Then of course we also have those brands, growers, and MIPs that are run by entrepreneurs who haven’t had that same experience with data in the past but they realize that data is the key to developing a successful business.

Matthew: And when you say it’s the key why do you think that? I mean what’s the mistake people make if they don’t have the data and insight they have if they do?

Roy: Yes. Well I think the first thing I always think about if you’re developing a new line of products is is the category a large enough category that suppose you get 5, 10, 15, 20% of that category you achieve your business goals. The second one is is that category growing rapidly enough that once you’ve been established in that category you can be assured of success if you maintain your market share and the third one is how competitive is that category and that is a matter of understanding who the other players are in that category, what their pricing structure is, and how that compares and what your value proposition will be for the consumers and your retail customers.

So otherwise if you’re just developing products by gut feel without access to that data sometimes you’ll get it right because people’s gut feel can be highly developed but sometimes you’ll develop a product for a tiny niche that isn’t going to grow and put the same amount of investment into that as if you’d entered a big and successful and fast growing category.

Matthew: Right. So I hear what you’re saying there. A deep market is important but if it’s just so competitive that’s something to look at but maybe a deep market that’s still got room to grow where if you just bite off 10% you’re really doing well. So I can see what you mean. Roy last time you were on the show about a year ago data was just starting to trickle in and now it’s been close to a year and you have more data and more information. Is there any insights or aha moments you’ve had since the data has started to come in?

Roy: Oh my goodness yeah. We’ve had hundreds of aha moments. It’s very exciting. We’ve now received from our dispensary partners in Colorado millions of transactions and the first thing we have to do with that is normalize all the data because it comes in with all kinds of different description. There are no standardized SKU codes etc. So we normalize it which means we figure out which description applies to which product. We categorize all that data into 80 categories and subcategories because at that point it starts to make some sense and at the very high level, the highest level categories if you like a flower, edibles, and concentrates. So the first thing we learned is that in 2015 and I don’t think anybody knew this until we did it. Based on revenue flower was 63% of sales in Colorado, edibles were 12% of sales, and concentrates 20% of sales.

Matthew: Wow.

Roy: And I think that is quite different from what a lot of people expected I think edibles or less than quite a lot of people expected.

Matthew: Yeah for sure.

Roy: So that’s the first level of fascinating facts and I could go on and on about what we’ve learned within those categories as well. If you’d like me to I could talk a little bit about the different genus types within the flower category and we can see we’ve divided them between sativa, indica, and hybrid. Hybrid is the largest category. Sativa and indica in Colorado are very similar and then we also have more than 3,000 different strains in our database and in Q4 of last year Durban Poison took Blue Dream to become the number one strain in Colorado.

Matthew: Wow.

Roy: The top ten strains in Colorado represent about 20% of overall flower sales and as I said Durban Poison is number one, second is Blue Dream, third is Sour Diesel, etc. so fascinating insight there. Then within the concentrates and extracts which is the fastest growing category in 2015 we dive into which are the most important categories there. In Colorado Shatter was 28% of that category. I have to say Shatter in every interview by the way. People like it when I say Shatter apparently.

Matthew: I do too. I’m in that camp.

Roy: I can’t figure it out myself. Then prefilled cartridges were the fastest growing and they are now 23% of the concentrates category with wax and butter following close behind. Then when we look at that third category edibles which represent 12% of revenues people are always very interested in the breakdown there and candy represents 44% and chocolates are the second category at 19% while infused foods are 12% and beverages were 6% last year. So that’s an idea of the kind of middle level data and then we can break candy down into hard candy and gummies for example and then of course we get to look at the brands and individual items as well and subscribers to our service will be able to see the growth for those detail as well.

Matthew: Wow that is amazing. So I would not have guessed that popularity of strains and I would have not guessed either that candies do so well. I mean I do see like the gummy bear, infused gummy bears those seem to sell really well but I would not have guessed the candies. That’s very interesting but I guess that they’re so discrete that a lot of people like that. So that’s some good information there and I can see why that’s really powerful for your clients. Do you see any clients using the data better than others because if you have this service here and you provide this wealth of actionable data as you were mentioning it should be actionable but then some people use it let’s say optimally and some people don’t. How do you feel about that? How can you use the data in an optimal way?

Roy: Thank you, you nailed it. So we put a tremendous amount of work into making the data as user friendly as possible but it still takes a significant amount of time and you have to be statistically oriented, a bit of a nerd in order to start to get excited about the data. Now most management teams these days have a few wonks like me who are fascinated with data but some do not. We therefore deliver our information through a portal that our clients can log into and it starts off pretty high level. So they can just go in and they can look at overall growth trends by market. Then they can look at the categories and then focus in on the categories of interest and among dispensaries I talked to a dispensary (19:34 unclear) client the other day and they said well we’re not starting to use it consistently to help us with crunching decisions and they said that they had adjusted their flower prices based upon the information about the market overall and they say that they were a little out of line and he commented that they had seen a 35% increase in revenue when they adjusted their flower prices. This was just a couple of weeks ago.

Matthew: Wow.

Roy: So it’s very exciting to us to hear from a dispensary, very sophisticated dispensary chain that’s making actual decisions based on the data and then brands and growers we were just meeting with a new client a couple of days ago and they’re in the process of deciding which categories of products to launch next. They are in ingestible and concentrates and extracts markets. So they were very interested in the size of those subcategories in the competitive environment as we discussed and the growth characteristics and based upon this data they now are developing new products to attack three or four of those particular market opportunities that they like and that was a team that had used data extensively in other industries before coming to the cannabis industry as I mentioned before. So they were thrilled not to be making decisions based on gut feelings and in that case there is one person within the company who is a power user if you like who’s received considerable training and is just very excited about spending perhaps 20% of her time focusing on this data in order to educate the rest of the management team and in order to develop new products and marketing strategies.

Matthew: So if you have an edibles company or you have a candy or a drink or something and you’re having a hard time breaking into a dispensary is it pretty common place to say hey let’s look at the BDS data and see what your competitors are doing?

Roy: Yeah that’s probably the primary initial use of our data. So our clients can produce a chart which shows using GreenEdge our database and they can show how they rank either by overall sales or by growth in sales or both and that usually if they drill into a category or subcategory or even a sub-subcategory they can come up with one in which they’re performing well and then they take that with them as part of their initial pitch. It’s very often the very first or second slide that you show to a dispensary. It says look at us. You don’t have to just take our word for it here’s GreenEdge data to confirm that we are an important player in this market and that our products do very well and that you should feature them in the stores and the good news there is because many of the chains and dispensaries are also providing data to BDS Analytics they are familiar with it. They know that its independent third party data based on actual points of sale transactions and not something that the vendor has cooked up.

Matthew: Yeah. This is so helpful, such great information. Now you can follow the data and the insights you get from GreenEdge. It doesn’t guarantee success but it gives you a lot of competitive advantage. You still need a good brand, you still need a good product so do you see some companies execute on the same market category as another but just do a lot better. For example let’s say they have a small drink or shot or a hard lemonade or something infused with cannabis and you see one company execute on that really well and another company doesn’t and essentially they’re going after the same market category but when it came down to execution, focus, branding, and messaging one does a much better job.

Roy: Oh yes I mean of course the strategic decisions are really important but what you do on an execution day after day after day determines whether or not your strategy is successful and you get a feel for that. Obviously there are some companies that philosophically are much stronger when it comes to growing and producing and that’s off in the background of the founders of the companies and there are others that are much more sales and marketing oriented and have a particular strength in that area. So obviously if you’re a sales and marketing expert you still have to make a great product. If you’re a great producer, grower, product developer you still have to have competence in sales and marketing in order to succeed and you have to go out and execute day after day after day.

Now of course what’s going on here is such rapid growth so the rising tide really is currently lifting all boats and even if you’re not executing brilliantly you should still be growing at the moment at 20, 30, 40% a year but the people who are doing everything really well are growing at more than 100% a year at the present time.

Matthew: Yeah and I’ve definitely heard of popular edibles and drinks being sold out at dispensaries for weeks or even months at a time. So you can see that happening so good insights there.

Roy: Yes. Well to get the right product, position it well, target the consumer well, and have the right advertising and pricing strategy and you will succeed in this market for the present time.

Matthew: Right.

Roy: Some day one or two or three years from now it’s going to be a lot more competitive and you might get all of those things right but if you don’t have the right financial or other resources you may still not quite breakthrough.

Matthew: When you say that you’re starting to see cannabis companies have someone that’s like yourself, like a wonk that is studying and digesting data and trying to make insights with it does this tend to be the larger companies and what’s their title? What do they typically call themselves? Who’s the person in the organization that’s doing this?

Roy: Well the industry doesn’t really have large companies yet let’s face it. A large company would have 200 employees for the cannabis industry. And in other industries that would be 20,000 employees.

Matthew: Right, right.

Roy: So you have people who are wearing multiple hats. So sometimes the wonk, the data oriented person is the CEO. Sometimes it’s the Chief Marketing Officer. Sometimes it’s the Head of Manufacturing or Production. Sometimes it’s a more (26:56 unclear) person in the marketing organization who is really into data and wants to educate the rest of their team about market trends. So we’re seeing all of the above really but often the greatest interest is shown by the people at the very top of the organization who have been making decisions based on their own instinct, intuition, and bits of data that they can pick up along the way and now they’re suddenly very reassured that they can validate their instincts. It’s not like we take away and make the decisions for them with this data. They can validate their own instincts about which types of products to pursue or which marketing campaigns to develop.

Matthew: Outside of Colorado are there any other states that you’ve started to get data on at dispensaries?

Roy: Oh yes, yes. We have very extensive data on the Washington market now and we’re developing our dispensary panel in Oregon and will have comprehensive data on the Oregon market within about two months of now and then we’re receiving a lot of inbound inquiries from Arizona, Nevada, California, Maryland, Massachusetts and so we will gradually be expanding into those states. The first step for us of course is to partner with sufficient dispensaries in order that our data is accurate and that’s a process that can take anything from a few weeks to several months depending upon how big the market opportunity is.

Matthew: Right and can you mention how many dispensaries you need to get kind of the critical mass because you don’t need them all but you need a significant data set. So can you talk about that a little bit?

Roy: Yes. Well it has some similarities to the presidential polling. You do not need to have 100% of the poll to know who’s going to be the next president and in fact those polls are usually based on a very tiny, tiny percentage of potential voters you know .01% statistically can apparently be accurate. Now in the markets that we’re focused on back in the health food store industry and the biking and outdoor we were looking for more than 10% of the data so more than 10% of the sales in that market and in cannabis because it’s growing so rapidly we’re looking at higher levels in that as our goals perhaps 15 to 20% but also provided that the data is sufficiently diverse. If for example in Colorado is all concentrated in one city like Denver that would not give us an accurate enough panel of what’s going on in the entire state and similarly if it was all focused on a limited number of chains of stores then the data would be skewed as well. So we incorporate different geographical locations as well as individual stores, small, medium, and large chains of stores in order to get to the diverse panel that we need for accuracy.

Matthew: And what are some of the data insights you’re starting to get out of Washington?

Roy: Yeah Washington has been fascinating. It’s a smaller market than Colorado about 240 million in the adult use market in 2015 but it of course got going six months after Colorado and in fact in a way it was nine to twelve months behind because of supply shortages initially. That said the Washington market last year grew faster than the Colorado market and when you look at the population and the growth trends there may come a point in the next twelve months, twelve to twenty-four months where Washington is actually a bigger market than Colorado even though Colorado was 996 million last year.

Matthew: Wow.

