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Cannabis Grows – Solving The Light and Heat Challenges

joseph dimasi

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

More cannabis entrepreneurs are thinking big. Joseph DiMasi Founder of Suncast is one of those entrepreneurs thinking really big. Joseph’s company is developing a technology that promises to route or bend lights to dramatically reduce the cost of lighting a cannabis grow. Joseph welcome to CannaInsider.

Joseph: Thank you Matt. Happy to be here.

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

Joseph: Sure I’m one of the lucky few who gets to live in Boulder, Colorado.

Matthew: Yes.

Joseph: I came out here for graduate school in 95 and haven’t been able to leave since.

Matthew: A lot of people are saying like wow a lot of your guests are from Boulder and it’s just happenstance that there’s just a lot of cool things going here. A lot of innovation in the cannabis space so it’s nothing intentional I’m doing it’s just a cluster like Silicon Valley for technology I’d say.

Joseph: Well apparently Boulder has the largest number of PhD’s per capita of any city in the U.S. and it’s on all the top entrepreneur cities in the U.S. too.

Matthew: Gosh yeah. I didn’t realize there was that many eggheads going around. I had to think I had a lot of triathletes so that’s like a weird combination.

Joseph: Right.

Matthew: So Joseph if you would give us a little background about yourself. Your education, your career so we can get a sense of who you are and how you came to start SunCast.

Joseph: Sure Matt. Gosh, so my background is largely engineering. I’ve got an undergraduate degree in engineering and then a graduate degree in optical and laser engineering where my research thesis was in holographics and optical computing so some real advanced stuff. So for the last 25 years I’ve been in and around technical projects. I’ve run my own consulting firm since 2000, done about three or four million dollars worth of Government grants for high tech, run lots of multidisciplinary engineering teams, been in engineering sales, technical marketing, and for the last four or five years have been pursuing this project now with SunCast.

Matthew: So tell us at a high level what SunCast is and what’s it do.

Joseph: Awesome, yes. SunCast is a new solar cogeneration technology and those are a bunch of fancy words. What cogeneration means is we’re doing two different energy technologies with sunlight. So we scoop up sunlight and we split it into the half you can see and the half you can’t see. The half you can see and that plants can use we cram that into fiber optic cables. They are like pipes for light but they’re skinny and flexible like your shoe lace and we can route the sunlight deep into buildings. The other half of sunlight is heat. It’s infrared. It’s what makes your hands and arms and body feel warm when you’re in the sun. Well the plants don’t use it and you don’t want it in your building because it’s just going to run your air conditioning costs up. So we split that off and we send that to another technology which turns it into electricity more efficiently than a solar cell.

Matthew: Wow. That is really interesting. You know I’m probably one of the many people out there that equate the suns energy and think of the heat component as so important and don’t think about there’s an aspect other than the heat that’s going on in the light spectrum that’s doing such incredible things. So that is really interesting and now when you say you move the light around how exactly does that happen?

Joseph: So yeah it’s a technology called fiber optics. For example most any telephone conversation you have like our conversation we’re having right now is going over the internet and the internet is communicating the light pulses that are going through these pipes for light called fiber optic cables. So once you can cram light in it it will just go down it like water goes down a hose. We’re using a different kind of fiber optic cables and we cram light into them; sunlight into them and just like water goes through a hose you can route these cables and bring the light into your building.

Matthew: So who do you picture as the ideal customer for SunCast. I mean obviously we have a cannabis focused show here but who uses this technology ideally?

Joseph: Well the ideal customer is any of the pioneers in indoor agriculture. Some 90% of legal cannabis grows are still inside. There’s a lot of benefits to growing inside. You get superior number of crop rotations, better yield control security but the challenge is always trying to replicate the sun. Well we can make that challenge much, much less for them by bringing the sunlight that’s hitting their roof inside their grow and lower their costs dramatically and we believe increase their yield.

Matthew: Yeah there is a lot of pioneering efforts in the indoor growing space apart from cannabis. I follow some of these container companies that are growing food crops in they look like shipping containers and they’re doing it in a way that looks so efficient and incredible that I hope we see some breakthroughs there.

Joseph: Yeah indoor agriculture the time is coming. If you even look up the information from the USRDA they talk about a nine billion dollar market; target market of people growing food indoors and there’s a lot of reasons for that. That average fruit or vegetable you eat probably travels 1,500 miles to your plate. So a lot of what you’re paying for is the cost of the transportation, you’re paying for the cost of refrigerating, the cost of spoilage as it comes to you, and there’s now a new hyper local movement going on; people care. Even if you buy organic food you don’t know if your next door neighbors have GMOs or not so indoor agriculture is coming.

Matthew: Yes. Now tell us a little about your connection with the Department of Energy and their interest in SunCast.

Joseph: Yeah so well I’ll just say it right now. The Department of Energy did not give us several million dollars to grow weed for people right. So this technology was funded through the Building Technologies Program and it’s for commercial lighting. So commercial buildings represent some 70% of electricity used through buildings and the number one cost of energy use in buildings happens to be lighting and you could say oh if you want to be green about it you can put up LEDs and solar panels but the truth is once you get above two stories you just can’t get enough energy from solar panels to light up LEDs due to all the efficiencies. So we are really a breakthrough in green building design.

SunCast is the company that’s taking it to agriculture and taking it into the cannabis industry. So there’s two sister companies that are working with each other and we do have to keep church and state separated a little bit. Make sure we’re not using federal money, taxpayer money to grow weed. There’s some concern there so SunCast is the one that’s allowed to use the technology for that.

Matthew: Can you tell us a little bit about the upfront costs to implementing SunCast in a grow?

Joseph: Sure. Well you know that’s one of the really exciting parts that we want to provide our customers. There’s a company called Solar City. Have you ever heard of them?

Matthew: Yes. I have.

Joseph: Yeah. I mean what Solar City did solar panels have been around a long time and the technology has advanced but it hasn’t changed that much. The real breakthrough is when Solar City provided financing for its customers. So it was able to put the solar panels on a person’s house for free or little money down and then only charge for the electricity that the solar panels deliver but charge that electricity less than what the utility would charge for electricity. So it’s a no-brainer right? Who wouldn’t want free, cheaper, green energy on their house and they’ve been crushing it and the solar energy industry has been one of the fastest growing clean energies ever, ever seen. SunCast will be the Solar City of cannabis. So we intend for just a fraction of the install costs to put these systems on a grower’s rooftop and then only charge for the full spectrum daylight that we deliver at a cost cheaper than any full spectrum electric light lifetime costs that they could run it for.

