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Ep 320 – Cannabis Skincare With THC Is Changing The Market

bridget may green bee botanicals

We’ve seen some hemp skincare products, but now entrepreneurs are developing skin and beauty products with THC above the 0.3% threshold.

Here to tell us about it is Bridget May of Green Bee Botanicals.

Learn more at https://greenbeebotanicals.com 

Key Takeaways:

[1:10] An inside look at Green Bee Botanicals and its mission to revolutionize the beauty and wellness industries

[2:27] Bridget’s background in the biopharmaceutical industry and how she came to start Green Bee Botanicals

[7:37] Why Bridget decided to formulate Green Bee’s products with more than 0.3% THC

[10:14] The most popular products at Green Bee Botanicals

[11:00] Why Green Bee creates “clean” products and how this sets the company apart from other skincare brands

[13:47] How Green Bee’s serums and lotions nourish skin from the inside out

[16:45] What customers are saying about Green Bee’s THC products

[24:04] Why skincare products with THC do not produce a high when applied to the skin

[25:27] Bridget’s advice to entrepreneurs on how to distribute their products

[28:11] What research is saying about CBG and its benefits for the skin

[29:49] Where Bridget sees the cannabis skincare space heading over the next 3-5 years

Click Here to Read Full Transcript

[music]

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

We have seen some hemp skincare products but now entrepreneurs are offering cannabis skin and beauty products with THC above the 0.3% threshold. Here to tell us more about it is Bridget May of Green Bee Botanicals.

Bridget, welcome to CannaInsider.

Bridget May: Hi, Matt.

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

Bridget: Well, I'm in San Francisco. I've lived here for many years, but I grew up in San Jose, California which is just about 50 miles south. I'm actually sitting in my bedroom, which is my office these days working from home COVID style. Also being a business owner, I'm not paying for an office space, so this is where I am all the time, mostly [chuckles].

Matthew: Well, smart move. What is Green Bee Botanicals on a high level?

Bridget: Green Bee Botanicals, we make cannabis skincare and topicals for the body. These are products that, yes, like you said, do contain THC, so you have to buy them in a dispensary here in California, and they're all vegan. We make products for the face and the body. We use organic essential oils, organic plants and flowers, and clean full-spectrum cannabis, so that does contain THC as well.

More than just a skincare brand, I didn't really intend to be a beauty brand, but that's what it's turned out to. We're really about wellness and we try to educate people about the benefits of cannabis, and then just the benefits of self-care in general and taking care of yourself, the full body, and not just your face, not just your skin. It's not just about being beautiful from a external point, but beauty from within, so getting enough sleep, number one [chuckles].

Matthew: I would be happy just to settle for the veneer of beauty at this point, Bridget. 

Bridget: We take what we can get.

[laughter]

Matthew: Well, tell us a little bit about your background and journey and how you came to start Green Bee Botanicals and what you were doing before.

Bridget: Yes, I came to it in a roundabout way. I actually studied art in school. I come from a family of artists, and I didn't really know what I wanted to be when I grew up, but art was just an easy way to get a degree oddly enough. I didn't have to write too many papers, but then after I graduated, immediately, I realized that it wasn't how I was going to make a living, or how I would want to try to because I've known so many starving artists in my life.

My second love was always science and the environment, and I really wanted to make a difference in the world, and so I went straight back to school and studied biology and chemistry, emphasizing botany really was where my main focus was. Then out of school from that, with a science degree, the jobs were in the biotech industry, so I started working in pharmaceutical companies. I really loved working in a lab and working with instrumentation.

I did a ton of analytical chemistry for different biotech companies and learned a ton. Going to school is one thing, but on the job training is really where I learned the most. Then in my off times, I also did a lot of volunteering in nurseries with plants because that's actually still where my love was, is with plants. Even though I was having fun in those jobs, it never was my calling to work at a pharmaceutical industry because I feel strongly that the industry is really about making money, and not so much about healing people.

I know there's a lot of good science and medicine going on in Western medicine, but there's a lot missing as far as holistic healing and using plants, using natural remedies, stuff like that. I was always a little bit one foot outside, not really wanting to be there, and then one day I actually was having trouble sleeping. I know we were talking about insomnia earlier and someone recommended cannabis.

There were some new strains out that weren't just 100% THC, there was CBD in them, so they didn't get you quite as high, and they didn't give you that paranoia. Once I learned about CBD, I was mesmerized and did a bunch of studying and read a bunch of scientific papers and started realizing that the cannabis plant just has so much to offer that's not about getting high.

I always thought it was like, "Oh, it's for people with serious illnesses who are dying from cancer et cetera," and that it's super helpful for them as well, but it also is helpful for everyone more on a daily basis and more like a vitamin. There's so much to it. I got so involved in the science that I thought I really wanted to do something in that field. That's just how the impetus started, and then I just started fooling around in my kitchen, making stuff, making salves, and balms. One thing led to another as far as the idea.

I'd make products, give them to my friends, and everyone was like, "Oh, you really should start a business." Around the time when I was doing all these experimentations and starting to think about starting the business, I met Andrea from Sava who, I think introduced you and me, Matt, and she was just starting her business, and so it was just kind of a serendipity.

I met her just as I was launching and she was launching and I got on her menu. It gave me a lot of confidence to keep going, so that's how it started [chuckles]. I don't know if that's--

Matthew: Great connection.

Bridget: A really great connection. That's actually one of the things about this business, this industry that has spurred me on is all the connections I've met, especially women who have introduced me to other people who get me to the next step right when I need it, so I've been really lucky.

Matthew: I mentioned in the intro that we've seen some hemp skincare products, but why go over the 0.3% THC that requires someone to purchase your skincare products in a dispensary? I would think you're probably like, "Well, that limits the audience I can sell to," but gives you something extra. What's the thought process there?

Bridget: Yes, of course. Like I said, when I started, the very first product I made was a massage oil which was for pain and inflammation. Knowing that THC and CBD are both great for pain, and THC is actually especially good for pain, it made sense. The importance to me was getting the product that was going to help people, and because in order to sell THC you're required to sell it in a dispensary, that's where I started.

It does seem strange to start selling skincare products in a dispensary, but that's what my customers were asking for. That's what my accounts were asking for, and because it was a new and exciting product. Because of the science, I just kept thinking, "Well, THC is good for inflammation and as your skin ages, the inflammatory response is part of the issue with aging." It made sense to keep the THC in there. THC and CBD actually work better together because of the entourage or ensemble effect.

The other thing is that THC and CBD are actually really great antioxidants, which is another thing that people are constantly wanting in their skincare products such as vitamin C and vitamin E. The cannabinoids are actually even stronger antioxidants than vitamin C and vitamin E. THC is a very valuable cannabinoid, and I didn't want to water down the products by taking the THC out just because of legal requirement. I'm hoping and hopeful that people are going to start going to the dispensary to get their skincare products.

The other thing which I've learned through being in the industry is that because we have to test our products so thoroughly, anything you're going to buy in a dispensary is going to come with a C of A, it's going to be proven clean, free of pesticides and heavy metals, and that's something you can't say about the cosmetics and beauty products you find in the drug store.

Matthew: Yes, that's a good point. They are rigorously tested and everybody looks for those testing results. Is the massage oil the most popular product then?

Bridget: It's actually our second most popular. Our bestseller is our eye cream, which won second place in the Emerald Cup last year. We're super excited about that.

Matthew: Oh, congratulations, that's great.

Bridget: Thanks [chuckles]. Part of it is it's a very different kind of product and it's an emulsion, a lot of topicals there are just balms or oils. It's a little more difficult to make an emulsion and so it's really nice, this silky moisturizing lotion for under your eyes.

Matthew: I noticed that a lot of skincare products they have ingredients that sound like they're made in a lab and I don't understand them, but then you're saying that your products, "Hey, these are clean and simple ingredients and stuff like that." When people say they're clean, what does that mean? Is that free of the heavy metals like you were saying and pesticides and stuff like that?

Bridget: The clean beauty industry is really booming right now and there's a definition of clean beauty in that. It's free of certain banned chemicals or banned in the European Union. We don't ban hardly anything here in the United States [chuckles], so free of phthalates, free of parabens, free of formaldehyde forming ingredients, stuff that can be androgen disruptors or carcinogens, stuff like that.

That's one side of clean beauty, that's the general notion, but we take it one step further because we have to in the California Cannabis market, we have to test everything for pesticides and heavy metals, et cetera, and processing chemicals. Not only do we say our products don't contain these things that you can see on the label, but we also test for contamination, which is actually really common in products. You'd be surprised how easy it is for lead or pesticides to get into your skincare products.

We test for over a hundred processing chemicals, pesticides, and microbes, and even the most well-intentioned brands on the market may have these lurking in their organic products without even knowing it. I would say, especially in the hemp market, in your general hemp market out there, you should be especially careful of that because hemp [unintelligible [00:13:04] cannabis is a bio-accumulator, which means that it pulls toxins out of the soil and it's actually been used for bioremediation of toxic cleanup land that needs bioremediation.

So, your hemp seed oil or CBD that comes from industrial hemp could very likely have lead or pesticides in it and you wouldn't know it. That's why we test now because we have to in California, but when we do go into the hemp market and make hemp-based products, we will also test everything there as well.

Matthew: With your eye cream and serums, how exactly do those interact with the skin to reduce inflammation and rejuvenate the skin?

Bridget: [clears throat] Cannabis has cannabinoids in it, THC CBD, CBG. Those are some of the most common or popular ones right now, and those interact with the skin. We have receptors all of our body, in our skin as well in the epidermis and the dermis called endocannabinoid receptors, and these receptors are created in the body to interact with our own endocannabinoids that we create in our body and it's part of this whole balancing system that we've just discovered just really recently and it affects every other system in our body.

THC and CBD are analogs for those endocannabinoids that we produce and they interact with those receptors in our body [clears throat] the same way. They help balance pain and inflammation like we were talking about, they balance the hormone response and the oil production in your skin. For example, cell turnover, all these things that need to be constantly regulated in your body, THC and CBD help keep that all in balance.

Plus the fact that they're antioxidants so they're helping fight free radicals and any kind of environmental toxins or sun damage, they'll help remediate or keep that system in balance and keep things healthy.

Matthew: Free radicals, these are the things that shoot at our telomeres, the caps on the end of our DNA, I think-

Bridget: Oh, yes.

Matthew: -and make us a copy of a copy, so that's why someone you haven't seen in seven years looks like a copy of their previous self, less vivid, maybe a little bit less vital because they're moving this direction of becoming a copy of a copy of themselves and those free radicals are the agent for that.

Bridget: Exactly, and in general, they oxidize the cells. They're causing cell damage even on a more basic level, not to mention the DNA, but yes, so all that oxidation over time builds up and causes extrinsic aging that's happening. We're always aging all the time, but because of outside forces that we're fighting against, we age quicker. We always need help with antioxidants [chuckles].

Matthew: When I hear oxidized, I always think of rust, that's the process of [crosstalk]-

Bridget: Exactly. Exactly.

Matthew: -so it's like human rusting.

Bridget: Exactly, slow degradation [laughs].

Matthew: When you give out samples or you have customers come back to you that say, "Hey, I tried Green Bee eye serums," what do they say? What's their feedback to you?

Bridget: Well, people love our products. Number one, I create them to smell and feel really good. I want them to be a great experience. The ingredients I use, they would be great products even without the cannabis, but the cannabis, it's like an extra active ingredient that really gives you a boost of, like I said, antioxidant benefit, but people love them because of their moisturizing benefits.

The eye cream people rave about how it helps with dark circles and puffiness and oddly enough, this is not why I intentionally made the eye cream, but people often say that it helps them with their acne or a pimple. They say they put it on a pimple and then the next day it goes away, which is just like, "What? Oh, wow, okay, great." I'm not going to say this eye cream is for acne, but [chuckles] anecdotally it's helped people with that and one of our favorite accounts society, Jane Sharon, they used to have parties, this is back in the day.

They'd have people coming to the party that everyone put eye cream around one eye and then walk around and then come back in five minutes and then show them the difference between each eye and people would be surprised, they can really see a visible difference between each eye just in that small amount of time. I think that's partially because of the caffeine I put in there which has this depuffing effect that happens pretty instantaneously. Caffeine is also a great antioxidant so it adds to that whole antioxidant blend.

Matthew: Oh, that's interesting. Inflammation seems to be on everybody's mind these days. We talked a little bit about oxidation, but why are we also inflamed? I feel like a pufferfish right now just thinking about it.

Bridget: I know.

Matthew: What is it?

Bridget: Well, inflammation is part of the natural defense system of your body. It's totally necessary for healing and protecting you. It's like your immune system's response to an irritant. It's sending increased blood and immune cells and that's all good if you have an acute injury, you need the inflammation to heal it, and the pain comes there as well to help you protect it.

If you feel pain in your foot because you twisted your ankle, you're going to protect it by not walking on it for a while, but what you're talking about, feeling like a pufferfish is more like chronic inflammation, which is bad and causes all kinds of long-term problems and I frankly think it's our go-go-go society, we don't rest, we're always on our screens, we're just always tired. Maybe we're not eating right.

All those things add up to this chronic systemic inflammation. In the skin, that can cause a rash or acne or psoriasis or rosacea and it's all just this imbalance. Cannabis, actually, can be part of the help to keep that system in balance.

Matthew: I was just reading yesterday that Americans spend half as much on their foods as the French and the Japanese, I think it said the Italians too. I thought, "Oh, that's so sad." When I go over to France, I noticed, first, they really pay attention to their ingredients. It's not uncommon to be at a dinner table and people are talking about the soil that the asparagus are grown in and it comes from this farm and this is how they get their soil quality. That's not a fringe thing, they're really into it.

They eat so slow. You can have a three-hour dinner. The first time I encountered that, I'm like, "I can't believe we're sitting here this long. Am I on candid camera?" It's three hours.

Bridget: [laughs] That sounds lovely.

