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Ep 302 – The Future of Hemp and Consumer Packaged Goods

Michael Cammarata

While hemp-derived products are already big business, they’re set to skyrocket as hemp begins to take market share from traditional wellness and household brands. 

Here to tell us about it is Michael Cammarata of Neptune Wellness Solutions, one of Canada’s leading cannabinoid extraction companies.

Learn more at https://neptunecorp.com 

Key Takeaways:

  • Michael’s background in hemp and how he came to be the CEO of Neptune Wellness
  • An inside look at Neptune and how it’s evolved from biotech to health and wellness since founded in 1998
  • Why hemp is becoming so popular as an ingredient in consumer packaged goods
  • The most popular hemp-derived products in the wellness industry right now
  • Neptune’s partnership with Jane Goodall and their upcoming line of hemp-derived hand sanitizers and essential oils
  • How Neptune is innovating new technology that will make hemp goods more cost-effective for customers
  • How COVID-19 is affecting the hemp wellness and household industries
  • Where Michael sees the hemp industry heading over the next few years as it continues to make its way into the wellness arena
Click Here to Read Full Transcript

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

Hemp derived products are already big business, but they're set to become even bigger as hemp will start to take market share from traditional wellness and household brands. Here to tell us more about it is Michael Cammarata CEO of Neptune wellness. Michael, welcome to CannaInsider.

Michael Cammarata: Thank you for having me.

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

Michael: I'm in southern Florida.

Matthew: Great. What is Neptune Wellness at a high level?

Michael: It's a health and wellness company that originated almost two decades ago as biotech company and now what we focus on is we have, in Canada, we do legal cannabis, in the states we do hemp. We also have a business unit called Biodroga which is a turnkey solutions for a lot of brands. Hundreds of brands come to us, they want to develop products to help with sleep or they want to develop products that help with stress or digestive and then we formulate with our scientists and our teams the products and we manage the supply chain for them.

Biodroga is a turnkey solution for a lot of big brands. Then we also have our portfolio of our own brands then could force remedies and ocean remedies that are really led with purpose. Like forest remedies is about planting trees with every purchase and ocean remedies is about cleaning up the ocean and giving nutrition to people in need. Every purchase in omega-3 product in an ocean remedies will give nutrition for a year to somebody in need.

We've had great partners like Dr. Jane Goodall Institute, One Tree Planted, and Vitamin Angels and others that have joined us on these journeys to really turn around consumption to a force of good. I think if consumers can go to a store, and they have an option of picking a brand that may be designed very well, and have all the right ingredients, that they can actually pick a brand and it not only has all the key, the transparency and all these things but actually can make a difference in somebody's life on this planet or on this earth, they're going to go with that.

I think that as natural products and health and wellness products and hemp become more readily available, it's going to allow us to really create that plant-based revolution that's happening inside the household.

Matthew: Okay. Michael, can you share a bit about your background and journey and how you got into the cannabis and hemp space and became CEO of Neptune?

Michael: Yes. I was dyslexic as a kid and and, honestly, I started looking for a solution to survive. I played a computer game called StarCraft when I was 11 years old, got really good at it and put my passion into it and ended up joining a gaming clan and that's back before you were again paid millions of dollars to be a top player. Now, people get paid that. What it did teach me is really community online.

I started my first web hosting company when I was 12 years old and sold that for into the millions and was really very successful part. Then I went to online advertising at 17. I was one of the largest providers of inventory to a company called advertising.com, which then sold very well for 498 million. At 17, is when I started investing in companies. Keep in mind my motive as a kid was really to try and make it, try to show self like be able to prove to teachers that said I wasn't going to amount to anything or knowing that I wasn't the best academic. I was really trying to prove my self worth. Then I started investing in companies.

There's a turning point in my life probably when I was about 24. I went from web hosting to advertising, then I started investing in companies, and then with my family office random occurrence. Then 24 was when I started -- I always wanted to manage rock band. I ended up with a pop band, Big Time Rush. I was working with Sony and Viacom and learned very quickly about brands, and that the consumers' really looking for alternatives and plant-based solutions.

I thought like, what am I really doing on this planet? How am I contributing? I've obviously been very gifted and had that work penny by penny, dollar by dollar and build success. I wanted to make sure that from that point on, I was in this meeting with some big executives and talent and, basically, my dad was in like the hospital and they were like, "If you leave to go see your dad and you lose this negotiation, then you'd be fired."

I really had that turning point where I was like, okay, I need to start making products that change the world and have a positive impact on this planet, and working with people to really make a difference. That's when I decided to get in and research different options. I wanted to start with deodorant because I think the simple things in life make the biggest difference. There was no plant-based deodorants that were working. I tried a lot of different ones.

I look at armpits is like the exhaust for your body. For so long, people just didn't. They were putting aluminum and all these things on it and keeping all the toxins inside. I figured like that's going to be the first trial point. In 2015, teamed up with some people, we started a company called Schmidt's Naturals. Then we were pretty fast, from four people, 1200 square feet to over 180 people and we're on our way to an IPO and ended up selling to Unilever.

Unilever is like, come work for us. At that time I was like, I don't know about that. I'm the kid who never went to college. I think completely outside the box. I know that because my father ran some of the biggest companies in the world and worked his way up from starting a company all the way to be president level and then basically running the companies. I saw how long it took him and I was like, you have 160,000 employees, I don't even know what the word bit meant before that and that means like a percentage. It's not a full percentage, it's like the bits everyone by bits and I like to grow by triple digit growth.

I ended up -- ironically, a family friend of mine, Dr. Jane Goodall knew Paul Polman, he was global CEO at Unilever at the time. I was like, "You know what? I'm going to take this opportunity to really get my PhD in business." I ended up joining Unilever as one of the CEOs and focusing on my division. At Unilever, we took Schmidt's from being a deodorant brand to a personal care brand, to a homecare brand and then launched it in over 100 countries.

At the same time, I also developed out new ways to market, like using artificial intelligence and develop Alexander, which is Unilever's North American AI that uses communication to market and bypasses the traditional marketing mechanisms. Then what really led me into the hemp space was working on the hemp and CBD strategy because Unilever has like over 700 brands. What I started finding out is that with each product, there's like an ingredient story. There's a trend then there's the the substantiation, the purpose, the what it does, and all this.

This plant-based revolution that's happening and started with a meat burger, right? It's also happening inside the whole household. These categories haven't been innovated in so long, and there's some very toxic chemicals in terms of the house cleaning products, and some of that -- Even shampoo, if you use synthetic fragrance in a product, it gets paralyzed when you're in the shower because of the steam, and it can cause hair loss or potentially neurological issues if you use for long periods of time.

Getting rid of synthetics from fragrance, that is a huge thing. Then, when I found hemp, hemp was really interesting because in a plant-based deodorant, which Schmidt's was really good. Before Schmidt's, most of the deodorants were liquid-based like Tom's of Maine, et cetera. With Schmidt's, we really cracked that -- We didn't even know we did this at the time, but we made a plant-based deodorant with using different air powder and stuff that helped absorb wetness. It was actually the very strong ingredients that made the performance better.

What we're looking at is, in hemp deodorant, you can add moisturizing effect which is really good for the skin, especially in your sensitive areas. When you go in to CBD, CBG and a whole bunch of different cannabinoids and when I started learning about was there antifungal and antibacterial properties, those antifungal and antibacterial properties can make a natural deodorant last for 48 hours. That's like unheard of moreover, like the secrets in and the clinical strength type products, those are the ones that have this 48-hour claims and longer claims.

In a natural plant-based deodorant, you can only get up to like a 24-hour claim without using different cannabinoids. The reason why deodorant is so important is consumed daily with a consumer, but it's such a huge category. When I started looking like, oh my God, that hemp and CBD and CBG and all these different cannabinoids are good and they're going to allow the CPG world to start having organic growth again, like on a much larger scale.

It's going to help allegedly these master brands at the they can innovate by just adding the CBD and CBG product. Everybody in the cannabis industry has been focusing on consumption, consumption, consumption, consumption. They missed the picture at that point on the household product that move hundreds of millions and billions of dollars of revenue each year that are going to benefit from the super ingredient. When I was at Unilever, we started looking at the different companies in the space. We've looked to see which one's a GMP, truly GMP, and I saw an opportunity where there isn't many people in this place that truly have GMP.

There's a company that was in extraction in the States that had an outdoor extractor. That's no way that that could be GMP right next to Some people in Canada, they were saying that GMP processes but they're having people lug product up and downstairs. The true GMP, not just the finished process, but all the way to where it starts at the seat.

With Neptune, when I found Neptune, it was an interesting spot because it had a pharmaceutical creating facility and they've spent over $50 million developing and it was doing curl oil. It had the bye-drugging business unit. It had a whole regulatory team. It was doing international and domestic shipments for varied products. It had a royalty business. It had a stable business. I looked at Neptune as an opportunity to have the lowest cost of infrastructure in the cannabis business.

Meaning, we start addressing the needs of the CPG companies, the traditional consumer packaged goods companies, to be able to develop products for them because there's going to be a day where all other seven hundred brands at Unilever and all those P&G in nationally, they added one other skill, add a CBD ice cream which they've talked about publicly when it's allowed. Or, Schmidt's added a hemp-based deodorant, which is the first hemp product in Unilever North America.

There's so much value in this ingredient, and people were focusing on a consumption attribute. I use the capsules from Forest Remedies. My brain goes 1,000 miles an hour and I always have to slow myself down, but I use those capsules to help me when I had panic attacks and stuff along those lines. That's how I initially got used to CBD, and it's really full-spectrum and broad-spectrum that worked for me.

Then being at Unilever, seeing the market, and seeing that there's a gap and then finding Neptune, and through all this thing, I was like, "This is an opportunity of a lifetime." This is like going into the .com bust but having an infrastructure that no one else has to be able to be a leader and coming out of it.

I knew I was going into a crazy sector and a lot of people were like, "Why in the world would you want to be a public CEO when you're walking into a sector that's depressed, you're walking into people that are spending way too much money in all these different areas, the market's unproven and all these different things, and then you get a global pandemic." That one, I didn't count on, but I saw those are all the opportunities. If I can make Neptune have the meanest, meanest, fastest infrastructure, and be agile because our burn rate's very low.

Canada, we expedited our sales license to deal sub-directly with the consumer. We launched two brands in two months. I brought IFF, which is in my mind the leader in extraction for decades. Extraction is not new to them and essential oils and cannabis and hemp extracted pretty similarly, you can use the equipment for both. Bringing IFF as a strategic partner in the Neptune was a really important moment because they came with me on this journey to go into Neptune.

Then I looked at like, "How are you going to market the brand? How are we going to make that mega-brand in hemp and cannabis?" We needed an immediate partner. That's when we brought in American Media, which owns Us Weekly, In Touch Magazine because it allowed us to really start on getting to be able to start marketing our brand.

Then, I'm like, "What was the biggest success when we came to retail?" Is being able to merchandise and get your product on the shelves and have unique things. Like in Costco, you want to have a fence in there when you walk into the store, that's a high volume seller. When you look at the grocery chains, you want to be on the checkout, you want to be next to the magazines. We sat down and I'm like," Okay, we got American Media as a partner, they have this distribution company. Everywhere there's Us Weekly, In Touch Magazine, OK! Magazine, and all the properties they have, they merchandise that store twice a week.

No one's going to have the ability to touch that, even the strategics don't merchandise that many locations. There's 22.9 million places of this appointed distribution that we can get access to through our partnership with American Media. The story kept coming together and the partners were joining me on this. I spent like nine months going back and forth at looking, making sure I was picking the right partner. Obviously, everything that I do, I invest my own money into.

When I joined Neptune, the next week we raised $41 million. The unique thing about Neptune is we managed to keep our capital structure very simple because not only am I CEO and I built brands from scratch and had to always innovate and problem-solving in real-time and guess the odds on a daily basis, the thing that I always look for is I'm also an investor. I want to see how am I going to get my return, who has the right to win, and who we can pivot into the different opportunities.