Matthew: Wow that’s fascinating. Now is Solar City is that an Elon Musk company as well.

Joseph: It was actually Elon and his brother, Kimbal. We’re talking to their cousins and I can’t remember their cousin’s names. So actually the cousins of Elon and Kimbal are running Solar City and the majority owners although I believe both Kimbal and Elon are on the board and involved.

Matthew: We got to figure out a way to clone these musk family members here because their clearly having a huge positive impact on the world.

Joseph: Yeah well maybe everybody out there can cross their fingers for me. I was told that I’m going to get an introduction to the family in the months to come so hopefully we can all work on this together. It would be a great strategic entity to work with. We would really get some great leverage there.

Matthew: Oh yeah. So tell us a little bit about; we talked a little bit about how sunlight is different than normal electrical light. How the sun is a better growing medium than artificial light but can you tell us anything more about how growers should be framing this concept in their mind of the sunlight versus artificial light and what it means to them on a practical level day to day running their grow?

Joseph: Absolutely. I mean first I’ll talk a little bit about electric lighting. It is the largest cost to the grower. The lights; energy is the largest cost to the grower and it can be anywhere from 30% their costs up to 50% their costs depending on where they live and their circumstances of their grow and it all starts with the lights. Not only does it take a lot of energy to run one of these lights; you can have a 1,000 watt light spaced anywhere from 4’ to 6’. When you talk about a grow one of the first questions the growers will talk to each other is they’ll say how many lights do you have right? Actually they don’t even talk in terms of square feet.

Matthew: Right.

Joseph: How many lights do you have right?

Matthew: Right.

Joseph: And each one of these lights is actually producing more heat than light. I mean up to 80% of the energy that you’re getting out of the electrical socket is being turned directly into heat. So there’s an enormous amount of energy that has to go into the air conditioning. A single 1,000 watt HID lamp can take anywhere from 5 to 6,000 BTUs of air conditioning and even the high end gavita’s, ePapillon’s, double ended lamps still take 3 to 4,000 BTUs. So they’re talking about HVAC in terms of tons of HVAC and then this extra heat depending on how it’s hitting the plant can heat it up and drive its respiration. Respiration is the way the plant defends itself from that extra heat. It will pull up more water out of the soil and then it will pump it out the surface of the plant. Well then you have a dehumidification problem so that’s the other great energy sucker right and dehumidification is actually a double problem because if you don’t manage that quite right that extra vapor can turn into mold and take down crops.

Matthew: Yeah. A big problem there.

Joseph: Right. So there are lots of options in the lighting space. I just mentioned a couple. The vast majority are standard HID lamps, high pressure sodium, metal hay light. There are some up and coming technologies the double ended lamps will get you anywhere 10 to 30% more efficient than standard HIDs. There’s ceramic metal hay lights they are great for vegetation. They may be 10 to 20% more efficient than other HIDs. There’s plasma lights and then of course the one that everybody loves to talk about is LEDs. That stands for light emitting diodes and for all the talk about how efficient and how great LEDs are a lot of third party research has shown that even the best LEDs are just about as efficient as producing light as double ended lamps but the upfront cost can be anywhere from 5 to 6 times the upfront cost of double ended lamps.

Now LEDs will get there. I work with the Department of Energy Solid State Lighting Group so I do know a lot about that technology and it will be; the costs will be coming down in the next few years. They will be getting more efficient the next few years but not that much maybe a factor of two. So it’s still going to be a big pain area and it’s still going to be a big cost. There are other advantages to LEDs that I could get into they use light more efficiently and spectrum more efficiently but when we talk about spectrum of sunlight versus man made light. So a photon is a photon so if we’re actually creating a photon with some kind of electric light it’s a useable photon. That photon isn’t too much different than what comes off the sun. It’s really the collection of all the different colors and we call that spectrum and there’s a particular range that horticulturists know and talk about in terms of light spectrum. They call it PAR, P-A-R and I’m just going to geek out a little bit here.

The way they talk about that spectrum is they use a unit called nanometers which talks about the wave length; how long that wave is and the PAR spectrum is generally regarded from 400 which is a deep, deep purple out to 700 which is just beyond what we can see; what humans can see in red. In fact humans see differently than plants see. So it’s really important to get a spectrum. You don’t really care about lumens, you care about how it feels out this McCree Curve of plants. So different lights will do that but still if you look at all the spectrums of different electric lights they’re choppy. The high pressure sodiums kick out a ton of this yellow/orange light that isn’t actually ideal for flowering. It’s just better for flowering than the metal hay light lights that don’t have any orangish/reddish light. It’s really the deep red that plants really like.

LEDs have spiky; they can really hammer certain frequencies. You can have a blue and you can have a red and it kind of gives this purple light and then new LED vendors are putting these white phosphorus in there to give a nice even glow. In general they’re all compared. If you go to all the literature they always compare it to sunlight. If you look at all these lamps they compare it to sunlight and why it’s because sunlight is the gold standard and it’s what the plant has evolved to use and they’re even showing that these plants will use wave lengths, frequencies, colors of light that go beyond this PAR range and well beyond what we can see into the UV, into the IR, into the near IR. So sunlight is kind of what you want to recreate and we’re just bringing it in your building.

Matthew: Are you an accredited investor looking to be part of some of the most sought after private cannabis investment opportunities? Get on our free private Investor Alert Service at www(dot)cannainsider(dot)com/invest. Once you have subscribed to the Investor Alert Service you will get access to curated opportunities that the public will simply never see. Again that URL is www(dot)cannainsider(dot)com/invest. Now back to your program.

Wow that’s fascinating. I have heard some of these terms before but you put that into a nice easy to digest context so I appreciate that. In terms of men sequestering or separating the heat into a useable form of energy what are the exact mechanics there that allows that to happen? So we’ve separated off the sunlight into a useable format for our plants and now we’re going to separate the energy or the heat to create energy can you walk us through some more of the mechanics there?

Joseph: Yeah and let’s talk a little bit about this magic word heat right because heat is a tricky one. So when you have an HID bulb okay the heat comes out the bulb itself. That thing is several hundred degrees. You don’t want to touch that. You don’t want that near your plants. It’s going to burn them okay. That’s a high temperature and it will come into your building as heat that you have to remove.

Matthew: Okay.