Matthew: Yes, it's lovely. By the end, you're hungry again. I think about the pace. They don't have any screens going on, the pace of eating and stuff. Us, it's like, "I got to wolf it down and then get over here." That's not good for digestion. Just the contrast between how they do it in France and here. They're eating rich stuff. It's stuff that we call unhealthy. They're eating gobs of cheese, they're having fresh pastries, they're eating a ton of bread and I'm like, "They're not puffy or inflamed at all."

What's the difference? I don't know. That I think could be a great show, just eating with the French. Six months of eating with the French, how will your body composition change.

Bridget: Oh yes, like a Super Size Me kind of thing [laughs]?

Matthew: Yes, the reverse of Super Size Me.

Bridget: Well, I think it's complicated. I think it's not just our food, but it's everything about our society that is stressful. Any stress is going to cause an inflammatory response in the body. I don't know how to fix that, except take more cannabis, I guess that's helpful [chuckles].

Matthew: Some people say playing in the dirt, getting some dirt on your skin is helpful too to get-- I don't know. You probably know more about that than me, getting, I don't know, microbes and stuff [crosstalk]--

Bridget: Oh, the microbiome?

Matthew: Yes.

Bridget: Yes, absolutely. I played in the dirt when I was a kid [chuckles]. You see people now just constantly slathering their children with hand sanitizer. I don't think that is really good for the immune system.

Matthew: Yes. There's a lot of alcohol in there too, drying you out too.

Bridget: I've read horror stories about these contaminated hand sanitizers that have all kinds of toxins in them that are actually killing people, literally killing people, methanol-tainted hand sanitizer. Which reminds me, we are going to make a hand sanitizer someday and it'll be tested, so you know there won't be methanol in it [chuckles].

Matthew: That's good. Then will it also have something in there to hydrate as well, sanitize and hydrate?

Bridget: Yes, I think I'd put aloe in there or something moisturizing. I don't know about CBD. I don't know if that's a useful ingredient for hand sanitizer, but I'd consider it. It might help moisturize.

Matthew: Now, imagine that since your products contain over 0.3% THC, people ask, "Hey, Bridget, will this make me high if I rub this on my skin?" Do you get that question a lot? What do you say?

Bridget: Oh my God, that's the first question everyone asks me. The answer is no. THC is a huge molecule and the skin is a very effective barrier. It's actually quite difficult to get THC through to the blood vessels. There are patches you can get that have skin penetration enhancers in them, but none of our products have that in them. Our products are actually intended to work on the receptors in the epidermis and dermis, the top layers, and they don't penetrate to the blood vessels.

On top of that, even if a tiny bit got through, it would be such a small concentration that it wouldn't have a psychoactive effect. I use myself as a guinea pig. I've slathered these products on myself for years and I'm a super lightweight. I think I told you, I'm a two-milligram girl. Two milligrams of a gummy is going to get me high and I've never gotten high from any of our products.

Matthew: It's difficult to get on retail shelves. You mentioned Andrea from Sava, she has a delivery business, and that was helpful in getting your product on shelves. For people out there listening, that's one of the things that seems to be a huge barrier like, "Even if I create a great product, how do I get it out there? How do I get it distributed? How do I find retailers that want to carry it?” Can you talk a little bit about how you've done that? How many stores are you in right now?

Bridget: We're in about 60 stores throughout California. I don't know if you know this, but in California, a distributor is required by law. Part of the system, because we have a distributor, they actually help us get into accounts. They have relationships with accounts, so part of it is through that system. Although, I don't love it.

Matthew: How do you get top of mind with them? Obviously, they have some preferential treatment maybe or they maybe like some products more or they talk about other products more. How do you make sure that you're doing it the right way?

Bridget: It's so hard, Matt. I swear. The California system is almost impossible with the distribution and being able to communicate directly with accounts is also difficult sometimes. Actually, some of our best accounts have just reached out to us directly through our website, so I feel really lucky that way. Then also, I feel like networking is really important, like going to events. These days, there's online events. We just went to MJ Unpacked.

We actually didn't meet very many buyers there, but we met other people who were really helping us raise money, getting into other States. I think networking is just the way to go, that's how you're going to find the right people. Then we have a great salesperson who also has a lot of connections just because she's been in the industry for so long. She's like an OG kind of person.

She was working in a dispensary doing medical marijuana in California. This has been really helpful. I think it's all about the people. Also, I go door-to-door. I go to dispensaries, I walk in, I say, "Hi, my name is Bridget. I'm from Green Bee Botanicals and here are the products I make." Little by little, it's just very time consuming and it's hard, but I think that's really the way it is making connections through people.

Matthew: We've talked about THC and CBD and a few other cannabinoids, but CBG seems to be gaining popularity or I should say, awareness. Can you talk a little bit about how you think about CBG?

Bridget: Yes, CBG is one of the newer cannabinoids. People are talking about CBN as well. CBN is really good for sleeping. CBG is my new favorite one. I just started reading scientific papers about it. It's a little different than CBD in that it seems to be affecting the sebaceous gland in a different kind of way. CBD, it appears from the science, has an effect of controlling oil production in the face.

Whereas CBG appears to be improving the production of sebum, so encouraging your skin to create its own moisture, to secrete a little bit more oil. This could be really great for super dry skin. That's something I'm really excited about and we're going to be putting that in our newest product that will be in our hemp line that's coming. [inaudible [00:29:31] want to say soon because things take forever, but coming soon.

[laughter] 

Bridget: That will be able to be sold everywhere, not just in a cannabis dispensary. We are expanding into the hemp side as well.

Matthew: When you pull out your crystal ball and look ahead the next three to five years, don't worry if you're wrong but just guess, where do you think it's all heading in the skincare cannabis hemp space? Where's it all going?

Bridget: Well, there's a few things. One is I actually have heard recently a few dispensaries have told me that customers have been coming in asking for skincare products, which I think is really unusual, like that I feel like, "Oh, the tide is turning," that people are actually going to dispensaries to look for their skincare, and especially because of the Clean Beauty Movement, which is really taking off, young people especially who are really concerned about [inaudible [00:30:31].

They're concerned about impurities and contamination in their skincare. They're going to start looking for test results, and knowing that if you buy stuff in a dispensary you're going to get those test results that will show that the product is clean and free of pesticides and heavy metals. That's just one thing. That's like a small crystal ball idea but the other one is that I feel like a stigma, this is related, but the stigma around cannabis is softening, especially as the more science comes out that proves the medicinal and health benefits.

That's going to change the way people think about cannabis in general. It's becoming more about health and wellness than it is about just getting high. Then the last thing is I really hope that on a national level, we get some decriminalization and expungement of people who have been unjustly put in jail for cannabis that is now legal in many States and hopefully we'll have full-on federal legalization.

I think it's about time we truly end the racial discrimination and acknowledge the role that that's had on our country as it relates to the war on drugs and our broken criminal justice system. That's my crystal ball is the future of cannabis is everyone out of jail and maybe some people making money off it [laughs].

Matthew: Bridget, I’d like to ask a few personal development questions to give listeners a sense of who you are as a person. With that, is there a book that's had a big impact on your life or way of thinking that you'd like to share?

Bridget: It's funny. One of the most recent books I read is A Really Good Day by Ayelet Waldman. Have you heard of it?

Matthew: No.

Bridget: Ayelet Waldman is an author, she suffered from some depression and this book, A Really Good Day, is her journal of taking micro-dosed LSD to help with her depression. It not only tells her own personal story of how that helped her, but it also goes into the history of psychedelics and the studies that were done early on and then how they became illegal and became Schedule One drugs and how--

I find that it's just fascinating how these drugs can help with depression, anxiety, PTSD, and how their study was used. Their studies that happened in the 50s and 60s, even the studies that were done by the government was then suppressed and then added to part of the war on drugs. It's totally fascinating. I recommend everyone read it. It will change your mind [chuckles].

Matthew: I keep on hearing like this great discovery and then it's suppressed. I’m like, "What is going on here?"

Bridget: Right. Same with cannabis.

Matthew: [crosstalk] behind the scenes?

Bridget: Exactly. Yes, if you look at our history, the history of our government, it's shocking and kind of depressing that the people in control they're misguided, if not downright corrupt really.

Matthew: Well, what's the most interesting thing going on in your field besides what you're doing with Green Bee?

Bridget: Well, I’m really thrilled to be partnering with The Galley. They're a contract manufacturer for cannabis in Santa Rosa. Getting a manufacturing license in California is a very difficult and expensive process. There's a lot of small brands like myself and others that aren't even on the shelf anymore who through The Galley are going to be able to get back on the shelf. They're helping facilitate that. I think this model is amazing.

Annie Holman who runs the place, she's such a people person and a great connector and has helped me in so many ways. I think that's really exciting and I hope that other brands are able to get back on the shelf. These people are like OGs that made stuff back in medical times and are really great brands, but they just didn't have the capital to get their own license and their own manufacturing space.

Matthew: What's one idea that you believe to be true that very few people agree with you on?

Bridget: [chuckles] I think this is changing, but we touched on this before about holistic health and the food and chronic inflammation, but I really believe in the mind-body connection as far as illness is concerned. The way stress not only causes this inflammation in the body, but it also can cause pain, can cause illness. Even just thinking a thought, a negative thought can actually make pain in your body worse.

I think people don't want to believe that because there's this whole it's not okay to call in sick, or it's okay to call in sick to work but it's not okay to call in and say, “I feel sad today, I can't come in.” [chuckles] It should be the same thing if you've got PTO, right?

Matthew: Yes.

Bridget: I think this is changing, but I just started reading this book called Unlearn Your Pain by Dr. Howard Schubiner. It's another book that's changed my life. It's really about how your emotions and stress can affect how your body feels and that pain is actually produced by the brain, like that notion it's shocking, and I think most people don't believe it. I'm not saying if you cut yourself, the pain it's made by the brain.

I mean, it is made by the brain, but say, for example, you're sitting on the couch and your ankle is twisted and so you can't walk. But a tiger comes into the room, you're going to get up off the couch and run away, and you probably won't feel any pain until you stop running again. That's like the brain has turned that pain off momentarily so that you can save yourself, so it's a defense mechanism.

Then once you stop, then you're like, "Oh, I have to stop because my ankle is broken."

[laughter]

Bridget: Anyway, it's just that whole mind-body connection, I think, is most people are not quite ready to believe that yet. Part of Green Bee Botanical's education and mission is to help people heal themselves in addition to a little help from plants, but a big part of that is self-care and listening to the body and try not to overextend yourself. All that wellness and self-care stuff is more our whole ethos. It's not just about skincare, it's about healing yourself and listening to your body.

Matthew: Well, Bridget, thanks for coming on the show. We really appreciate it, and good luck with everything you have going on. For retailers out there listening or for people that would like to try Green Bee products, how can they find out more about your brand?

Bridget: You can always email me on bridget@greenbeebotanicals.com. For right now, you have to be in the California market to purchase us at licensed cannabis dispensaries in California. We are actually in talks with a woman-owned business in the Midwest about expanding into her State. We're always looking for other States to partner with. If anyone out there is in another State with a manufacturing license, and then in addition, we'll be launching our hemp line really soon, and that will be available everywhere.

We're always committed to test every batch. Even when our products are available in stores across America, they'll come with a C of A, so you can see for sure that there's no pesticides or lead in them.

Matthew: Okay. Good luck with everything, Bridget, and keep us updated.

[music]

Bridget: Thanks, Matt. I appreciate it.

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

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

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

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[00:40:51] [END OF AUDIO]

Ep 319 – Cannabis CEO Says Sleep Aids Are the Next Big Thing

peter barsoom 1906

Can you mix together compounds like caffeine and THC to create a thriving new market category? Here to help us answer that question is Peter Barsoom of 1906.

Learn more at https://1906newhighs.com 

Key Takeaways:

[00:48] An inside look at 1906 and its mission to redefine the edibles category with better-tasting, more effective products

[1:28] Peter’s background and how he came to start 1906

[3:19] How cannabis use changed after the Pure Food and Drugs Act of 1906

[4:12] 1906’s unique “drops” and how they’re formulated to meet different needs

[6:29] 1906 versus other wellness experience brands like LucidMood and Dosist

[11:15] Why Midnight Dark Chocolate for Sleep is the number one product at 1906

Editors note: See our top pick for the best CBN oil for sleep

[13:29] How the products at 1906 provide a quicker onset than competing edibles

[16:48] 1906’s plans to create an extended-release formula of Midnight to help consumers not only fall asleep but stay asleep

[20:55] Where Peter sees the cannabis wellness experience category heading in the next 3-5 years

[24:28] Peter’s plans to expand 1906 beyond Colorado and Oklahoma

[25:57] Where 1906 currently is in the capital-raising process

Click Here to Read Full Transcript

[music]

Matthew Kind: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now, here's your program. Can you mix together compounds like caffeine and THC to create a new market category that consumers will want to adopt? Here to help us answer that question is Peter Barsoom of 1906. Peter, welcome to CannaInsider.

Peter Barsoom: Thank you, Matt. A pleasure to be with you today.

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

Peter: I'm in New York. I'm in SoHo in Manhattan.

Matthew: Okay. What is 1906 on a high level?

Peter: 1906 is one of the leading cannabis edibles company. It's the company that I co-founded back in 2015. Our name comes from the year that the Wiley Act was passed, which effectively started the prohibition of cannabis. Our mission is to bring cannabis back to its pre-prohibition status as a mainstream substance that was used in medicine and by individuals, and also to highlight the failed century of the war on drugs.

Matthew: Okay. Can you share a bit about your background and journey and how you got into the cannabis space and started 1906?

Peter: Yes, absolutely. I had a 20-year career in finance here in New York where I was in a number of leading roles at institutions like American Express, Merrill Lynch, Morgan Stanley, and their parent company, the New York Stock Exchange. I left the industry to found Nuka in 2015 because while working in the financial industry, I felt a yearning for a greater human connection and a personal purpose, and a strong pull to help others live a better life.