Roy: So that’s the first insight is about the scale of the market. Another one the people in the Washington market will be familiar with is the price trend both on flower and actually on almost all the products. Prices were very high when the adult use market started in July of 2014 and have declined very strongly down to levels that are comparable or in fact even a little lower than Colorado over the last eighteen months and at the same time of course unit sales grew dramatically. If you look at September 2014 to September 2015 unit sales were up 18 fold, 18 times increase in unit sales. Another insight that we’ve learned again going back to the master category level I talked about before is flower in 2015 was 69% of total Washington dispensary sales with concentrates being 15% and ingestibles being 10%.

Unlike Colorado Blue Dream remained the number one strain with Cherry OG and Dutch Treat numbers two and three and so this is just an example of some of the insight. We also have some very interesting comparisons. I expect people might be interested in what else is different.

Matthew: Yes.

Roy: Between Washington and Colorado in terms of those category sales. So as I mentioned flower is 69% in Washington. As I said earlier it’s 63% in Colorado. The biggest difference is actually that concentrates and extracts in Washington at about 15% whereas in Colorado they were 20% and we think that’s an indication of the more maturity the nine to twelve month head start in a way that Colorado received on adult use sales versus Washington and then ingestibles are a little bit lower in Washington at 10% versus the 12% in Colorado and then within flower it’s very interesting to see that sativa is more popular in Colorado than it is in Washington. Indica is about the same and hybrids are a little bit lower in Colorado than Washington so maybe that’s something to do with people in Colorado looking for that energizing effect and in Washington it’s more about chilling on the couch. Who know as to why that’s the case?

Matthew: Right.

Roy: And in fact what we found there’s very little correlation between the top strains in Washington and the top strains in Colorado. Blue Dream is up there at or near the very top of the list but apart from that there is very little overlap the two markets are clearly differently in terms of strain popularity and then when we look within the concentrates and extracts area there are substantial differences. Prefilled cartridges are much more important in Washington. They’re at 36% of that category, only 23% in Colorado and 19% is wax in Colorado that’s only 13% in Washington. So important and subtle differences there. There’s a category in Colorado called butter which is about 10% of sales in Colorado and it’s almost nonexistent in Washington.

So key differences there and then when we look at the other the third master category the edibles as I mentioned Colorado has 44% in candy but Washington is only 27%. Washington doesn’t allow gummies so that might be one of the reasons. Infused foods in Washington are much bigger there’s 23% so that’s your brownies, baked goods, etc. whereas in Colorado it’s only 12% and another big difference is that tinctures are much bigger in Washington at 18% of that category. There are only 6% of the category in Colorado. So some significant differences emerging from the data and of course the brands are almost totally different and we’re now beginning to see the emergence of brands who’ve made partnerships in both states and are moving into national branding campaigns and so some of those are beginning to show up in both Colorado and Washington and we expect significant growth from some of those brands because of the products that they have and the resources that they’re bringing to there and so eventually one would expect to see more similarities within the brands and item levels between the states.

Matthew: Very interesting especially the butter category not existing at all in Washington. That’s a pretty big difference.

Roy: Yeah. Of course it might be partly terminology because there’s a sort of spectrum of these products. It might be that just the term butter is not popular in Washington or it’s just that that particular product category has not caught on with the consumers or with the dispensaries but it certainly sounds like a bit of an opportunity doesn’t it if you’re a producer or a dispensary in Washington. Maybe you could target creating that category and maybe that could be your focus.

Matthew: Yes I agree. Well Roy.

Roy: I also think on the tinctures that we talked about the fact that it’s much more popular in Washington than in Colorado that sounds like an opportunity as well and I know there are some regulatory differences in Colorado which may make it a little harder to get into the tinctures business but once you’re in it it sounds like a significant consumer demander.

Matthew: It’s really interesting to see because in my mind I’m thinking well Washington is maybe a little bit behind Colorado but now it’s really coming into its own and the preference is there is somewhat of a regional difference and it’s interesting to hear and see why. I mean tinctures, butter I imagine as we get into more topicals and things like that they’ll be differences as well based on geography and just different tastes in different regions. So that is fascinating. I love this stuff. I could talk about it all day especially if you’re considering launching a cannabis product. I mean this is a massive area of focus and getting the branding right but also developing samples and getting feedback from the demographic you are going after.

Roy: Yes. Well I could certainly talk about it all day because that’s a year’s development and over a million dollars to get to the point where I could be giving this sort of information to you and the much more detailed information on the brands and items to our clients and so I’m of course completely pumped about being able to share this at this point.

Matthew: Yeah it takes money to get to this point and you’ve raised money. Are you still raising money or is the round closed or where are you at right now for investors that are interested?

Roy: Yeah we closed that funding round last summer actually and we’re now evaluating our needs going forward and our expansion plans and might consider another round in the future.

Matthew: If there’s anybody that’s listening that wants to be on a list or be a candidate to be an investor is there a way that they should reach out to you or to BDS in general?

Roy: Yeah actually for everyone who’s listening if you go to our website www.bdsanalytics.com written just the way it sounds that’s b-d-s-analytics.com you’ll see that there are a number of places where you can submit your email and your interest or feel free to email me roy@bdsanalytics.com and I’ll be pleased to strike up a dialogue and that’s for anyone who’s a dispensary partner or client, a potential investor, or media people are fascinated by the data in the industry as well. We spend quite a bit of time with them.

Matthew: How about if they just want to hear you say the word shatter. Can they email you with that or call you with it and get that?

Roy: Well it’s hard to answer a question like that with an email. Apparently it doesn’t quite work when I type shatter. I actually have to say it.

Matthew: Well turning to a more personal question Roy something new I’m trying is is there a book when you look back over your life that has had a big impact that you would suggest readers take a look at? Can you tell us a little bit about that if there is one?

Roy: (40:43 unclear) question. Yeah actually two or three come to mind. I hope I don’t ramble too much but when I was at Harvard Business School one of my professors that had the most impact on me was a guy called Clayton Christensen and Clayton then wrote a book called “The Innovator’s Dilemma.” It’s quite old it came out in 1997 and it was based upon case studies that we did in his class and it’s absolutely fascinating about how disruptive technologies change industries and how very often it’s not the embedded major players in the industry that recognize the value of the disruption. They are actually the ones who get disrupted.

Matthew: Right, right.

Roy: And he has some fascinating examples from technology but also from healthcare for example. Another book I’d like to recommend and this is kind of pure selfishness really is a book called “Philanthrocapitalism.” It’s by two guys called Matthew Bishop and Mike Green. Matthew Bishop is a Senior Editor at “The Economist” for a very long time and he is my oldest and lifelong friend and they wrote a fantastic book called “Philanthrocapitalism” about how the very rich can change the world through applying their cash and their capitalist experiences into the world of philanthropy and then of course let’s not neglect the classics. I’ve recently had the opportunity because my sons are 12 and 14 and there was a phase before they were in video games that they used to actually read. Of course that’s gone now sadly and so books like “Robinson Crusoe,” “Swiss Family Robinson,” and “Gulliver’s Travels” and one of my favorites if you want to know anything about patience “The Count of Monte Cristo.”

Matthew: Oh yeah great one and revenge right.

Roy: Just a few suggestions. Learn, get smart, and be patient that’s part of the message of “The Count of Monte Cristo.”

Matthew: Great book recommendations there Roy. Going back to “The Innovator’s Dilemma” we really live in kind of a golden era of this. I mean we see the taxi cab industry get totally decimated by Uber. In fact I was listening yesterday to I can’t remember what city it was but they said a taxi medallion just a few years back used to cost like 800,000 dollars on average in whatever city this was and now it’s worth about 60,000 because Uber has just totally destroyed that market and there’s also a lot of other things going on in the auto industry like the Tesla III that’s just coming out now and they have all the hardware embedded into this Tesla III that would allow self driving.

So we’re really, to have a self driving car would really just change our whole economy because it’s not so important where you necessarily live anymore if your car can be summoned to you which there’s a summoning feature that Tesla is working on. You could summon a car to you and then you can sleep or read or do work as the car drives you home and then it also goes on to someone else after you. So it’s not the cost component at the same time.

Roy: Yes.

Matthew: So there’s all these…

Roy: So you don’t actually need the product which is a car. You actually need the service which is transportation.

Matthew: Exactly.

Roy: What a radical change that has when you think about it in terms of having all your money locked up in an expensive vehicles versus paying for it on a per use basis.

Matthew: Yes. So what an exciting time we live in. Thank you for those book suggestions and thank you for coming on CannaInsider and sharing a wealth of information it’s so exciting to hear what’s going on in Colorado and Washington. Well I have to have you back on as you have other states to come into GreenEdge.

Roy: Yeah absolutely. We’ll be pleased to talk about Oregon in a couple more months, Nevada, Arizona, California later this year.

Matthew: And give your website one more time if you would Roy.

Roy: Yes it’s www.bdsanalytics.com and of course the service we talked about so much is GreenEdge.

Matthew: GreenEdge great. Well thanks for coming on CannaInsider Roy. We really appreciate it.

Roy: Thank you it’s my absolute pleasure. You’re doing a terrific job with CannaInsider. I’m a very enthusiastic listener.

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

Roy Bingham, founder of BDS Analytics shares the data
on what is selling in Washington State dispensaries, and compares
what consumers are purchasing in WA and how it is different from CO
dispensary sales.

About BDS Analytics
BDS Analytics is the indispensable source for
cannabis industry data and insight. By capturing millions of
transactions from dispensary POS systems they provide actionable
insights based on accurate information enabling dispensaries,
brands, and growers to sustain their success.

Learn more at:
http://bdsanalytics.com/

Key Takeaways:
[1:50] – Roy’s Background
[6:04] – Roy compares and contrasts Spins and BDS
[9:22] – Roy talks about how BDS serves its clients
[12:10] – Mistakes made if owners don’t have insights and data
[13:59] – Insights since the data has started mounting up
[18:38] – Using the data in an optimal way
[26:23] – Who in the organization analyzes the data
[27:52] – Data in other states
[30:28] – Insights coming from Washington
[39:06] – Investing information
[40:45] – Roy’s book recommendation
[45:01] – Roy’s contact information

Important Update:
What are the five trends that will disrupt the cannabis market in the next five
years? Find out with your free guide at: https://www.cannainsider.com/trends

Join CannaInsider For FREE & Receive
The Five Disruptive Trends Shaping The Cannabis Industry Now

Choose your Cannabis Mood with LucidMood TerpDrops

LucidMood Terpdropz Coupon Code

GET A DISCOUNT ON LUCIDMOOD / TerpDropz, Visit:

https://www.cannainsider.com/lucid-mood
Use coupon code ==> insider
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About This Interview:
Charles Jones is the founder and CEO of Chooze. His new product LucidMood promises to allow users to choose the  mood they want to evoke from cannabis using customized terpene profiles. Moods include: relaxation, contentment, body buzz and motivation.

Charles feels we are at unique point in history where we can craft the exact feeling we want from cannabis with no tradeoffs.

Key Takeaways:
[1:14] – Charles talks about how he to in to the cannabis space
[3:43] – What is adaptive deficit disorder
[7:54] – Charles talks about living a more harmonious life
[12:39] – Creating a product that helps moods
[15:50] – Charles discusses the experimental stage
[21:19] – Other varieties of Lucid Mood
[26:08] – Isolating terpenes to invoke moods
[27:51] – People’s reactions to the different moods
[31:22] – When will the moods come to market
[34:44] – Charles’s book recommendations
[36:25] – Contact details for Lucid Mood

Important Update:
What are the five trends that will disrupt the cannabis market in the next five year? Find out with your free guide at: https://www.cannainsider.com/trends

Read Full Transcript

Get your coupon code for LucidMood visit: https://www.cannainsider.com/lucidmood

Chooze has changed their name to Terpdropz

Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

Imagine being able to pick your moods just as easily as you pick an item off a restaurant menu. Sound hard to believe? Our next guest Charles Jones from Choose believes his new product Lucid Mood can do just that. Charles welcome to CannaInsider.