Joseph: Okay but you know honestly in the light you can see there is heat there too. It’s just the plants can use that energy so it doesn’t turn into extra heat load for the room. LEDs similarly give out just as much heat although they’re at a lower temperature and it’s out the back so they feel cool out the front but you’ll notice they’ve got these big heat sinks out the back. Now sunlight has the full spectrum. The plants use a portion of it and what we’re saying is that the portion of light that the plants don’t use would just land in the room as extra heat. So that infrared spectrum, that infrared energy would be heat because the plants don’t used it. If the plants didn’t use visible light that would be heat too but they suck it up.

Matthew: Okay.

Joseph: Now we split the visible and the infrared with a technical term called magic. No we have some patent pending technology but I can’t fully get into here and after the light is split off we have a very particular chemistry of solar cell that is sensitive to infrared light and not to the visible light and so that research is part of what’s been funded by the Department of Energy.

Matthew: That’s fascinating. Okay so how much cooler would you say a grow would be that is using SunCast or supplemented by SunCast than a traditional grow?

Joseph: Yeah. So let’s talk about how do I want to say that? I guess I want to talk about in terms of there are electric light usage and then there’s SunCast usage right because they’re each kind of separate. Let’s say they’re using just as much electric light as they were before and they’re adding our sunlight to it.
Matthew: Okay.

Joseph: So adding our sunlight to it would only add the extra visible photons that the plant could use. We are not adding extra energy that the plant can’t use and because of our delivery we’re not spraying unnecessary light around the room. It’s either going directly on the plant or we have some exciting technologies that allow us to deliver light throughout the canopy of the plant which is really cool. We can talk a little bit more about that later. In that case we would hardly change their heat load at all right so if they had a certain tonnage to manage their existing lights adding our cold light to it will keep their heat load just about the same. It will increase a little but not very much.

Now some growers may want to save electricity and save costs so they will have much, much, much less electric light. You still want some maybe as much as a cloudy day which isn’t very much just to keep the plants going to extend the cycle and the timing or as backup whenever it’s cloudy outside. So in that case their heat load is only going to come from their electric lights which are say maybe reduced to a 10th of what they were before and their heat load is going to be a 10th of what it was before and then again we won’t add very much to that.

Matthew: Okay. Now for people that are listening and saying well how much; if I’m renting a building or leasing a building would I have to make huge substance changes to the roof or how do we get the SunCast technology into the building in a minimally invasive way?

Joseph: Right.

Matthew: Impact on a grow facility.

Joseph: Right. So the first thing we have to say is every rooftop is wildly different. So every installation will be custom and we will work with the customers and with structural engineers to work with their rooftop and their needs. The first and most important consideration is structural load. Most buildings at least here in Colorado have at least a four pound per square foot structural load. Many are as high as ten pounds per square foot structural load. We will be under that and largely you don’t want to affix things to the roof. You want them floating on the roof. So our systems are modular which can work around other things like HVAC systems. We can fit our technology around that upon their roof.

Now we do have to get the light in the building right. Now we concentrate the sunlight thousands of times into these fiber optic cables. So what that means is for the amount of light we’re letting in our penetrations into the roof are thousands of times smaller. So in general when they put an HVAC system on the roof they’re cutting a big hole sometimes 3’ x 3’ and they’re making huge structural adjustments to put the extra HVAC load on the roof. So our penetrations will be much, much smaller than that 4’ x 4’ hole but there will be more of them right because we have to let the light in more often throughout the roof. We want to work with the growers and the building owners. A lot of the people who are renting facilities the landlords know that hey this is a big business and I can charge a certain premium to these cannabis growers. I’m going to let them put the HVAC on the roof, I’m going to let them make penetrations, I’m going to let them modify the electric.

We’re going to work with those building owners and show them that this is going to be improvement to their building and when it’s all done we can take our modular systems off their roof and we can seal up those penetrations with a professional roofer and let them reuse their building how they see fit.

Matthew: You mentioned a little bit about how to use the light in the canopy. Let’s circle back and let you talk about that a little bit in terms of maybe running a light for the canopy under the canopy or in different ways.

Joseph: Yeah right thank you for that. We have a couple other really cool things that I haven’t even talked about so I’ll talk about this and one other thing. When you have a cannabis bush outside I mean it’s really a tree. If you go to an outdoor grow these things are huge 12, 15 feet tall, sometimes taller. They’re enormous.

Now when they are outside the sun walks around the whole surface of the plant and its fruit, its flower, its bud grows around it like ornaments on a Christmas tree right. That’s an outdoor grow where the plants have lots of space around them and that’s what the plant is built to do. Now if you have an indoor grow your economics have changed. You now have to think in terms of how do I maximize my yield per square foot and the way people maximize their yield per square foot when the number one cost is the lights is they cram the trees together and at the very top where they get the light from the electric light they form a canopy and that canopy is where all the bud, all the flower grows, and then they cut the undercarriage. They spend a lot of time and energy trimming that undercarriage because the plant will spend extra energy creating vegetation down there but there isn’t enough bright light to create any bud down there because of the shadowing of the canopy.

Matthew: Right.

Joseph: So because our light is in these skinny, flexible fiber optics and because we have eliminated all the heat from the fiber optics or from the sunlight we can actually take the sunlight and drop it under the canopy of the plant. We can have light go down through the body of the plant and create more vegetation or I’m sorry more flowering under that bright canopy. So if you’re canopy say all your profit centers come from a 12 inch plane right that’s where your flowers are the top 12 inches of your plants. Well if we can bring light under the canopy and maybe double or triple that profit center plane to 24 inches, 30 inches, 36 inches then we can actually leverage the output of the entire facility. Now that’s a huge gain for the growers. No one else can do that except LEDs because they don’t have a high temperature; they have a lot of heat but not a high temperature but the problem with LEDs is they’re expensive. So if you want to have an LED bar every few feet the cost of that adds up and they still use a lot of electricity too.

So we think the fact that we can bring in cold light that’s full spectrum and under the canopy is a real disruptive aspect to this technology and we do think it’s going to change the face of indoor growing and it’s going to make indoor grows comparable or better in many regards to a greenhouse.

Matthew: Fascinating stuff. Now for growers that are listening that want to start to implement something like this or want to make it part of their long term planning when will this be available to commercial growers?

Joseph: Thank you. We are in late stages of development. We have to ramp to manufacturing levels and we hope to do that in early 2017. However right now we are looking for BETA test partners. We’re looking for grows that can really take measurements of our system and compare it to an electrical only system and give us results, give us feedback, and give the industry honest feedback from horticultural people, from people in the trenches growing day in and day out to show what our product can do and to show how we can improve our products. So we’re looking for those BETA test partners and I ask them to reach out to me at the website or either by email and let’s start talking. Let’s start talking about your grow, about your needs. We can go through some of the fine details of what our technology looks like and we can get that conversation started.