When I quit and then started to look at potential entrepreneurial opportunities, cannabis at the time had just been legalized by Washington and Colorado. As I started to dig into the history of the plant, I grew obsessed with its beneficial powers and felt certain that building a business around cannabis was my calling. We started on the belief that cannabis is one of the most versatile plant medicines that's known to man and really could play a big role as a potential alternative to alcohol or pharmaceuticals for people as they look to manage the demands of daily life.

In order to discover the plant's true potential as a daily tool for self-care, we'd have to transform much of the way people were experiencing it, and so that's what led me to the mission which is on a mission to revolutionize self-care, utilizing cannabis and other plant medicines in a very functional way.

Matthew: You mentioned you've got the name from prohibition 1906. How are people using cannabis pre-prohibition?

Peter: Pre-prohibition, you could walk into an apothecary and you would find cannabis compounds and cannabis mixed with other plant medicines. It was part of the arsenal of medical professionals back at the time. We can go back to 1906 or we can go back to hundreds of years even before that where cannabis has been one of the most widely used plant medicines. If you look at the history of how it's been used, people have used it for pain, for anxiety, for sex, for energy, so truly, we've had a relationship with cannabis probably since the beginning of human history.

Matthew: Now, you have six categories of tablets you call drops. What do the six different drops do for you?

Peter: Yes. One of the things, Matt, that we looked at as creating the brand 1906 is around understanding what people's needs are in creating products to meet those needs. In other words, it's not about getting high, it's about feeling a particular way. Relief from pain, help with anxiety, getting a good night's sleep, and so we looked at the major use cases that people use cannabis for, and we created a set of products that meet that specific need by utilizing specific cannabinoid ratios, but also by utilizing other plant medicines in order to give that effect.

For instance, we have Midnight which is for sleep, Genius which is for cognitive focus, Love which is for sex and arousal, Bliss which is for mental well-being and happiness, Chill for anxiety and relaxation, and Go which is for energy.

Matthew: When I take something, let's say Bliss, how much does this actually elicit that experience of Bliss, like how much does that get drawn out?

Peter: If you look at the testimonials and the following that we have, so if you take a look at Bliss, for instance, Bliss uses a plant from South Africa called sceletium tortuosum, also known as Kanna. That has a serotonin-boosting aspect to it. Similar to how SSRIs which are widely used as antidepressants give you that overall feeling of happiness because it floods your system with serotonin, sceletium works the same way but in a more natural fashion. We've had thousands of people tell us that they either use it in addition to or in replace of other medications that they've been using as antidepressants.

Matthew: We've had the founders of Lucid Mood and the dosist pen on the show, and they create products also that dial in the mood. This genre is becoming really popular. How would you compare and contrast what you're doing with, let's say, like Lucid Mood or dosist?

Peter: I love what Lucid Mood and dosist are doing because it's a recognition that what consumers and patients are looking for are specific states. I want to feel a particular way, I don't want to just feel a generic high. I would say two big differences between us and Lucid Mood and dosist, one is the category. They've been focused on smokables, whereas we focused on non-smokeables, edibles, and ingestibles because we believe that's especially in light of the vaping crisis and COVID which is a respiratory disease, I don't think we need to negatively impact our lungs anymore.

The second way in which we're different from them is that we utilize other plant medicines in order to deliver the effect. Lucid Mood and dosist focus on the terpene profile. The fact is that the science behind cannabinoids and terpenes is really, really premature to be able to tell us that this combination of terpenes will give you energy. We have some good guesses, but there really is very little science.

We're a science-driven company, and we utilize all of the clinical research on other plant medicines and on supplements that have been done across the world in order to deliver a specific effect. As an example, our Go product is a combination of four stimulants that have been well researched across the globe that would give you a clean boost of energy starting with caffeine, which is one of the best central nervous stimulants, and then we pair that with other plant medicines, L-theanine, theobromine, and alpinia galanga, and all those have been well studied, so we can deliver a very specific experience that is around giving you a boost of energy based upon real science.

Matthew: When you take Go, what kind of activities do you typically like to associate with that to give people a sense of real-world combination?

Peter: Think of it as a replacement for a Monster Energy or a Red Bull, or a 5-hour energy drink, except that first, you don't have all the sugar that's typically associated with those energy drinks. What we've done there is caffeine is the best central nervous stimulant that we have. It is the most popular drug globally, but caffeine also has some negative side effects for it, and so we've paired three other plant medicines with caffeine in order to mitigate those side effects.

One, for instance, is the jitteriness that sometimes you get with caffeine. When paired with L-theanine in a specific ratio, that eliminates that jitteriness. The second issue with caffeine is the crash. You get this boost, but an hour, two hours later, all of a sudden, you feel totally depleted and you're crashing. We utilize alpinia galanga which is a plant that works on your adenosine receptors to keep the caffeine in your system longer so you don't experience that same crash and you have a longer duration of energy.

The third side effect of caffeine is accelerated heart rate and blood pressure. Theobromine is an amazing natural vessel dilator that lowers your blood pressure and increases blood flow to your brain and body. What does all that do? That gives you a boost of sustained energy so that you feel like you can push your mind and your body further. Then, the low dose of THC and CBD allows you to be in a much more relaxed mental state, although you may be stimulated. For instance, we have a strong following with athletes. We've got numerous testimonials from people who will say things like, "I just ran a 6K in 5k time and I feel as great as ever," for instance.

Matthew: Which of the products is the most popular?

Peter: Midnight is the most popular. That is the number one selling sleep aid in Colorado, and it's our number one selling product. The lack of sleep, Matt, it's of major epidemic proportions. 70% of Americans today say that they haven't had at least one night of difficulty sleeping in their most recent history. We also know that the lack of sleep is one of the biggest contributors to poor health outcomes.

If there's one thing you could do to improve health outcomes, it's to give people an extra hour of sleep. That's the situation that most of America is in, that we don't get enough good quality sleep. Then, secondly, many of the products that are out there to help us sleep either don't work or have a lot of negative side effects, whether that be Ambien, melatonin, or chamomile tea.

People are looking for something to help them get that high quality, easy, restful night of sleep and wake up feeling fresh. That's what Midnight does so well, is it gets you to sleep fast in under 20 minutes, it promotes a healthful architecture of sleep, so you actually get REM sleep and all the different stages of sleep, and you wake up feeling really refreshed and able to get on with your day.

Matthew: Do people take it typically like an hour before they go to sleep or what's the time frame?

Peter: Typically 20 to 30 minutes. We always tell people get ready for bed, this is fast-acting, because if you have trouble sleeping, you don't want to wait an hour to fall asleep. It's like I either have chronic insomnia or acute insomnia or whatever it might be. When you want to sleep, you want to sleep now. We've engineered Midnight to deliver on that. Typically, like I said, it's within 20 minutes that you are fast asleep in a beautiful, dreamy place.

Matthew: That's great. That's pretty fast onset. Can you talk a little bit about how you look at onset and how you make that happen quickly?

Peter: When we started the company, Matt, we set about a number of non-negotiables as we looked at particularly the edibles market back in 2015. It's still largely true today. We saw three major problems with the edibles. One is that you have no idea how it's going to make you feel. At best, these products are labeled indica-sativa hybrid, which most of us know those distinctions are not very meaningful or helpful.

Second is that it takes way too much time to feel the effects. I'm a New Yorker. I believe impatience is a virtue, and we shouldn't have to wait 60-90 minutes for anything to kick in. Third is the poor quality ingredients and bad taste that's associated with many edibles, high fructose corn syrup, lots of sugar, or just things that taste bad. 1906, foundationally, is all of our products have to satisfy all three of those demands.

It has to give you a specific effect, it has to be fast-acting, and it has to be as good tasting and as healthy as possible. The fast-acting areas is one of the areas that we have really innovated since our launch. There were no fast-acting edibles on the market back in 2015. I would venture to say that there are still, unfortunately, very few fast-acting edibles on the market today. We have a patented lipid micro-encapsulation process that we utilize in order to allow you to feel the effects in under 20 minutes.

The way that works is it joins the cannabinoids with a medium-chain fatty acid. I think of the medium-chain fatty acid as like a bullet train with the THC and CBD as passengers. When you ingest, it allows it to go through your intestinal system much faster. You get a faster effect and you get higher bioavailability. Our five milligrams typically feels like a seven or eight milligram because it bypasses the gut, gets into your bloodstream and into your brain faster than any other edible in the world.

Matthew: That makes sense, which our liver recognizes that medium-chain triglyceride oil. It allows it to go through. It's like a Trojan horse that lets the cannabinoids in.

Peter: Exactly. It even bypasses much of the liver. It just goes through the intestinal wall. That's part of the problem with other edibles, is that it doesn't get into your bloodstream until it gets processed by the liver. This allows you to bypass the liver, permeate the intestinal wall, like you said, I love the Trojan horse analogy, and you start to feel it quickly.

Matthew: You mentioned that the most popular product is the sleep product and it helps you get to sleep 20, 30 minutes before you want to. You take a tablet. What about staying asleep? I know that's a stubborn problem for a lot of people. What can you tell us there? Is there anything, any hope?

Peter: Yes, that's a really good observation, Matt. There are generally two types of people. There are people who have trouble falling asleep and there are people who have trouble staying asleep. There are some people who have trouble with both. Midnight is superb at solving the first problem of getting you to sleep quickly. We are in development right now with an extended-release version of Midnight that would kick in a few hours after you fall asleep to help you sustain your sleep.

What's amazing is that there are very few products, pharmaceutical, definitely none in cannabis, supplements that actually specifically address this problem of helping you stay asleep through the night. We expect to launch that product in the coming months. We're currently in a trial right now getting feedback from consumers. As soon as we get through that trial period, we'll be launching that market. We think there will be millions of consumers around the US and around the globe who are clamoring for help staying asleep.

Matthew: Gosh, this market is really just by itself, just the sleep market, is going to be enormous. It probably already is. Do you know of any customers that use something like an Oura Ring or any kind of quantified self-technology in conjunction with the sleep product to optimize their sleep?

Peter: We were about to launch a sleep study that would actually be using a Fitbit that would be measuring sleep onset, sleep duration, sleep architecture, and how you feel when you wake up in the morning. This was a blind clinical study that would have recruited participants in Colorado to take Midnight. Their Fitbit was connected to servers that would automatically upload data on sleep performance. Every day, they'd be filling out a questionnaire to see how well they slept for more subjective measures.

We hired one of the leading pharmacologists in the world to design the study, a doctor by the name of Dr. Ethan Russo, ready to go out with the study. Part of what you need to do in any clinical study is go through what's an Institutional Review Board, an IRB. Because of the federal prohibition on cannabis and on the challenges of cannabis research, the IRB didn't approve us to go forward with our study. That's really unfortunate.

We're still fighting it because we believe that's the wrong approach and that we have to open this market up to research. What we have gotten is more anecdotal evidence from folks who will send us their Fitbit or send us their Oura Ring reports that show, in fact, that they're getting more sleep and they're getting higher quality, more efficient sleep on Midnight.

That's our theory. Like I said, we've gotten a lot of anecdotal data, and as soon as we can get an IRB approval, we'll be one of the first companies to do serious clinical research using a widely available cannabis product like Midnight in a scientific way.

Matthew: Where do you think this market is all headed in 3 to 5 years in terms of using cannabis and other natural products to get this specific emotion or outcome dialed in at a predictable way?

Peter: This is what people want. What they really want are low-dose cannabis products that are not damaging to your lungs and that meet the specific needs of what we have. If COVID has shown us anything, it's that, one, there is an incredible amount of increased anxiety in today's world. We've seen that in prescription drugs going up for antidepressants, antianxiety meds, sleep meds.

It's through the charts how much more prescriptions we've seen in the last couple of months due to COVID. People want something to help them manage daily life better. Cannabis could be part of that toolkit, but we have to continue to innovate as an industry to create better and better products for people that deliver on that. The direction is going to be in more microdose, low-dose products that help do that.

Especially as we have more seniors, more women, and others coming into this market, they're not looking to get blasted, they're not looking to get really high or get out of control. They're looking for just a little bit of help.

Matthew: What's the suggested retail price for the drops?

Peter: It's about $25, and that gets you 20 nights worth of sleep. For a little more than a dollar a day, you can have a great night's sleep.

Matthew: You've got a good distribution system set up it seems in a few states at least. What's it been like to having started a new brand and then get distribution? Is that difficult, or can you share a little bit about your journey there and how you made that happen?

Peter: It's been a very humbling, great story. We launched in Oklahoma on September 1st. This is our first new market outside of Colorado. We have a partnership with an amazing company, Stash House Distribution, and 24K Labs in Oklahoma as local operators. They've got a 10-person sales team with a wide distribution across the state. In literally just the last two weeks, we've gotten into 75 dispensaries so far.

We've had a massive uptake from consumers because this is what they're looking for. We've really been very fortunate at how Oklahomans have embraced 1906 in the last couple of weeks. Part of it is having a really good distribution partner. The stars aligned for us and I would say for Oklahoma patients that they now have access to one of the best cannabis products in the market.

Matthew: You're in Colorado and Oklahoma. Any other expansion plans?

Peter: Massachusetts, Maryland are up next, and we'll be continuing to expand it into other markets. Our strategy, unlike many other cannabis brands, is to focus eastward from where we are. A lot of brands are pushing into California or are already in California or started in California. Our focus has been on East Coast markets where our stated goal is to be the number one brand east of the Mississippi.

Matthew: Population density, that's where all the people are.

Peter: Population density and also the lack of available products. If you are in California, you not only have great legal products, but as you know, there is still a lot of illicit usage there. There are some great products. It may not be tested as well, but people feel like they're getting their needs met in the illicit market. In the Northeast, it's a bit of a different situation because we haven't had a legacy of dispensaries or easy accessibility to a lot of products there. I think we can be more successful on the East Coast, and I think there is frankly more demand for the legal market to provide great products here.