Charles: Thank you Matt. I’ve enjoyed your podcasts and I’m delighted to be a guest on your show.

Matthew: Great. Charles to give listeners a sense of geography can you tell us where you are in the world today?

Charles: Beautiful Boulder, Colorado.

Matthew: Yes and tell us a little bit about your background. How did you get into this business? What was the motivation?

Charles: Wow a long story. In college I wrote a paper on what I’d later call “Humanities Adaptive Deficit Disorder” that seemingly universal human tendency to persistent behaviors that aren’t serving us. When a moment of self reflection would have us do otherwise. Do you remember that far sight cartoon where you have the gifted kid who’s pushing with all his weight against a door and the door says pull?

Matthew: Yes.

Charles: Well this was something that had fascinated and troubled me through much of my childhood and I was convinced that this problem was cultural rather than genetic in origin and I started root cause analysis into that. Needless to say no one was hiring folks that were studying such things so when I graduated from college I got a job in the technology industry developing software for PC’s and was there for ten or twelve years until I saw an opportunity to form a dot.com. Went out raised 3.7 million dollars in venture capital and had a wild ride with that. Finally culminating in the company going bust shortly after the dot.com bubble burst.

It was then that I kind of shifted track into becoming an organization development consultant and leading off sites for senior level executives and stuff like that. In pairvo with both these careers I continued looking into our adaptive deficit disorder and in 2004 I struck gold and I came up with a theory about why we persisted in beliefs and behaviors that didn’t serve us and over the course of the next eight years or so I refined this theory and a colleague and I then founded an institute to bring these insights into the corporate leadership development market.

Matthew: So what is the hypothesis? What was the idea where you struck gold having to do with the adaptive deficit disorder? Can you give us an overview there?

Charles: Sure, sure. When we misinterpret the source of our emotions as what is or is not happening in the external world that’s when we get into trouble. Rather than say understand your emotions to be assessments of whether you are or are not on track to fulfill your own needs.

Matthew: Okay and how does this manifest typically? Do you have any examples?

Charles: Sure, sure. Let’s say you’re at work and you’re feeling very frustrated and you’re attributing your frustration to the fact that a co-worker is not cooperating with you. That will lead you to think of all sorts of ways to coerce your co-worker or you might spiral down into some negativity about what kind of idiot your co-worker is and something like that and if instead of projecting the source of your frustration out there in the world you were to own the fact that the reason you’re frustrated is you’re trying to achieve a goal and you’re not on track to achieve that goal then you start moving into problem solving mode instead of blaming mode and so in our courses we teach people how to recognize when they have misattributed the cause of their emotion to something outside themselves and shift their inquiry into their emotion into hey what need am I not on track to fulfill and how do I get back on track.

Matthew: Now you mentioned that’s a cultural issue historically. How do different cultures; how does this manifest differently in different cultures? I mean Americans probably deal with it one way that maybe you can see more readily and then do other cultures attack this in a different way?

Charles: I think virtually all cultures alive today fall into this adaptive deficit disorder. Certainly different cultures have different emotions that they focus on. Typically if you find a culture where a given emotion is forbidden; in some way it’s shameful to for instance experience anger. That really points to a culture where say anger is deeply misunderstood. Anger might be understood as a call from your subconscious to enact violence on someone else when in fact anger is a call from your subconscious letting you know hey you think you have a right here and you’re not on track to assert it. So if you look at some of the for instance great nonviolent leaders of the world like Martin Luther King, Jr and Mahatma Gandhi. These were very angry men and yet they were nonviolent because they were crystal clear that their anger was simply prodding them to find a way to assert what they believed to be their rights.

Matthew: Yeah this is something we don’t talk about much in modern culture. I mean we talk around in our day to day lives and we’re not quite sure. We think we’re in control of our own operating system to an extent but there’s all these external stimuli and then perhaps our primitive brain or amicula that generates fear causes us to do things when we would rather be using our prefrontal cortex and more of our executive decision and rational mind to help us. We kind of have this brain that’s somewhat an old artifact of our earlier mammalian ancestors and then we have this add on the prefrontal cortex which helps us to adapt in a more conscious way. How do we reconcile these two things together to try to live a more harmonious life would you say?

Charles: Well I’d say the theory that you just described the brain theory is one that’s been used often to explain our apparently irrational choices and whatnot but I don’t subscribe to it. I don’t think the problem is because we have a “primitive brain.” I think actually our brain is exquisitely tuned. Has been selected over 2.2 million years of hominid evolution to be enormously adaptive and it’s what’s allowed human beings to survive and thrive in virtually any climate and sort of situations. So my contention is actually we are inherently adaptive and what gets in the way of us being adaptive and behaving in these seemingly irrational ways is not because our subconscious is misbehaving but because we don’t understand how to interpret the messages coming from our subconscious and when we do then this allows us to in essence work in partnership with our subconscious to continually refine our behavior and improve our performance and lead lives that inherently more fulfilling for ourselves and those around us.

Matthew: That’s a great point there about aligning your subconscious and your conscious. What? We can set a goal with our conscious mind if I want to achieve X but if our subconscious mind is not aligned properly with our conscious goals what happens?

Charles: Oh well I think that’s just the root cause of disengagement. Which is a huge problem and corporations today and the percentage of employees that are really actively engaged and passionate about what they’re doing tends to be fairly low and in our personal life if we are forcing ourselves to do things that our subconscious believes is not going to lead to fulfillment our subconscious drags it’s feet. We end up procrastinating or giving up at the slightest difficulty and I think you should listen to your subconscious because it processes information hundreds of thousands of times faster than our conscious mind does.

Some estimates hold that our subconscious processes about 11 million pieces of information per second and our subconscious is limited to 40 or 50 no additional zeroes there; 40 or 50 pieces of information per second. So when we’re operating at our best we’re not using our conscious mind to fight against our subconscious. We’re using our conscious mind to interpret the messages that are coming from our subconscious. The painful and pleasurable emotions that are telling us whether we are or are not on track to fulfill our goals and our other needs and to support our subconscious in finding changes that we can make in our own beliefs and tactics. At the end of the day the only thing you really can have any control over is your own beliefs and tactics which in turn lead, determine how effective and successful and fulfilled you’re going to be.

Matthew: So there’s a tremendous payoff to making sure that your subconscious and conscious mind are aligned to the direction you want to go instead of just saying I’m going to fight my subconscious here because it’s typically a losing battle.

Charles: One author I’m fond of an analogy he uses is you’ve got an elephant and it’s rider and the conscious mind is this little tiny rider on top of the elephant and the elephant is representative of the subconscious and sure with carrot and stick you can get the elephant to perhaps do your bidding for a short period of time but it’s exhausting for the rider and he’s always at risk of being tossed off of the elephant. So it’s much better to have a partnership type relationship with your subconscious.

Matthew: I agree. So you’re an authority on emotional intelligence and you’re now leading a cannabis startup with a product that promises to change your mood. Is there a connection here between your earlier hypothesis and now what you’re doing as a cannabis startup?

Charles: I’m sure there is. I think it has less to do with this new understanding of the relationship between the conscious and subconscious mind and the theory of emotion that goes with it and more; it’s more similar in that what led me to the development of this new understanding of emotion was a lifelong practice of watching my thoughts and feelings and being very attuned to how things are influencing my thoughts and feelings and when I applied this to cannabis; I’ve been an off and on user of cannabis for the last 35 years. I would find that certain strains affect me one way, other strains affect me a different way and going kind of way beyond the well indicas tend to lock me to the couch and sativas tend to have me become very energetic and creative.

I really found myself trying to dial in okay if I need to be productive and get stuff done I’m going to reach for some Durban Poison. If I want to be in a more creative frame of mind let me try some Sour Diesel etc, etc, etc and the more tuned in I got to how these different strains were influencing my mood in different ways the more frustrated I became at having to kind of take a packaged deal. Okay the Sour Diesel definitely helps with my creativity but a little too dreamy to get certain kinds of things done. I wish I could just dial in one effect at a time and by this time it was well known that terpenes in conjunction with THC are responsible for giving your high a particular mood or a particular in the case of a strain cacophony of moods and so the idea appeared.

Hey what if we were to extract out the individual terpenes from the marijuana plant that are responsible for these shifts in moods and productize them as single moods. A single terpene or maybe a small blend of terpenes that produces exactly the mood that you want to experience and give users; myself being the first one the ability to pick and choose the exact mood or collection of moods that I wanted to enhance a particular activity. Hey that would be really cool.

Matthew: Yeah. That would be really cool. Did you have early success with experimenting with this where you said hey this is not only something I want but it’s something that’s very possible?

Charles: Yes, yes. So after kind of living in the legal cannabis recreational world of Colorado for a year or so and thinking about and digging into the research around terpenes it was an intriguing idea for me but it wasn’t really compelling yet and part of the reason it wasn’t compelling is the other complaint if you will that I had with cannabis is that it impaired my memory. I sometimes became; my mind sometimes became racy or even anxious and so kind of the base high itself wasn’t always one that I enjoyed or it wasn’t one that lent itself to many of the activities that I really wanted to dial in the mood for and experience. So one day I stumbled across some research about how CBD another cannabinoid in the plant besides THC. How CBD could mitigate some of the more deleterious effects of THC.

It was at this point that I started to get super excited and that was almost exactly a year ago. It was March of 2015. So I pulled together a team and we took a few weeks to find all the materials that we would need to test this idea and then we had our first tasting party where we each did what we ended up calling a base, a 50/50 mixture of THC and CBD and as we were hoping about ten minutes later we realized wow we are really high, we’re really functional, feeling very sociable, feeling really good. More like we didn’t really feel stoned we just felt really, really good and we’re all kind of looking at each other in the room excitedly and sure enough the high we were experiencing had no real mood to it. It was kind of a mood neutral high and then our chemist gave us; there were six of us. Gave us all a terpene but didn’t tell us what terpene he gave us and unbeknownst to us he gave three of us one terpene and three of us another terpene and just sat back and watched.

Dave Georges my primary co-founder in the firm he noticed that he and two of the other people had actually gotten off their chairs, they were lying on the carpet, their head propped up, all quiet watching the other three of us chatting up a storm and as soon as he pointed it out we all looked at each other and like oh my God I think this is going to work and we have been on a tear ever since then to productize this and brand it and get it to market.

Matthew: That’s fascinating. So the first experiment was, the base was a 50/50 CBD/THC and can you just give listeners a general sense to what happens when you start to increase the CBD level, make it a higher ratio in a cannabis product. What that experience is? I’ve heard a lot of people describe it as simply reducing paranoia or anxiousness but do you describe it any other way as well?

Charles: Yes. So we were expecting exactly that. We were expecting that the memory impairment would go away and that happened. We were expecting that the risk of becoming paranoid or anxious would happen. That there would be less kind of a tendency towards social withdrawal but what we found was actually it went even further than that. That people actually become more sociable on that ratio of CBD and THC. Like we’ve been having things we call tasting parties ever since the fall of last year and fifteen, twenty people will come. They’re kind of like informal focus groups and people will try the product and the many, many people remark that the energy in the room so to speak it feels more like a cocktail party than a marijuana party.

No one’s sitting in a corner quiet. Everyone’s up and chatting with each other and moving around. The CBD also makes for a very bright high. Kind of look around colors are brighter. It’s a very bright, uplifting, very functional, very sociable high and it’s just great in a social setting and it’s great when you want to get something done.

Matthew: So let’s talk about some of the other varieties of Lucid Mood and what kind of emotions or mood they can evoke. Can you tell us a little about the others?