Neptune had the ability to go into personal care, home care, beauty, and playing the non-vices category, which allowed us to have much bigger upside potential. It also has truly some of the largest extraction capacity in North America. We can wrap up doing 3 million kilos of extraction. We are at 200,000 kilos of extraction in Canada alone. We have 1.5 million in North Carolina. We have IFF, which has really been doing extraction for a decade, helping us, support our teams, sharing knowledge, sharing IP, helping us develop app, getting us access to their 35,000 customers around the world.

Coming into it, it was exciting. Definitely, I always knew I was walking into an interesting sector, but that was the opportunity for me. I think that when people look at Neptune, they got to understand is like my goal of building the company is to be the safest brand in cannabis. We have a CPG. We have nutraceutical business. We have this, plus the upside of cannabis. The ingredients that you can get from that cannabis plant apply to all of these things.

From the investor side of myself, I want to make sure that I had a diverse foundation that I can make stronger and that's what I was able to do it, Neptune and continue doing. We've accomplished a lot, a lot of these things were in the first six months at my tenure because I was thinking about this for a while beforehand.

Matthew: Which products are selling the best right now?

Michael: In Neptune, for us, we have nutraceutical business, like Biodroga, as I explain. Obviously, vitamins are very valuable, omega-3s are very valuable, formulations happening on a level that's really good. Biodroga is doing very well. In the cannabis Canada, I would say that with cannabis 2.0 coming on this January, we're starting to see a lot of our innovations really apply to our customers like whether it be infused tea or 3D disposable products where you can actually make a tea look like a personalized tag or a Christmas tree or any object and then we can infuse it with vitamins or we can infuse it with cannabis or we can infuse it with hemp or combination,

Those things are starting to be -- the cannabis 2.0 products are really key for the cannabis market, because I think the issue when they were developing out the programs in Canada is that they were looking at people that are just going to buy it legally who are buying it illegally, but they weren't thinking about the innovations that are required and the price points.

Initially, people were charged, in Canada, you'd have to wait now in line and pay 57% more than you were getting it from the black market. That's not a sustainable business model. The industry had to self-correct to really focus in on saying, "How can we bring our cost down? How can we show innovation?" With cannabis 2.0, you can now show innovation and give consumers something that they can't get anywhere else.

Also, with the Canadian government opening up additional distribution points, it allowed the market to grow. I think that's something that, when you're in an evolving -- whether it be with .com technology, and the .com era, all those different segments at a time when you develop an app. I remember when I had to use a 56k modem, now I have a gigabit connection at my house. This has happened pretty quickly between -- I'm 34 now and I was 11 back then.

The innovation's happening on the technology world, but when everybody thought, "Oh, let's just make a web hosting company," that doesn't just work. Then it's like, "Let's just make an advertising company online." It was people that innovated and stayed ahead of the curve and made it more efficient. I think that's happening right now in real-time in a cannabis market in Canada.

I think that if Health Canada and the government legalized hemp to be put in personal care, home care, and beauty products, they're going to be able to compete and pull ahead of even the United States because I think that that is an area that people weren't even focusing on revenue opportunities, tax revenue opportunities, but that ingredient applies to almost every product a person touches from when they wake up to when they go to bed.

It actually improves the experience and the claims you can make as well as the effectiveness of these products and safer for the skin. There's a lot of great things that the hemp can do and cannabis can do in personal care, home care and beauty products, and it can also remove a lot of toxicity. I think there's an opportunity that Canada has that they can pull ahead and continue to innovate, be ahead of the market.

The US though in recent months have gotten themselves in expanding the debt. They even went to need a revenue tax revenue driver because you can't be spending trillions of dollars and not creating new revenue streams. I think more than ever, the government has to -- and it's Democrats and Republicans that support the legalization of cannabis and they're doing it on a lot on the state level. I think now that the federal government is tensely going up to 10 billion, a trillion dollars, they're going to have to add additional revenue streams.

Like a state like New York, it generate a billion dollars just on taxing marijuana. I think that it's something that the US has to look at and I think that we're well-positioned with our footprint in the US as we currently do hemp in that facility. We have 1.5 million capacity should ramp up if there was and really quickly if that was legally federalized.

I think that that's something that has real potential now to be much a quicker solution. I think there's a lot of opportunity in the cannabis industry and it's definitely something that's like a once-in-a-lifetime era where you can be at the beginning of something. Maybe you've got every company, whether it be like, we're focused on how we can make sure that we have a low-cost infrastructure, how do we invest in the innovation, a partner on innovation, so we don't spend a lot of CapEx but at the same time how do we create IP.

We have a royalty business that just on the IP that we generated and Omega-3s with maximum and we get royalty payments of customers just by licensing out our IP. How do we make sure that we grow our IP business or grow our nutriceutical and vitamin? At the same time, if Canada makes sure that we're the leading with innovation and cannabis and then in the States, make sure that we're leading with personal care, home care, and beauty product innovation to be able to service the CPG customer. Having the true GMP, having it run more like a pharmaceutical-grade facility, our very key is our business plan.

Matthew: One thing I've been thinking about with the consumer packaged goods is, hemp, is that considered a luxury ingredient still on your mind in terms of having to charge a higher price to an end-user? Is that only for upmarket still or do you feel like the price is stable enough for trending down that it can be cost-competitive with some brands that people find to be more affordable?

Michael: Well, it's like look at the beginning of the natural space right there with the sprouts. New sees it, Mother's Market, all these retailers opening a natural product for a premium product. Why my last company was so successful was because I don't believe we should gouge customers for premium ingredients. Every person should have the right to use natural products and be able to buy products that are made with natural ingredients.

I think that the people that are doing the luxury ones, there may be a unique innovation that comes out that it was a huge amount of money for the company to invest into and they need to charge a premium for it, but it should still be reasonable. Eventually, as the volume picks up for that product, it should go down to be something in the standard skew. It's like the focus that the brand should have and what we have is like you have your premium products and we spent a lot of money innovating and we need to bring the costs down and then you have your mainstream products.

I think hemp is like a super ingredient. Charcoal was a super ingredient for beauty and other categories in 2016 but hemp is something which is like the caffeine to the soda industry. This is like the caffeine to the whole personal care, the home care, the beauty. It touches so many different categories. There's never been an ingredient that actually can prove the efficacy and the performance of so many different products.

I think it is a premium ingredient that it's really a super ingredient, but it shouldn't always come with a premium price. That's the thing that we're going to be showing in Canada and in the US is that our lowest cost of infrastructure, we are going to be able to do extraction which can save customers off the 30% from what they're currently paying and have a better quality product. We invested our phase two in Canada, which is no one else had, is custom made. It's like a Ferrari of extraction.

What it really allows us to do is to be ready for that mass consumption of hemp or cannabis. It does multiple steps in one thing. A lot of the issues that we saw with farmers when we were listening to the farmers and we were listening to the different retailers and were building on models, we heard that they had a lot of problems where they would have to pay people to sit there and trim the product before they can send it to an extractor.

We wanted to develop an extractor that reduce that labor cost to that farmer, or to that LP so we can actually do it efficiently. Give us your trim, we'll do it. Phase two allows us to take multiple types of biomass and grades of biomass. It also does winterization and other proprietary things within one-step process and be energy-efficient, because one of the things that we wanted to look at is our ESG policies, and we'll be talking more about that this year.

We want it to be energy efficient. We want to be carbon neutral. We want to be gender diverse in management. We wanted to make sure that we live and breathe the missions that our brains and the products that we're developing are putting out there. It starts with the corporate structure all the way down to the brain structure and our customers.

We want to make sure that we can make efficiencies for our customers because we saw the need that Canada cannabis needs to be more efficient in pricing. Taking multiple variants could save a farmer 50 cents to a dollar a unit. In doing winterization, we can do a whole process in less than an hour, maybe two hours, depending on the specifications where competitors were taking 24 hours to turn a batch.

Phase two was really like a crucial moment. We're just starting to run the product, then we turned it on like a month ago and started at room temperature now, going with a new cooling agent to be able to freeze it now. We've also really looked at how we have -- We have a building that's amazing. If you're in Canada, you should definitely make sure you go and reach out and, obviously, there's that -- once the Coronavirus passes, but that facility is a pharmaceutical facility. No one has anything like it.

Phase two is just to start at the things that we can show that we've been developing and listening to and watching. There's a lot of people that are rushing to extract too in the very beginning, we were being, our knowledge and our lessons that we've learned was really to watch and see what the issues were. We listened to the farmers, we listened to the LPs, we listened to the retailers and the government.

We want to make sure that with phase two and onward we started addressing these unique things that can help lower the cost structure to our customers can improve so we can do higher volumes quicker and do more processes in one process so people touch the product less because we have a facility where we can pipe product. We have this four-level freezing room where we can store biomass and below certain temperatures and then we can wipe that product into the phase to extract it without people touching it. Those are the type of things that are like state-of-art.

Well, we're building for this industry to get ahead and to be able to service the big Unilevers, the CPGs, and PNGs, and L'Oreals, and whatever beauty products. We want to make sure that we can build that cost structure because I know that in personal care, every premium ingredient with a high cost ingredient limits the amount of distribution for a product. You don't want our brands that we service, our LPs, or our partners to be limited to play in only certain retailers. We know that for cannabis to work, we have to play in all of the different place for us.

It's got to be affordable and that people can pay for innovations and we have to build that industry out. It starts with extraction and it was a real big key. That's why we took a very unique approach and even some sizable investment to develop out these technologies.

Matthew: A lot of people have heard of Unilever and they know the brands that Unilever owns, but they don't think about Unilever owning them necessarily. I think of Dove soap and Ben and Jerry's and there's just tons of others everybody has heard of. Could you rattle off a few more just so we can remember?

Michael: Well, Ben and Jerry's, seventh-generation, Ali, Axe, and they even also have multiple -- they have brands that are limited to certain countries. They have so many, and honestly, to be quite honest, when I first heard of Unilever, my goal was to take my last company public and be that brand, and pick a brand that's -- Really, we were successful because we listened to the consumer. That is what made us successful.

We listened to what their issues were and we problem solved. I want to take that company public and we got offers from many different strategics. When I heard of Unilever first, I had to look into this because I didn't -- and honestly, my focus wasn't at all selling at that point, I didn't even watch it and it was a last-minute deal that ended up when I got to meet the global CEO and, the president of North America and truly see that they were going to enable me to do my ideas, and to get the products and be really supportive of them, and to build out the AIs and all the things that we're developing internally.

When I started, I realized, wow, these are brands. Don't forget they also have teas, like Tesco tea and all Lipton. There's so many.

Matthew: Tons of names will recognize.

Michael: If they're in food, they're in teas. They're in personal care, and home care products. I think that and I was cool -- happy that I was able to bring toothpaste back to the North American territory. Schmidt's launched its toothpaste and that's the first toothpaste that Unilever brought back into North American territory and we're doing really good with it.

That's a company at hundreds of years of history. The first thing that I went as a geek, is I went to the legal room and I wanted to learn everything about how the corporate structure was because everything starts with the structure. Their chief counsel was really nice to me. I was very fortunate to have all the C levels and even the company supportive of everything and my learning experiences and letting me push and rock both. I learned, during World War II, because that Andes, they actually split up and then went back together.

They had Unilever one side and other one, Unilever, the other side, they actually split up each company, down to the territory to the country. They have more like country clusters. It's a very complicated structure, but it allows them to be able to play in all different political environments. I learned so much from that experience. It was my PhD, that if I was going to go college, I don't think I would have gotten that same experience that I got at Unilever. Because they have so much history and they've been through so many things.

That's also why I like Neptune, because Neptune has had its spirit challenges, and it's been in different areas. It has a team that's very strong. When people look at -- when I invest in a company, I want to make sure that the people I invested to have been not just winning every time. I want to know that they've won when they've had challenges, because those are the people that continue to problem solve and then the companies that survive is not when everything is great.

It's got to be when everything is wrong, how do they prevail. Seeing that Neptune has that history of being able to fight struggles and build, it remind me a lot of Unilever, when it went from a soap company to one of the biggest companies in the world, and then how they built the structures over time. That's something that's really that we need to really take value on because not every company has. Those companies that do and the management's never been through turmoil, and they don't know and they're not as agile and they don't have multiple business units that can scale up and down with the ban.