Matthew: Now let’s talk about where you are in raising capital. I mean you recently pitched at the ArcView Group can you tell us a little bit about that and where you are in raising capital and if you would like any investors listening to reach out to you? Can you do that?

Joseph: Yeah. I mean ArcView was great. Oh man what a great community. Everybody was connected and sincere and really excited about the industry. We had an especially good time. From the pitch we got first place which is really exciting.

Matthew: Well yeah that always makes it fun.

Joseph: Oh it was totally fun and people were coming up to me and chatting the whole time. We just pitched early. We are just actually starting our fundraising now so although we had talked to a number of investors we are just starting that process now and I do invite you please come talk to me and we are doing a seed round right now and would love to discuss our business model and where we think the business can go and how we’re poised in this industry. It’s all extremely exciting. As the judges showed us when we got the results at ArcView.

Matthew: For investors specifically how should they reach out to you? Go to your website or is there an email? What’s the best way?

Joseph: Our website right now. So here’s our website www.suncast.co. sun-cast.co. Our website right now is really pretty fluffy and vague. We are in stealth mode and the reason your listeners get to hear it is because this is CannaInsider right.

Matthew: Right.

Joseph: Yeah. So we’re not to market yet and we don’t really want to let the cat out of the bag. We do have a contact portal there so you can fill in the form and that will send me an email or I can just give you an email right now.

Matthew: Whatever; it depends how brave you’re feeling.

Joseph: Oh I think you have good people here.

Matthew: Okay. Go ahead.

Joseph: joseph@suncast.co.

Matthew: Okay great. Well let’s talk a little bit about a couple personal things here. It’s something I’m trying and we’ve gotten good feedback and that is is there a book that has had a big impact on your life. I mean it sounds like you’ve been very immersed in technical subjects and the world is about to get the benefit of that but is there any book when you look back over the arc of your life that maybe opened up a crossroads for you or helped you to develop a lens on your life and where you wanted to go that you would like to share with listeners that you’d recommend?

Joseph: Absolutely. Yeah I mean I’ve definitely had a strong technical background my whole life but that’s not really my north start and it came out. Boulder is a very open mind, progressive town and when I came here I was like a sponge with different spiritual traditions and I have to say that having a deep spiritual connection whatever that looks like for you right. It could be a particular modality. It could be nature right. It could just be enjoying a sunset or enjoying other people. Whatever that is for you I invite you to go deeper because that’s going to provide a richness to your life and it’s going to provide you a more finely honed moral compass which is really going to help you in the tougher questions and ultimately business is all about people anyway and for me it was my spiritual path that really made me want to take technology and have my life be a contribution. So there is about a ten year process of me looking at spiritual paradigms and saying God I’m just a nerd. What can I do that actually makes a difference in the world and then for me I learned about climate change and what a mess that is and I said okay how can I do something about that and after about seven years of looking and working in the solar space I stumbled on this technology.

So I would say develop your spiritual north star. A book for me when I was in my early 20s was “Autobiography of Yogi” and that’s the life, autobiography of Paramahansa Yogananda. I was never his teacher or anything but he’s just a beautiful example of a humble spirit with an open heart who was always willing to take more and more and miracles happened in his life and I think we all need to hear more stories and miracles to show us what’s possible.

Matthew: That is a perfect place to end Joseph. Thanks for sharing that. Can you give out your website one more time for our listeners?

Joseph: Sure. www.suncast.co and my email is joseph@suncast.co.

Matthew: Joseph thanks so much for coming on CannaInsider today and educating us. This was really a fascinating subject to learn about and we appreciate it.

Joseph: Oh what a pleasure.

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


Cannabis grows are challenged by heat caused by traditional grow lights. This often results in cultivators having to invest a lot in chillers, special HVAC systems and more. Also, as much as we try we can’t replicate the perfect energy of the sun when lighting our plants indoors. Joseph DiMasi of Suncast believes he has solved both of these problems, listen in to learn more.

Key Takeaways:
[1:59] – Joseph talks about his background and how he started SunCast
[2:58] – What is SunCast
[5:16] – SunCast’s ideal customer
[7:12] – Joseph talks about his connection with the Department of Energy
[8:40] – The cost of implementing SunCast in a grow
[11:30] – Sunlight versus artificial light
[19:16] – Joseph talks about separating the heat into usable energy
[21:22] – How much cooler is a SunCast grow compared to a traditional grow
[26:32] – Joseph talks about using the light in the canopy
[30:03] – When will SunCast be available to commercial growers
[31:22] – Joseph talks about pitching at ArcView and how investors can reach out
[34:02] – Joseph’s book recommendation

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

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The State of Cannabis Angel Investing with Troy Dayton

Troy Dayton CEO of the ArcView Group

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

It’s long been known that there is a group of insiders in San Francisco who see angel investment opportunities before anybody else. These angel investors meet with entrepreneurs just as they are beginning and often make investments in these companies while the valuations are still very favorable. Similar to how this has happened in the tech scene for decades. There is a group in the cannabis industry where cannabis focus entrepreneurs pitch their ideas to well healed angel investors. This group is called the ArcView Group and I’m pleased to have the Founder and CEO of the ArcView Group Troy Dayton with us today to talk about all the incredible things going on in the cannabis investment scene. Troy welcome back to CannaInsider.

Troy: Thanks for having me Matt. It’s good to be back.

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

Troy: I am in downtown Oakland in ArcView’s offices that overlook Lake Merritt.

Matthew: Great. You didn’t start out in the cannabis business side of things you were an activist. Can you just give us a little brief on your roots in activism?

Troy: Yeah. Well when I was in high school and I tried cannabis for the first time it resulted in me being in handcuffs and put in the back of a car. It turned out it was a joke. My friends played a joke on me with a security guard and luckily I didn’t have to experience the pain and the downstream effects of a criminal record for that scare but what it did do was give me a sense of the fact that marijuana prohibition was wrong and that I wanted to change it, and so when I got to college I got involved with the Marijuana Policy Project when they were just getting started that year in 1995 and got involved in a local group on campus and that was the beginning of it. And then I helped Co-Found Students for Sensible Drug Policy during my senior year at American University in Washington D.C. and then worked in many different roles in the drug policy reform movement in the years until I started ArcView with Steve Deangelo in 2010.

Matthew: Troy we had you on CannaInsider in 2014 and we learned about the ArcView Group then but for new listeners can you give us a brief on what the ArcView Group is at a high level?