Matthew: Where are you in the capital-raising process? Did you raise capital or can you tell us more details there?

Peter: In October last year, we closed on an $18-million round of financing. We've been very fortunate to have an amazing group of investors from institutional investors, family offices, high net worth individuals that have supported 1906 over the years. This is a capital intensive business and we're constantly raising money. We're currently raising another round. We're about halfway through that round of financing right now and it's been very well received by investors. Our hope is that we close that round around the end of September or so.

Matthew: Are most investors in the Tri-state area there?

Peter: I'd say a disproportionate amount is in the Tri-state area. That probably reflects the fact that our focus is eastward reflects my personal networks having been in New York for my adult life, and then, frankly, there's a lot of capital here in the Tri-state area.

Matthew: [inaudible 00:27:15]. Peter, I'd like to ask a few personal development questions to help listeners get a better sense of who you are as a person. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Peter: I recently read a book on the Netflix from-- I don't read many business books, maybe one to two a year, but I came across a Netflix book on culture which really impacted the way I think about things. The gist of the Netflix book on culture was about how to create a culture where people can take risks, that people are performing at their best, and unleashing that inherent talent that you have in your employees. That's helped me evolve my thinking about our culture and our employees in a big way.

Matthew: Besides what you're doing with your brand, what do you think the most interesting thing going on in the cannabis ecosystem is?

Peter: One of the most interesting things is the increased focus on social justice. The protests of the summer and the Black Lives Matter Movement have hopefully continued to raise our awareness about institutional racism, one, and, secondly, how much the drug war was tied into institutional racism as well, that it really was a war not on drugs, it was a war on people, and particularly Brown and Black people and communities of color.

The amount of money and resources that have been wasted on prohibition around this plant and the number of lives that have been destroyed by that unjust war on racism, we still have a long way to go. Unfortunately, recently, as you may have heard, Florida, and this is unbelievable that we're in this area, but the Florida voters overwhelmingly voted a few years ago to allow felons to vote. Florida has one of the worst histories of felony disenfranchisement.

If you're a felon and even if you served your sentence, you are deprived of the right to vote. A couple of years ago, Florida voters voted overwhelmingly to reinstate that. The Republican-led legislature and the governor decided to require that if you want to vote, you have to satisfy all of your back fines and everything else before you actually can get the right to vote. That is another form of poll tax, unfortunately.

The courts did not agree with that interpretation and allowed the Florida legislature's actions to stand. Today, we have 800,000 plus felons who are out of jail, who have satisfied and fulfilled their sentence, but they still can't vote today. Two-thirds of that 800,000 are people of color. In order to continue to get change, we as a community, as voters of people, as society have to stand up and say, "This is wrong."

Matt: Final question. Many are calling for the end of New York City. You mentioned you live in SoHo which is a fun, cool neighborhood. What are your thoughts? Is it going to bounce back? If so, when? How will it look when it does bounce back or if it doesn't? What are your thoughts there?

Peter: How many people have called the demise of New York? Whether it be the end of the great depression or whether it be after 9/11, people have been calling the end of New York since probably the beginning of New York. There is a strong human need that we have for connection, for community, and for diversity. That's what keeps New York alive. New York will change. SoHo artists left SoHo years ago. Maybe this moment in New York will help to do a reset and will bring in artists back and new blood back.

Maybe we need to see rents decreased a little bit to make New York City affordable. I'm a diehard lover of New York. New York will emerge hopefully stronger and better. I was out last night. We've got outdoor dining, so there's no indoor dining allowed in New York. We have outdoor dining. It was a beautiful evening and it felt like I was in a wonderful European city with people sitting outside and having a nice meal. Car traffic wasn't around.

We have a moment in our life right now, and who knows if we'll ever get this moment again in our lifetimes, to ask ourselves, those of us who live in an urban environment, how do we want life to be here in our urban jungle and consciously create that vision?

Matt: Do you feel like your boots on the grounds sense is that the leaders are responding? Are they responding and adapting to try to make this a successful effort or did it seem a little bit behind?

Peter: As with most politicians, they're a little bit behind. It's the power of people and the power of voting and the power of our voices, that's what's going to bring about change.

Matt: Peter, thanks so much for coming on the show and educating us. This is a really interesting thing you're doing here with your 1906 brand. Tell listeners how they can find the brand. Also, for accredited investors that are interested in learning more about investing, how can they do that?

Peter: Thank you, Matt, for the opportunity to share this with your listeners. I encourage you all, you can follow our brand on Instagram. It's at 1906 New Highs, N-E-W H-I-G-H-S. Our website is 1906newhighs.com. If you're interested in learning more and participating on this journey with us and joining our investor team, feel free to email me directly, or if any of our listeners want to email me directly, I'm peter@1906newhighs.com.

Matt: Peter, thanks so much for coming on the show. We really appreciate it. Keep us updated on everything you have going on.

Peter: Thank you, Matt. It's really been a pleasure and an honor to be a part of your show. I'd love to be on again in the future. If there's anything that I can be of help, please let me know.

Matt: 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 here. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider?

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

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

Ep 318 – How To Advertise Your Cannabis Brand Legally

chad bronstein fyllo

Advertising cannabis is banned in most of the US, so how can a cannabis company get the word out? Here to help us find solutions to this problem is Chad Bronstein of Fyllo.

Learn more at https://hellofyllo.com 

Key Takeaways:

[00:56] An inside look at Fyllo, the world’s first single-solution regulatory technology for cannabis

[2:25] Chad’s background and how he came to start Fyllo

[3:53] How Fyllo’s data ecosystem helps cannabis companies streamline regulatory tasks and target customers legally

[9:51] What different cannabis companies can expect when using Fyllo

[13:07] Success stories Chad has seen so far and how clients are using Fyllo to advance their companies

[15:04] Chad’s advice on how to determine a good marketing budget for your brand

[16:34] How Fyllo provides direct access to cannabis audience data through the Lotame, the world’s largest marketplace for second- and third-party data

[19:35] Requirements companies must meet before working with Fyllo, including becoming CCPA compliant

[20:25] Chad’s tips on how to build a dynamite marketing team for up-and-coming cannabis brands

[23:55] Where Chad sees customer acquisition and brand awareness evolving in cannabis over the next 3-5 years

Click Here to Read Full Transcript

[background music]

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

Advertising your cannabis company is banned in most of the US, so how in the world does a cannabis company get the word out? Word-of-mouth is great but can be slow. Here to help us find solutions to problems like this is Chad Bronstein of Fyllo. Chad, welcome to CannaInsider.

Chad: Thank you, Matt, for having me. I'm really excited to be on CannaInsider with you.

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

Chad: Today, I'm out in Oak Brook, Illinois, where I reside, so my new home office.

Matthew: Cool.

Chad: Chicago. Yes.

Matthew: Cool. What is Fyllo besides a thin, Greek dough? Can you tell us what Fyllo is at a high level?

Chad: Yes, I'll tell you a backstory if you don't mind.

Matthew: Sure.

Chad: When I started this company, I brought together a lot of people that I wanted to start the company with and one of our co-founders, his name is Aristotle. He's a Greek guy, obviously, you can get by Aristotle, the name. We were at an off-site when we first started just thinking of names. Fyllo, people think of it as a dough but it actually means friend, family and has a core-root of leaf. We figured it, incorporated everything we want to be which is working with people that we really like to work with, as well as starting off from cannabis, so that's how Fyllo came about.

Matthew: Okay. What is it that Fyllo does? Can you just give us your quick elevator pitch? When you meet somebody, what do you tell them?

Chad: Yes, so Fyllo has a couple of different audiences but what I say is Fyllo, its core is around compliance that evolves into other areas which is advertising. We work with both brands, agencies. Then, on the other side, we work with law firms, as well as GCs and compliance departments, and companies that either use us for our understanding of hyper-regulatory law or if you're a brand, really putting together the right strategy. Like you said in the beginning, word-of-mouth is great but how do you put together a strategy that advertises to the masses and that's what Fyllo does.

Matthew: Yes, those are some sticky problems here and we'll get into more of what Fyllo does but give us a little sense of your background and journey, and how you came to start Fyllo with Aristotle.

Chad: Yes, I founded Fyllo a year and four months ago. Prior to that, I was the CRO of a company called Amobee which is in the marketing technology. I was there for about eight years, started from the ground up and we had a lot of fun, built it to a very sizeable company. I was just at a crossroads at the time as, "Do I want to go be an entrepreneur again or continue in the corporate environment?"

I saw cannabis being a huge opportunity so I started thinking of that idea probably in 2019 and around, call it January timeframe, and then started putting together the actual story and the vision, and went out to Aristotle, Erik Shani, and some other people and said, "Hey, I'm going to start this company and cannabis would love for you to be a part of it." They jumped on blindfolded and we went full-blow at it. Now, here we are at this point a year and a half later, we've got 75 employees and we have a technology, like I said, that encompasses a lot of things, but my backstory really is in brand and marketing before I jumped into this over the past 15 years.

Matthew: Let's get into a specific example here. Let's say I'm a cannabis retailer or a cannabis brand and as we were mentioning before, I wanted to get the word out, word-of-mouth is slow, I know I've got a great product. If you were sitting down with me, having a cup of coffee, say, "Okay, here's what you need to do. Here's how Fyllo can help."

Chad: Yes, but first, you really want to understand the cannabis retailer. Obviously, their footprint in terms of, if you have this 10-mile radius, but let's just say with multiple other stores in different states, just really understand the brand equity and like who knows about them and what the audience thinks of them, right? Then we would really go from there, our team would put together a strategy based off of their footprint and what footprint they're trying to accomplish in terms of scale and we build a very targeted strategy within that 10-mile radius of who their consumers are.

How do we reach those consumers? We can reach them not just in-- Back a year ago, billboards were the only way you can really reach a cannabis consumer. I think that's how most people use it. You go to California, you saw a billboard every two steps you walked. In this scenario, we're really putting together a hyper-targeted strategy to drive consumers into the store but using more of a digital side of it versus a billboard-approach that was cannabis a year ago. Does that make sense?

Matthew: Yes, it makes sense. What do the specifics look like, then? We have that 10-mile radius, it's more than billboards, it's digitals. What else is it like? How does it actually manifest?

Chad: Really, when you're a brand and you have an audience, and obviously, we know that your audience is 21 and up if it's a THC audience. Is it a [unintelligible [00:05:35] audience you're trying to target? Is it the medical audience? What we've done over the past year is, really, we've developed a data ecosystem and that's something you've probably seen lately that we're obviously pushing it quite a bit out nationally, but we've developed a data ecosystem. If you are called Aristotle, which you brought up earlier, you're an entrepreneur, you're doing all these things and you are in the same radius every day because of the Coronavirus.

Now, you're working from home, you're going to the local grassroots dispensary, but what's really important is we've created a data ecosystem that's not just targeting cannabis brands, but really focused on the mainstream brands as well, because if you're a mainstream brand, let's call it McDonald's, and you know that Aristotle smoked weed or bought weed at a local grassroots dispensary. If you dayparted Aristotle, there's a good shot that you could actually target Aristotle with what is in market for a Big Mac, let's call it.

There's a lot of different ways you can use different examples but we're really evolving an industry to target both correlated data from both cannabis and mainstream. Does that make sense?

Matthew: Yes.

Chad: What I'm getting at is if you are a dispensary and you have a target list of customers, we can actually use our data as well to generate new customers into your dispensaries and, like I said before, that's using foot traffic studies, data, and inventory, proper advertising inventory sources, which we all have quite a bit of background in, to really bring that whole marketing plan together to drive that return on ad spend that they're looking for which is sales.

Matthew: How do you measure that sale? Is there a conversion marker of some kind? How does that work?

Chad: There's plenty of different methods. It just depends on what system the dispenser is using to actually track it. The good news is it's even easier to track in this day and age because most people go online now and do pre-orders before they actually go to the store, right? For us, it's very easy to track and I think, before Coronavirus happened, everyone was obviously trying to understand how would it impact cannabis but we are fortunate in a sense that it has impacted cannabis across the board in a positive way, which is obviously not for a lot of other vertical [unintelligible [00:08:09] extremely upsetting. From the cannabis perspective, it has helped the vertical across the board.

Matthew: Gosh, this is crazy. You can't really advertise on Facebook, I don't think, or YouTube, but there are third-party sites. Let's say you go to some website to learn about a strain or something like that, and the next thing you know, you see an ad for a local dispensary that just happens to be a couple of miles away from you. That's allowable, right? That's not forbidden [unintelligible [00:08:42].

Chad: Right. Actually, not to name names because, obviously, people get upset but in the sense of publishers, all of your mainstream publishers are getting more. Part of what we set out to do, if you look at my team, I brought on Nicole Cosby who was the head of Publicis for Precision which was working with all Fortune 100 brands on establishing partnerships and standards for billions of dollars worth of advertising.

Then, Jessica Kerwin is on her team, ran the publisher business at Publicis as well, and what we wanted to do when we set off to do this, which is really important from our backstory, was to really go and create more credibility and make it more mainstream and get people to understand the value of a cannabis consumer, and I think we've done that very successfully. We've gotten a lot of mainstream publications to actually accept THC, as well as CBD advertising prior the year, your typical places would be where you would guess which is cannabis inventory, so like a site that's focused on cannabis only and hasn't have any mainstream population. Does that make sense?

Matthew: Yes, yes. Now, what if I'm listening right now and I'm a dabbing brand and I want to get the word out about my brand of oils or shatter wax, whatever it might be, and how would I do that? How can I create an audience that's just of dabbers of let's say 25 to 35-year-old males, is there a way to do that?

Chad: There is a way to do that. It's a great question. Back to what I was referring to earlier, is we developed the data ecosystem, partnering with a lot of the POS e-com retail loyalty providers, where we actually have data, whether you're a dabber, edible, flower, Sativa, Indica, we have a lot of different segmentations that we can build.