I think that that's something that we have a lot of flexibility. I think even with our hand sanitizers that we were developing for next year, plant-based hand sanitizers, we're able to fast track that and bring it to market in a big way pretty quickly. I think that a lot of people are like wow, like a million-plus units and ramping up. I think that that's something that shows the capabilities of Neptune to be able to scale up with a ban and scale down with the ban and diversify and also innovate in categories that need innovation.

Matthew: You've launched a plant-based hand sanitizer. Is it just for COVID-19, or prior to that?

Michael: While we were developing it prior to COVID-19, we were working actually is that one of the products that we're doing with Dr. Jane Goodall, we were doing essential oils and we were doing hand sanitizers and we were also going to be doing her hemp line. We were investigating categories, when I went to deodorant, it was a category that didn't have any innovation. These same brands were there for decades and people have switched brands and naturally, we work.

When it comes to hand sanitizers, we were looking, okay. People want it, they're using hand sanitizers, but how do we make them so it's better for the skin. How do we make them so it's point efficient? That's where the antifungal and antibacterial properties cannabis come into play. We were already developing it. We did fast track but we have three versions that are hitting the market. We have our standard gel formulas and start thinking about essential oils.

Then we're going to be debuting shortly the cannabis hemp versions and CBD versions that we've developed. Obviously, there's a little bit more restrictions based on states and stuff along those lines. These are things that we're innovating. It wasn't something that we just wanted to do overnight for the purpose of COVID. It was something that we were developing this but it could help this time period right now.

Because one of the biggest things that consumers are saying, they can't go to the store and buy sanitizers. Everybody's been rushing for the government side and they've been checking up and as people have been hoarding products. We want to make sure that we build the capacity up and be able to service both the government and the first responders, but that's little, get product back into retail channel for consumers at affordable pricing.

Matthew: Okay. Now, what do you think the hemp industry will look in the next three to five years for household goods? How will that change and morph, and specifically do you think it'll be more direct to consumer post-COVID-19? Or will it be a hybrid model where retail still, retail environment targets, and Walmart are still strong? Will that breakdown by age of customer? What are your thoughts there?

Michael: That's a couple of question. I'll say that in Target, Walmart, I think that they are going to be -- I think it's really important that they develop their version of prime. They now have seen, okay, Amazon, be very successful with a two-day deliveries and that's so. I expect that some of those companies will develop their own same-day, delivery services more efficiently.

I think that consumers will still buy online, I think if they can get a product, within two days and eventually, within the same day. Those are the expectations that the consumers are having with online deliveries. It's almost a carrier service. I think that the retailers are going to adapt to be able to have the retail presence to be more of a point of distribution, but they need to be able to get products to the consumers faster.

I think that when it comes to the hemp brand, I think consumption will be probably 20% to 30% of the cannabis brand revenues potentially. I think that the majority of our income from personal current healthcare and beauty products, when they're allowed to put in, because those are the units that people consume multiple times a day as far as uses. There's only so much you can smoke in a day. There's only so much you can drink in a day but you're going to be washing your hands, you're going to be using your deodorant.

You're going to be using your toothpaste at least once a day. You're going to be using your vitamins. I think that the consumer is going to wake up to a new, we need to make sure we're healthier. Just like I did in my life. I want to make sure I was eating healthier. I was building products that made a difference for society. I think now more than ever is when you look at a company, you're going to want to know how ready are they for a bio pandemic.

Because this time, it could have been a bio pandemic but next time it could have been biowarfare. You need to make sure the retail, it just when the airlines happened in 911. They had to show security and they had to restore the confidence with consumers before they start flying again. You have that same thing unraveling right now, but they're going to have to show it in a restaurant. I want to know that the temperatures are being checked of employees and I guess, before I sit down in the restaurant.

I want to make sure if I'm getting on the plane that day and also look at biosecurity, not just security for people that could be on harm on a plane, I think you have to look at from a bio readiness. We shouldn't be allowing people to fly sick. If you're sick, stay home. Employees shouldn't be forced to go to work if they're sick. Those are the things that are going to change in the post-COVID society. Because think about it, how many more lives can we save, if every international flight there was a quick bio check just like they do for nuclear and a lot of other things, why wouldn't they check to make sure if somebody doesn't have a fever if it gets on a plane, or that is a rapid check for the known pathogen, just things that can potentially cause issues.

They need to do some type of health screening on international flights at the very least. Then domestically test to make our travel system much safer just like they did back when it came to 911 for security. Now, they need to do biosecurity. Every restaurant needs to do the same thing. Uber needs to do the same thing. All these trend, it has to be part of your business plan, just like we check temperatures before people even come into the --before they leave to go to the office, when they go into -- before they enter the office and when they leave.

If people have a temperature, they are not allowed on the facilities. Then we go back and make sure it's cleaned everywhere they were. You have to put these systems in place. Then now I'm working on getting more and more testing because we'll probably be testing employees more frequently and quicker. I think that eventually, you'll start seeing the Walmarts of the world, you'll see when you go to Costco or you go to Sam's Club, you check your ID, they make sure you're a member and somebody holds that. I think that they're going to have to switch to AI to allow them to have facial recognition, temperature check, check the person in, check the person out.

Those are the type of things that are going to start popping up in retail because right now is one part of the problem is getting us back to work. The other part of the problem is building the confidence with the consumer again, that is safe.

Matthew: Yes. Some of those technologies are already there. I went to an international flight tonight to stand in this clear gate area that just for one person, and it did look at my face and just let me in without a boarding pass and it did that for everybody on the flight. I thought wow, this is great, but also a little bit creepy. Because even if you trust the company that does it, they have your face in a database somewhere and that database can be hacked.

What assurances are there that that doesn't get out there is used for a deep fake or something like that. I guess a blockchain solution might help with that in some regard so that there's not a way that it would be forged. A confluence of a bunch of technologies coming together to solve these problems. I know in China, they have drones that can check your temperature, small drones that hover and they check your forehead temperature from a distance.

Michael: Well, I think that, if anything, what I'm more worried about now is that every country and every bad actor now knows how simple if they can hijack your bio pathogen, that they can create a pandemic. We have to put in these procedures now and then we have to make it safe and we have to protect privacy. At the same time, we have a bigger obligation, we have to protect humanity.

This was just as dangerous as a nuclear weapon if not more dangerous. We don't spend enough money on bio readiness. Because could you imagine if the intention for this virus and that a country sat there and had a vaccine that they worked on for 12 months, and then they released it, and then the only ones were the vaccine, these are things that have to be thought out now.

Because imagine if the tensions were back, or imagine if a terrorist group had a bad intention. They now know that they can do more harm with a pathogen than anything else, than a nuclear bomb, than a dirty bomb or any of those things. The governments around the world and the businesses around the world and the people that are responsible for travel have to add this into the safety. Imagine if this had a 10% kill rate, that would be horrible.

Matthew: Yes, like the Spanish flu or something, or the bubonic plague, I think was 30. That was in the 14th century that was like 30%. Michael, I want to switch to some personal development questions here. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Matthew: Yes. Being highly dyslexic, and not the best academic, books were never my favorite things in the world. I started on a journey of trying to find business books when I was younger that could show me how people actually became successful, but I like to find was business books that would tell me advice. I looked at like, even I looked at Warren Buffett's books and stuff that he's talked about, were influential in his life, and different entrepreneurs or innovators.

What I really couldn't find out was how people became successful, what is the story and how they got there, and then let me listen to their advice. It's actually been the book thing is something that's been an ongoing project that got to the point where it's like, people started asking me how did I become successful? That's when I was like, okay, I want to work with -- I actually started writing a book a couple of years ago.

Basically, working with a team of writers because I wanted people to see this is how I would -- if I could go write myself a book of how to -- If I could write a book to myself when I was 11 years old, how would I show them the path? For me, I learned by watching people, I learned by trial and error, I learned by being agile, I learned by researching and listening to consumers but real data coming in real-time.

How can I inspire myself going back all those years to be even more efficient, even faster to being successful and making a difference? I actually started on and really, that's what started me to do my own book. I had basically over 100 people in my life interviewed about me and the different stories and what they learned from me, and a great team of writers that work with me on this and a great publisher actually, I'm going to be releasing a book for the first time in this year or early next year.

The real inspiration that I get before is focusing on who changed. One of the best things was, they had to -- like the man who made America on the History Channel, watching, the different innovators of the time, whether it be Standard Oil and all these things, how they went through issues, how they adapted, how they took on competition, how the counter attacks and all these different things.

That was the things that I learned the most from is watching people that forges history, because it's very nice when you -- there's a lot of people that can become successful, but there's very few people that can maintain success and continue being successful multiple time. Very few are serial entrepreneurs. Back in early days in America, you could be a serial entrepreneur in one company because you didn't have all the technology you have today where it speeds up the process.

It also speeds up competition. I think that it wasn't one book, I think it was focusing on really listening to a lot of and learning about and researching about all these different innovators of the people who built America started with a series on the History Channel, but also digging in and actually talking to people.

Believe me, I tried off so many different books. I bought, how to look in and get advice, but these always people tell me advice, but I need to learn from how their actions were, I want to know what did they face as an issue? How did they overcome it? How did they structure things? Those are the things that you don't really get in a lot of books. That's my focus is if I can give that back so I can basically have made a book for myself. If I came back, look at this knowledge that I've learned, here's the structure, and now my brain is dyslexic to be able to magnify that.

Matthew: Well, that's really interesting. Do you have a name for the book yet?

Michael: It's not been released yet the name but it will be shortly.

Matthew: Okay. Here's a Peter Thiel question for you. What is one thought you have that most people would disagree with you on? It can be about anything.

Michael: I'm actually worried when people agree with me because then I'm like, I'm thinking I'm missing something. When everybody agrees with me, those are the things that scare me. I love that in our culture at my company and all the companies that I associate with, is that the ability to challenge ideas and to challenge thoughts. When everybody agrees, that's a problem, because we missed something.

I think that the biggest challenge that I had in the cannabis industry was really talking about personal care and home care and beauty products. They all thought I was crazy. They're like, how does cannabis play in a beauty product? How does cannabis play in a hair care product and how is like --They don't get the size or the scope.

Their focus right now is, putting in a product and devices, making a soda healthier, turning it to a cigarette, getting somebody for a calm and experiences. Then there's some great medical ones that cost a lot of money. No one was focusing and no one really believed in how cannabis can play a role in the plant-based revolution, just like beyond meat has changed in a way. It's like meat is going to be consumed as we advance and look that you can actually have a plant-based burger that tastes like a burger, which is scary.

When you look at the household, this same thing is happening inside every product in the household. Their big strategics know that they need to advance their formulas to be safer and plant-based and have a positive impact on humanity. The only way to get there, to get organic growth back in the consumer packaged industry is to use hemp CBD and different cannabinoids from cannabis to be able to enhance all these formulas to get rid of these highly toxic issues that are in every day.

The hidden pillars that are people using every day. There is a crisis in the household and these are plant-based solution and it needs to happen sooner than later because history will look back at these companies and say why the hell did he put this product in these products? This is a truly a solution that need to be happening. Even when you look at even the paper industry, there were people back in the earlier on, in trying to make hemp paper and hemp toilet paper and hemp, all these things but it got shut down.

Some of these rules that we have to fight today were barely so that the paper companies could process paper. They didn't want hemp because it can be cheaper. They didn't want these products in the market. We have to go back and unwind a lot of these pointless rules that are in the system now based on a time where they're trying to protect an industry. We need to bring innovation into this industry. Whether it be the industrial side of hemp and then the uses there, the personal care, home care, beauty products that can make products safer for consumers are making the vices safer, the drinks, the sodas, the calorie-free beers.

We need to get these innovations out there. We need to do it sooner than later. The government need to generate more tax revenue more than ever. We are going to have to pay for a pandemic that is going to set back generations and could potentially cost stagnation and inflation to hit the markets and future generations.