Charles: Sure. Well what I just described we call the base and then once people are high on the base they can add one or more moods and the most popular ones are contentment and I can tell who in the room has vaped contentment because they pretty much have a shit eating grin on their face. So if you’re familiar with that aspect of marijuana that’s coming from the terpene that’s in contentment. Another very popular one is called relaxation and within thirty seconds of vaping it there’s just this kind of wave of releasing muscular tension in your body and people typically sit down at this point. There’s just too much effort to stand up.

That’s very nice. I have not really been much of a fan in indicas for most of my cannabis consuming career but I really enjoy doing a relaxation mood. We call those moods during a relaxation mood in the evening to just really relax. Another one that’s quite popular is called motivation and this is for when you want to get something done. When you want to hike up the flat irons and cut a few minutes off your hike and Dave one of the co-founders is a big skier and he just loves going skiing on a mixture of the base plus motivation. He finds that he can just carve his way down the mountain without his legs becoming rubbery in any way and put in a full morning of skiing on that and we have other moods that are in the pipeline and will be coming out pretty much on a sort of mood a month sort of basis.

Matthew: And how about as the mood wears off. Is that just a slow abatement of what the mood felt like initially just happening, a lessening and lessening until it finally just goes away or how does that work?

Charles: Well it depends in part in terms of how much of the base that someone does but the sort of sweet spot for doing a base lasts an hour and a half or so. Plus or minus a little bit of time there and moods take effect right away. Once you’re high it’s literally a matter of seconds before the moods begin to kick in and depending on people’s metabolism you’ll feel that pretty strongly for 45 minutes or so and what’s neat about separating the cannabinoids and putting those into what we call the base and the terpenes and putting those into what we call moods is that you could come home, you could decide you really want to relax after a tense day at work and do a base, do a relaxation and maybe 20 minutes later your spouse comes by and nags you and reminds you that you promised to clean out the garage and the last thing you want to do is get up off the couch.

Well at that moment if she’s smart she’ll bring you the vaporizer along with a motivation. Give that to you and 30 seconds after you’ve vaped the motivation you’re not only willing to get off the coach you pretty much have to get off the couch and get something done and so you head for the garage. You clean it out and maybe an adjacent room or two while you’re at it it’s kind of a thing. But what’s neat about the product is you can change your mood on a dime without having to take any more of the cannabinoids; without having to take in any more of the THC. So the combination allows the user; gives the user kind of complete control over their high and that was our goal.

Matthew: Is it a difficult process to isolate the terpenes that evoke these moods? I mean without giving away anything proprietary how do you do that?

Charles: We’ve developed a proprietary approach to that. I think it’s our secret sauce if you will is we’ve taken a very different kind of approach to doing that kind of research and generating hypotheses about what terpenes and flavonoids produce what kinds of moods and then we have a process by which we validate those hypotheses. So that’s a core part of our R&D if you will for this product.

Matthew: Yeah. This product reminds me a little bit of the drug Soma in the book “Brave New World.” Do you remember that?

Charles: I don’t.

Matthew: It does well it’s kind of it does. It’s kind of like a scientifically created drug that creates different moods for people but it’s much more benevolent than a lot of the drugs that are on the black market so it’s kind of a scientific version of a naturally occurring drug. It’s a pretty interesting parallel.

Charles: Okay.

Matthew: So how often do people agree with the mood that’s on the particular box? Contentment does everybody who takes it at a tasting party pretty much say yeah this is consistent with what my idea is of contentment versus relaxation or is there certain metabolisms where it’s just like hey contentment is affecting her and him a little different than the 80% of the rest of the folks in our tasting party?

Charles: We’ve tested about 350 people and we’ve been stunned by how consistently a given mood will stimulate a mood that that person would recognize as being consistent with the name we’ve given it. So it’s high. What’s more common is that someone will do it and will say well I didn’t experience a shift in mood and these tend to be the same kind of people where they don’t really necessarily make big differences between indicas and sativas. I mean pot is pot. Their goal is to get high but for those people that you might think of as like kind of cannabis connoisseurs and they’ve got six different strains at home and they’ll tell you okay this is the strain I use to fall asleep at night. This is the strain I use for sex. This is the strain I use for a nice evening in on the couch with my sweetie.

Whatever it is those people that have already identified different strains for different activities they tend to within seconds be reporting oh my goodness I’m now feeling this way having done the mood. People that are less self aware or less practiced in observing how different strains effect them those folks upon doing it the first or even second time it’s not that they disagree with the name that we’ve given it it’s just that they’re not really experiencing much of the effect and we found that many of these people will actually start to become better observers of not only how our product is affecting their mood but the next time they smoke a strain to become more aware oh yeah I can feel that contented feeling within what I just did. I’m feeling a bunch of other things because any given strain has tens of terpenes that are coming together in an entourage effect to affect your mood but they become more self aware from using the product and that tends to make our product very popular with bud tenders and other kinds of connoisseurs of the various moods that you can get into through the use of cannabis.

Matthew: Okay and it’s consumed via a vape pen? Is that correct?

Charles: Any flower vaporizer so we have little hemp pucks that can be placed into a Pax or a Volcano or an Atmos Jump or an Arizer. Any vaporizer whether it’s a table top or a portable that you could put flower into and vape you can put our little hemp pucks and vap them. Those hemp pucks are then infused with the active ingredients. The cannabinoids in the case of the base and the terpenes and flavonoids in case of the moods.

Matthew: Okay and what’s the trajectory in terms of where and when your product “Lucid Mood” will be available?

Charles: Well the moods are available now.

Matthew: Okay.

Charles: So people can come to our website and purchase the moods and because the moods don’t contain any THC the moods are just blends of terpenes and flavonoids they can actually be sold via the internet to people in any state. So people can come to our website and they can put in an order for the moods and then if they’re in a state where the lucid mood base isn’t being sold. If they are in a state where that’s being sold and right now that is only Colorado they can go pick up a base and then layer one or more moods on top of it or if they live outside of Colorado then they can instead of a base they can use whatever flower, extract, or anything else that they use and then vape one of our moods on top of that and although it won’t be quite as clean and clear as if you had used the lucid mood base if you put a lucid mood on top of whatever strain you’ve been able to find you experience a big shift in the direction of the promised moods.

So we had someone at a tasting party that arrived and they were very jittery and their mind was racing and they told us that just before they arrived to our tasting party they had done a very strong sativa and they were starting to feel rather paranoid and so we gave them a relaxation mood and within seconds it just overrode their existing mood. They completely calmed down. They were very grateful to us and they said how do I buy a package of these relaxation moods.

Matthew: That’s great. Well this is certainly an interesting innovation you have going on here Charles and I’m excited to see it expand across the United States and see more people give it a try. I think this is one of the innovations that will allow the cannabis industry to really make inroads and take market share away from alcohol because you really don’t have a hangover. With alcohol you’re consuming ethanol which is essentially a poison. Which I don’t have anything against alcohol it’s just this could be one of the points of departure where recreational and medicinal drugs really gain a foothold over the alcohol industry. So I’m really excited to see what happens.

I have a couple questions for you unrelated to cannabis that I would just like to get your answers on. It’s something a little different I’m trying and that is what is one book you could recommend to readers that had a big impact on your life?

Charles: I recently read a book called “Start With Why” by Simon Sinek. Simon also has a TED Talk by the same name “Start With Why” and it’s all about how to inspire a loyal following from both your customers in the marketplace as well as the people that work for you and Simon’s ideas have really influenced everything from our mission statement as a company to the look and feel of the brand. So that’s the book that comes to mind in terms of something I’ve recently read that’s really made a big difference in the business itself.

Matthew: That’s great. Now if you could go back and talk to the eighteen year old version of Charles what advice would you give to yourself?

Charles: Oh eighteen year old version of me I’d say something like lighten up kid. Measure your success in terms of how much fun you’re having. Because if you’re not having fun it’s either because you’re doing something that your subconscious doesn’t find meaningful to relate back to our previous conversation or because you’re doing things that you’re not particularly brilliant at or you don’t like the people that you’re working with and I think life is way too short not to really enjoy the ride.

Matthew: Great closing words Charles. Now can you tell listeners how to find “Lucid Mood” online?

Charles: Sure, sure. People can come to our website www.lucidmood.net.

Matthew: Great. Well Charles thanks so much for coming on CannaInsider today and educating us. We really appreciate it.

Charles: Oh thank you Matt. I really enjoyed it.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five disruptive trends that will shape the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider.com. We would love to hear from you.

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The Five Disruptive Trends Shaping The Cannabis Industry Now

Insight for Cannabis Entrepreneurs & Investors with Leslie Bocskor

Leslie Bocskor

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Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

As the cannabis market continues to grow many new entrepreneurs and investors are gravitating to the industry but lack the context and framework to understand how to succeed in this space. That is why I’ve asked Leslie Bocskor, The President of Electrum Partners back to help us get the key insights and context that many newcomers need to prosper. Leslie welcome back to CannaInsider.

Leslie: It’s a pleasure to be here as always. Thank you very much for having me on the show again.

Matthew: To give us a sense of geography can you tell us where you are in the world today?

Leslie: Today I’m in Las Vegas, Nevada enjoying a beautiful, sunny, warm, and dry day.

Matthew: Good. Now you were on the show in 2014 but for new listeners can you give us a little bit of an overview and background about yourself and why you got into the cannabis industry?

Leslie: Sure. I’ve always been sympathetic to cannabis and the plight of cannabis prohibition. Going back to when I first encountered “The Emperor Wears No Clothes” by Jack Herer in the 80s and when I moved down to Las Vegas, Nevada from New York I discovered that medical marijuana was obviously not just what they do in California with granola and yoga and it was a more substantial industry than I had previously thought. We ended up getting very involved in the policy side of it and helping Nevada establish a robust and well regarded regulatory framework that serves the interests of the citizens of the state, the consumers of the product, the patients in medical marijuana and is a very business friendly environment.

That led me to forming Electrum Partners that got involved in the licensing advising people in the industry. We ended up being very deeply involved in the licensing process and advising people in their strategy in the state and outside. I also ended up contemplating and have begun setting up a fund that is going to be investing in the industry and also we have been very involved in strategy with a number of different companies. We look for the best of breed and the businesses that have the best teams and employ best practices in various verticals within the industry and we’ve been creating an eco system within our relationships of those businesses and that’s currently where we are today.

Matthew: How has the cannabis market evolved in Nevada over the last twelve or eighteen months?

Leslie: Now it is starting to really hit the what would I call the aggressive ramp up. We’re now seeing new dispensaries open every week or every couple of weeks. I think we’ve got to be at around twelve to fifteen of them in southern Nevada currently and we will probably be at about forty to forty-five within the next two to three months. They are doing business. The reciprocity aspect of it has really been fantastic. We’re told by some of the dispensaries that some seventy to eighty percent of their business comes from out of state patients.

Matthew: Wow.

Leslie: And we’re now also in the middle of our Ballot Initiative Campaign where we’re going to be voting on adult use in the ballot box this November which we are working aggressively to see pass and so to sum up the industry has started to really take on some momentum right now. Cultivations are coming online. Product diversity is starting to exist in the dispensaries and the dispensaries are starting to do a substantial amount of business. It’s really an exciting time here in Nevada.

Matthew: The reciprocity you mentioned. How big a factor is California in that reciprocity? Is it nearly all or what would you guess?

Leslie: I would say it’s a very big factor in it. I’m told that on any Friday or Saturday night one third of the people in Clark County are from southern California and so with over one million medical marijuana cardholders in Nevada; I’m sorry California it is no surprise that a lot of the patients that are coming to the dispensaries are from California. That being said I know there are people that have come here from Michigan, from Washington, from Colorado, from Oregon, from Holland, from Israel, and from other jurisdictions, Canada that are using their medical marijuana recommendations when they’re in Nevada because every one of them is recognized.