What we would do is we'd start building an audience based off of what we think, what our audience, what our data's telling us what dabbers do as well as how do we accentuate that model look like audiences that are also dabbers. We build a whole segmentation around the dabbing audience to target dabbers. Does that make sense? You have a lot of data from that standpoint, so you start off with infused segment around dabbing and then you accentuate it with more scale and infuse it and enrich it so you have a much larger dabbing audience.

Matthew: That makes sense. I would think then when prohibition ends nationally, there'll be a ton of expanded opportunities and probably room for national brands more. We have brands that go state by state and license their name and so forth, but do you see that as really when you can use advertising to create kind of like a Coca Cola of a cannabis brand? Is that kind of the ignition for takeoff then?

Chad: I think it depends, like from the data perspective, we think we have initiative to take off because brands can advertise targeting cannabis consumers. They do not have to raise their hand and say, hey, I'm going to run a creative campaign with a person smoking a blunt on a piece of creative. They can run a campaign for a mainstream brand, knowing that-- I think what Fyllo has set out to do is really to make sure that people understand cannabis audiences are also your normal audience of your consumers.

What we're showing is different behaviors that you may not be thinking about and abilities to target a consumer based off of some of the data that we have around a cannabis consumer. Like I said, if I go to the local dispensary, Chad Bronstein and I have a lot of different data that would say I'm maybe not a smoker, there's just a new data set that you learned about me that you didn't know before.

Our core focus is to reach a consumer in a different mindset than you used to reaching them and procreating scale for not just cannabis brands, but for mainstream brands because of the value of these consumers today, and that there's this so much reach for a brand to target in the cannabis space because technically 98.6% of the US has the ability to buy some sort of cannabis, whether it's CBD or THC.

Matthew: You're looking at a lot of data, you're working with a lot of customers. Is there an example without naming names of one that really gets it, that is getting good results that you could talk about?

Chad: I can't name names, but we work with quite a bit of them in the space, both from cannabis and now having brands actually testing the data, but I, unfortunately, can't name names.

Matthew: Can you tell us anything without naming names about how they're [inaudible [00:13:36]?

Chad: Of course, it's all different use cases. If you're a law firm, you'll be using our platform right now to understand licensing, taxation, zoning, et cetera and you'd be using the platform specifically for that perspective and when we launched our raise there were law firms that publicly gave us permission to use them like a Shepherd Mullins or DLA Piper, which use our platform currently. From the other standpoint, if you are a brand, call it a cannabis company, there's a couple of different aspects you can use this from.

If you're a CBD brand, you'd want to be, we've had a lot of success with the brand that we have driven a ton of DTC sales for. Their core focus is driving sales online. They use us to obviously find the proper inventory matched with the proper data, which is in our ecosystem. We've had a successful relationship with this brand for seven months and have been able to drive them incremental growth month over month.

Then we have your dispensaries that are in Michigan or Ohio or Illinois, California, that their core purpose and goal is to drive more sales and incremental sales month over month and like we talked about earlier in this podcast is really focused on that hyper-local strategy and finding the right consumer that's going to purchase, and so driving them down the funnel and driving incremental sales lifts. Suspensory is our core focus for those brands.

Matthew: A lot of brands and retailers, they raise money to start their business and when they're breaking down their budgets, they have a marketing budget. How much should a dispensary or a brand allocate for this type of thing, if that's reasonable? I think a lot of, to say individual cannabis retailers spend, let's say between three and seven K a month on just Leafly alone, to get foot traffic in the door, what should they be allocating for something about like working with Fyllo, just so they can get an idea.

Chad: It's a sliding scale and it depends on the size of the brand. If you look at [unintelligible [00:15:49] and where they're headed to the size of them, they need to be looking at it more like you mentioned earlier is like what it like MillerCoors or a Anheuser Busch spend at full scale of building their sizable brands that they've built. They should be more looking at the future for that for them, but for a local dispensary, it's a sliding scale.

It depends on the size and the sales before I'd give them a recommendation because we've learned very quickly in this space that each group is an anomaly and they have their own different strategies. It'd be hard for me to give an exact amount just because we've learned so quickly that everyone's so much so different in this space compared to my old background.

Matthew: Talk a little bit about Lotame solutions, and is that what you were talking about before with the direct to consumer CBD brands?

Chad: Yes, we announced a partnership with both Lotame and IOTA, where we syndicated a lot of our audiences to multiple different platforms. What that means for us now is that if you're a major demand DSP, we call it, which I come from an MOB and you want to go buy a CBD segment or a THC segment from Fyllo, you can plug into quite a bit of the multitude of different platforms and you would see Fyllo's data available, and then you can purchase that data in real-time.

I want to target Matt, obviously PI limitation is scrubbed with partnerships, so call it one, two, three, because I know he's a consumer of this brand and also he would be a consumer of call it a QSR brand. They would buy that data in their platform and target that data within their advertising campaigns. Does that make sense? Lotame and IOTA allow us to do that.

Matthew: That makes sense. It sounds like extending an existing profile for a prospect to a larger geography or something, a larger digital geography perhaps, is that right?

Chad: It's basically extending it to everybody in the mainstream landscape that buys data on behalf of brands, Fyllo has now made their data accessible to the mainstream marketplace at scale.

Matthew: This is really kind of opaque for people outside of this industry to understand all that's going on. There's all these invisible marketing efforts going on and math and conversions and databases and it makes sense once you have someone explain it to you but it doesn't necessarily make sense before that. It's interesting to hear how this invisible world kind of works and what can be done and how it's measured and so forth.

Chad: I'd say for us, we brought in the right people for the past year and a half and you can imagine we've had quite a bit of challenges but we've executed, I think, seamlessly in this specific area because we knew what we were walking into and like you said, it takes a lot of coming from our backgrounds to really understand how to set this kind of business up, and also educate the marketplace both from the cannabis perspective and the mainstream.

You're educating two different people, you're educating like we said, the cannabis vertical, but also the mainstream vertical on this data and it takes a lot of work. I would agree it's, once you walk through it, it's pretty easy to understand, but at first, you may not understand all the behind the scenes work that we've been doing over the past year and a half.

Matthew: Are there any cannabis companies that you won't work with or any ads that aren't allowed at all?

Chad: Everyone that we work with has to be CCPA compliant, meaning they have to define there's specific privacy policies that you have to work with. If they follow those guidelines, then we'll work with them from a data perspective. From a brand perspective, we work with all brands that want to market, but we have to make sure that if we take on an opportunity that we know we can succeed on it and just managing those brands expectations, because a lot of times we're educating people on something totally new. We want to make sure that we are properly setting them up for success. If we don't feel like we can do that, then obviously we'd walk away from that opportunity.

Matthew: I think there's a lot of people that have been successful in other business domains that come into cannabis, they raise capital, they get licenses, and so forth, but they may not have the skill set of a marketing team that's as deep as what you're talking about. If you and I were just sitting over coffee and I'm starting a brand or a dispensary, and you were just telling me like, "Look, man, this is who you need on your marketing team." Someone with this kind of skill set that can use tools like Fyllo and understands this and this, what would you tell me, who do I need on my team?

Chad: It's a broad, there's a lot of people you need on your team to build it a full marketing approach, but use us as an example. You have our chief commercial officer, Jeff Ragovin, who comes from a long pedigree of successful marketing businesses. He had an exit with this co-funding Buddy Media and he's very great at commercial strategy and leading revenue operations. He's great from building the team from a sales perspective to market properly.

Then, Nicole Cosby, she's very focused on legal and partnerships and standing up the data business for us and just making sure we're properly, if you're a cannabis company with data, you'll need a legal component to it to make sure you're following all the rules and guidelines. Then you need brand marketers if you're building a marketing team. People that understand how to market brands and get it out there. The brand marketers working with then the next step is people that execute from the plan to the execution. Working with the proper technologies to actually execute your brand strategy.

Depending on the size of the brand, you need a decently sized team, but it just depends, it's give or take who we're talking to in the audience.

Matthew: Okay. What questions do you feel like people have the most for you when you're talking with new prospects, either cannabis brands or retailers, and they're like, "Hey, this sounds like an interesting business, Chad how do I get started? How does this help? How can you help me?" What do they ask you?

Chad: I think a lot of people just, when they first hear about us, they just want to understand, like you asked in the earlier part of this podcast was what can you do for me? What does Fyllo do that's going to really help me get to the next level. We hear that a lot. If you're not dealing with the marketer and you're dealing with call it like a real estate background or a banking background, you have to educate them from one on one to how we can actually build this process for them and alk them through how we do that.

The biggest thing we've seen is a lot of brands aren't set up for what we do, so we have to get them set up for it so then they can start building the process and implementation to do what Fyllo technology does.

A lot of the questions we get is like what inventory do you guys have? Where does your data come from? How do you actually drive sales for me? Like you asked earlier, how do we track it from a compliance perspective? Do you have scale in a specific Michigan area or can you track all applications? There's a lot of questions you get because we're a three-prong technology that does three different things. Your audience skews different, but you get quite a bit of questions for each part of it.

Matthew: Okay. How do you think this is all evolving? The customer acquisition, brand awareness, where do you see it going in the next three to five years? How's it going to evolve and change?

Chad: I think that as the market continues to evolve and more people come into play, there's going to be a lot of consolidation and there's going to be players that really understand how to help these brands scale. I think for Fyllo, what's really important is we don't just look at it from a cannabis perspective, we are really heavily focused on bringing mainstream brands into targeting cannabis audiences.

I just think that evolution is going to be fun to watch over the next three to five years, but there's going to be a lot of opportunity to scale with you're going to see a lot of bigger brands continue to grow and the vertical as it gets, like you said, call it federally legalize more so and becoming more open to cannabis as a vertical holistically. I think it's just going to scale tenfold. I think there's a lot of opportunity over the next three to five years and we're seeing the market kind of show that with the recent upticks for the cannabis stock market.

Matthew: Okay. Now we've really focused mostly on advertising, but in marketing, can you just talk a little bit more about the regulatory side of things too for listeners that are interested in that?

Chad: Yes. We purchased a company called Canada Rags about six months ago. We actually recently just built out the version two of the technology. From a regulatory standpoint, I would say that call it 90% of the space uses our platform. It's used mostly from legal and from compliance teams, GCs and law firms, like I mentioned earlier, and each one has a different use case.

If you're an SSO, which we call a single state operator and you really want to understand each local municipality, you'll use our platform to really understand when the meetings are happening, if you should attend that meeting, after the meetings happened, what actually was talked about the meeting, applications that were submitted. You really can understand if you can submit an application or when applications are going to be available to submit for those, taxation.

If you're trying to get a piece of real estate, understanding zoning and regulatory regulations around the real estate. If you're running packaging and labeling, and want to understand the regulatory guidelines on packaging labeling, you would use our platform. Same with advertising limitations that as well as digital creative, you would want to use our platform to make sure you're compliant specifically by that hyper, with that local government.

Most of our regulatory software is used by legal and it's been what we do is we've been able to help a lot of the MSOs and law firms save quite a bit of time with having this aggregated database and our technology that allows them to automate a lot of the work that's being done manually for them within their internal organizations. Does that make sense?

Matthew: Yes, that's the kind of real nitty-gritty stuff that's not sexy, but is super important you know, just foundationally important to get that. You provide that in a kind of easy to digest way that's super valuable.

Chad: Yes. It's been pretty, we've had, we're excited about the new launch of it and it's in October we're launching, so we've built technology on top of that technology, which automates, like I said, packaging labeling. You can upload your packaging and labeling and not your actual digital asset or creative asset. The system will audit it within a second and tell you if it's compliant or not and why it's not compliant. It's doing that both for digital as well as packaging labeling, which we're really excited about and something that as our vision grew as we evolved the technology. Something that you'll see coming soon.

Matthew: Now, you recently finished a big capital raising round. Can you talk about that a little bit?

Chad: Yes. We were lucky enough to close around with some of our current investors, as well as some new investors, but Jason Wilde has been an unbelievable investor for us, let our first round and let our second round with also having other investors like K2, Arcadian, Salvio, Panther, Fido, Fountain, and other funds join us throughout this process.

It was definitely before, we started raising capital right before Coronavirus, literally right before and then Coronavirus hit and definitely stalled out the process because people are just seeing where the market's going ahead and we were lucky enough to great supporters and people that are close to the state close to our business to know the opportunity. They came in for this round. We were able to raise a significant round that's going to help us continue our hyper-growth.

Matthew: Okay, great. How big was that around? That's public, right?

Chad: Yes, it was 10 million.

Matthew: 10 million, great. Okay. Chad, I like to ask some personal development questions to help listeners get a better sense of who you are personally. With that, is there a book that's been particularly meaningful for you in your life that you'd like to share?

Chad: Yes, that's a tough question actually because I've read a lot of books that have been not meaningful to me. I just say really for me, I like to read books that people, even just like Shoe Dog, which is Nike's story. Just really seeing people go through adversity. I like to read a lot of books that more so show me other entrepreneurs and how they became successful and really hearing their true nitty-gritty story. That stuff really gets me excited and teaches me something because I'm learning through trial and error and reading other people's trial and error. I'm a true entrepreneur, that stuff really excites me.

Matthew: Okay. VC, Peter Teal has a famous question, he asks entrepreneurs. It is what do you know to be true that very few people agree with you on?

Chad: What do I know that to be true that very few people agree with me on? You're asking me some tough questions. I don't even know how to answer that one. That's a tough one. Like give me an example.

Matthew: What would you be scared to bring up at a dinner table with people that have diverse backgrounds and different ideas of the way the world works? You say, if I bring this up, this is going to be controversial, but I know that.

Chad: Politics. Easy one, don't bring up politics.

Matthew: You know it's true. Not to bring up politics, but that's not very controversial.

Chad: Yes, that's true. I don't know. It's a tough question. I don't know how to, I really don't. Can you ask me a different one?

Matthew: Well, I'll tell you, I do have a different question for you. Here we go. It's a Chicago question. Which Chicago restaurant are you missing the most since so many restaurants have closed because of COVID-19?