Matthew: Yes, it's going to be interesting how they undo that knot that was created here. It looks like perhaps going with negative interest rates and printing money and going with negative interest rates might be the direction taken, because we're pretty far down this path of going off the gold standard of the '70s. Now, having this money creation in debt. It's going to be interesting to see how this gets resolved. Do you have any thoughts on how our government figures this out, and it's really not just a US phenomenon, but also worldwide?

Michael: Well, they're going to have -- We're taking out a lot of debt right now that could affect many generations. There's a couple of problems too and how that we're starting to see is that people are finding out that them being furloughed and unemployed can actually make them more money than them working. That is a very big problem. Because it's going to setback industries from coming back online a lot longer as long as the employees incentivize more to not be an employee then and get paid more than actually working.

Along with that goes on, the less likely they're going to want to go back to work. The debt obviously has a lot of consequences and it ultimately is going to lead to the dollar weakness. The dollar weakness is going to turn into higher costs. Now, when the 50% of Americans only have 800 bucks in their bank account, and now they're going to have to pay more money for the products that they buy on a daily basis, and because of inflation is going to be a huge issue.

Not to mention, the yield are so low right now and the Fed is pumping so much money that needs to go to someplace in which is factually making the treasury yield zero. Eventually, it means that that's flowing in equities. There's a lot of problems that are started by some of the solutions that we're doing that need to be addressed with new income streams, new revenue streams, because you do not want to have a weaker dollar with stagflation and that combination is not good for any society, or any people or any government.

It is really important that we take this opportunity to look at how states can generate additional revenue and federal government can generate additional revenue. That is fundamentally why I believe cannabis is a very unique situation that the government could generate billions upon billions upon billions of dollars in revenues at a time where it needs revenue more than ever, so that way we can keep that dollar strong and push away stagflation.

Matthew: Great points, great points. Even just making I think the whole government structure paperless would help a lot where you're managing things on apps instead of faxing. There's still a lot of government entities that require you to fax and paperwork and all these archaic business processes could really be made more efficient. But I don't know if we're going to solve these problems here today, Michael, but you definitely have some interesting ideas about it. For listeners that want to learn more about Neptune Wellness and also check out your stock ticker, how can they do that?

Michael: Well, they can go to neptunecorp.com or they can check out our stock ticker on NASDAQ at NEPT or on the TSX. If they want to follow us on Twitter, Neptune Corp or my Twitter and Mike Cammarata. Believe me, I have problems spelling my last name when I was a kid, I don't expect most people to do it. If you go into the website, you can find my last name, you can find me on Twitter, and Instagram. But I think that we're doing our best to have a positive impact on the planet and people and look for ways to encourage growth in multiple countries in Canada, and the US.

Matthew: Well, great. Well, thanks so much for coming on the show and educating us, Michael. We really appreciate it. Thanks so much for talking about your experience with dyslexia. I think there's a lot of people out there that are saying, well, I know a little bit more about it now and what it means. I want to hear more about your book when that comes out. Keep us posted.

Michael: Definitely. Thank you for having me.

[music]

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 or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider.

Lastly, the host or guests on CannaInsider may or may not invest in the companies, 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.

[00:56:33] [END OF AUDIO]

Ep 301 – Cannabis After Covid – 7 Ways The Cannabis Industry Will Change After COVID-19

cannabis after covid

What will the cannabis industry look like after COVID-19? CannaInsider host Matthew Kind forecasts the 7 disruptive changes that will take place in the years to come.

Check out an infographic on these 7 changes at https://www.cannainsider.com/covid 

Key Takeaways:

  • How COVID-19 will impact cannabis in the next few years, including:
  • Automated grow rooms
  • Pathogen detection policies
  • Contactless delivery and payment
  • Pre-purchase of discounts cards and gift cards
  • Results-only business partners
  • Commercial drones for cultivation
  • VR education
Click Here to Read Full Transcript

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

Hi, Canninsiders. I hope you're doing well. This is Matthew Kind. I wanted to go over seven ways the cannabis industry is going to change after COVID-19 and I've put together an info-graphic for you that detail these changes at cannainsider.com/COVID, that's C-O-V-I-D. You can go there and get a visual of what I'm talking about or what I'm about to talk about. Okay. With that, let's get started. The first way that the cannabis industry is going to change after COVID-19 is automated grow rooms. Human beings need breaks, they need pay, they need benefits. Let's face it, we make mistakes when tasks get repetitive and we get preoccupied with other things and for things that can be automated because they're routine and happen over and over again, like planting cannabis seedlings and harvesting. Those things are going to start to be automated away.

Also humans are expensive. These cannabis businesses only want humans involved where they truly add value or I should say the forward looking cannabis business are. Where do humans truly add value? Well, it's not going to be so much as gardeners anymore but more as technicians looking over their laboratory in a sense. They're going to be managing the whole grow as a high level technician would be looking over an assembly line. It's going to look more like that. Humans aren't going away though. It's just they're moving up the value chain where their expense has a return on investment. That's number one, automated grow rooms.

Number two is pathogen detection policies. What do I mean by this? Well, after the wake of COVID-19 passes, governments will feel the need to respond to public outcry to do something about COVID-19 and to make sure that we're mitigating the risk. Also, insurance companies will want to know that their insured customers are doing a certain minimum to manage risk so they don't have to have huge payouts. What we'll see is pathogens detection policies from businesses and local jurisdictions to show what they're doing to manage the risk or disclose how they may not be managing the risks, so you know that too. Look for that the next 6 to 12 months.

Okay. Onward to number three, contactless delivery and payment for cannabis products. I've been talking about this for a long, but it's happening now. Contactless payment is something people are demanding. In fact, I already got a credit card in the mail from my credit card issuer even though my credit card hadn't expired yet. It wasn't set to expire for three years and they sent me a contactless credit card so I can just hold it near a credit card terminal and have it work. Many of us are already used to this with Apple Pay, but this is just going to greatly accelerate.

Also people are in their pajamas, they're looking frumpy. They just want to cozy up on the couch and they're not really wanting to interface with people when they order cannabis many times. They also don't want to be dealing with coins or dollar bills or potentially even a delivery person that's coughing or they look sick or something that's going to worry them. Look for contactless delivery and also a distanced delivery where somehow, you can acknowledge you've got the product, even if the person's 10 feet away or something more that's step one.
Step two is going to be fully autonomous delivery. I would imagine that would come to California or one of the Western States first that's a little bit more progressive where electric autonomous vehicle can come to your house and that smart locker will open up once you give some biometric information, like a fingerprint or an iris scan or something like that. Look for that to come. Okay, so that was contactless delivery and payment.

Number four is pre-purchase of discount cards or gift cards. What does this mean? Cannabis businesses are strapped for cash right now. Some are doing really well, but all of them would like to be doing better or almost all of them. The way they're going to get you and me to finance their business is they're going to offer us a hundred dollar gift card for their retail experience or dispensary or their brand and only have to pay $80 for it. Essentially a discount off face value of the card.

Why do they do that? They want the cash now to operate their business, but they also know statistically that a good chunk of the people will not redeem those cards quickly. They'll wait months, may be even years, and some, maybe even double digits will lose the card entirely or they'll have some amount on the card that they can't remember. Let's say if you have a hundred dollars gift card and you have $9 left on it, but you can't remember how much it is. All those things mean that the cannabis retailer's really not losing 20% when they sell you that a hundred dollars gift card. We know Cannainsiders are smart and you're going to spend the full hundred and not be part of that statistics, right?

Moving on to number five, results only business partners. What does this mean? Startups and entrepreneurs want to get into existing cannabis businesses and offer their goods and their services and their ideas and their technology platforms. These cannabis businesses are a little bit overwhelmed by that, but they want to stay ahead of the curve. What they're going to do is say, "Hey, I want you to come in and try this out for a month or two and if it works, we'll start paying. Otherwise, we can't really be involved." It's like a wait and see or a show me type attitude where they put all the risk on the startup to prove that they can help them.

Now I think it's really helpful if you're in this category to be a business that helps other businesses make money. Because most businesses they perceive that shedding expenses is not as important as earning one marginal more dollar. They recognize expenses are an issue, but at any given day they'd rather make an extra dollar than cut expenses. Also everybody in a cannabis business is excited about making more money and no one's really excited about cutting expenses.

If I had to start a business in this way, it would probably be something that can clearly prove that for every dollar you spend on my good or service, you're getting more than a dollar back and it could be demonstrated in some objective way. Look for results only business partners or startups to be allowed into cannabis businesses. This is look for language like a results only partner or something like that. A lean partner relationship, meaning that we only want to invest when we know it's working, that type of thing.

Okay. Moving on to number six, drones, and specifically I'm talking about commercial drones here for mostly cultivation. These are will be like the digital shepherds watching their flock of plants both indoors and outdoors and they give business owners data but also reassurance that their plants are thriving and they can look at their plants 24/7 and start to collect data and feel better just knowing in the middle of the night, all my plants are still there and they're doing well. All of the metrics look really good so I can go to sleep and not worry about this.

These commercial drones are going to be much more heavily leaned upon in the near future to provide other data like machine learning to look at potential problems in the plants and proactively mitigate those problems. Think of mold or pests or things like that on the plant. Drones are going to become a much more heavily relied upon part of a cannabis business, particularly cultivation business to know what's going on and to help business owners. All right, that number six.

Number seven, VR education. I don't know if you've been watching what's been going on in VR for, gosh, it feels like two decades now has really been about the promise of VR, what it's going to look like and what it's going to be. It's always around the corner and we've been waiting, waiting, waiting. Well, it looks like the Oculus Quest is the killer product that's finally arrived. It's cheap enough, I believe about $199 and importantly you don't need to connect to a computer. It's free standing. That was drag on the VR systems of old, you had to connect to a computer. This is totally freestanding. You'll see this and Microsoft HoloLens jump into the fore for education.

Right now it's mostly about entertainment and gaming and that's really fun and it works and it is extremely immersive. You can go on YouTube and get a sense of what these feel like, but until you put one on and also have the hand controls, you can't really tell.

What I see happening here is that app stores will start to arrive where third party developers will be able to create apps and specifically education apps. For example, the difference between learning in a textbook about cannabis cultivation and then having a virtual reality grow that you manage, in an accelerated harvest, that instead of months is just hours and you can go through the whole process of what it looks like, and you're also touching and moving plants with the hand controls can really give you a much more immersive educational experience faster and much more cheaply, because you're not ruining plants or taking up other employees time so look for that.

Also look for training for bud tenders, who will get training and how empathy, sales up-selling and also helping customers to feel welcome and helping them return back to a retail environment. All these things will be happening in VR education, specifically app stores that you can buy right on your headset. Take a look at the Oculus Quest and by the way, Oculus is owned by Facebook so just FYI there.
If you think I'm wrong or you think I've missed some big ways the cannabis industry is going to change after COVID-19 please let me know you can tweet me at CannaInsider and don't forget, I've put together an infographic for you at cannainsider.com/COVID C-O-V-I-D and you can see all these seven ways that the cannabis industry is going to change after COVID-19. With that, I will end the podcast now. Thanks so much for listening. Again, feel free to tweet me or send an email at feedback@cannainsider and let me know your thoughts on these different trends

Ep 300 – Cannabis Investors Are Changing Tactics Amid COVID-19 Crisis

kim kovacs arcview

How is COVID-19 impacting investments in the cannabis space?

Here to tell us is Kimberly Kovacs of The Arcview Group, the leading private investment network and market research firm in the cannabis space. 