Troy: Yes. So the ArcView Group has had a number of groundbreaking ventures in the cannabis space. The one we’re probably most known for is the Investor Network where we have over 500 high net worth accredited investors that have placed more than 70 million dollars behind a 111 companies in the cannabis sector. And we’ve also raised just under a million dollars from stage at those events for the legalization movement. And then we also put out The State of Legal Marijuana Markets. We just put out the 4th Edition of the State of Legal Marijuana Markets this time in partnership with New Frontier, and this is sort of the definitive market report for the cannabis industry. It’s over 300 pages and it just goes deep dive into each of the state markets and some of the big trends in the sector and that’s mentioned in the news about a dozen times every day. And then we are also partners in Canopy, Canopy Boulder which is now expanding to a number of other cities which is a seed stage mentor driven accelerator for businesses in the cannabis sector.

We’ve had about 29 companies graduate or 20 companies graduate and then another 10 that are in there now and some really amazing companies coming out of there. And then we’re also partners in Cannasure which is an insurance company for businesses in the cannabis industry and we did that back in 2011. So that’s kind of who we are.

Matthew: So my key takeaway there is you’re lazy.

Troy: Yeah we’ve been busy.

Matthew: Yeah that is a lot. Now when we had on back in 2014 you gave us a brief of the investment scene and what it’s like at ArcView Events. How has it changed in the last two years?

Troy: Well let’s see 2014. When was it in 2014? Do you remember when we talked?

Matthew: It was about October-ish I think.

Troy: October okay. So by October of 2014 a lot of what we’re now seeing today really kind of started around then. Prior to about midway through 2014 really high quality entrepreneurs and really serious investors putting really serious amounts of capital into this space were kind of hard to come by, but I think after people saw that cannabis was being sold openly and legally in Colorado and that the federal government was going to take a hands off approach and more and more states started to pass I think that really woke people up. Both great entrepreneurs as well as great investors to come in and really start making deals and we’ve just seen that trend continue. We just get such higher rated entrepreneurs now and more and more serious investors coming into this space. To give you a sense of that 70 million of investment from our members into companies that have come through ArcView, 45 million of that occurred in 2015. So we’ve been doing this since November of 2011.

Matthew: Right.

Troy: So that just shows you what happened since the last time we spoke. I mean people really opened up their checkbooks and it was a massive flood of investment from the year before, and I will also say that it’s still very nascent. It’s still quite; it’s not like raising money in or investing in the tech space for example right? I mean it’s not even close. We’re still very nascent. It’s still very hard for companies that are looking to raise more than two or three million dollars to do that, and the amounts are still pretty small in comparison to other industries but in comparison to our industry, boy it is really increasing at a remarkable rate.

Matthew: Tell us a little bit about the best pitch prize. I mean you hear a lot of pitches from stage and this prize to create a best pitch prize came up and now there is a fund around that. Can you tell us about that?

Troy: Yeah. So the great thing about ArcView is we’re not the ones choosing the companies right. It’s our members that choose them. So we hear from about a dozen companies every week that want to present and we choose the top three or four each week to put on a webinar and they get paired up with our Chief Mentor Francis Priznar and are kind of helped to prepare to give the best pitch that they can on that webinar and on that webinar there’s usually 30 to 50 of our members are on that webinar and they vote on the companies. They rank the companies and if a company gets a certain high enough rating they auto qualify for the next big event that we host that’s live where our members come from all over the world to attend.

And then there’s a selection committee that chooses the rest of them that make up the dozen or so companies that present from stage and then at the events people who are members get to rank the companies and vote on the companies and so we now award the best pitch prize at the end of each of the meetings to the company that received the highest votes. This time in just a week from now we’re doing something we’ve never done before which is if the company has a deal with our internal deal platform capital partner New Way and their ancillary is not available to companies that actually touch the plant then they can be in the running for a Winner’s Fund which is a $50,000 dollar investment at whatever terms they pre-negotiated with New Way prior to coming to the event and it’s going to be chosen by the members.

And so now when members are in that audience they are; their votes really matter. There’s actually going to be a $50,000 dollar investment made and that money is money that ArcView is putting up for it and so we’re now putting money behind companies but we trust the wisdom of our crowd, and so we’re hoping that the members make a great choice.

Matthew: Let’s back up to a little bit about how you said Francis preps the entrepreneurs because it’s really important to put your best foot forward when giving a presentation to investors. How does Francis help the entrepreneurs maybe go from an okay pitch to a better pitch and have a lot of questions answered ahead of time? What can listeners listening thinking about how to improve their pitch in terms of being more relevant to investors?

Troy: Yeah I mean I think Francis is able to just seeing so many pitches and understands this particular batch of investors really well because that’s how he got the job. He was an investor member who had made a bunch of investments and was mentoring companies through the group. So then we were like when we came up with the idea for this role we knew he would be a great fit for it. But the tough thing about being an entrepreneur is that you’re “in the weeds” right. You are looking so closely at everything that it’s hard to see the forest for the trees and having somebody with an outside eye who is knowledgeable can make a big difference in being able to help you kind of see that and really simplify things and help people understand things that they might not understand because you’re talking to a unique audience.

And so that’s really what’s helpful there and in terms of advice for entrepreneurs I think people spend a lot; I think people spend too much energy on their pitch decks and not enough energy on their relationships. At the end of the day investment is all about relationships. A good pitch deck might give people the sense that you’re really sharp but at the end of the day an investment is like a marriage right. This is a five to ten year relationship and an exchange of value and where someone is going to trust the entrepreneur to be a good steward of their resources. And so the relationship becomes so important, and so how are we looking at people not so much for what they can invest but also for what kind of person they are and what kind of relationship can I build with them and how can I make this exciting for them and how do I stay in good contact and good touch with them. That’s probably the biggest thing I think people miss.

Matthew: Now early on in the process there was more trepidation around investing in companies that touch the plant versus not touching the plant. Has that perception changed? Do you see a shift more where people are or investors are more likely to invest in companies that touch the plant because it’s perhaps more of a straightforward business model than a speculative ancillary business?

Troy: Absolutely. That’s one thing that’s changed in the last couple years. People are much more willing to invest directly in the plant and I think that has a lot to do with the fact that there is state licensing. Look if the state is going to give somebody a license and they’re going to take tax money from it like I think a lot of people feel like okay the water is warm. There are many, many investors who don’t fit in that category though and particularly a lot of new investors that are coming in particularly if they’re investing other people’s money. I tend to be a little more cautious on that and focus on the ancillary businesses. Also because investors tend to invest in things that they know and understand and the cannabis industry is not something most people understand but they may really understand point of sale software or online marketplaces or social media or they may understand packaging or they may understand lighting technology right and so for them they start looking where they know how to evaluate a business and so that’s often one of the reasons people wind up investing in the ancillary businesses.