Chad: Another good question. I would say probably because our offices in the West loop and it's going to be a people, foodies, like probably you're going to be like what? Because we go to the same, we go to the same spots over and over again, because it's right by our office but Bavette's.

Matthew: Okay. What kind of food is that? I haven't been there?

Chad: It's all it's like steaks and burgers and stuff like that.

Matthew: Yes. I'm really familiar with the West Loop and not one of my favorite place is actually, favorite coffee shop ever is Sawada Coffee in Green Street.

Chad: Oh wait, ask me a question again because I forgot about Sawada. Sawada is literally lived and breathed Sawada. We went to Sawada every single day. Now that you brought that up, that's been the worst thing for us that shut down.

Matthew: Yes. The military lattes are so good, which is like a latte with matcha powder in them. They're so good. That place is awesome. I'm like I'm bummed. Once a week, I check out on Google maps if they're still closed because I'm just so bummed about it.

Chad: That's hilarious you brought that up. Yes. Sawada that's our favorite spot. Like we literally are friends with the staff and we went every single day, twice a day. That's honestly, that's been the saddest thing for us out of everything. We go to Beatrix now but Sawada was our spot.

Matthew: Yes. I really hope they come back. We'll end there, but Chad, for listeners that want to get ahold of Fyllo and see how they can work together, they're in the cannabis space and they want to know more. How can they reach out and connect with you or with Fyllo at large?

Chad: Yes. They can always go to our site and fill out a specific form for what they need or they can just reach out to me directly at Chad@hellofyllo.com and I would send them down the right path.

Matthew: Great. Well Chad, thanks so much for joining us. We really appreciate it. Good luck with everything you have going on. Great timing with that capital raise. That's very fortuitous for you. We'll be watching and hopefully, come back on in a little bit and tell us how things are progressing.

Chad: Yes, man, this has been great. I really appreciate you having us on and look forward to doing it again with you.

[music]

Chad: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guests to you. Learn more at cannainsider.com/iTunes.

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

Emotional consideration may be provided by select guests, advertisers or companies featured in CannaInsider.

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

[00:35:04] [END OF AUDIO]

Ep 317 – Emjay CEO Reveals A Surprising New Approach To Cannabis Delivery

chris vaughn emjay 1

Cannabis delivery platforms are evolving quickly as they find better ways to retain customers and reduce churn, and Emjay might just have the best approach yet.

Here to tell us more about it is Chris Vaughn, CEO of Emjay.

Learn more at https://heyemjay.com 

Key Takeaways:

[00:51] An inside look at Emjay, a premier cannabis delivery and retail company in Los Angeles, CA

[1:48] Chris’ background in the alcohol industry and how he came to start Emjay

[12:27] Emjay’s hub-and-spoke business model and how the company functions both as a retailer and delivery service

[17:40] How Chris’ experience in the alcohol industry has influenced his approach to cannabis

[23:08] Unplanned versus planned purchases and how this differs between alcohol and cannabis

[26:25] The advantages of owning your own supply chain as a cannabis retailer or delivery service

[38:39] Regulations around the types of vehicles that can be used to deliver cannabis 