Learn more at https://arcviewgroup.com 

Key Takeaways:

  • Kim’s background in cannabis and how she came to be CEO of The Arcview Group
  • An inside look at Arcview and its mission to forge a principled and profitable industry from the ashes of cannabis prohibition
  • How the coronavirus is impacting cannabis businesses and investor sentiment
  • Kim’s advice to startups looking for funding right now
  • Tips on how new investors can get started to set themselves up for long-term success
  • Kim’s best investments and factors that played into her decision-making
  • An update on what investors are currently funding most
  • Important takeaways from Arcview’s recent data reports on the size and dynamics of the cannabis market
  • What investors and entrepreneurs can gain from AV Access, Arcview’s new educational webinar series
Click Here to Read Full Transcript

Matthew Kind: Hi. I'm Matthew Kind. Every Monday, look for a fresh, new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com, that's C-A-N-N-A insider dot com. Now, here's your program. The Arcview Group is the leading private investment network and market research firm focused on connecting high-net-worth individuals, institutional investors, and money managers with investment opportunities in the cannabis space. Here to give us an update on what investors are funding right now is Kim Kovac, CEO of the Arcview Group. Kim, welcome to CannaInsider.

Kim Kovac: Thank you so much. Matt, it is a pleasure to be here. I have to say I'm quite a groupie of the show, so I'm thrilled to be on this now and representing Arcview.

Matthew: Oh, that's great. I can't hear that enough. Give us a sense of geography, where are you in the world?

Kim: I am in my home office, I think like many of us today, in Laguna Niguel, California. It's raining here, which is a novelty for SoCal. We need the rain, and it actually makes sitting inside a little bit easier.

Matthew: Oh, that's nice. It's only like 10 days of rain, I think, a year or something in Southern California, something crazy like that?

Kim: Yes, so we're tipping it probably at 20 this year, which we desperately need.

Matthew: Wow. We've had Troy Dayton and Steve DeAngelo on the show before, co-founders of the Arcview Group, but this is your first time on the show. Can you tell us a little bit about your background and journey and how you got into the cannabis and investing space?

Kim: Oh, absolutely. First of all, I have some really big shoes to fill and also a big hat. If you know Steve DeAngelo, you'll know the reference to that one. It's an interesting journey, one that I wasn't expecting. Probably what you hear from a lot of guests on your show, jumping into cannabis was a little bit of serendipity for me, but my journey actually with Arcview is a little bit of a poster-child situation.

I got into the industry a few years ago, also listened to your show, Matt, but decided to become an investor in Arcview and become a member. I started going to events and meeting folks, then I had this harebrained idea that I wanted to start a company, which I'd done before in my past, and I'll talk about that in a second, but I started a company called MyJane, and it's a company focused on women and getting more women into the cannabis space as consumers.

We actually then funded the company through a pitching event that we did on the Arcview stage. I was actually sharked by some of my, now, team members. Then we also got investing through that and then five months later, we exited the company also through an Arcview member. I'm truly the Arcview success story.

Matthew: Yes, the circle of life.

Kim: The circle of life, it is. Before that, it was really interesting for me. I'd a whole long history in tech investing, tech entrepreneur. I've had six startups, exited all the companies, good or bad. The last one that I had, which was successful in 2012, I took some time off and became an angel investor, and I started investing in a lot of technology, women's companies.

I actually ran an angel group in Southern California, it's a branch of Golden Seeds which is a well-known women's investment group out of New York. One day back in 2017, my mother-in-law actually confessed to my husband and I that she was taking cannabis, and she was taking it to get off of opioids, and I was really surprised. I had no idea that the plant could do this, I had no idea that it could be a replacement for things like that.

Literally, within a couple of months, she was off of it completely. With a 10-year history in managing pain and now doing that with cannabis, it was remarkable. I made a decision at that point that I needed to be in this industry, and I needed to invest in this industry. My heart and soul are in it.

Matthew: Wow. We have another interesting intersection going on with the coronavirus right now. How do you think that's impacting the cannabis space in the investment world?

Kim:  I think, like all of us, we're living day-by-day and really looking at, what is this next thing? How are these things happening? What are we going to be looking at tomorrow, even our families and our businesses and our markets and looking at everything? At the end of the day, I believe and I believe our investors believe in the consumer. The consumer is really driving what this market is now and what it will also look like.

If you read any one day, consumption numbers are up or they're varying. In California, we're still up 9%, 10% over where we were last March. Last week or actually two weeks ago, we had a lot of the top CEOs from the industry talking about the market right now and what we're doing with COVID. If you think of things like going from legal or illegal to essential in 18 months, that's incredible, Matt. We don't see that in any other industry, and all of a sudden, we're now an essential business with cannabis. These shifts in consumer behavior, I believe, are creating opportunities for investors to step in right now.

Matthew: Investor sentiment, how would you describe it right now? Are they mostly waiting for the dust to settle or are they saying, "Okay, this is the time to get a better valuation on something I was interested in before"?

Kim: As you know, investors are a little bit like cats and dogs, they all operate under different theses and different situations, but I would say, generally speaking, everybody is very cautious right now, but they're also very opportunistic. They're looking at deals, they're funding deals. The public markets are very risky right now. Private companies are actually looking very attractive, especially those that have what I'd say a longer-term horizon or a longer-term outlook on the market and what they're going for. The days of the quick buck are gone, and I believe our investors are looking for those companies that are doing the right things and have a sustainable business model and product.

Matthew: Even though the coronavirus is severe, it's not been around a long time. Is it fair to say that founders aren't really ready to give up too much equity for too cheap since it's a fairly recent development?

Kim: I would say probably some but I think others who have been around for a while, for example, one of my companies that I started. We literally started in 2007 and did our first round of funding in 2008, that was not a good time to fund.

[laughter]

Kim: If you read the Death Spiral of Venture Investing by Jason Calacanis, those are the things that would just deter, I would say, many from seeking capital or having real valuations, but I believe that right now because we've had such a brutal beating in our valuation markets in the public side, I think we were ready for this reset, and I think it needed to happen. I don't think it's COVID-related as much as it was, it needed to happen in this industry anyway.

Matthew: What advice do you have for startups looking to raise funds right now if you were having a cup of coffee with a startup founder and say, "Hey, if our roles were reversed, this is what I would do"?

Kim: The first thing I would say is, do you need to raise money right now? I am a realist, and there isn't as much capital in this market. It is a little bit more challenging to find, but supply and demand, so the less that people are looking for capital, the ones that really need it and, like I said, have realistic expectations and all these other things that make a solid investment, they're going to get invested in, but that being said, I'd say get real.

I wouldn't focus on what you're going to do in five years from now and how you're going to take 5% of a $100-billion market and things, but how are you going to tactically execute on a plan over the next 30, 60, 90 and get really real about those expectations? Have a couple of scenarios, making sure that you've looked at, what if this gets extended, the stay at home order, for another six months? What do you do? How do you maintain and/or build your business in that kind of situation?

We talked about reasonable valuations, but I'd also say reasonable exit plans too. A lot of this cannabis industry was a quickie, and we can't be thinking that way. Other investors don't think that way in other industries. We always talk about a 7-year plan and sometimes even 10 years for companies in the private space. I think we're culling the herd a little bit, but I think there's great companies out there, and those are the ones that are going to not just survive but thrive.

Matthew: Do you feel like any first-time entrepreneurs, they focus, maybe, on the wrong things, like getting their logo just right or something and not focusing on the bigger picture of what the investor might be interested in and or getting cash flow in? How would you try to orient a startup founder on what's the most important thing?

Kim: I had a great mentor, he ran a venture fund in the cleantech space, so think about emerging markets, right? This is cleantech back in the late '90s, early 2000s, and nobody even knew what cleantech was. For me, if you have a shiny logo and you have a great PowerPoint presentation, anyone can put that together. Your job as an entrepreneur is to talk to the investor and convince the investor that this is the time, this is the now, this is the right team, and you're the one to lead it.

That can be done over a conversation. It doesn't have to be a flash. I think that's where a lot of new entrepreneurs don't have a lot of confidence because they haven't done it before. If you really believe in this business and this idea and "the time is now," that's what you need to communicate, and you need to do it in a way that makes the investor want to invest. It's an opportunity, right?

We always think of this in the reverse. I think of being an entrepreneur, going to an investor is an opportunity for that investor. You're allowing them to come in, and you're going to demonstrate how you're going to make them, really, a lot of money based on this, and it's going to be a good time. It's going to be a fun ride together, right? Focus on those things that you would want to see if you were also sitting in the investor space.

Matthew: Then switching it around a little bit for investors looking to get into this space, maybe they have some extra capital, they're an accredited investor, they've had some success with their own business and they want to get out and invest in the cannabis space. They believe in it, and they want to invest, but it's this nagging feeling like, "Who do I pick? Can I trust them? How do I do due diligence?" All these things jump up as these roadblocks, and they prevent the action. What do you say to someone who's thinking those things?

Kim: We all have that exuberance. I think a couple of years ago, it was hard for investors, especially, I would say, sophisticated investors who'd been in other industries, to jump into cannabis because it was a two-week turnaround, no due diligence or very little, nothing to really go on. It's still an illegal market, federally. There were just so many things that were red flags for most investors that they just couldn't get their arms around it.

I think as an industry, we allowed it to happen because we really saw the Gold Rush or the Green Rush happening. Investors now, especially new ones getting in, they're going to take their time. They're going to want to also buddy up. I call this a team sport. I say this every time I talk to anyone about getting into the cannabis space or investing in general, don't go it alone because you have your experience, you have your life experience, your investing experience, and you're bringing, to the table, that.

If you multiply that by 5 people, 10 people, 20 people in a room and they're all collectively doing due diligence and looking at a company, that group-think is extremely powerful. That's what Arcview offers. It's this ability to connect with others that are like-minded or have like-interests in types of companies but bring in different experiences so you guys can rely on each other to do that due diligence.

One thing that we did start this year, Matt, which I think is brilliant and something I am a big believer in, is this collective fund. It's a member-managed fund. It's run by Jeanne Sullivan, who you probably know in this industry, and also Jeff Finkle. It's for members to invest and then manage these deals together. They've made seven investments in the space already, and it's a great way to go for first-timers.

Matthew: That's great. I watched that, firsthand, at Arcview events, people coming for the first time and they're thinking about what they want to do and then they meet someone that's made investments, that's been to many of the events, talked to many entrepreneurs. They sit in and listen to the questions they ask to the entrepreneurs and then slowly, you start to develop patterns where you say, "Oh, okay, this is a good thing to ask. How come they can't answer that question?

"Maybe it doesn't mean they're a bad startup founder, but they just haven't thought about it, and they need to, and that's a hole they need to fill in their business before I can invest." Then you can whittle it down to, "Hey, I need these questions answered before I can get to yes." It's an interesting thing. I also think that the startup founders have a tough job because the investors ask a lot of tough questions, and you can't know everything.

What do you advise a startup founder if they don't know the answer to something or they get confronted with a difficult situation? Because sometimes investors, most investors are nice and very polite but some can get a little bit-- I don't know how to say. I was like, "I feel like this has gotten adversarial, and I don't know why." You have to learn how to handle those things, but it's good to know how to do it because they come up over and over.

Kim: That's part of our Investor 101 course, right? That's how we learn how to be a shark. If you think about that personality of the shark and what they're trying to get at, they're trying to get you rattled on stage. The question and the answer aren't as important as how you respond, and they want to see how you act under pressure. I always say there's a power to the pause.

It's okay to take a beat, think about it and come back with even an answer that's something like, "I don't have the answer for your exact question, but I'm going to connect with you after this meeting, and I'm going to make sure I answer that question in more depth for you," or something along the lines of, "That's an excellent question. Here's how I would answer this today but given a little bit more research because you brought up some great points, this is the way I would approach this in the future," something around there.

You want to acknowledge that they have a good question, but you don't want to get rattled, and you don't want to show a lot of animosity, which I see a lot of entrepreneurs do. They get pissed off [laughs] because they're like, "Weren't you listening?" or "Hey, why do I have to answer this?" or "Why are you asking this question? I think it's a stupid question."

Don't go there because then you're creating this situation that is unwinnable for you. They have the right to ask you anything, and you have the right to not answer. I would just be respectful and take a lot of notes. You'd be lucky to get an investment on your first pitch. I usually say it takes a ton, a 100 sometimes, to get to the right message, to get to the right delivery, and to get to the right investor.

Matthew: Those are great points. I'm hearing you say you're honest about what you don't know, but then you're going to take accountability, "I'm" going to do this to get you the answer," instead of deflecting and doing something else.