Matthew: How likely do you think recreational use will pass? Is that a high probability you think or where we at on that?

Leslie: So it’s a great question Matt and I think that we’re at a very key point and I am trying to do what I can to inspire everybody that can make a difference. Getting out every vote, getting every person registered to vote. It is critical. It’s currently polling at sixty percent. That’s incredibly good.

Matthew: Good.

Leslie: The other side of that is the poll that released that data was arranged by Sheldon Adelson and I’m told that Sheldon Adelson is already raising money and getting people committed to fight the ballot initiative and so obviously being one of the wealthiest people in the world and being here in Las Vegas and this being his backyard and being the person who contributed five million dollars to the campaign against medical marijuana in Florida two years ago that was also a contribution to help Governor Rick Scott elected. We believe that it’s a fight and we really need to be prepared for a fight and so we are cautiously optimistic and really rolling up our sleeves to get involved in the battle that is coming.

Matthew: How have you seen the type of investor and entrepreneur that’s coming into the cannabis space change or evolve since you got in?

Leslie: Matt since I got involved in 2012 things have changed very dramatically and incrementally and consistently. Every ArcView meeting that I go to we’re seeing the level of sophistication, the level of due diligence, the quality of the teams and the diversity of the teams that are being assembled, the granularity in terms of detail for business model, the intellectual property protections, the planning for the future, looking out to the future has all been improving constantly from ArcView meeting to ArcView meeting and every other type of conference that I’ve been too. So the answer is we’re seeing the changes take place primarily at this point in the form of two major areas.

One the level of preparation, due diligence, and detail going into the businesses plans. The entrepreneurs plans has increased fairly dramatically and two the diversity and depth of the bench. The breadth and depth of the bench that the different projects have in terms of their team members has been increasing fairly dramatically. Whereas when I first came into the industry people like myself and others who came out of other industries with levels of previous success were much more limited. It was much more of an industry specific type of group at that time. Meaning everybody who was involved was really cannabis industry professionals. Now we’re seeing people come out of science, medicine, coming out of marketing, come out of the creative side of it, distribution, logistics.

I was recently speaking with a group that specialized in logistics that came out of United Parcel Service and other shipping companies and now they’re looking at how their particular areas of experience, knowledge, and relationships would be applicable in the cannabis industry. So the answer to your question is we’re seeing a marked change and the biggest single changes are once again the detail and the level that people are putting into their preparation for their businesses and the breadth and depth of the team members that they have to execute those businesses.

Matthew: That’s great to hear. It really is. So there are some markets in the U.S. that are not totally functional. Illinois pops into mind right away. What do you think about these markets that have legalized medical and they just don’t give their participants the tools they need to succeed? Is that a trend we’re seeing or how do you feel about that in general?

Leslie: That is a trend. That is a positive trend because we want to put it in context of when that happened. So Illinois is really a legacy of four years ago. New Jersey is really a legacy of four to five years ago. New York is really a legacy of two years ago. Connecticut is a legacy of three to four years ago. Minnesota three to four years ago. Those are some of the markets that are most restrictive. Florida is something that has been going on for two to three years now in terms of these very restricted markets. What we’re seeing is a mirror of what happened in Nevada, Oregon, Colorado, Washington, and Alaska where markets get established.

So let’s look at Nevada as an example. Nevada first passed medical marijuana in 2001 and it was a very limited program. It wasn’t until 2013 that SB347 went through the legislature and expanded the market into being what is now regarded as the most well regulated market in the world with the best regulatory framework. That took time for that to happen. Colorado first established medical marijuana and then it went into adult use and there’s been a lot of maturity there, same thing in Oregon and Washington and Alaska and now look at Florida. Florida is likely going to pass a ballot initiative for an expansion of the existing very limited CBD only primarily; five licenses given out. A framework and so there’s going to be an expansion there.

So I say that all of those markets like Illinois and the others that are very restrictive and off to a slow start it’s a good step in the right direction and we need to keep in mind it’s only a step in the right direction. It’s not an end goal but it’s just one of the stops along the way to getting where we want to get too which is adult use where it’s well regulated. Where the medical marijuana market is well regulated, where it’s available to all the people that need it for compassionate use in all of the different conditions from PTSD to Seizure Syndromes, to Cancer patients, to the people with chronic pain, and more and so we see these expansions happen in fits and starts and we can get lost in the weeds when we look at what happens in Illinois not realizing that it’s really just part of a much larger arc of the evolution of the drop of prohibition on cannabis in that jurisdiction. Did that make sense?

Matthew: That makes total sense. It’s a stepping stone.

Leslie: Yeah.

Matthew: So don’t be discouraged. I like that.

Leslie: Yes.

Matthew: So you mentioned that Nevada is very business friendly and I agree. Do you see business owners, entrepreneurs, investors just checking out of California? Today as we speak the governor of California just signed into law a higher minimum wage but that’s just one of the more let’s say one more thing that just adds friction for businesses in California. Do you see any sort of exodus at all into a market like Nevada from California or not so much?

Leslie: We have seen hundreds of millions of dollars of investment in the Nevada market a lot of that which came from California or was California/Colorado businesses. I would not say I’ve seen an exodus in California. I would say that the California market is going to experience a tremendous evolution as we see the opportunities there equaling nothing else we’ve seen yet in the industry and that’s going to be as the regulatory framework that was passed into law last year and signed into law by Jerry Brown becomes implemented we are going to see California turn into the largest legal cannabis market in the world and the opportunity for investment and for establishing businesses in that market will be extraordinary.

So in fact I think that California is at a plateau right now where there have been many California businesses investing into other markets and now they’re starting to get ready and look at their local market which is mirrored by the news announcement from Harbor Side today that they’re cancelling all of their national expansion to focus exclusively on the California market and that is going to be something we’ll see more of as well let me speak to the fifteen dollar minimum wage. I believe that if people start to look at the employment opportunities that a cannabis industry brings the fifteen dollar minimum wage would be less of a conversation at least in that context. In the context of looking at the cannabis industry as an employment opportunity because it’s easy for people in the cannabis industry to look at a fifteen dollar minimum wage because it turns out that many businesses in cannabis spend more than that on their employees are paid better than that.

There is a major player in California that I won’t use their name because this is old data but I was told that one of the biggest dispensaries in California a few years ago by the operator they told me that their average hourly pay across their entire spectrum was over forty dollars an hour.

Matthew: Wow.

Leslie: And so we now are looking at a way to get people employed that need gainful employment. The cannabis industry presents the best opportunity the United States has to offer in a growing industry that can pay well and provide real; can provide real opportunity to them and that is what we’re seeing now. So this is just sort of an add on to your comment about the fifteen dollar minimum wage. I don’t think that it’s going to be much of an issue for the cannabis industry because the cannabis industry pays that generally speaking and more.

Matthew: Right, right. I meant more as a general comment on business and economy. I mean I keep on reading that the fast food restaurants and such are doing to do more automation and creating robots and things like this. So it actually has the reverse effect in many cases that the well intention politicians would like to see of hey let’s give people more of a working wage but the drivers and the incentives change for the businesses that actually make those decisions.

Leslie: That’s a very big conversation and we could go really deep on that.

Matthew: It is.

Leslie: And I think that it also is very much dependent upon the geography and the individual economy on a localized basis. For example a fifteen dollar minimum wage makes a lot more sense in New York than it does in even Las Vegas and so Las Vegas it’s easier to have a very high standard of living making less money in Las Vegas than you might in New York or San Francisco where fifteen dollar minimum wage would make a lot of sense. That being said I happen to think that the recent interview of Asher Edelman on CNBC talking about the velocity of money and economic policy speaks to issues like this in a very long view and I believe that ultimately raising the minimum wage for many people or raising the earning potential of people on the lower end of the employment spectrum creates much more disposable or much more consumer demand.

The people that are on the lower end of the spectrum tend to spend 100 to a 110 percent of the money they earn versus the people in the higher end of the spectrum that only tend to spend 5 or 8 percent of the money they bring in. So the more money we see going to people at that end the higher, the more money we’re going to see going into the economy.

Matthew: Great points and there’s certainly more than one variable to be looked at here. It’s a very dynamic situation and regional as well so. You’re known for asking hard questions of entrepreneurs and having acumen for the due diligence process. For entrepreneurs and even investors listening that want to get prepared to present themselves what should they do? What answers should they be ready to have right on hand and what paperwork should they have? They show that they’re prepared. They show that they’ve thought through what your care abouts might be and they have intelligent answers.

Leslie: So Matt I’m actually writing a book that’s going to be getting published very soon that deals with these specific issues.

Matthew: Oh good.

Leslie: I’m trying to provide something to investors and entrepreneurs that can assist them in making their proposition more effective. I want entrepreneurs to be able to get a leg up on getting their businesses up and running and succeeding. Knowing what the key issues they have to hit are. Investors knowing what the key issues they need to hit are to be able to be more successful as an investor and so for an entrepreneur the things that I think need to be focused on are a little bit of what I mentioned earlier and the first thing I’d say is team. You want to make sure you assemble an absolutely stellar team. The best you can bring together.

You want people that have had previous success in areas that are related to the enterprise you’re currently executing. So if you are going to be in retail you would like to have people that have had previous retail experience even if it’s not specifically in cannabis. They want to have success. You want to if you’re going to be raising money from investors you want to be able to show that you have taken in capital before and gotten to liquidity for investors and yourself previously. You want other team members to have that experience as well. You want to make sure that the breath of your team is ample and the depth of experience of the team members are ample. I often say I’d rather bet on an A team with a C project than a B team with an A project because I believe team makes 90 percent of the difference.

Then you want to make sure that other 10 percent or whatever it might be that a value proposition is solid and it is extremely well documented. You want to be able to look at the assumptions that you’re basing your value proposition on. You want to be able to parse them out separately and look at each individual assumption and you want to make sure that none of them go unnoticed. Every assumption for what your business is based on needs to be documented, segregated, and supported with research and information that’s available from other credible sources to show that it’s not just your instincts but there’s data supporting your assumptions and so you want your value proposition to be very well articulated with a lot of supporting documentation in an appendix if you have a business plan to show that you’ve done your research and you have checked to make sure that your assumptions make sense and here are the people and here are the research reports that support it.

You want to make sure that you have taken a good look at the competition in the market and that you understand there is competition. What the competition has that they offer and what you’re going to do to be able to answer their competitive approach and to be able to succeed and prevail regardless of it. You want to have knowledge of the competition and you want to have something that gives you a secret sauce and defensibility, intellectual property, market, etc. or first to market whatever it might be. You want to then make sure you’re understanding of the overall market opportunity. Once again parsing out all the assumptions and the data about the market and showing that you’ve done the research that gives you that knowledge.

And then last you want to make sure that you’re taking a look from exit backwards. What is your ultimate end goal? Are you building a business that is going to be so profitable that it’s going to be giving distributions to all of the participants, all of the shareholders in it? Are you going to be building something that one day will be a perfect acquisition candidate or are you building something that one day will look to the public markets for liquidity? You’ve got to be focused on where you’re going to get with this and what the end result is going to be because no investor is going to want to get involved unless they know where they’re going to go. They want to make sure that there is going to be an end game where they’re going to see their capital back, they’re going to see appreciation, they’re going to see eventual liquidity and return. So those are the five major points that I like to hit on from the entrepreneurs perspective.

From the investors perspective it’s about evaluating those things and then also making sure that the research you can do is deep. I would recommend that if you’re contemplating making a substantial investment in any business in the cannabis space you should be interviewing the operators if it’s a substantial investment. You should be asking to speak to their vendors. The people that sell to them whatever it might be. Provide services whether it’s attorney, accountants, or actual the seller of goods. Speak to their vendors and see what the relationship is like. Talk to their customers and their clients. Talk to the people that actually do business with them. Get hands on. Roll your sleeves up and get that knowledge because those little bits of information that you’re going to get can make the difference between pulling the trigger and making the investment or deciding not too and they can make the difference between success and losing your capital.