But certainly there is much quick returns usually in a business that touches the plant because usually you’re talking about limited licensing. So if there’s only a small number of people that are able to have a license to do that in a given state you’re getting a bit of a protected market and you’re looking at cash flows pretty quickly. So it tends to be a bit of a different value proposition for investors but you’re unlikely to have a 100X return on a dispensary whereas when you get into things that have an exponential growth potential that rely on network effect and specialized technology that’s either going to be a zero out or a big win and so it’s a bit of a different investment game.

Matthew: You mentioned you been doing this since 2011. Looking back these last five years is there a certain type of entrepreneur or a market segment that seems to appeal to the investors at ArcView?

Troy: Well I think the best teams are always a mix of cannabis knowledge and experience and business knowledge and experience. I think there is a tendency for cannabis people to get together and start companies. People that what they’re bringing to the table is their experience in the cannabis industry. Those teams are not likely to succeed and the reason is because while they’ve been spending the last decade learning about the cannabis industry, the cannabis industry where it’s going is not where it’s been so by its very nature they probably won’t have the skills and requisite experience to really build that business.

Vice versa if you’ve got a group of people who’ve only spent the last 20 years really immersed in other types of businesses and not the cannabis industry they’re going to misunderstand the consumer. They’re going to misunderstand the idiosyncrasies of this market. They’re going to miss out on cause marketing and other things that just are very unique that you just can’t get unless you’ve really worked in this industry and understand where it’s going and how it’s getting there. And so I think both teams like that are at a disadvantage and I think when they build teams that are a mixture of the best suited to succeed in this marketplace and also there often tends to be some cultural translation and sharing that needs to happen there as well so it’s more challenging but ultimately overcoming that challenge really sets those companies up to succeed.

Matthew: That’s a great point. People with different backgrounds and different experiences can often see around a corner that other can’t so it sounds like a diversity of thought backgrounds is really kind of key as we evolve faster and faster in this industry.

Troy: Absolutely.

Matthew: Now how about investors? I mean is there a profile of investor that you say hey this is a typical ArcView investor or is there a lot of diversity there in terms of backgrounds, where they come from, how they think, and who’s a good fit as a potential candidate to become an investor?

Troy: Yes. There’s a wide range of investors that are part of ArcView. I think at the top end you’ve got people who have a couple million dollars they want to place into this space, whether they are small funds or they are ultra high net worth individuals billions, etc. We have those people, family offices, etc. that are part of our group, and then on the other end of the spectrum we have people who are high net worth because say they’ve owned a restaurant or they sold their small business and now they’re kind of retired and they’ve got a couple million dollars from their work that they’ve done and are looking to invest in the next great American industry and they want to put a $100,000 dollars or $200,000 dollars into the space. Those are great investors for this as well. Even people who don’t have any angel investing experience but this is the industry that really inspired them.

We also have people who sold companies and active in the Silicon Valley Angel Investment world. We have celebrities that are members as well. We have people who are doing that piece and then we also have some of the top, the biggest people in the whole space the heads of the biggest companies Tripp Keber and Steve Deangelo and the heads of Open Vape and all these who are there and are really looking to make acquisitions and partnerships and so it really runs the gamut.

Matthew: There’s probably a lot of listeners that are thinking hey am I a fit for this. What’s it like at an ArcView Event? Are people doing bong rips and playing hacky sack? What’s it like here? What’s it like to be a fly on the wall at ArcView? I mean.

Troy: That would be great Matt. I wish we had more hacky sack and bong hits on the tables. It’s very professional but it’s professional with a lot of more excitement right. I think when a lot of people think about business conferences or investment conferences they picture people kind of being all business and I would say that at our events I think you’d be very impressed with the caliber of people that are there but I think you’d also be really surprised to see how relatable and how relating and collaborative they are. We’ve really built an interesting and valuable community because a lot of these people come to each of the events throughout the year and they’re engaged on the webinars and everything so it’s really become a family and the kind of intimacy that builds in that kind of a space.

I remember someone telling me I can’t remember the last time I was at a business conference where people in suits were hugging each other and so there’s a real and I think it’s because we’re doing something different. I think for a lot of people either they’ve been cannabis consumers or have been really excited about this opportunity for a long time but maybe they come from a place or come from an industry where that wasn’t really accepted. They couldn’t talk about that and so they finally find their tribe of people where they can talk business and everything else but they’re also are involved in something somewhat irreverent in the world and they’re changing the world in a powerful way and they’re up to something together that’s special and that I think is what makes it unique at ArcView and I think a lot of people come for the economic opportunity but they stay for the people, they stay for the change, and they stay for the value that we’re creating in the world by making it more free.

Matthew: Now what about investors that come maybe for the first time and they hear some pitches and that sounds great. They’re considering investing but they don’t really have context yet. Maybe they see the promise of the industry or they’ve heard some things that are interesting about cannabis so they think they know something but they don’t have the full context of what’s important or considerations.

Troy: Yeah.

Matthew: How do other investors or kind of the ArcView eco system help to orient new members?

Troy: Yeah. I think that this is the reason why we started ArcView right was because so many people were making bad decisions or doing it without the benefit of collaboration and so one of the first things we do when a new member signs up is we introduce them to either other investors or other companies depending on where they are in their process. If they’re really early in the process before we introduce them to companies we introduce them to their investor peers so they can find people who can kind of welcome them to the crew and figure out what they’re interested in and kind of start to build that peer network to build that kind of comfort and then some people are like no send me the; I want to make some moves here introduce me to the companies and I say what’s nice about it is that we have a whole internal deal platform where people can look at deal after deal after deal.

You can watch the pitches that they gave on the webinar or from stage. You can look at all of these various aspects of the deals because one of the biggest problems in investing especially in a new area that you’re not familiar with is that we don’t have a way to judge deal against other deals like it to see whether the company really matches up, if the team is strong, if the opportunity is good, and all those pieces and so they say when you’re going to buy a house you should start looking months ahead of when you plan to buy because you want to look at a dozen or so houses before you choose one and I think similar with investments in the cannabis industry and so it’s all about building that peer network and it’s also about getting face to face time with entrepreneurs so that you can look in their eye and say hey is this somebody I believe in, is this somebody I want to be in business with for the next few years, is this somebody I think is going to be a good steward of my resources.