Kim: That's what they would want to see as a leader of a company that they're investing in, as the CEO. They don't want you making up stuff as you go along, they want you to be making decisions based on data and analysis, not just winging it.

Matthew: It seems like there are seasons in investing in cannabis, and sometimes ancillary products are hot, sometimes extraction is hot, and things come around, and they come back again. What season do you feel like we're in right now in terms of what investors are really interested in and looking to invest in more?

Kim: You mean besides being in the winter season where everybody's-

Matthew: We're in the winter, yes.

Kim: -indoors, bundled up?

Matthew: Winter is here.

Kim: Yes, winter is here. I think that's part of being a really good entrepreneur right now is to recognize that seasonality, not just in the investor cycle but in the consumer cycle too. My husband plays hockey, so I'm going to give him a shout out, but he always says, "Skate where the puck is going, not where it is." We as an industry and I believe as entrepreneurs and investors, we need to really look at that.

If you look at the things that are happening right now, literally today, edibles are up, flowers down, delivery is kicking ass right now, and touchless technologies are hot.

A lot of these areas of our industry that have been ancillary businesses or great ideas or hoping that consumers adopt them someday, that day is today. If we can start really looking at that consumer behavior today, that's going to dictate a lot of what happens in the future.

I had an e-comm company back in the early 2000s, and some people were like, "Ugh, everybody's going to want to continue to go to the store. Why would they ever buy online books?" Come on, right? These things change consumer behavior permanently. We are going to see a permanent shift in our cannabis consumers and how they're going to want to have product delivered.

Another thing that I found really interesting in talking with Dennis at Caliva, for example, he said that brand loyalty is starting to become prominent, and it hadn't been, before. People were looking for deals. They'd go into a dispensary, right? If it was there, it was there. If it wasn't, they'd get something like-minded or like-product, but now they're asking for brands because those brands represent something to them.

It represents a good experience, but also it's safe, and we're looking for safety right now. We don't want to take risks with our health, so if you find a brand that is going above and beyond not just sustainability but organic and clean and this, you're going to stick with it right now.

Matthew: Yes, good points. It does seem like delivery is crushing it right now. It also makes me skeptical about how and when people return to a retail environment, a dispensary. Is it going to have to be like a Cirque du Soleil experience inside of a retail environment for me to want to go there? I don't know.

Kim: You know what, I believe it probably will. If you look at just general retail, they're trying to outdo each other with pop-up shops and all these other things that are happening. There's an amusement park, literally, like you're saying, in the malls now to attract people. I was listening to your last podcast about Andrea from Sava. She was the winner on our stage back in Santa Monica.

She's crushing it right now. I believe that the consumer wants the products delivered. They want that curated experience. They want to know that there is a quality behind that and that the brands are vetted. I think her business model is right on, and I think that she's going to be very successful not just now but as this new paradigm of cannabis consumption happens.

Matthew: Yes. She does have an interesting angle. For people that haven't listened to that episode, her business, Sava, and her name is Andrea Brooks, her focus is not on getting the product there as fast as possible but getting it there quickly and having a real relationship with the customers they deliver to, so much so that they know their name, they have conversations, and they only recommend products they really believe in or have some value.

It has a feel of like a co-op whereso it's kind of they've gone the opposite way to just speed, speed, speed, and it just feels more like family. It's like a family delivery-type network vibe to it. That is interesting when people say, "I'm going to try the exact opposite," but there's a reason for it, and then it works because I know in San Francisco, on the Peninsula there, there's ridiculous delivery times like, "Okay, I just placed my order for--" and there it is. It's so fast. It's like, "Wow, I don't even know how they manage this." It is interesting because sometimes convenience trumps all, interesting about the pop-up.

Kim: You have to listen to the consumer, in my opinion. The net new consumer to cannabis is going to be less interested in speed than they are, like you were saying, in this quality and the conscientiousness of the product selections and knowing who is coming to their door. Let's be honest. I'm 52 years old, Matt, I have children, and I don't necessarily need someone who is a little random coming to my house and delivering marijuana and cannabis.

Having that discretion and knowing that the person showing up at my door is someone who I would actually invite in for lunch, that was actually the entire [inaudible [00:23:09] MyJane model that I started two years ago was to have that kind of experience. We call them brand ambassadors, and they are female drivers who deliver products to women. We were a little early.

Matthew: Yes, ahead of your time. That's another way of saying it.I just want to press you a little bit more on Andrea Brooks because she won the Best Pitch at the Arcview event in Santa Monica, as you mentioned, but what specifically do you feel resonated as you watched the investors listen to her pitch and how she was delivering and that fit there? Why did it fit on that particular day, her message with that audience?

Kim: I think a couple of things that she did really well. She was extremely prepared for her presentation. She had all of the high points that investors are looking for, the establishment of the team, the inner workings of the company and testing theses out and then having them working, repeat customers, cart size, unit economics. She had everything really laid out well, and she told it in such a succinct way that she wasn't jumbling things around.

She was carrying that investor audience through that story and very well and hitting the high points of what investors are looking for. The team, the product, the traction, the longtime customer value, or the lifetime customer value, all of these things she had really identified, how she stacks up against her competition. Like you said, she's not there to deliver it in half an hour. It's going to be timely, but it's going to be quality, and how she differentiated then. She really nailed it with regard to that.

She was very respectful with the questions and very knowledgeable, not just about her industry and what she was doing, but I would say about the industry as a whole. Because we all ride together here, if there's trouble with the supply chain, there's going to be trouble down the road. She was just really able to nail that. The other part is that the pitch on stage isn't where all the action happens, it's when you walk off that stage and you start to create these one-on-one connections with people.

I can't emphasize that enough. So many people go to these pitch events, like an Arcview event even, and they don't work the room. They come offstage and then they go hide in a corner or somewhere. You can't do that because people still want to ask their question. They may not have asked it publicly, but they certainly will privately, and they're going to want to hear from you directly. Sometimes that one-on-one connection is the most important.

She worked the room afterward, then she came to our women's lunch, which is such a cool thing. By the way, with Arcview, we have this thing called WIN, which is the Women's Investor Network. It's a separate group part of Arcview, and we focus on women investors and women companies, and she worked that room like nobody's business. She was able to get more connections out of all of those than she was just on stage.

Matthew: That's great. That's like a little whitepaper we just did on Andrea.

Kim: We did. [laughs]

Matthew: I hope you don't mind, Andrea. There's people listening that are going to say, "Okay, I'm a startup founder, I have a good business, or I have a good business plan, and I want to get up on stage and pitch to investors. What does that process look like? How do I get into consideration?" What do you say to that, Kim?

Kim: I'd say, first of all, our stage has really changed in the last couple of months. It's now Zoom, Zoom. We are all on the Zoom stage. We are doing this now every other week. It's a rapid fire. It's actually really exciting now. I love it. We don't have to wait for three, four months to go by to bring more companies up in front of investors, we're doing it every other week. What I would say to entrepreneurs is, make sure you connect with us.

We are on LinkedIn, Instagram, Twitter, you name it, but also hit our site, put in an application, get in queue, be on our new platform, which is called Proseeder. That's where you're going to get visibility in front of all of our investor members and then every other week, we select companies to present in a webinar via Zoom, and we call it Arcview Access, and you get a chance to showcase your company. To me, this is really how I think, to be honest with you, I think this is how the world's going to be from now on. Why wouldn't it be?

Matthew: Yes. Can you record those [unintelligible [00:27:44] Zoom and then people can watch highlights right after [unintelligible [00:27:47] they can watch them? Is that how it works?

Kim: Absolutely. As a member of Arcview, you get access to your own profile, and part of the platform is that we record and store, for the companies, all of these presentations, so they have that as their legacy document library to be able to add things to. The platform is amazing. Full disclosure, I'm an investor in Proseeder, and I actually helped that company launch when they were working with Golden Seeds.

It's a platform that angel investors use. There's hundreds of them, different organizations. If you think about having your company on a platform that is being used by hundreds, if not thousands of other organizations like angels, small VCs, family offices, we can share those deals across that platform. It's called syndication. We do it all the time. For an entrepreneur now coming into Arcview, this is a new world. We've opened up digitally, so you get exposure to not just our members but all of these others that we syndicate with. It's brilliant.

Matthew: That's great. Now, switching gears a little bit to Arcview Market Research, which is the data-gathering and report arm of Arcview, is there any interesting data right now that's coming on your radar? You mentioned flowers down, edibles up, anything else that you feel is important to know?

Kim: Yes. We have a deep relationship with BDS Analytics, and we produce reports cobranded together under the Arcview Market Research segment of our business. We're coming out with our new intelligent report, which is the State of the Legal Cannabis Market. I think that's coming out next week. That's going to be a very lengthy report. One of the things we're working on with BDS is, how do we do this in bite-size?

How do we make data available to our members on a more frequent basis and more relative and more relevant? Because this market is literally changing every day, sometimes it's a little hard to keep up. Data analysis from a month ago may not be as relevant, but we're working toward delivering that data differently and bringing it to consumers and our members, both, and opening it up to the public. It's pretty exciting.

Matthew: Everything is moving to virtual, you're moving more to real-time data with BDS, everything's becoming shorter and more relevant to the moment and less to the in-person. That's a little trend we're drawing on right now here right in this interview, and we're doing it virtually. Everything's moving in that direction, so there's probably a lot of business opportunities just around that, creating the infrastructure for those type of experiences.

Kim: That's a great business idea.

[chuckling]

Kim: To be honest, I think a lot of industries have moved that way. I think for us, as an angel investor group, as a network of investors and companies, that technology has existed, we just haven't embraced it that much. We really have enjoyed, and we still do, the personal interactions. I don't want to say we're going to lose that, but we need to supplement it and complement it, so when we can't be together in person, we can still get that same feeling that we're in the room together.

Technology is advancing quickly to be able to do that. There was an interesting story about Starbucks recently and how they had put their whole mobile app together and order ahead and pick it up and everything. It was okay. Some people were doing it but not as much of an adoption as they'd hoped. It is now massively being adopted.

Matthew: Yes, it's true. It's a very good app too, I will have to say. The first time, I was like, "Why would I want to order ahead?" Now, I'm like, "Why wouldn't I?" It's crazy in that way. By the way, did you know there's more than three sizes of drinks at Starbucks? There's tall, grande, and venti, everybody knows that, but there's a secret fourth one. Did you know that?

Kim: I didn't. What is it? Can you share?

Matthew: I forget the name of it, but more than one person has told me like, "This isn't on the menu, but you can order it, and it's even bigger." That made me think, Kim, how big does a drink have to be before it's ridiculous? If someone ordered that fourth size that just seems huge, what if Starbucks, as a joke, made it 30% bigger than they were expecting? At what point would they say, "I want it big but not that big"?

Kim: [chuckles] I think they do. It's the craft that you can buy. I think I'm going to start moving in that direction because, after my third cup of coffee, I probably do need the gallon size.

Matthew: It's a big gulp.

Kim: It's a big gulp. I was going to say, they're probably taking a chapter out of the 7-Eleven book. That's the point is consumer behavior sometimes needs a push to get to a place that we go, "Oh, yes, for sure. Why wasn't I doing this before?" Like the Starbucks app, unfortunately, this is a really devastating push, but I think what we're going to find is that we don't feel like we need to be in a room together as Arcview members to make really good decisions and to support this industry and to bring capital to these companies that not just need it but we want them to be here.

We want them to be here, long-term, because they're changing our health and wellness in this country and in the world, to be honest with you. We need to be there, and we need to fund them now. We can't wait to see how they survive because they're not going to, right?

Matthew: Yes. Do you have any ideas on, once it's federally legal in the United States, how that might change things? I know it's just a hypothesis, and we're just subjectively going out into randomness here and we don't know, but how do you think that would change things?

Kim: I don't know if it's all that random, to be honest. During the Great Depression, one of the things that pulled that out was alcohol prohibition being lifted so the federal government could start making tax money on that, and that really filled the coffers and got the country back on track. Could that happen with cannabis? Maybe. If it becomes federally legal, think about the barriers to entry that absolutely just evaporate.