And so the five points that I hit as well from an investors perspective I’d say roll your sleeves up get in there, do the due diligence, become knowledgeable, and make sure you’re spending the time to really give yourself the edge. I encourage investors to look to professional investors to see what they do and try to emulate that the best that you can. If you can’t do it by yourself put together small networks of people where you can have different group members evaluate the different aspects of the investment and you can invest as a team.

Matthew: How do you feel about valuations in general since you’ve gotten into the industry? How have you seen valuations change and for entrepreneurs out there who are trying to come up with evaluation for their company? Any suggestions there?

Leslie: Research, research, research. You want to make sure that you’re going out there and you’re looking for comparables. It’s just like selling a home. If you want to sell your house you look at the neighborhood, you look at the nearby neighborhoods, you look at neighborhoods that are similar to yours and you look at what the comparable transactions have been and what people are looking to get out of their properties at this particular time; once again comparable transactions that have closed. The same thing here you have to look for business that are similar to yours both in the cannabis industry and outside of the cannabis industry. Look to the public markets for evaluations and you can start to get some idea of what a reasonable evaluation might be.

Keeping in mind that evaluations are also extremely fluid and the market will bear what the market will bear. That being said I would say that evaluations overall right now are very negotiable. There is a lot of opportunity to invest in the industry and there’s a lot of capital looking to invest in the industry. The velocity of it has not been so high that the evaluations are unreasonable. I think that if you look around you can still see incredible opportunities to get in at early stages with things that you can see substantial, substantial returns on in fairly short periods of time.

Why is that Matt? The reason for that is that the legal cannabis industry presents a unique opportunity we have never seen in the world of finance and investing before and that is taking a market that has been a grey or black market but enormous in size. According to RanCorp study of 2010 it was 42 billion dollars a year just for the illegal rec market; the adult use market in the United States. To give context if you were to look at the NFL, NHL, Major League Baseball, and NBA that same year they were under 35 billion a year combined. So the illegal adult use market was bigger than all essential major league sports in the United States combined.

So when you take a market that’s that enormous and you start migrating it to a regulated market as well you’re taking market where the prices have been kept very high because of it being a black market. The risks involved in the black market are incarceration, arrest, asset seizure, and more and so people have to keep the prices very high in the black market to accommodate all of those risks. Well when it migrates from a black market to a regulated market the prices don’t come down immediately especially in the United States where the federal legality makes each state be rampant to be like its own market and what I mean by that and this all goes back to the same point and when you look at somewhere like Oregon and Washington the wholesale prices can be very different in each one even though they’re right next to each other because there’s no Interstate Commerce.

That tends to create an environment where the migration allows for businesses to become profitable very quickly and the evaluations that happen because of that tend to expand very quickly. So you can get in at early stage businesses where the evaluations are low and you can see them explode within a year or two because of the large margins that allow for profitability to happen very quickly. One fact that I’ll reference according to the MJ Business Daily fact book from a year ago 80+ percent of businesses started in the legal cannabis industry were break even or profitable within the first year. That’s never existed in any other industry in the history of the world on this scale and so evaluation shifts are very fast when you see that type of rapid profitability. So you can get good evaluations at the early stage and you can see substantial evaluation shifts very quickly.

Matthew: Looking at the whole cannabis eco system is there any particular business type or category that gets you most excited right now?

Leslie: Hemp.

Matthew: Hemp.

Leslie: I am very interested in industrial hemp. I think that hemp is the less exciting cousin of cannabis and so the hemp industry I believe is going to encompass hemp paper, hemp textiles, hemp plastics, biofuel, food products, and industrial chemicals, construction materials, and more and it will be massive in size. It will provide real relief to industries that are currently toxic pulp paper mills; mills cutting down old growth timber to product paper. Cotton farming which uses 25 percent more water I’m told than hemp and in the processing of the cotton is substantially more toxic in terms of what it produces in runoff to our environment. So I believe hemp is going to be one of the most exciting and most rapidly growing areas of the cannabis and related markets.

Matthew: Great point. Yeah hemp is not as sexy of a headline as cannabis so I’m glad you mentioned that. Where do you see the legal cannabis market in the next three to five years?

Leslie: I am hopeful that by 2021 we will see federal prohibition dropped and we will see the market approaching its ultimate zenith in the U.S. so probably about 200 billion dollars a year nationally in revenue and that’s including adult use, medical use, pharmaceutical products being developed on it, nutraceutical and supplement products being developed on it, industrial hemp, the ancillary markets both for B to B and B to C, and veterinary and so I think over the next three to five years we’re going to see the growth to all of those different areas being created

This year we have California, Nevada, Arizona, Massachusetts, hopefully Maine all with adult use initiatives. We have Vermont likely to legislatively be the first state to pass adult use. We have a number of other states that may have ballot initiatives or legislative initiatives to establish adult use markets. We have Ohio and Florida with ballot initiatives. Florida already certified for medical marijuana, Ohio getting these signatures right now for medical marijuana. We may see legislative action in Pennsylvania for medical marijuana and so that’s going to be a major series of steps over the next nine months that are going to result at the end of 2016 having a very different market than we do currently today.

There will then be a period of a back and fill as we sort of take those expansions and people start working those expansions and the next level of states to look at expansions of medical marijuana, establishment of adult use, and legislative and ballot initiative mechanisms to achieve them and so I see this sort of major year in 2016. 2017 will be a year of market establishment and expansion. 2018 we’ll see some other probably attempts and then in 2020 four years out we’re probably going to see another ten states with ballot initiatives for adult use or medical as well and so I see major activity in the next few years and the investing activity that’s going to be taking place as a result is going to eclipse everything we’ve seen up until this point combined after we see this year’s election.

It’s just going to be enormous the amount of money that’s going to be coming into the market to invest in it, the opportunities in it, the establishment of these markets, and what it’s going to mean for our economy because it’s touching so many different areas not just adult use but as I said pharmaceuticals, industrial hemp, nutraceuticals, and then the ancillary markets. So I see a couple of major things along the way that ultimately result in what we hope will be the drop of federal prohibition on the national basis 2021, 2022 by a descheduling of cannabis and having it be treated the way we treat tobacco and alcohol.

Matthew: Let’s pivot to a more personal and personal development type question Leslie. Looking back over your life is there a book or two that stands out that you would recommend to listeners?

Leslie: Unexpected question Matt but great question. A couple of personal favorites. There is a book called “Seeking Wisdom” from Darwin to Munger. That’s an extraordinary book. The author interviewed Charlie Munger who has been Warren Buffett’s right hand man for a long time and that is a book I would recommend. I would also recommend some books by and about (33:37 unclear) who was largely responsible for bringing yoga to the west in the early part of the twentieth century. I would recommend “Jonathan Livingston Seagull” by Richard Bach and I’m a science fiction fan myself so books by Isaac Asimov and others are always very interesting to me.

Matthew: Wonderful. Thanks for those suggestions. Leslie how can listeners learn more about Electrum Partners and find you online?

Leslie: Well one of the things that I think is probably useful to many of them that are useful in the cannabis industry is to find me on Twitter. Leslie Bocskor on Twitter. L-e-s-l-i-e-B-o-c-s-k-n-e-r. I probably review an average of about between myself and my team we probably look at a couple hundred articles a day that are about the cannabis industry and about cannabis in general. From those couple of hundred we try to distill down to the fifty that we think or thirty that we think are most relevant and then from that thirty to fifty we try and find the fifteen or twenty that are the ones that you have to read and then those will go out on my Twitter feed. I would say that the website www.electrumpartners.com is definitely worth looking into and we’re going to be looking at a launch of a new site taking the existing site and going to Electrum Parners 3.0 in terms of the website within the near future.

And then you can often find me at ArcView and I’m happy to speak to anybody and I look forward to meeting people at the various conferences as well as the NCIA National Conference in Oakland in June. The primary way though is through our website and through Twitter.

Matthew: Leslie thank you so much for coming on CannaInsider today. We really appreciate it.

Leslie: Matt is was really my pleasure. I always enjoy the interviews with you. You do a great job pulling out great data from the people that you interview.

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


Leslie Bocskor is the President at Electrum Partners and founding chairman of the Nevada Cannabis Industry Association. Leslie gives us context about the rapidly changing landscape of challenges and opportunities facing cannabis entrepreneurs and investors.

Important Update:
What are the five trends that will disrupt the cannabis market in the next five years? Find out with your free guide at: https://www.cannainsider.com/trends

Key Takeaways:
[1:28] – Leslie’s Background
[3:08] – Evolving cannabis market in Nevada
[5:31] – Well recreational use pass
[6:53] – How the investors have changed since he got in the industry
[9:48] – Leslie discusses Illinois’ emerging medical marijuana market
[12:58] – Friction in the California small business market
[18:15] – Leslie gives advice to entrepreneurs pitching to investors
[24:07] – Leslie talks about how valuations have changed
[28:14] – Leslie’s take on the hemp industry
[29:41] – The legal cannabis market in three to five years
[33:02] – Leslie’s favorite personal development books
[34:11] – Contact information for Electrum Partners

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The Five Disruptive Trends Shaping The Cannabis Industry Now

The Opportunities and Burdens in California’s New Cannabis Regulations

Khurshid Khoja

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Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

By itself California is the eighth largest economy in the world. However there are other reasons besides its size that people in the cannabis eco system need to watch what is happening in California very closely. California has a huge influencing impact on other states and countries around the world. So in a sense California can be seen as the future of cannabis in a microcosm. Other reasons to look at California closely is that the state has a strong tradition of investing in and adopting technology rapidly as well as a strong tradition of agriculture. All of these reasons mean that California will most likely be the very clear vanguard pushing the cannabis limits of what is adopted by governments and businesses around the world for years to come. To help us sort through what is happening with cannabis in California is Khurshid Khoja the principle and founder of Greenbridge Corporate Counsel. A business law firm representing clients in California, Washington, and Hawaii. Welcome to CannaInsider Khurshid.

Khurshid: Well thank you. I appreciate the opportunity to be on Matt. Happy to join many of my clients who’ve been on your show before and excited about the opportunity to speak with you.

Matthew: Well to give us a sense of geography can you tell us where you are in the world today?

Khurshid: Sure. So today I’m speaking to you from sunny Sacramento and the capital of the largest state cannabis market in the country and specifically today I’m at the California Cannabis Industry Association’s Policy Conference where I’ll be speaking later today.

Matthew: Okay great and before we dive into what’s happening in California specifically can you give us some more background on yourself and how you got into this cannabis business and into the start of Greenbridge?

Khurshid: Sure. So I’m the principle and founder of Greenbridge Corporate Counsel. A business law firm representing clients in California, Washington, and Hawaii from a cross sectors in the legal cannabis industry so we represent nonprofit advocacy organizations, medical marijuana collectives, consulting firms, publishing companies, consumer electronic manufacturers, infused product producers, software companies, trade associations, and a host of others including as I mentioned several guests that have been on your show before. At Greenbridge we focus on transactional and business law matters and answer questions that relate broadly to who can participate in lawful cannabis industry and under what circumstances.

Matthew: Khurshid can you give us a little color around your background in the industry and how you got started and then how it’s evolved to where you are now?

Khurshid: Sure. So I started my cannabis industry practice at the San Francisco office of a large multi-national law firm as a corporate lawyer with transactional practice that was focused on renewable energy. In 2011 I was actually terminated while hosting the very first ArcView Pitch Conference at my office. The cited reason was insubordination to firm management for my persistent efforts to try to build a cannabis industry practice inside the firm, but it was clear to me that hosting ArcView was the last straw and that I’d really pushed the envelope past the breaking point.