[40:12] Where Emjay currently is in the capital-raising process

Click Here to Read Full Transcript

Matthew: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A-insider.com. Now, here's your program. Cannabis delivery platforms are evolving quickly, looking at ways to be more efficient and keeping a keen eye and retaining customers and reducing churn. Here to help us learn more about cannabis delivery is Chris Vaughn, CEO of Emjay. Chris, welcome to CannaInsider.
Chris: Hey, thank you for having me.
Matthew: Give us a sense of geography. Where are you in the world today?
Chris: I'm at my house in Los Angeles.
Matthew: Okay. I'm in Coeur d'Alene, Idaho. Chris, what is Emjay on a high level, and can you spell Emjay just so people get the right visual in their mind?
Chris: Sure. Emjay spelled phonetically, so E-M-J-A-Y, a play on obviously M and J, marijuana, but Emjay at its core is a shopping platform for customers to come and order cannabis and have it safely and reliably delivered to them. We also have today a retail store in the heart of Los Angeles, but we have a handful of others coming online throughout the back half of this year and into early next year. We'll have a sort of in-person as well as e-commerce experience for people who want to come in store and meet one of our team members or if they want to order online and have it brought to them. Today we operate a store on Fairfax in the center of culture in LA and then have delivery that covers most of greater Los Angeles.
Matthew: Chris, can you share a bit about your background and journey and how you got into the cannabis space and started Emjay?
Chris: I'd say for about the past decade or so, I've predominantly been in the alcohol industry. Built a company from scratch called Saucey along with two terrific, co-founders Andrew Zeck and Daniel Leeb. We have been addressing this highly regulated category that really have been untouched by e-commerce or innovation or capital even in 80, 90 years, and have been on that journey for quite some time. I think right when the recreational regulations started to come down or look like they were starting to come down, I started to spend a lot more time focusing on just what did cannabis look like as an industry from a regulatory perspective? What did it look like from a customer perspective? What it looked like from a-- I think just the history of the legal issues in the space and was fascinated by really two or three things.
I started by sitting in on a couple of local community meetings in LA just sitting in the back and listening and one of the things I'd say from a regulatory perspective, that was very interesting is I heard community members and neighborhoods really come to these things and oppose any sort of dispensaries is being rolled out in their neighborhoods. That was a little bit of deja vu for me because we had heard so much about this in alcohol before. There's so many liquor stores throughout the country. There's more liquor stores than there are gas stations or grocery stores in the US. Communities are actively trying to pull back the number of liquor stores in a lot of these neighborhoods. Particularly I'd say lower economic neighborhoods that literally can have a liquor store on every single street corner.
Hearing those meetings for years where people were sort of, "We don't need this many liquor stores or cigarette stores on every single corner," and then all of a sudden here comes cannabis legalization, and obviously there's great consumer demand. People want it to happen legally. Communities want the tax revenue from it, but they didn't want stores to pop up on every single corner of the way that they did in alcohol. That was very fascinating from a delivery perspective and coming from a delivery background to say, "Okay, there's demand. People want this to happen. They want this to happen legally, but they're very nervous about having shops pop up on every corner." I think the second regulatory thing that really intrigued me was that there wasn't going to be a three-tier system like there is in alcohol where you can only be a brand/manufacturer or a distributor or a retailer.
That cannabis in the US was going to operate a little bit more like alcohol does some other countries like Brazil or China, or to a degree parts of Europe where you could be the brand manufacturer and retailer all in one company. I think your supply chain fundamentally changes how you think about the customer experience, it changes your margin capture, everything else. Then around the same time I was talking to some friends that had started investing in the space fairly early and heard the story of one of my friend's grandmothers that had been going through cancer, it was actually a family down in Texas where cannabis wasn't legal and the doctor honestly recommended just, "Hey, if you guys can get cannabis to her, I didn't say it, but you should try and it'll dramatically improve her quality of life."
They did. It was a game-changer for her treatment plan and how she went through that time as a person. Hearing similar stories like that, seeing some of the effects that obviously we have this huge issue in the country with opioid addiction, well as, PTSD in veterans, and started doing some of the research in those categories. The combination of those things, watching how communities were reacting to this, watching how the regulations were going to shape the way that companies could be formed, watching personal stories from friends and friends of friends that had, I'd say, terrific medicinal effects from this plant. Then lastly, the greater impact that it possibly has on medicine or getting people away from reliance on opioids. The combination of those things was fascinating and thought that our background and expertise could possibly create something pretty special in the space.
Matthew: Okay, you have this background in the alcohol industry, highly regulated industry. You're seeing what's happening on the community level. There's too many alcohol shops. You feel like you have an aha or a moment where you feel like you understand this regulated market. It's similar to alcohol, but you're going to go after it a different way than these traditional retailers who are throwing all this money into a retail footprint. Just talk about what you believe your unique angle is there.
Chris: Sure. Emjay was effectively formed in a partnership with a couple different groups. There were some people in the industry, we had friends that were investors who had been investing heavily in the space and a few local operators and all formed Emjay. Myself and Daniel Leeb have effectively been advisors of the company since it was formed and helping get them set up and running. Then in January of this year we stepped into full-time management of running the company and growing it from there. The unique angle that we bring is if you look at the early days of this, the end of prohibition, if you will, and the green rush and all these companies rising up and in many ways taking a very venture-style approach to growth and building businesses, which has raised tons and tons and tons of capital invested all in high growth.
Burn lots of money in the process, but go after market share. That to me seemed very risky in an industry that's regulated and with this limited access to capital markets. You had a lot of companies come out of recreation, raise huge amounts of money, or go public in Canada via these reverse transactions or these RTOs. You had a ton of retail investors pumping money into this space on the stocks. It was just a race. You saw companies just racing to grab licenses, racing to grab leases on places, racing to grab assets anywhere that could, because for a period of time, your valuation was almost propped up by just what licenses you owned. It doesn't even matter if they were operational or not. That was really interesting to me.
Then seeing, when Jeff Sessions came out with his memo and all capital dried up for a period of a few months in the industry, that was very telling that this isn't the same as if you're building a SAS company, or isn't the same as if you're building something in the pet space. Capital can come and go very, very quickly in this industry. You saw it happen again with all the issues around vaporizers and vapegate. You've had several series of events where capital can flood into the system and then flood out of the system specifically for this industry and that 1.0 wave of cannabis companies. There was a lot of carnage and there still is a lot of carnage today of companies that in January of '19 were doing famously well, then by mid-summer, were really, really struggling and their stocks were down and everything else.
A lot of that comes back to just the underlying fundamentals of any given company. If you think about people who are really pursuing this retail model, and you think about the economics of a dispensary, versus a fashion store or a sunglass store or a pet store, or even a liquor store, there's just a lot more cost that goes into operating one from a security perspective, utilities perspective. Most the landlord's back in this time, if you were a cannabis company, they wouldn't issue you any favorable lease, it was a lease with a hefty premium. The staffing of the locations, all of your costs on a per-location basis could be much higher.
A lot of those, we call them 1.0 companies didn't care. You had people that were buying licenses at exorbitant prices, doing build-outs on stores at exorbitant prices or going over budget, paying exorbitant lease rates, overstaffing stores, plus security, plus the utilities, plus the insurance and then you turn around and the mountain that you've created for yourself that you have to climb up before you can even get to break even, is almost totally insurmountable. The interesting thing that we really looked at is, there's a model in the space that was delivery only. There's obviously some leaders, particularly in LA and in California on the retail side.
The way that I fundamentally look at the hybrid of those two things is that retail can serve as a jump-off point for delivery, but because your cost structure at any given retail license is just much greater than it is in most industries, you have to maximize the coverage of any given location as much as humanly possible and we do that via delivery. The in-store experience is predominantly we find for some people that are curious, if you will, some people that are veterans and experts that really want to come in and get educated on new products that maybe have come out or smell and see the flower that they're going to buy. Then we see a lot of new time customers trying delivery, or the repeat purchases happening via delivery.
From that one single jump-off point on Fairfax today, we're able to cover a lot of greater Los Angeles, while in a retail-only model someone maybe has to do that with four or five, six shops, and that's four or five, six times the cost structures that are set up to cover the same amount of people.
Matthew: You're looking at this a little differently here, you have a hub-and-spoke model where your retail store in Fairfax is your hub. You're thinking right out of the gate, it's not an afterthought, like, "Oh, now I'm going to do delivery," you're thinking, "How can I strategically have this retail presence?" That'd be the hub for a delivery radius in the LA area. Is that right?
Chris: Yes, almost even the opposite, which is how do we cover a city with delivery, and then make sure that we have retail experiences where if people want to come experience a brand or a product or meet people or learn about the industry, they can come talk to people at one of our location. That we're definitely a delivery first company, and then have that retail as well, because we just fundamentally cover so many more households, so many more customers via that delivery infrastructure. I think that California was very thoughtful in how they approached delivery as a shopping part of this industry meaning, one, you had a lot of communities and municipalities that were arguing how they wanted to think about delivery and so you had a ruling came out that said if you have a delivery license you can deliver anywhere in California.
That that was very important and that a lot of people, a lot of the communities view delivery as something scary because it reminds you of a drug dealer. How did you get cannabis before it was legal, guys driving around in cars selling weed, right? In their mind, I think you think of delivery as, "Oh my god, there's weed going around, there's cars. It's dangerous." It's all these things. In reality, I believe that delivery is the solution that they're looking for when it comes to wanting the tax revenue from cannabis but not wanting a dispensary on every single street corner in your city. There's huge customer demand. There is nowhere near the brick and mortar footprint built out to meet that demand and unless you want to put it all in physical retail, the way to unlock that's via delivery.
That was one ruling that was very important. The second is how they structured delivery, which is that a driver as long as they have orders or scheduled orders or places that they can go out and hit throughout the day, they can carry up to $3,000 worth of product in the vehicle. It has to be locked in a separate compartment in the car. It has to be tethered to the car and secured. You have to have trackers in the vehicle so you know exactly where the driver is at all times. That driver can't just go off and go watch a movie or something that route, it has to be en route to an order. There's a lot of very thoughtful regulations around it but that means that from a single jump-off point, a team or a group of drivers can effectively go out and in many ways act like little mobile dispensaries.
When we open up for the day, while we are operating out of that one initial place, we could have 50, 60, 70, 100 little mobile dispensaries all over the city. We run both hub-and-spoke orders from a very broad selection. I believe that we have the greatest selection or the largest selection out of the delivery players in Los Angeles. You can order hub-and-spoke of any of those products that you want, or for a smaller group of orders that are available in drivers' cars, and you can have those delivered much much faster. That's our version of Amazon Prime we call it Emjay Now. In other states, they've really struggled with delivery regulations. You look at this in like Massachusetts, and you can see how the regulations came out.
The way that they did, but you can't just have a single driver going out and doing an order, they have to be accompanied by a second person or security. Some of the states are talking about having body cameras. Every single order has to be hub-and-spoke, only one order at a time. The way that they pass the delivery regulations was literally the exact opposite of everything that you could do to run an efficient and profitable delivery company. They put in place, every single barrier that you shouldn't do to totally mess that up but you get how it happened. It's people, community members and regulators sitting around a table, thinking about how do we do delivery? How do we make this safe for our communities, and people throwing out ideas. Then all those ideas come into something called a bill, and then it gets passed. Then people have to operate with that.
California did a very good job and how they think about unlocking delivery for the state, as well as the model so that you could actually operate it profitably or operate it in a way that makes sense for any given business to try them.
Matthew: There are so many smart people in Massachusetts but they have a unique flair for regulations that just confound. I'm surprised they didn't regulate a helicopter that follows a delivery car with a spotlight on it. It's like, it's really that it's gotten that far but that's one of the reasons that Massachusetts license holders, that's a valuable asset because you're dealing with a nonsensical regulatory body that you have to put up with. I think that's one of the reasons I'm hoping that there's some benefits for them Let's circle back, you talked about the alcohol industry, what would you say your deepest insight from working in that highly regulated industry that you've taken over to now Emjay where you feel like, "Hey, my understanding of the alcohol industry is really helping me with this"?
Chris: That's a tough one. I have to split it into two halves. I think one is definitely from a regulatory perspective, just working with regulators and thinking through regulations and how to do things, not only with utmost compliance but trying to also do things from a perspective that benefits and moves the industry forward. When we first started delivering alcohol, we didn't just go wing it. We sat down, we met with regulators, we talked to them, we communicated our intention, "Tthis is what we would like to do." Then we took it one step further, which is, "How can we also be helpful? How can we help you with issues that you have, whether it's checking for underage drinking or all transactions being credit card transactions, so you eliminate some of this cash under the table business?"
I think bringing that thoughtful approach to cannabis from the onset, it has helped structure in many ways, the way that we operate as a business. There's still a lot of fly by night delivery companies, there's still a lot of fly by night retail operators where people operating on the skirts of what would be deemed helping the industry move forward. Taking that approach and being willing to go through that brain damage and alcohol and then go over it again for better or worse, I think our team's developed a bit of a reputation for being willing to go through very tough things that other people aren't willing to go through or they're just confusing or brutal to navigate through. We've been able to carry that over. On the other side, what's fascinating to me, is the consumer. I'll give you a small example.
In alcohol when we send an e-mail to somebody about new products, it doesn't get a ton of pickup. There's a brand new scotch that just came in or there's this very unusual new rum that just came in. A very small percentage of our customer base cares about that. It's more so, "I like Bulleit bourbon. Just bring me that," or, "I like this wine bring me that." New products just don't fascinate as many people. In cannabis, we send it in an e-mail about, "Here's new products," and people just eat it up like crazy. They just buy it. They just to have it on their shelf at home. I think that the difference is if you went back to prohibition and alcohol and all you've been drinking is moonshine or bootleg whiskey or something and all of a sudden the local store said, "We have a wine from California available," or, "We have a new rum from Jamaica available," you'd be like, "Oh my God, I got to go get it. I got to go get this one. I got go get that one. I got go get this stuff."
Where the customer is in their journey with the product it's so different. I think that's fascinating. I think if you rewind to the medical days where everything was just in prescription bottles or you're buying weed out of a ziplock bag or something, and then you saw some of the first innovations that really hit like the Dosist pen, it was revolutionary. When people saw the Dosist pen come out and that you would use this or held this product and then it'd vibrate tell you what a dose was. That was a game-changer in cannabis. You saw other brands that were trying to mirror some of these high fashion brands or whatever, and seeing just this gorgeous CPG packaging for the first time ever was a game-changer to consumers.
Even in the short period of time since rec legalization, till now, you've seen that change dramatically where people don't necessarily care if you just have some gorgeous packaging. The number of vaporizers with all these interesting ways that you can use the product is plentiful on the shelves. If you're going to be a brand that stands out, you really need to know which customer you're going after and how you address that market. I'd say 60%, 70% of our sales today are flower products despite being in California where we're probably more advanced than a lot of states in the different form factors that we're able to offer. If you want to address the market today, you have to be able to sell really good predominantly flower products to people that consume a lot of cannabis.
If you brand yourself too much for that everyone called it the "Chardonnay mom" and all these meetings way back when-- If you brand too much for that, you're not going to address today's consumer, but if you brand too much for just the cannabis consumer of today and you don't welcome the possible newcomer, then you're never going to get that customer either. You've got this very sort of unusual stage in cannabis where what form factor will be the one that ultimately wins, what form factor will be, how you introduce non-consumers into the category, and what form factor will be the one that aficionados really continued to use and so on and so forth. I think that'll be fascinating and a lot of our experience in how to think about consumption on a per-category basis beer, wine, spirits, mixers, et cetera, et cetera is transferred very well into how we think about that.
Matthew: Alcohol is a unplanned purchase. Maybe that's why there's so many places you can buy it, but here is cannabis on the planned versus unplanned purchase and maybe talk a little bit about alcohol being unplanned and then work how it fits in.
Chris: I think they're very different. Alcohol is an impulse-driven by for sure. That was one of the early hypothesis we had when we started the company. It's proven to be true. I think something like 80% of wine is consumed within hours of being purchased. Even early days when we were raising money, you had some of these venture guys be like, "I don't get it. I have a wine cellar with a hundred bottles of wine why would I use 30-minute alcohol delivery?" I was like, "Okay, well, you are less than a fraction of 1% of the customers out there." To you point, there are so many retail locations where you can buy alcohol that if you are not fast, the person might as well just run out of the store. I maybe even ordered Postmates for dinner or I maybe cooked dinner, whatever it may be. I know that I'm going to have dinner tonight. I don't know if I'm going to feel like having a drink later.
Maybe I have dinner, maybe I'm watching a movie or I'm getting some work done. Then you feel like having a beer or you feel like having a cocktail and you can press a button and have it show up quickly. It has to show up fast otherwise, you're not going to get the repeat purchase. If it shows up closer to an hour, hour and a half, not bad. The person's not complaining. We don't get customers that are like, "That totally sucked," but it wasn't great. It wasn't a phenomenal experience where I'm going to transfer my buying behavior over to it. I think speed is very key in alcohol again, because if you're not fast, I could have just in that hour run out and gotten it myself.
In cannabis, we are not seeing that to be the case. I think people buy cannabis much more like they buy groceries where delivery is about saving you the trip to the store. It's about saving you the trip and the check-in, or the shopping and all that stuff. It's about convenience. We definitely have customers that feel like having a product. They want it right now. That's why we have the Emjay Now offering, which is it's brought to you in 30 to 40 minutes. You can choose from anything that you want. A whole menu, you can have it brought to you in closer to an hour, hour and a half. There was a huge emphasis by some of the delivery companies predominantly eats in the early days of saying, "Fast delivery, fast delivery, fast delivery."
You had other people that were all scheduled, scheduled the next day. I don't think it's either. I don't think every customer needs it fast in this category. I also don't think that you can only operate in a schedule a day or two ahead model. You need to be able to provide both if you want to be a leader in this category. We see customers utilizing both in different purchase occasions. Again, I think that there's a bit more planning. There's a bit more, "I'm going to stock up on products that I like." "I'm going to buy it a little bit more regular cadence." We see that in the retention rates, we see that in the repeat purchase rates, we see that in which category people like to buy from Emjay Now versus the regular order. It definitely is a different type of buying behavior.
Matthew: You mentioned a little bit about this earlier, but a lot of cannabis retailers ran into trouble in cannabis 1.0 as you were saying with the initial costs, the build-out, the capital structure. There was this a firing gun like a sprint, but you took a step back and looked at it and said, "Well, really these are the most important things to do to make a sustainable business." How would you really say you're different in terms of how you went about looking at the metrics that you need to be profitable and sustainable versus these cannabis 1.0 companies that threw money at every problem.
Chris: Some of this is the operators' fault. Some of this can be investors' faults as well where there's just tremendous pressure to go do whatever is seemingly driving growth and to some of these companies that were acquiring licenses. You had businesses that just used all their disposable cash on buying out licenses, getting them attached to leases, and then figuring it out later. When you sit there and you got a whole bunch of locations you're paying super expensive lease rates on all these locations. They got license fees and renewal fees and you don't have any of them built yet or you don't have any parts of your business that are generating real income yet, you can get stuck. In some ways, that was the operators chasing those dreams thinking the cash would be unlimited and plentiful for a while.