Banks now to fund, this Care Act, we'd now be able to apply for as an industry. I think the black market or illicit market would be diminished dramatically because if you could go to your local store and buy cannabis with showing your ID like you do alcohol, I don't know about you, but I don't really buy alcohol on the street anymore. I'm over 21. [laughs] I have it available pretty much anywhere I need to find it, and the price, it's a true market system. Prices will come down. I think there's just so much benefit, obviously, for that happening, and I think in this state that we're in right now, it makes a lot of sense.

Matthew: I do wonder about, will big brands become more prominent then, in a federally legal environment? I know they're in Southern California and really all of California, some brands do have an identity where they've taken off, but I wouldn't say on a national level, I see that yet, whereas if it's federally legal, do you think that's going to happen, we're going to have a Coke and Pepsi-type situation or a Dr. Pepper in the cannabis space, people want one brand they can get everywhere and have it be predictable?

Kim: I think here, we were going to see a little bit of everything, and it's the build versus buy analysis that all the brands will do. Coke isn't just coke. Coke has a lot of brands that are underneath the Coke umbrella. I think you're going to see the same thing here, just like you do with craft beer and Budweiser. There's a market niche for each of these types of products and brands and even just a provincial brand in California. That's [unintelligible 00:36:08] started. They wanted to be identified as the cool hobby in California, and they didn't want to lose that.

I think we're going to see big brands stepping in. I think they're going to keep the brand names of the companies that they're going to want to acquire for a while and build those out nationally or globally, for that matter. That's the other tipping point, is that the World Health Organization and others, I forgot which governing body it is, but they've got Schedule I on cannabis too.

If we can get that done, globally, look at what the market then can do. I think brands are going to do both. They're going to try to come up with their own products and then they're going to also scoop up good, solid companies. Again, get your house in order right now, making sure you're doing the right things because they're looking, trust me.

Matthew: Great suggestion. Kim, I'd like to ask a few personal development questions to help listeners get a better sense of who you are. 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?

Kim: Interesting, Matt, I've been listening to your show for a long time, and some people are really smart, and they've got great books that they can recommend. I have one that's really near and dear to my heart and actually one that I've recommended to my staff at almost every company I've started. It's a Tony Hsieh's book and it's called Delivering Happiness.

Matthew: That's very good. I've read that. Excellent.

Kim: You know what, pick it up right now, because I started rereading this last week, just because, and it is such a parallel to what we're dealing with right now, what he went through at Zappos, and really focusing on not just profits but the passion of the business and the purpose. What he had to go through, my gosh. He had Y2K, he had the dotcom bubble burst, no venture money at all, real estate going in the toilet.

He had all these things happening at the same time, and he just believed that he was on the right path. He really believed in his employees, his customers, and his vendors, and he treated them all very equally. The customer success that he does is just incredible and the focus there. That's what I believe too. You start really focusing on the customer, and all of a sudden, things start to really happen because you're listening.

Matthew: There is those famous stories around Zappos where they said you can talk to any customer as long as you want, and there's stories of talking hours with customers just about anything random.

Kim: Delivering pizza. They do all kinds of great stuff. They even do tours, still, at their facilities in Las Vegas, and the employees get to decide what the inside of that tour looks like. They do crazy stuff. They'll dress up the popcorn machine as a robot. One part of the staff might be all dressed in Dracula gear that day. It's fun but they also just keep their eye on the prize. He was early in the cultural revolution of companies, and I think we've all followed, and there's still more to go. I really appreciate them.

Matthew: A tour sounds fun, I have to check that out.

Kim: I need to go to. I haven't been.

Matthew: What's the most interesting thing going on in the cannabis field, apart from what you're doing in Arcview? If you had to jump into something else, just out of pure interest and passion, what would it be?

Kim: This essential claim in the cannabis business has really gotten me thinking of how that could be really expanded on, I would say, from an industry perspective. To me, data, I'm a data junkie. Everything I do is based in data and analysis.

I think we've got a huge opportunity with the data we're collecting, the consumer behaviors, the tools that we have right now. If I wasn't doing what I was doing, I would certainly be in the data and the science side of this industry, because I think we're just-- We've not even scratched the surface. I don't even think we can even say that. We've identified that there is a surface, and I think there's just so much that we're going to be able to do. Because this is essential now, we can start using that to our advantage to learn more and to find out more.

Matt: Here's a Peter Thiel question for you, what is one thought you have that most people would disagree with you on, a controversial thought you have?

Kim: Let's see. I don't know if it's controversial at the moment, but I always thought this before, which is, a crisis creates opportunity. A lot of people put their head in the sand, and they retrench when a crisis is happening, and I think that you need to step out, and you need to really look at what's going on, and you need to control what you can control. This world, COVID is here and yes, we're at home and yes, we need to take care of ourselves and our families, but there are so many opportunities out there to start a business, build a business, recreate a business, and we need to embrace that.

We need to stop running scared sometimes and start moving in the right direction and forward. I think the Rockefellers made their most money during the Depression or something along those lines. Then also Isaac Newton invented calculus during the bubonic plague. Let's stop running scared and look at crisis and create opportunity from it.

Matt: Well-said. Kim, as we close can you let accredited investors know how to reach out to Arcview and also let startup founders know how to reach out to our Arcview so they can connect?

Kim: Yes, for sure. Hit our website arcviewgroup.com. We have areas of the site that are designated for both founders and potential members. Send us just some quick information about you. We've got a team really on standby. In fact, we just launched our chatbot. We're able to literally live chat, and it is someone there. We've got a few people in our membership team who will answer questions and engage you right there.

The other thing we have is called Arcview Access, which is now this weekly web series that we're doing, that allows both members and nonmembers to get education, to listen to things going on in the industry. We've got some amazing guests and celebrities and talent that are coming on to impart words of wisdom, and we're collecting all of this and creating a library and adding more so that we can really deliver to our customer not just happiness but real information to make real decisions.

Matt: Kim, thanks so much for coming on the show and educating us. That was really helpful to get a snapshot of what investors are thinking about and what startup founders are thinking about. Thank you and good luck with everything for the rest of 2020.

Kim: Thank you so much, Matt, and please take care.

[music]

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 to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends.

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

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

[music]

[00:44:43] [END OF AUDIO]

Ep 299 – Cannabis Deliveries Surge in the Wake of the Coronavirus…

tim conder blackbird 1

With COVID-19 keeping people at home, cannabis delivery is booming.

Here to tell us more about it is Tim Conder of Blackbird Logistics, one of the industry’s leading software and operations companies.

Learn more at https://myblackbird.com 

Key Takeaways:

  • Tim’s background in cannabis and how he came to start Blackbird
  • An inside look at Blackbird and how the company facilitates the movement of cannabis products across the supply chain
  • How Blackbird fits in with its parent company TILT Holdings
  • Ways in which cultivators, dispensaries, and brands can benefit from Blackbird
  • How payment is being handled for home cannabis deliveries amid COVID-19
  • Recent changes Tim has seen in cannabis delivery and where he sees it heading in the years to come
  • How customer behavior is different than usual and the products people are ordering most
  • Tim’s advice for cannabis companies trying to navigate COVID-19
Click Here to Read Full Transcript

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

With COVID-19 leaving many at home, the cannabis delivery business is booming. Here to tell us more about it is Tim Conder, CEO of Blackbird. Tim, welcome to Canna Insider.

Tim Conder: Thank you, I appreciate it.

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

Tim: I'm in Reno, Nevada.

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

Tim: Blackbird is a supply chain company that operates in the cannabis space. We facilitate movement of cannabis product through the supply chain, both digitally and physically.

Matthew: Okay. Can you share a bit about your background and journey and how you got into the cannabis space and being a CEO of Blackbird?

Tim: Yes, absolutely. I worked as a bicycle messenger in San Francisco and moved back to my hometown of Reno, Nevada to start a bicycle messenger company in 2009, right after the 2008/2009 meltdown or financial crisis. I moved back with the thesis that, while bicycle messenger services in larger markets like San Francisco were suffering due to the advent of email, that a relationship-based service could thrive in a smaller market like Reno, Nevada.

I started that business in 2009, and it still operates today, almost 11 years later. In 2015, we saw an opportunity to pivot that business, which was called Bootleg Courier Company, into the cannabis space and start providing our unique brand of services around last-mile and on-demand delivery to cannabis operators. In 2015, when the medical program got on its feet here in Nevada, we launched Blackbird, which was a last-mile delivery company for both wholesale and retail cannabis operators.

Matthew: That's really cool. I hear Reno's really becoming a hotspot for people from California that are moving out of California for a bunch of reasons, some regulatory, some tax, some lower cost of living. Can you talk about that a little bit?

Tim: Yes, absolutely. I mean, Reno is within close proximity to the San Francisco Bay Area. The cost of living is definitely less expensive than San Francisco. Really, its proximity to the Silicon Valley as well as its cost of living, have contributed to a pretty significant uptake in technology companies settling in this area, either initially or expanding into this area. Apple has a campus here, Tesla has, I think, one of its largest campuses in the world here. Yes, I think it's become really a hotbed for technology startups because of the cost.

Matthew: Okay. Can you give some context of how Blackbird fits into the parent company, TILT Holding so we can get a picture there?

Tim: Absolutely. Blackbird was purchased by TILT in January of 2019. TILT was really an amalgamation of lots of different types of cannabis operators and ancillary companies servicing cannabis operators initially. What has evolved in today, is a group of technology and innovation companies under one umbrella that service cannabis operators globally. The two assets that underpin that goal are: Blackbird and Jupiter Research. There are other companies that were part of the initial business combination that have integrated into Blackbird now as well.

Matthew: The geographic footprint for Blackbird is Nevada, well, Nevada, I'm always corrected, and California, correct?

Tim: Yes, from an operations perspective, that's correct. We offer our services, operational solutions, statewide in Nevada and statewide in California, but our technology platform is utilized in all 33 regulated cannabis markets in the US as well as Canada, Jamaica and Puerto Rico.

Matthew: When I say Nevada, that's an immediate tell that I'm not from Nevada, right?

Tim: [laughs] It's an immediate tell that you're from the East Coast.

Matthew: Okay. But I'm actually from the Midwest.

Tim: We'll close yet.

[crosstalk]

Matthew: Okay. Just so we're really clear, can you go over how a dispensary, a brand, and a cultivator might work with Blackbird?

Tim: Yes, absolutely. We put cultivators, brands and manufacturers in the same category, we call them wholesalers. Essentially, what a wholesaler will do to utilize Blackbird is, they would use our software to create and manage their inventory, both at their own facility or when they're moving that inventory between facilities; either to another wholesaler or onto a retailer.

They would use our operational services to actually move that product from one facility to another. For example, if a cultivator has 100 pounds of flour that they want transported to a manufacturer, they would already have that inventory created in the software and they would create a shipment to the next location. Blackbird would come pick that product up, transport that product physically and then digitally, the product would be transferred from the Cultivator A, the originating facility to Manufacturer B, the destination facility.

Like I said, both digitally and physically that product is moved.

Matthew: Just curious, how is that transport done? Is it like an unmarked van or something? Or how does that work?

Tim: Yes, pretty much exactly. I mean, we use all sorts of different Ford Transit vans. Secure transport, so that's, they have cages in the back and they are GPS-tracked, alarms and all the bells and whistles that both Nevada and California regulations require.

Matthew: Okay. How many dispensaries are using Blackbird right now?

Tim: Roughly a thousand. I mean, we deliver product in Nevada and California to 100% of all licensed dispensaries. We know that because our software, in order for us to even contemplate making a delivery to either a wholesaler or retailer, we create that entity within our system and validate that they have an active license in the State in which they operate. We can cross-reference that against the State database. We currently deliver wholesale product to 100% of the dispensaries, like I said.

Internationally, Blackbird services- has retail clients at roughly about a thousand.

Matthew: Okay. I noticed Deliveroo and some other food delivery services are starting to move to total contactless where you just drop off, if you sign anything. How is payment handled for people that are doing home deliveries now and do you see that evolving at all?