But I was willing to push the envelope here to get my former employer to embrace a cannabis industry practice. To me it was a very risky act of civil disobedience against the federal drug war for me to leverage my expertise as a business lawyer to help seed and protect legal cannabis businesses and one that I would’ve preferred to do so behind the professional cover of a big law firm and without a massive pay cut, but that wasn’t to be and there weren’t any other takers from among the larger law firms. So I set up shop as Greenbridge Corporate Counsel with what was left of my severance payment from that firm.

Matthew: Well that’s a great origin story from the ashes of a termination rises Greenbridge.

Khurshid: Absolutely and it’s given me a lot of opportunity and a lot of freedom as well to serve in the industry and in the movement. So early on I had the opportunity to serve as the first general counsel of the ArcView Group helping CEO and founder Troy Dayton establish the ArcView Investor Network. I also co-founded and served as the pro bono general counsel to the Emerald Grower’s Association. Since then I’ve been able to grow Greenbridge to eight lawyers and we represent clients in three states now. Currently I’m serving as the general counsel of the California Cannabis Industry Association in addition to being on its board and I’m also a board member and pro bono counsel to the National Cannabis Association and Students for Sensible Drug Policy.

The other interesting thing that I’ve been able to do since moving to Sacramento is I’ve also become a registered state lobbyist for both the ArcView Group and I’ve also joined as part of CCIA’s lobbying team in Sacramento. So that’s given me a lot of insight into how the sausage is made if you will and how we can affect change in the industry through legislative action.

Matthew: I’m curious now that you know how the sausage is made is it different than what your perception of how it is made at the state level legislature.

Khurshid: Absolutely. I mean it’s given me.. when I think about the differences between the MRSA and the AUMA the so-called Parker Initiative that is going to make the ballot in November. I think about the effect of the various stakeholders in the legislature right. So you’ve got labor, you’ve got the cities and counties, you’ve got law enforcement, you’ve got the cannabis industry, and a number of other stakeholders who are all involved in negotiating and passing the MRSA, and as a result there are a lot of things in the MRSA that industry is not wild about. I mentioned the mandatory distribution system.

Those types of features however are absent from the AUMA because here we didn’t have to deal with the various stakeholders who hold sway in the state capitol. You’re just dealing with the voters, and so you’ve got different priorities and as a result I think the AUMA ended up being a much stronger ballot initiative. And to me the adult use system is going to be far preferable to operate in California as opposed to the medical system which is hampered by different restrictions on ownership and vertical integration and again those are all part and parcel of that sausage making process where you’ve got so many cooks in the kitchen saying I want to add this, I want to add that and you don’t always get your way as a stakeholder in industry. And with ballot initiative you’re dealing with the voters you’ve got a completely different set of options. It’s a different universe of choices.

Matthew: To give us a really high level overview of what’s happening in California can you summarize the Medical Marijuana Regulation and Safety Act? When that took place and became law and what’s most important about it?

Khurshid: Sure. So the Medical Marijuana Regulation and Safety Act was signed into law last year making California a Cole Memo compliant regulated state medical marijuana market. So previous to the passage of, we call it the MRSA for short, previous to the passage of the MRSA we had a patchwork in California of local jurisdictions that were regulating cannabis at the county and city level but there was no comprehensive state regulation or state licensing of businesses in California. And so the passage of the MRSA was a big landmark not only for California but also for the industry movement as a whole given the size of this market and its position as a leader in the industry.

So the first state licenses will be issued in California in 2018 after the six regulating agencies have adopted rules implementing the act. There will be 17 different types of licenses for cultivators, manufacturers, retailers, testing labs, distributors, and transporters. Also I’d say a dual licensing system meaning that the state will not grant licenses to any businesses that don’t already have a local permit license or other authorization sorry to operate in that local jurisdiction.

Matthew: Now when you say Cole Memo compliant can you just give a little overview of what the Cole Memo is so listeners can understand what that means?

Khurshid: Sure. So the Cole Memo is guidance provided by the U.S. Department of Justice back in August 2013 and what the Cole Memo does is basically it’s a policy statement. It’s not a statement of law but a policy statement from the executive agency, executive branch of the government saying these are the conditions under which we are going to allow these various state experiments that are going on with legalization of medical and adult use cannabis. These are the conditions under which we are going to let that experiment move forward and not interfere by trying to enforce the Controlled Substances Act against compliant actors who are trying to follow their state and local law on that subject.

Matthew: And when you’re phone rings from clients in California and they’re trying to interpret and pivot and comply with the Medical Marijuana Regulation and Safety Act as much as possible are there any questions or concerns that come up over and over again?

Khurshid: Sure. So there are a number of issues that clients raise over and over again. The chief question is of course how do I get myself ready? How do I get my business ready for MRSA compliance? How do I get my business situated so that I can get a license under the state act when those licenses are available. And so that kind of opens up a whole myriad of other questions and they’re affected by things like the ownership rules that are set forth in the MRSA as well as local licensing as well. A lot of the most impactful legislation is being deliberated by California’s counties and cities because again MRSA has a dual licensing system. So while the act doesn’t impose strict numerical limits on most of the license classes authorized under MRSA these localities will De facto determine how many state licensees will ultimately be in the system by admitting or denying legitimate access to new and existing businesses.

So after an initial rush to ban many of the jurisdictions have taken a closer look at establishing local licensing and permitting schemes which are complimentary to the states scheme under the act. So a lot of the questions that I get are where should we be located that is optimal for our business and the answer is still in flux because a lot of jurisdictions have heretofore not had any kind of comprehensive regulatory scheme or a licensing scheme for these businesses. Some jurisdictions have licensed cultivation, others have limited licensing for retail outlets for dispensaries, but very few and certainly prior to the passage of MRSA very few had any rules on say manufacturing right. We know that the Vape pen market, the market for concentrates and extracts is huge and yet we have no guidance essentially at the local level on what’s permissible, what’s not, how to get the license, how to operate in compliance. And so these types of questions are being posed over and over again by various clients who want to be well situated to gain not only local licensure but also be eligible to gain state licenses when the time comes.

Matthew: Okay and now what about investors? Investors in California and out of state is there any changes or what’s it like there for people that are outside of California that want to invest in the California cannabis business?

Khurshid: Well fortunately under MRSA there isn’t a residency requirement. Under the ballot initiative that is hopefully going to be on our ballot in November the AUMA (Adult Use of Marijuana Act) that does have residency requirements but the MRSA does not so for the time being opportunities to invest in California are still open to folks who are not residents or who live outside the state. That said I mentioned the ownership rules and those are fairly complex because the ownership rules also tie into restrictions on vertical integration and what happens essentially is that you are allowed to be an applicant or an owner of a certain number of licenses.

There are various restrictions in the MRSA on what combination of licenses you can hold. And if you violate those provisions, then you are not going to be able to hold all the licenses that you want, and you may also potentially complicate the lives of other partners that you have in that venture because they may not be able to get the licenses that they need, the combination of licenses that they need. So the definition of owner in the MRSA will ultimately determine who will have the opportunity to participate in this new market. So access to investment opportunities, access to operating and expansion capital as well as the ability to employ human and financial capital across industry sectors and the ability to get your products to market. These are all going to be dependent on that question of who is an owner?

So the way MRSA currently defines an owner is problematic because it presumes an ownership interest in the licensee even where a party may only have an ownership interest in property being used by the licensee in its facility or its operations. And so this is serious implications for anyone wishing to apply for multiple state licenses along different points of the supply chain as the ability to operate a vertically integrated enterprise is again heavily restricted. It also complicates an investor’s life because diversification is very difficult to achieve in that context.

Matthew: Great points. Now you mentioned that there are seventeen different licensing opportunities. With so many categories and with new categories do you see opportunities for new types of businesses that didn’t exist in the California cannabis market before?

Khurshid: Sure. So for the first time anywhere in California there are distribution licenses and transport licenses in addition to all of the other points along the supply chain those are separately licensed classes of activity, classes of commercial cannabis activity. And so we are seeing folks interested in distribution licenses to help producers get their products to the retail market. Not everyone is quite thrilled to see these new licenses because again with the restrictions on vertical integration you can’t hold a distributor’s license and have a dispensary license or have a cultivator’s license or manufacturer’s license for that matter. So you’re basically dealing with a mandatory distribution system but other owners from along the; other licensees from along the supply chain are not actually allowed to have any kind of interest in that distributors license.

So while there are opportunities and certainly there are operators who would welcome having a distributor handle distribution of their products that they can focus on what they do best. Not everyone is wild about the mandatory nature of the distribution system in California.

Matthew: Just because it allows them less options is there a concern of fiefdoms being created or cartels or something?

Khurshid: Yeah there’s concern about smaller producers not being able to have their products reach the market because they don’t have the kind of leverage when they’re dealing with a very large distributor that is dealing with dozens and dozens of producers and so there is a concern about will my products actually be acceptable? Will I have to modify my products or my business itself in order to get to market because of the leverage that the distributors are going to have? There’s also concerns among the testing labs where again what happens if the testing labs reject too much of the product that the distributors are trying to distribute? Will there be some backlash there? Is it going to be harder for the labs to operate and for them to guarantee the integrity of products reaching the market if they’re dealing with a few very large distributors and those are the only outlets for their services and the only ways to get products to the retail market?

Matthew: Can you explain what BMMR is or BMMR what that acronym means and why people in the California cannabis community should be interested in it?

Khurshid: Sure. So BMMR, B-M-M-R is the Bureau of Medical Marijuana Regulation which was created by the MRSA under the Department of Consumer Affairs to oversee general administration and enforcement of MRSA through multiple; well they are the lead agency. However there are number of other agencies, state agencies that are going to be taking a prominent role and problem getting regulations to implement the act. So BMMR is the agency that is going to oversee all of this but ultimately there are going to be six plus agencies that are involved in the implementation of the MRSA. That being said the success of BMMR is going to require interagency cooperation of all these agencies all of which are new to regulating cannabis.

None of the regulating agencies have actually formally begun the rule making process. These agencies have been in the process of meeting with stakeholders so BMMR is still kind of in formation if you will. I just heard from the new head of BMMR, Lori Ajax at our conference this morning and they are quickly staffing up. They have three permanent staff right now. Again they’ve just started and they’re going to be looking for legal counsel to help them with the rule making that’s coming up and as I mentioned there are six plus agencies including Department of Food and Ag, Public Health, Consumer Affairs, Pesticide Regulation, Fish and Wildlife, and the State Water Resources Control Board.

Matthew: Wow. That’s a lot of government.

Khurshid: Yeah it’s alphabet soup.

Matthew: Yeah. Are there any deadlines that listeners should be aware of or anything coming up on the horizon that’s important that they should make note of?

Khurshid: Absolutely. So I mentioned the rule making proceedings that have not begun yet but they do have to be concluded within one year. And so the agencies have and BMMR specifically has said we want to be in a position to be able to grant licenses by January 1st, 2018 which means that they’re going to have to get the rule making proceedings done well before then. The rule making timeline is a year long. So the rule makings have to be concluded within a year and we can expect that these proceedings will probably begin no later than the end of this year, although some agencies like DFA the Department of Food and Ag anticipate being done by summer of 2017 and others are a little bit less saying when but the Bureau is committed to making sure that all of this is done by the time January 1st, 2018 rolls around. That’s the date when they can start granting state licenses.

Matthew: We see established cannabis businesses in California such as MedWest get raided and continuing raids going on. How is this possible that a legal cannabis business gets raided? In this case I think was a local jurisdiction in southern California partially funded with federal funds from Homeland Security. Can you tell us a little bit about your thoughts around that? Why raids continue and where we’re at in this process?