In some cases, that can come from the investor pressure of, "You need to get as big as possible. Here's the money go deploy it as quickly as you can." I think that the key difference that we recognized was there's a big opportunity in cannabis where you can own your supply chain and there's a big opportunity where we saw some of these delivery companies that just provide a delivery portal to existing dispensaries and charge them a little fee per month. Some of them have raised big money recently and they're going to go sign up every dispensary in the country. Well, guess what? There's not that many dispensers in the country. Even if you sign up 2,000, 3,000 dispensaries, that's not a lot of people to be collecting fees from unless you're doing big, big revenue for each of them and can increase those fees or get them on annual contracts or multiyear contracts. That you definitely will get some interesting data.
I think on the other model where there were some delivery services, just trying to sit on top of somebody else's license, it put them at odds with all their partners because the brand is making a margin, the distributor's making a margin, that retail or delivery license holder was making a margin. Then if you were going to be a delivery service on top of that, you basically had to squeeze down everybody else's margin to create your own fourth margin and everyone got pissed at you. There was this opportunity to come in own our own licenses, own our own infrastructure, and be able to have a deeper margin capture. Because of that deeper margin capture, we have, I think huge competitive advantages when it comes to customer acquisition, we have huge competitive advantages when it comes to the service that we're able to offer.
If I think about pillars of e-commerce and you look at e-commerce companies that do extremely well, Amazon, obviously being the best. One, they provide a trusted service and they're bringing an offering that you really want. For Amazon, that's where I can get basically anything that I want on this platform. I think Jeff Bezos had this great quote where he goes, "Amazon doesn't make money when we make a sale, we make money when we help somebody make an informed purchase decision." Really what they did with products was help you buy, not just buy, but help you buy and they create a lot of value there. Two, you have to have the trust that it's going to show up and obviously through their infrastructure they've built throughout the country, the faster and faster shipping became a huge advantage for them.
I think very similarly in our space, one, we have more products available than anybody else. We are trying to help people make informed decisions on what products are the right ones for them. Two, we own our delivery infrastructure and our licenses so we're able to control the experience. I think less than 15% of drivers who apply to be on the platform end up making it to be one of our team members. This space is very different than Postmates and Uber and DoorDash and that stuff, where all the drivers by law have to be W2 employees, so we can really focus on training and the experience that they bring to customers. Then the last pillar that I think Amazon got really well, that a lot of other e-commerce platforms don't is price.
When I buy from Amazon, I know that it's either the cheapest or at least a really good deal compared to other places that I may buy. A lot of other e-commerce platforms by the time I get to check out with fees and so on and so forth, you are paying a premium because they are a marketplace sitting on top of other people's infrastructure. I think what's something that is incredibly powerful at Emjay is because we own the licenses and the supply chain and the infrastructure, our price delivered to you is the same, if not cheaper than if you went to a dispensary. We price our products less than the predominant retail train in LA. Our prices are less than the other predominant delivery service in LA and that is the price delivered to you.
If you think about a competitive offering in delivery, whether it's grocery delivery, food delivery, all these other categories, you're almost always paying a premium for the use of that convenience. What we've unlocked at Emjay, which is, I think very similar to what Amazon has unlocked for the greater e-commerce market, is it's the same price as if you went to the store, but it's brought to you and that is an extremely compelling offering for people.
Matthew: That is really compelling. I can see what you're doing there and you really do have to capture that whole vertically integrated system. You got to have the license holder, the infrastructure, the delivery and the W2 employee and then you can offer that and then people start to think like more, maybe even more favorably. They think about the store favorably, but they're really starts to get friendly and familiar with the delivery platform, which it sounds like is what you want. Just to mention again, you said, Emjay now is under an hour and then for a limited menu and then for the total menu, it's an hour, an hour-and-a-half. Is that right?
Chris: Correct. The easiest way to think about it like Amazon Prime versus their regular offering, which is there's a select group of products that are available super-fast if you want it, which is honestly just the top sellers in your area which changes over time or you can choose from anything that you want but it's going to come to you a little bit later, more like an hour-and-a-half.
Matthew: Okay. Do you think that in five or 10 years, we're going to see what you're doing just all over, because maybe Binny's is probably the biggest alcohol retailer I can think of? There's probably a few others, but by and large, it's a lot of mom-and-pop businesses across the US that sell alcohol. Is it going to be these fiefdoms, regionally doing what you're doing with Emjay?
Chris: I think it will fall somewhere in between. Again, if you think about just the costs that go into setting up a cannabis operation, it's not cheap even just from a security perspective, but the way that the regulations are formed, even with some of the social equity programming and trying to give different members of the community, different opportunities in this space, it's expensive, it's heavily taxed. If you want to set-up whether it's a shop or a delivery operation down to security and everything else, it's expensive. It is much less expensive to go open a convenience market or a 7-Eleven or a liquor store and so because of that, I think that in many ways, liquor stores are proliferated because of that. It was a higher margin product than groceries. It was a product that is recession-proof and always in demand.
I remember when we first started working with liquor stores, we'd asked them, "What type of marketing do you do? How do you retain customers?" They looked at me like I was an alien marketing. I just show up at 6:00 AM and open my doors seven days a week and it works. I think in cannabis because you have a very conscientious community now and community being the community groups and neighborhoods and homeowners' associations and all sorts of stuff that all chip into these conversations, you're not going to have the proliferation of dispensaries like you had with liquor stores. There's some people heavily trying to push that. There's some advertising platforms that obviously are trying to push unlimited cannabis licenses because that's more people they can collect revenue from, but I just think it doesn't make sense.
In today's day and age, when you have delivery and delivery can unlock this service and the tax revenue and everything else for entire geographies, you fundamentally need fewer of those retail locations. Dovetailing back into your question of what does that mean? Yes, it's more expensive to set up a cannabis operation than it is alcohol. I think there will be less players. They'll honestly, some of the absolute best stores in Los Angeles are the independent mom-and-pop operators. They care about the product. They know it intimately, they care about their customers and they're not the chains, they're not these public companies there and you can go to them. There's some shops in LA, they're just absolutely fantastic. The staff is fantastic and they do a terrific job. I think on the delivery side, it'll be a little bit harder because honestly, delivery is just brutal.
It is a brutal tough business to run. Knowing and understanding all of the different KPIs and metrics and all the different data points that you have to track in order to make delivery efficient and profitable at scale is an insanely hard job. We joke internally that one of the reasons we started Saucey is because we wanted alcohol delivered to us and in those early days, we were our own careers. We did all the deliveries ourselves and so it was a little backwards. We wanted to be able to order alcohol and we ended up creating a platform where all we did all day long was deliver alcohol to everybody else, but ourselves. Looking at delivery in any category, grocery, food, alcohol, cannabis, a lot of people, big grocers, whoever it is, step into the delivery game.
They start to rack up some big numbers in terms of sales and then they get bigger and bigger and then they turn around and they just can't believe how much money they're losing, because it is very difficult to run an operate. We've even seen some of the big MSLs try delivery, pull back from delivery. It is different than retail. It is different than creating products. It is different than all these other things. It is a very tough game and that's where I think even some of the marketplace plays that just sit on top of all these individual dispensaries, they'll do their own deliveries and so on and so forth. If you just want customers to have a reliable ordering system, you probably need to control more of that infrastructure yourself, similar to the way Amazon does and you may have a bunch of delivery licenses to get issued a bunch of small independent operators that attempt to do it.
Some will make it, some won't just due to the complexities of how hard it is to set up things like route optimization and batching of orders and scheduling and managing labor costs up and down, not weeks in advance, but inside of half-hour increments and all sorts of stuff like that. I think it'll be a hybrid.
Matthew: How do you think about the type of car, truck you have, how making deliveries? Is it just an internal combustion engine, is it hybrid cars? Are you thinking electric cars? How do you think about that? Does it make a big difference on the type of vehicle you have as long as it's somewhat efficient?
Chris: Yes, today most all of the vehicle are our couriers bringing their own cars and then we retrofit them with both a tracker and a locked case. They can go in the vehicle. Obviously it has to be a specific type of vehicle, like it can't be an SUV that's just open access to the trunk. It can't be a Vespa scooter or something like that and there's regulations around what type of vehicles can and cannot be used. We are evaluating and looking into buying some of our own fleets to have a hybrid. People could either bring their own vehicle or drive one of our vehicles. Obviously, in a case where we have our own vehicles, we'll be looking at the most economical or efficient approach, whether that's hybrid or electric cars.
I think we also just for the environment and everything else do have a focus on how we have a small footprint as a company. We're not going to be buying a bunch of diesel pickup trucks As cool as that may be, to do deliveries all over town that obviously wouldn't make sense. Yes, it's something that we're looking into right now as we're looking at purchasing some of our own fleets.
Matthew: Chris, where are you in the capital-raising process?
Chris: I'd say that Emjay raised privately around the capital when it first got started, primarily to start acquiring some of its early licenses. It's one some additional licenses through application processes and it's backed by a terrific group of investors who honestly have deployed a lot of their own money, their own capital into the space for the past couple of years. We haven't disclosed how much money it's raised. I don't know if we intend to or if there's any real benefit to other than it gets you splashy press headlines. I'd say the business is doing very well. We run lean operations that we know how to scale. I would say that the company is in a position today where it does not need to raise capital which is definitely a good position to be in.
As a delivery business, there's been a lot of investors and different groups reaching out, hitting my inbox, and some of our partners' inboxes daily. People recognize I think so how quickly Emjay is growing, how quickly it's taking over L.A. in many ways as a meaningful option for people to be able to purchase. There's interest there but I think for now we have enough on our plate where we're just really focused on executing right now.
Matthew: Chris, I want to go to some personal development questions to help listeners get a better sense of who you are as a person. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Chris: Man, if I can I'd say again I'd probably split it in two. I'd say one book that had a major impact on at least how I view and see a lot of things maybe somewhat cliché but is Ayn Rand's Atlas Shrugged. I read it early in high school, I read it again late in high school, I read it multiple times throughout college. I still read it once every few years today. I think as a fundamental way of thinking about humanity and how people approach problems, it's a very interesting book that many people have read. If you haven't I highly recommend it. I think in many ways it predicts a lot of what we're seeing today in the world with people leaving cities and flocking out of crowded areas. I think that was very impactful in my both personal and professional development early on.
I'd say more recently a couple of books that I've read that I really enjoyed that I've recommended to our team to read and they're impactful to different parts of your life. One was What It Takes by Stephen Schwarzman, the founder, and CEO of Blackstone. Incredible life journey from even his early years and to how he [chuckles] got into college, what he did after college. Just always pushing, pushing through to the next level. Fascinating stories in there and setting up obviously one of the most successful firms ever in history. Obviously, how he approaches problems and thinks about the world, I think a fascinating book for anybody who is starting from any point your life humble beginnings or privileged beginnings but are thinking about where you want to go. Unbelievable story.
Extreme Ownership by Jocko Willink and Leif Babin, two former Navy SEALs. Incredible book just about leadership, taking ownership over not only successes but really failures, being willing to go through it when you need to. Unbelievable book for anybody in your company, in your team but particularly your managers and directors and VPs and people like that. Extreme Ownership I think really should instill a lot of characteristics as to how people should be thinking about their people, their team members, and how to uplift people. The last one that I thought was really good that I read earlier this year was Can't Hurt Me by David Goggins. David Goggins, extreme distance athlete as well as former Navy SEAL probably known as "The baddest man on the planet." [chuckles]
Unbelievable life story of overcoming adversity, overcoming every challenge you could think of. Being like a 350-pound-plus guy who I think was working at an exterminator company into being one of the preeminent Navy SEALs out there, completing multiple other military schools and then today he does all the ultra marathons and bad water races. Holds the world record for number of pull-ups in a day. In terms of I think sharpening your mental toughness, fascinating book for either your personal life or professional life.
Matthew: Oh, great, I hadn't heard of that one. Those are some great recommendations there and it does seem like Atlas Shrugs happening in real-time here especially when I see Elon Musk saying, "I'm leaving California." Then he's setting up more operations in Nevada and Texas like, "Hey, the people that are pulling the wagon it's getting too heavy for all the people in the wagon and they're just going to stop creating the things that they are creating for you and just leave if you treat them poorly." It's happening not just in the US but all over the world at once, and it's pretty interesting to see what's going to happen. There might be civilization that move out to sea. Like some venture capitalists are financing where they'll be independent sovereign countries out at sea that will say, "I'm sick of all this regulation and tax and we want to do our own thing and just be free." It's an interesting time and it seems like these trends are accelerating. Any thoughts around that?
Chris: Yes, I would encourage people to read the book. I think it's again an interesting commentary on human nature and how people think, and then obviously that permeates well out into society and in many ways I think has predated a lot of things that are unfolding now. Yes, the societies at sea and things like that, I think that that's a little idealistic.[chuckles] I've seen some of that stuff being backed who knows maybe I'm the fool at the end that's not laughing anymore.
Matthew: Water world. It's [crosstalk] water world, yes.
Matthew: [chuckles] Yes, maybe I'm not on-- Was it Kevin Costner. [chuckles] Who knows. Maybe I'm not on his ship at the end of the day but fascinating book on just a commentary against societies and how people think and interact with one another. You're definitely seeing to your point of a very large exodus from California right now, a very large exodus from Manhattan in New York right now. I was born and raised in Santa Monica, California. I love it here. I absolutely love Los Angeles as a city, the history, the culture, the people. It's tough for me to see some of the decisions that have been made in the state taking the world's fifth-largest economy into a place where we do not have the best schools. We do not have a lot of the best programs and there's really no excuse as to why we shouldn't. It's very very frustrating and heartbreaking but [chuckles] we'll see how the world continues to turn.
Matthew: I think California eventually is going to come back and come back in a big way. It's just there has to be an acknowledgment of what's being done is not working. There's a Stanford professor that says, "California is the United States first third-world area." He said that-- He has like 10 points-- I think I can put this in the show notes, he has 10 points on what makes a third world country. We're an economic disaster country. The first one is; no acknowledgment of what is being done is not working. You could say at the top-level leadership there's no acknowledgment there. There's zero culpability, and until that changes I don't think it'll turn around but when that does change, I think that will be a harbinger of like, "Hey, things still look really bad."
The first step is there, like the keystone, and positive changes are going to come because California's pioneering spirit, the geography of where it is, the weather. How many people would like to return there if it was functioning better is enormous. There's huge demand, it's just not a supply of sensible leadership at the moment so I'll be watching that closely.
Chris: I totally agree. California is one of the leaders obviously of innovation and technology but it's also a leader in entertainment. It's a leader in manufacturing, it's a leader in agriculture in many ways. It's an incredible place with a lot of industries and businesses that could do tremendously well. Yes, I think acknowledgment is a big issue that certain things don't work, they just keep chugging along the same path. If you have not visited San Francisco in the past two or three years, it's in my opinion a very solid example of somewhat of a failed state. You have unbelievable wealth. If you just go out to dinner and, talk to whether you're in the VC communities or whatever, the problems that people are working on are fascinating. The companies that are being built are fascinating, and then you can go outside and you have unreal amounts of poverty that is not being addressed. Obviously, some people like Marc Benioff and some of these others are all trying to personally address that and figure out how they can turn the city around in a big way and huge props, some of the individuals taking that on, but it's brutal.
It is a brutal example of what happens when you don't take the ownership in the first place. I think our leaders could probably do with reading the book, Extreme Ownership Jocko and Leif Babin.
Matthew: I was just going to say that.
Chris: I agree there's definitely a world in which California could be a tremendous place again, and it's heartbreaking to see-- I've three young kids so even when you think about education and stuff like that, it's just tough. If you want to build a family and you're in California, and you just look at school rankings for basics math, science reading, we suck. When you think about wanting to raise children outside of just yourself as an adult, there's a whole list of additional questions that you have to be thinking about. It's tough.
Matthew: I think all the rules are being rewritten now is the good news. I think about where I grew up in Chicago, they spend about average $15,000 per pupil, but very little of that money actually goes to people's education. There's all kinds of-
Chris: Of course.
Matthew: -the structure and bureaucracy and stuff and I just think, "Hey, if a parent could-- and Vaughn, you're paying, a lot of parents are paying a ton of money in property taxes, and they're getting just a terrible option. If you could just get on a card that said education card with a visa logo on there or something, spend it where you want for your kid, I just feel like that choice would unlock just a myriad of options of what's available, but we're caught in this cartel of education, that's now really breaking apart. I think it's going to be scary, but it's going to be great in the medium and long term.
Chris: Agreed.
Matthew: One final question here, Chris, it's a Peter Thiel question. What is one thought you have and that you believe to be true that very few people agree with you on?
Chris: Specific to the industry or about anything?
Matthew: Yes.
Chris: Man, I probably have a few controversial ones.
Matthew: That's what we want, give it to us don't sugarcoat it, we can handle it.
Chris: I would say that I think that most people veer one of two ways throughout their life and it can be impacted by the events that take place, their upbringing, socioeconomic status, what they're told they can and can't do all sorts of things, but I believe, people end up either in some ways, being, the wolves, they're the strong, or they end up being the sheep and they don't believe in themselves. I don't mean that in terms of predator and prey. I don't mean that in terms of violence, I don't mean that in terms of one attacking the other, but I mean that in terms of there are people, and it usually is through life circumstances, it's through events that can take place. It's through your upbringing, or parenting or whatever but there's usually some event or a series of events that can happen to somebody that either turns them into somebody who believes in themselves and they believe that they could make it through anything and because of that, it permeates into all other elements of their life.
Their ability to take responsibility for things, their ability to take ownership over themselves or their body or their mind, and try and push things forward or there's people that for one reason or another, don't get that power and don't believe in themselves. Again, I think that permeates into all sorts of things where they don't take responsibility for themselves, or don't take responsibility for the world around them or their bodies or their minds or anything else. I think that you see those fall very clearly into two buckets as to how people end up living their lives, blaming others for things or taking ownership of things. Maybe it's not that controversial, maybe a lot of people already know that but I've also seen and witnessed firsthand people turn it around for being somewhat sheepish and not feeling empowered to do anything. I think with a little bit of resistance training and direction, anybody can feel empowered to really become an impactful person who takes ownership.
Again, sometimes it takes really hard life events to get there. It can take, going through tough times at work or tough times personally or with family. People respond to those tough times in different ways but they usually fall into one of those buckets and then it starts to permeate into other elements of their life. I think you can identify in people pretty quickly when you meet them.
Matthew: That's great. Empowering too. This is a good place to end Chris. Where can people find out more about Emjay, we've got a lot of listeners in Southern California so let them know how they can connect. Find your retail store, scheduled delivery and all that good stuff.
Chris: Sure, you can check us out heyemjay.com. H-E-Y-E-M-J-A-Y.com shop, browse, see our coverage areas all sorts of things like that. You can see us on social as well on Twitter and some of the other channels, but probably best place for Emjay is heyemjay.com
Matthew: Great, Chris, thanks so much for coming on the show and educating us. You're a really smart guy and I believe great things are coming for you, they're already there. Good luck with everything going on and keep us updated as your story progresses.
Chris: I appreciate the very generous and kind words we got a long ways to go. Thank you so much for having me on today. I really appreciate it and looking forward to the next couple years in this industry for sure it's going to be wild.
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