Tim: Currently for us, it's a cash only business, is related to home delivery. We're always looking for long-term payment solutions because we don't want our drivers to carry very much cash; we require them to return to the facility to offload the cash that they have. It's an encumbrance to our business that we've been looking for solutions for the past five years.

We've found some solutions, but none have ever stuck. Most of the solutions that we've found have had some problem; either it's too complex and we can't get everyone that we need to, to adopt, or the solution goes away. We had that early on, we had a payment, a credit card processor, and we required all of our transactions to be done via credit card, and then that processor closed its doors. We had to deal with the fallout of that.

We've been very diligent and deliberate about onboarding a new solution. There really is no great fit for us currently, which is why we're currently cash only.

Matthew: Do you see something like a stable coin or a coin that mimics the performance of our national currency that could be sent between phones as a possible option down the road? Or do you think we're not even closely to that?

Tim: Everything is a possible option. What I would say is, we're trying to really go the direction of normal e-commerce environments. Until something like that is widely adopted outside of cannabis, will it makes sense for cannabis? It just becomes another thing that we're beta testing, right? It becomes another thing that's wrought with issues and problems that we have to solve for. One thing that I think all cannabis operators can probably identify with is, there is no shortage of problems that we already have to find solutions for. Introducing a new technology or concept that just creates more problems is just not something that's tenable for our business.

Matthew: You mentioned you support about a thousand retail environments. How many brands do you support?

Tim: Several thousands. Many wholesalers have a number of brands underneath their wholesale license umbrella. We work with a number of wholesalers and those wholesalers represent near 2,000 brands.

Matthew: How much has sales been this year and how would you compare it to let's say Q1 from 2019?

Tim: They've been good. Because we're publicly traded, we can't be too forward-looking but I would say that we are experiencing growth and we have been experiencing steady growth. When we combined with the other technology companies under the TILT banner, and those companies were Baker Technologies and Brightside, we saw just some attrition through that process. We've had some lumpiness in our revenue but have really completed the integration of those three technology companies under Blackbird and are really starting now to ramp up our revenue.

Matthew: How would you say the cannabis delivery business has changed since the Coronavirus has come on the scene and everybody's at home?

Tim: It's night and day, I think. I like to use Nevada as a microcosm. Nevada initially was going to allow dispensaries to remain open for online pickup order submissions, but reversed that decision only a couple of hours or days later, I can't remember. I think it was a couple of hours later to require that all cannabis purchases be done via delivery.

We essentially saw a market that in Nevada does like 60 million in monthly revenue, go from an in-store and delivery model to a delivery only model overnight. You can imagine-- It was very chaotic. We saw basically an immediate 600% increase in our volume. We've been really-- No business can scale 600% overnight, it's just not feasible. I'm proud of our team and how rapidly they were able to scale and now we have scaled to meet that demand and have been scaled for the past couple of weeks, and are actually taking on new clients and more orders as we speak.

Matthew: I imagine there's a lot of people that have never done a delivery before, for whatever reason, they just like to go to a retail environment. They're navigating it like a Zoom meeting for the first time. A lot of these things are firsts. Has that caused any hiccups?

Tim: Yes, for sure. It's a new process that people have to get used to. Cannabis is a heavily regulated product. It is more complex to get a cannabis delivery than it is to get a food delivery. The expectation has been set by companies like Uber Eats and Postmates that when you place an online delivery, you get it 30 minutes later, and that's just not reality with cannabis.

Blackbird, I think, does a good job of trying to get that to be as close to reality as possible. Because of the demand, we actually moved from same day, two hour, on-demand delivery to next day, but we'll be reintroducing same day deliver probably as early as next week. I think, together with our partners, we have done everything we can to meet the needs of our customer base and their customer base.

Yes, it's a little bit-- People have to get used to it a little bit. They have to pay in cash, they have to show their ID, they have to sign state paperwork, but all in all, I think that the service has been very well received by the significantly expanded base of customers and patients. I would just say, we're all doing our best to meet people's needs during a very, very uncertain and scary time.

Matthew: Does the software make a suggested route? Like if you have 30 deliveries to do in a day, does it say, "Okay, these are all, it would make sense to go counterclockwise around the city", or something like that?

Tim: Yes, absolutely. Our in-house software, it manages not only the compliant movement of product but also our drivers and routes. Yes, absolutely does that.

Matthew: What are people ordering? Is it different than usual? What can you tell us about that?

Tim: I would say that the product mix is not different than-- Is not out of the norm, but the basket size is significantly larger. Our pre-COVID-19 basket size was about $120 and our current average basket size is $139. We're definitely seeing higher, larger, more expensive orders. Most like-- It's probably pretty reasonable, right? People are expecting that they may not be able to get a delivery or want a delivery for the next week or longer. They're ordering to be more efficient with their own time or money.

Matthew: Have you seen cannabis brands react and adapt to this? Are they thinking more like, people are nesting, how can I give them products that would allow them to feel comfortable? What are they thinking? Are they thinking out loud to you at all and giving you any feedback about their thoughts?

Tim: Yes. I think that's a really interesting question. I think that, so far, the most adaptation that I've seen from cannabis brands is on their marketing. Rather than picturing young people out at the beach, they may be marketing pictures of people at their homes. I haven't seen any brands pivot. Personally, I haven't seen any brands pivot completely to new products or comprehensive marketing strategies, but we've definitely seen some of those more nuanced adjustments to individual marketing efforts.

Matthew: You picked a great business to be in by the way. This is so valuable for people. I get that the fourth essential or fifth essential product is cannabis, and now, cannabis delivery. Since we're such in a chaotic time here, when you sit down at your desk every day, do you realize like, "Oh, yes, right, this is like emergency measures going on"? What reminds you as you sit down at your desk like, this is a unusual time?

Tim: Gosh. What we've always tried to do at Blackbird is really just support to the best of our abilities the partners that we work with and the customers that we work with within the cannabis space. One thing that is become very, very prevalent is this fear of uncertainty and what the future holds for cannabis operators. I think a lot of them have seen a dramatic decline in their business. Despite being determined an essential business, I think, nationwide and globally, people are watching their expenses as they deal with uncertainty around employment and their own financial future. While we saw pretty big initial increase- or while cannabis operator saw initial increase in demand, I think there has probably market-wide seen some decrease or fall off in purchasing habits.

That's what's really hitting me over the head every day, is the decisions that cannabis operators are having to make about their businesses in real time as it relates to the employees that they have, the states in which they operate. They are faced with very tough decisions, and because we work so closely with brands and retailers, we hear about those decisions and we talk to people as they're struggling to find their footing.

Matthew: If you could wave a magic wand and change one thing about the cannabis industry in California, what would it be?

Tim: I would change the cash component. It's been, probably- the biggest burden on our business is handling cash, and I think a huge burden for the state, honestly. If we could find some resolution or solution around banking, a widespread solution, I think that would greatly benefit the industry as a whole and specifically California just because of the number of operators and the big numbers that we're seeing in tax revenue and purchases.

Matthew: How do you see home delivery evolving over the next two to three years?

Tim: I think it follows market trends outside of cannabis. I mean, Target, for example, is predicting, I think, that 10% of their revenue in 2020 will come through e-commerce and 85% of that will be done through the last final delivery.

I think that as cannabis becomes more and more commonplace throughout the country, and as people get used to purchasing legal cannabis, they will probably start making their purchases much in the same way that they make other purchases. Rather than going into the retail dispensary and waiting in line with 20 to 50 other people, they'll purchase online and all walk-in for pickup or they'll place their orders for delivery just like they do with their groceries; they do through Amazon, they do for their food. I just think it starts to follow market trends and consumer behavior in a similar fashion outside of cannabis.

Matthew: So if you put on your crystal ball or you take a look through your crystal ball here, which no one has, so this is totally subjective wild guess, when do you think the first commercial drone delivery to a residence will be, west of the Mississippi, because, I think, east of Mississippi, those states are going to be way behind the west states. So, first commercial delivery, when do you think, five years?

Tim: [laughs] I think five years, and I think it'll be Amazon but I think what cannabis will be well behind that. For example, in the California State Regulations, it specifically disallows drone delivery. So I think [laughs] cannabis being a regulated product will probably be the last thing to be delivered by drone.

Matthew: Seeing as you're in Reno there and Tesla has a large presence, their big factory and offices there, how about an autonomous car delivery?

Tim: Yes, I think maybe that's closer than drones, maybe not, I'm not sure. I think the landscape in Reno probably makes that hard. It's not a city with a type of tight streets and grid layout, it's spread out and there's a lot of seasonality here with snow and rain and things of that nature. So, I don't foresee it happening anytime soon but I wouldn't take it completely off the radar.

Matthew: Tim, I'd like to ask a few personal development questions to help listeners get a better sense of who you are personally. 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?

Tim: Oh, that's interesting. Yes, there's been several, I think. I found, from a business perspective, good reads like the Steve Jobs' book and the book about Disney and its creators. So, definitely, there are a lot of great books that I like to read from a business perspective. Then from a personal perspective, I think, anything around philosophy is always really interesting, personally, for me and provides a lot of perspective, not only on business but life in general.

Matthew: Okay. Is there a market segment you consider very desirable for people looking to get into this up-and-coming industry, where tech meets cannabis, because, I feel there's a lot of people sitting at home right now that are like, "I want to invest in a skill set that I know will be useful that when I'm done, I will be marketable." I see, obviously, technology, software, logistics is big in cannabis. So, those two roads are coming together. Is there one tech skill you think in particular that you feel is in short supply that you would be interested in hearing from people that have those skills?

Tim: I think that probably where I have seen where there has definitely been a shortage in the past is really data driven analytics that relate to marketing. I think there are companies that are dipping their toe in there, companies like Philo, that they're interesting and up-and-coming. At a whole, the cannabis face has been less data-driven, at least initially, than probably other more robust and mature markets. I would say data analytics is where I would focus.

There are companies that are definitely doing good work, I don't mean to say that there aren't, but cannabis operators have been operating from a place of like, "Well, this worked for me last time, it should work for me this time", but they're anecdotal and gut decisions rather than data-driven decisions.

That's something that Blackbird has always looked to solve. There are a lot of cool, up-and-coming companies that are also looking to solve for some of those problems, but that's where my focus would be.

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

Tim: I think one thing that we have always- has been always part of our thesis at Blackbird is that software and operations together are more powerful than the two independently. That is something that has definitely been contested both internally and externally. Some even [unintelligible 00:26:49] of my team feel we're trying to do too much, but I very strongly believe that the two go hand in hand and that they create a large amount of benefit for the partners and customers that we serve by pairing the two.

I always liken it to Dominos, right? Dominos is a technology company that happens to make pizza, we are a technology company that happens to facilitate delivery and transportation for cannabis operators.

Matthew: Great insight there. Tim, in closing can you tell manufacturers, cultivators, retailers how they can reach out to Blackbird if they're interested in learning more about what you do?

Tim: Yes, absolutely. They can visit myblackbird.com and see all the things that Blackbird is today and will be, going forward.

Matthew: One more thing, your parent company, TILT, which we mentioned, is a publicly traded company. Is there a ticker symbol or anything people can look up if they're interested in that?

Tim: Yes, absolutely. It's a T-I-L-T or T-L-L-T-S, and they can find more information at tiltholdings.com.

Matthew: Great. Well, Tim, thanks so much for coming on the show and educating us. You're doing some great work out there in Nevada and California, and good luck.

Tim: Absolutely, [crosstalk]

Matthew: In this crisis crisis.

Tim: Yes, thank you so much for having me. Please stay safe and healthy.

[music]

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 sends us an email at feedback@cannainsider.com, we'd love to hear from you.

Please do not take any information from Cannainsider or its guests as medical advice, contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertises or companies featured in Cannainsider.

Lastly, the host or guests on Cannainsider may or may not invest in the company's entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.

Final disclosure, to see if you're still paying attention, this little whistle jingle you're listening to you 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.

[music]

[00:29:44] [END OF AUDIO]