And then the other thing I would say is maybe start small. One of the nice things we have at ArcView is the opportunity to in many companies invest as little as 5 or $10,000 dollars in a company when that company may have a minimum of $50,000 or $100,000 and that’s because of this internal deal platform that we have and this relationship we have with our capital partner to be able to create what’s called single purpose vehicles. It works very similar to how AngelList works and that allows people to diversify over a wide range of investments and it allows them to get their feet wet without betting the farm.

Matthew: Right.

Troy: And so the way to learn is often by doing and so if people invest 5 or 10 grand in a couple companies they think are interesting it’s through that process that they’ll start to really get a feel for what they; where they really want to place bigger bets.

Matthew: Well let’s talk a little bit about BreEZe. It’s an online investing platform. If we were to log on right now and take a look at it just walk us through what we’d see and how it works.

Troy: Yeah. It’s where all of the deals that come through ArcView go and so entrepreneurs upload their pitch deck and their deal terms and then we upload videos of their presentations and the Q & A that happens afterward from the members. So whether it’s the webinar or from stage and then there’s a space where the investors can talk to each other and evaluate the deal together and express in a deal through that as well and this is great because you can really search through a wide range of deals to really see what’s out there and be able to narrow it down by sector or by stage of the company, look at their ratings, look at only highly rated companies, or etc. so and then on some of those companies have a pre-negotiated deal with New Way Capital and for those companies that have a pre-negotiated deal with New Way Capital there’s a little button that says invest now and that allows members, accredited investor members to click that button and reserve a slot in that company and that’s where you have these special purpose vehicles where the investor is not the person on the cap table of the company right. They invest into kind of a pooled vehicle and then the head of that particular SPV is the one that represents all those investors on the cap table of that company. It works very similar to how AngelList works.

Matthew: Yeah that really makes it easier for your first couple investments. It takes all the different permutations and variables out of it so you can just kind of focus on whether you want to do it or not at that valuation. So it’s a nice way to get your toe in the water.

Troy: Yeah. You also get the benefit of having somebody professionally negotiate and manage and keep up to date with the company because some people don’t want to do that and that’s valuable. You also; there’s also other obviously a lot of the funds that are in the cannabis sector are also members of our group too so it’s not uncommon for somebody to come in, maybe they make a few small bets but they ultimately decide that they really met somebody that runs a fund at the events and that they really trust that person. They really like their strategy, their investment thesis, and so they want to just put money behind the fund and that’s not uncommon for people to kind of play on both sides of that.

Matthew: Pivoting to ArcView market research. You recently updated The State of Legal Marijuana Markets and I believe it’s the 4th edition.

Troy: Yes.

Matthew: What kind of jumps out at you? Was there any nuggets where you were kind of leafing through when you’re creating the research and you’re like wow this is something that I probably would have not expected from last year that really is an interesting bullet point?

Troy: Yeah. I mean one of the things is just the growth of the market. I mean it’s looking at a 31% compound annual growth rate between 2015 and 2020.

Matthew: Wow.

Troy: That’s unheard of. We’re talking about in 2015 this is a 5.7 billion dollar industry growing to a 22.8 billion dollar industry by 2020. That’s remarkable. You will not find another market that’s growing at that kind of pace. That’s a multi-billion dollar market where there aren’t any big multi-national players or big banks making plays in it and so what that presents is probably the most amazing business opportunity for the small of medium sized player to really take a crack at this before they’re competing with big multi-national companies. It’s a very unique moment in economic, social, and political history and we have a really unique opportunity to succeed there.

I would say another thing that’s really interesting is the price wars that are happening between Washington and Oregon because this is the first time where you have two adult use markets that are contiguous where they share a border and their key areas of population are also fairly close to each other. I mean Portland and Seattle are not that far apart and so you also have very different regulatory structures. Oregon has a very loose regulatory structure and low taxes and Washington has high taxes and a pretty tight regulatory structure and so being able to see some of the numbers and how they interplay of what happened when Oregon came online with its adult use market and how that may be impacting the Washington market. So I think that’s a fascinating exploration which we’re going to keep an eye on for sure that came out of the report.

Matthew: Now half our listeners are in California which is kind of a shocking statistic but California’s cannabis market is just so huge and deep that it really just wharfs almost everything else.

Troy: Yes.

Matthew: And I think it’s for people that might be new listeners might have a difficult time understanding just how big it is but it’s absolutely enormous. When you look ahead I mean California do you think it is kind of moving into a leadership role where Colorado and perhaps Washington were kind of the early runners in terms of hey it’s legal here for adult use but now the pole, the capital, technology people and resources are moving to California in a bigger way?

Troy: Absolutely. People are salivating over the California market right now because it’s really; there’s a lot of pent up demand for innovation and investment and growth in California because it’s really been hampered by a lack of regulations, a lack of state regulations, a lack of clarity as to how that relates to the federal priorities. A patchwork of different regulations in each city as well as a nonprofit requirement meaning the companies had to be set up as not for profits and so that really kind of but despite that it became the largest market and it was the first market. So you’ve got this really interesting conundrum there. It’s also the core place for culture around cannabis. I mean it’s like this is where the cannabis culture has really created when most; when you ask people what state do you associate with cannabis prior to 2014 everybody would say California.

So it’s both; it’s got a lot of elements of that and what’s changing is now that there are state level regulations and also there is a ballot initiative that looks quite likely to pass people are really lining up. But it’s something a bit paradoxical about that because in our report we predict that the medical market actually is going to be losing a little bit each year. It’s probably the only market that’s not expected to grow and that’s because these new regulations are quite tight and onerous and so we expect that there will be a bit of a constriction in the market. In part because elicit cannabis is so widely available here. So you don’t need to push consumers much to have them be like screw it I’m going to the dude down the street.

Matthew: Right.

Troy: And so I think that’s going to be interesting but with the advent of legalization coming in 2016 by 2018 that adult use market goes actually online right because it takes a while for them to implement these regulations and that’s when you see really big growth start to happen once there is adult use legalization in California and so we’re looking at by 2020 at a 6.4 billion dollar market just in California and that’s not even a fully matured market because it will only be online for two years and it won’t be fully online in that first year. So 6.4 billion I mean that’s bigger than we put it out in 2015 right. So the whole market in the U.S. So it’s really a unique opportunity and also one of the challenges that you have in this market is the fact that you can’t have interstate commerce right so if you’ve got a facility in Colorado or in Washington that facility can only serve Washington or Colorado. Well these are relatively small states in terms of population.