Khurshid: So the MedWest raid was very unfortunate. I’m good friends with James Sladdock and others at MedWest and really sad to hear about that raid. What I know of it is that while there was some federal funding likely involved in the agencies that were participating in the raid it wasn’t actually a federal raid. It was a local police action taken by the city on the grounds that MedWest was not complying with zoning requirements and so that seems to be the impotence for that raid and so we know from earlier in the year there was; we had the Robocker Farm renewed and that is a provision in the Federal Budget Act that says that federal officials are not allowed to spend any federal money on enforcing the Controlled Substances Act in states that have legalized medical or adult use cannabis and so they have been barred from participating in those raids. Federal officials have been barred by federal courts from participating in those raids and so what we’re seeing now is local action and some local level carnage that may not be over yet.

There are a number of folks, businesses who are trying their damnest to comply with state law and be good actors but a lot of these folks are still operating in a irregulatory void at the local level and there has to be more evolution of these local ordinances on licensing before that is going to come to an end. By and large though I think we’ve seen local jurisdictions that have recognized the fact that they’ve got thriving businesses in their jurisdiction and they don’t want to make them criminals. They want to bring them above ground and they do want to collect that tax revenue. That being said there are dozens and dozens of jurisdictions that have actually banned activity as well. And so if there is any commercial cannabis activity in those jurisdictions certainly there you’re going to see more enforcement actions against these businesses as time progresses but again at the local level not so much the federal.

Matthew: Civil asset forfeiture seems to be a tool in the toolbelts put authorities in these raids. Can you talk a little bit about how that was used if you know anything about it?

Khurshid: Well I know that in the MedWest raid it’s actually not a federal asset forfeiture action. There is a state corollary to that so there are state asset forfeiture laws that apply and I believe that’s what’s being used here in the MedWest case. I don’t know enough about it to really comment on the substance of the allegations that the city has brought but presumably if they have invoked the state asset forfeiture proceedings then they are alleging that there has been some unlawful action and that is largely due to the fact that in these jurisdictions local businesses cannot rely upon the affirmative defenses that are currently available to them under California Medical Marijuana laws and so where they can’t rely on these affirmative defenses in these jurisdictions that have been unfriendly they are going to be subject to prosecution under the criminal cannabis laws that apply to everybody else outside the patient community and so that is going to be the underlying premise of any state forfeiture action. Again I hope that they are able to resolve and settle this matter with the city before it gets to that point but it’s very scary for any business owner to be facing that.

Matthew: Right and what I understood from the video that James Sladdock and MedWest put out is that his financial assets not just his but his wife and his children’s were all frozen immediately. So you’re essentially barred from having any resources to creating your own defense. It’s kind of like saying hey to a boxer hey get in the ring with me but I’ve created a technicality where you can’t even get in the ring and begin to fight because I make up the rules.

Khurshid: Yeah.

Matthew: I mean it seems like such a backward Draconian system we have here. Is this pretty common that assets are frozen in such a way that you can’t even defend yourself?

Khurshid:: I’ve heard that over and over again from other operators who’ve had to face this type of a proceeding that they freeze all the assets including your family assets and yeah it’s very difficult for you to fight back. I look at the asset forfeiture laws generally as a license for law enforcement to steal. And so given that the law is set up that way I’m not surprised to hear that they would try to hobble anyone from fighting back. It takes a long, long time to fight back and to actually reclaim your property and your business. So asset forfeiture that I would like to see as an area of reform not only in California but at the federal level as well. Like I said I think it’s a license to steal and it doesn’t conform with our constitutional privileges that we have under the U.S. Constitution in my opinion.

Matthew: Agreed. Well moving outside of California what issues are top of mind for you right now at the national level?

Khurshid: Sure so banking access is one area that really needs massive improvement. We don’t have; although we do have guidance from the Department of Treasury and FinCEN the Financial Crimes Enforcement Network both executive federal agencies. They’ve provided guidance on how businesses and banks can work together. How banks can actually offer their services to state lawful cannabis businesses the number of banks actually doing so is still very small. You don’t see a lot of big national publicly traded banks for example wanting to jump into this consumer base. They are very hesitant because right now as it stands the guidance that they’ve been given really imposes a lot of additional duties on the banks that really are not appropriate for the banks to carry out; more appropriate for law enforcement and the state to carry out and so you don’t see a lot of takers among the banks and that’s going to have to change if we are going to actually have a mature industry and one that is able to grow and hopefully grow at some point federally nationwide as well. Until that happens we’re not going to be able to scale those operations and not going to be able to protect public safety in the process as well.

When we don’t have banking access there’s a lot of cash flowing and even the simple matter of going to pay your taxes can be a pretty stressful experience if you’ve got a hundred thousand dollars in your backpack and you’re walking in without any kind of guard and so that’s a problem and so states have tried to solve this issue. In California there is a lot of interest in trying to start a state bank. I’m not so sure that that is going to be a workable alternative. First of all it takes a lot of capital, a lot of time, and a lot of effort to actually set up a financial institution like that and even if you were successful in doing so the FDIC is the regulator of last resort for banks that aren’t part of a Federal Reserve System which is what a state chartered bank would be and the FDIC itself has not shown itself to be very enlightened. They’ve denied deposit insurance to other banking institutions who were attempting to comply with FinCEN and Treasury guidelines and tried to join in the Fed system.

So I’m not so sure that the FDIC is going to welcome the advent of state chartered banks who are specializing in cannabis accounts. I think what we really need is to have a federal solution and we really need to impress upon our decision makers and Congress and any executive agencies that we need to address this situation and we need to do it on public safety grounds and so what we need is to have our state and local tax authorities talk to them about what this problem is doing on their end and how important this is for it to be resolved. The writing is on the wall. The genie is not going back into the bottle so if Congress does not address this situation they are letting a public safety issue escalate and get worse.

Matthew: And it really doesn’t need to be this way. We could look at Canada and they really have totally untangled this knot. It’s illegal to do any kind of banking around cannabis in Canada from what I understand and there’s just not any of these issues.

Khurshid: Yeah.

Matthew: And I realize we’re a different country but it’s not that hard to envision when our neighbors to the north already have a totally functional system so it’s just like hey can we have that? It’s not like we’re trying to sell them on a unicorn from another plain or something.

Khurshid: Yeah, yeah. What every operator in this industry wants is just to be treated like any other business. We want to pay our taxes. We want to follow the law. We want to create jobs and we want a fair and reasonable profit as well and so those are not unreasonable things to want if you are trying to play by the rules. Canada not only has banking but they’ve got publicly traded cannabis companies on their exchanges and what we’ve got is markedly different. Most of our companies that are publicly traded are on the pink sheets and the OTC and investors don’t get the benefit of the investor protections that they do in Canada where this is all federally legal and legitimate for them to list their stocks on the national exchanges and invite investment.

Matthew: What about pesticides at a national level? What do you think can be done there?

Khurshid: So that’s another very interesting issue. We keep seeing headlines about massive recalls in Colorado and elsewhere due to the presence of certain pesticides that are not authorized for use on cannabis and this all stems from the fact that the EPA has been largely silent on this issue. They did issue some guidance several months back to Colorado about which pesticides would be permissible potentially but they’re not taking a stance and that’s because cannabis is not defined as an agricultural crop under federal law and under federal law all pesticides have to have the parameters of their use listed on the label and anything that is used differently from what’s prescribed on the label is called off label use and that is implicitly unlawful and so the problem is that there are no pesticides really that say that this is for use on cannabis right.

There may be some pesticides that say on the label that they are generally safe to use on food crops or generally safe to use on different types of agricultural crops and those may be okay to use arguably but there are a number of pesticides that cultivators use to keep their crop safe that are not listed but are presumed to be safe but there’s no guidance from the federal government on that and so they continue to be unlawful to use and so it creates quite quandary when these recalls happen because they’re not based on federal law they’re based on a sort of state law principles that are hobbled together from EPA guidance and from what limited power the states have to regulate pesticides.

Matthew: Khurshid before we close I’d like to ask a question about a book that’s been pivotal or transformative in your life. Is there any book that you look back over the arc of time in your life and you think hey this was really a transformational book for me that really gave me new insight or different lens to view my life?

Khurshid: Sure. So when I first started my cannabis industry practice I had read “The New Jim Crow” by Michelle Alexander who is a law professor and I think currently at the ACLU and “The New Jim Crow” is a book about how the drug war essentially has created a huge prison industrial complex and massive rights of incarceration especially of people of color. When I started off; cannabis isn’t my first activist foray and so when I kind of started my career if you will as an activist I started in high school with the Anti-Apartheid Movement; the International Anti-Apartheid Movement and reading “The New Jim Crow” kind of brought things full circle for me as an activist. One of the facts that she cited was that the U.S. incarcerates a higher proportion of its black population than Apartheid era South Africa did during the height of opposition to Apartheid when they were fighting armed insurgents.

They were locking away fewer black people than we were and to me that really hit home and made me decide that this is what I’m going to do. I don’t have a choice. This is what I have to do and I’ve seen the drug war through a civil rights lens ever since and it’s definitely been transformative not only for me but for several other activists and entrepreneurs who I know were personally touched by that book. So I can’t recommend Michelle Alexander’s book enough.

Matthew: That’s an excellent suggestion. One piece of news that came out this week was about how the Richard Nixon administration used a lot of the war on drugs as a way to target minorities and protestors that were essentially giving him a hard time. What’s a reason we can come up with to go after these people the public will stomach.

Khurshid: Yeah.

Matthew: So there’s a lot of consequences we don’t; unattended consequences of legislation we don’t see sometimes and the human faces behind them so thanks again for that suggestion.

Khurshid: Sure.

Matthew: In closing how can listeners learn more about Greenbridge and the services you offer?

Khurshid: So we’ve got a website. It’s www.greenbridgelaw.com. Our bios are up there as well as our firms mission statement. We are a firm with a mission. Our mission is to help end prohibition and we’re going to do that by building a regulated taxpaying above ground economy and so we encourage folks to check out our website. Check out our mission statement and certainly contact us if they need any help.

Matthew: Khurshid thanks so much for coming on CannaInsider today. I really appreciate it.

Khurshid: Sure my pleasure, thank you Matt.

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


Cannabis attorney Khurshid Khoja discusses both the opportunities and burdens in California’s new cannabis regulations.

Khurshid Khoja is the Principal and founder of Greenbridge Corporate Counsel, a business law firm representing clientele across sectors in the legal cannabis industry: non-profit advocacy organizations, medical marijuana collectives, consulting firms, publishing companies, consumer electronics manufacturers, infused products producers, agricultural equipment manufacturers, software companies, trade associations, and others.

Khurshid brings a wealth of experience from representing and consulting with companies in the legal cannabis industry. In addition to pioneering the Cannabis & Hemp Industry practice at Greenbridge, Khurshid was a Founding Board Member of both the California Cannabis Industry Association (CCIA) and the Illinois Cannabis Industry Association (ILCIA). He continues to serve on the CCIA Board and as its pro bono General Counsel, and was recently elected to the National Cannabis Industry Association (NCIA) Board.

Key Takeaways:
[2:27] – Why Khurshid starting Greenbridge
[6:17] – Khurshid’s take on legislative actions
[8:22] – What is the Medical Marijuana Regulation and Safety Act
[10:05] – Khurshid explains the Cole Memo
[11:10] – Khurshid talks about common questions and concerns from clients
[14:01] – Out of state investors that want to invest in the CA cannabis market
[16:44] – Opportunities for new types of business
[20:01] – Khurshid talks about BMMR
[22:04] – Licensing deadlines
[23:41] – Why do raids continue
[30:15] – Khurshid talks about his top of mind issues
[35:40] – Pesticide regulation
[40:52] – Contact details for Greenbridge Law

Important Update:
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