In California you get to have economies a scale so it’s much more interesting for a business owner to own something in California because it’s more like; it’s one of the largest economies in the world. So if you have a business in California it’s like being able to have interstate commerce with your business for the whole Eastern seaboard right.

Matthew: Right.

Troy: Which you can’t do even if all of those states passed those laws. So you get a much more efficient market and marketplace. Of course the big pull on that is that at least what’s presented in the ballot initiative in 2016 and what’s in the regulations that passed for state level regulation for medical wow in both cases they’ve really gone overboard with the regulations in ways that are going to create some pretty remarkable inefficiencies in the marketplace that is going to ultimately raise prices and impact consumers in a negative way. My hope is that we get some reforms on that. We don’t need to treat cannabis like its plutonium. I think we can have reasonable regulations and follow in the footsteps of these other states. But of course California has got to do it California’s way and so we’ll live.

Matthew: Troy before we close just a couple personal development questions. Is there a book that has had a big impact on you that perhaps over the arc of your life you look back and gives you a different lens on how to perceive your life and where you want to go and what you want to do that you might recommend to CannaInsider listeners?

Troy: Yeah. I’m actually reading a book right now that I’m about a quarter of the way through that’s kind of blowing my mind. It’s called “Originals” and I don’t know the name of the author but it’s a fascinating look at people who’ve been innovators and people who’ve made really big impacts on the world and looks at the psychology in the data behind what makes people succeed in that way in creating a really unique imprint on the world and so it’s a lot less; it’s not just fluffy right? It’s not just like; it uses really solid research. So it kind of reads a lot like a Malcolm Gladwell kind of a book.

Matthew: Okay.

Troy: About that topic but I think it’s interesting and I think for anybody that is looking to make a unique mark on the world it’s important to challenge the conventional wisdom about who does it and why they do it.

Matthew: And if you could go back and talk to the 18 year old version of Troy Dayton what advice would you give him?

Troy: I would just say that maybe be careful what you wish for right that you actually have more of an impact then you imagine that you do or you have the capacity to have more of an impact then you imagined it and also that when you look up to people as people who are really; that you look up to as mentors or you look up to and say I’d love to be like that someday or whatever that it doesn’t look that way as you get there right. At the end of the day people just put on their pants one leg at a time and you don’t need to be that special or that perfect.

Matthew: Right.

Troy: In order to make such a big impact and as I’ve gotten older and as I’ve spent time with celebrities or spent time with people who are just at the very, very, very, very, very top of their field. There are some differences but they’re not the differences I imagined when I was eighteen.

Matthew: Okay. Do you boil it down to persistence or just focus? I mean when you see that just this person knows what they want?

Troy: Yes. That’s really well said Matt and also in luck and the power that luck has on people. The confidence that luck can give you can take you places right.

Matthew: Yes.

Troy: I mean I think that our consumer culture has really created a nation of insecure people right. Everyone’s insecure. Am I enough of this? Am I enough of that? Am I this, that and it creates this overall sense of insecurity and it’s only when you achieve something that the society kind of rewards you with praise for that you get to move into the sort of God given sense of security and confidence that we should all have all the time.

Matthew: Oh this could be ammunition for a whole other show here. I mean these are great topics.

Troy: Yeah don’t get me started, don’t get me started.

Matthew: Well Troy tell us about your next ArcView Event and how listeners can learn more about it?

Troy: We’re going to be in Oakland, June 18th, 19th, and 20th and that’s going to be cannabis week because on the 18th during the day Canopy Boulder is going to be doing their demo day so that’s going to be the companies that are graduating from this class are going to present at that demo day and then we have our two days of our event and then after our event it’s the National Cannabis Industry Association’s Annual Conference. So I highly recommend that people participate in that as well and then the other thing I would just say that we didn’t address here today that I just want to make sure people understand because there is a really short timeline on this which is that we’re on the ballot in nine states in November. Nine states are either going to be voting on medical or adult use legalization and those ballot initiatives are severely underfunded right now because we got on so many ballots and so I just really want to take this opportunity to remind your listeners to really consider what kind of impact you want to make and make a donation.

Whatever is meaningful to you? Some people a meaningful donation is $20 and other people a meaningful donation is 200,000 dollars. To really think about what kind of impact they want to make this November. It’s a rare opportunity to really; to basically put the final nails in the coffin of marijuana prohibition. If we do well on election day we will be waking up in a very different world on the next day and so I invite you to participate with me and others in making sure that on election night you’ve got something really at stake where if we win you feel like I was part of that and if we lose that you feel a loss from that. Make sure there’s something at stake for you in it other than just armchair politics.

Matthew: Well said. Troy what’s the best way to connect with ArcView online and social media wise?

Troy: So www.arcviewgroup.com that’s best then there’s or ArcView Group in Twitter I’m #Tdazzl without an E and then if you’re looking to make a donation one place would be www.mpp.org and you can do www.mpp.org/arcview if you’d like to let them know that you kind of heard about it here. But however you give and whoever you give too please do it soon.

Matthew: Thanks so much Troy for coming on CannaInsider today and thanks so much for being an early activist and pioneer to make this happen. I think you really need to be recognized for that because as you’ve mentioned before a lot of think it’s inevitable now that cannabis prohibition will end but it was the people like you and Steve Deangelo that were doing it way back when and really, really driving and pushing this change and it couldn’t have happened with you. So thank you so much.

Troy: Yeah. My pleasure and thank you for acknowledging that and there’s still a lot more work to do and a lot more room in the history books.

Matthew: Good point.

Troy: You’ll be in it too.

Matthew: Thanks Troy.

Troy: Thanks for having me.

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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.


Troy Dayton is the co-founder of The Arcview Group. The Arcview Group is best known as an angel investing forum where cannabis entrepreneurs and investors meet to get deals done. To date Arcview’s 500+ investor members have invested over 70 Million dollars in cannabis-focused companies.

Troy and Matthew discuss the most interesting aspects of the cannabis investing space as well what prospective entrepreneurs and investors need to know right now in order to be successful.

Troy was recently named  one of the 7 Most Powerful People in America’s Marijuana Industry by Fortune Magazine.

Key Takeaways:
[1:42] – Troy talks about his background in activism
[3:13] – What is the ArcView Group
[8:10] – Troy talks about the Best Pitch prize
[11:08] – How are entrepreneurs prepared for pitching to investors
[13:54] – What types of companies are investors investing in
[16:33] – Certain types of businesses & market segments that appeal to ArcView
[19:12] – Who is a good candidate to become an ArcView investor
[21:22] – What’s it like at an ArcView event
[24:03] – Troy talks about how new members are oriented into ArcView
[27:23] – The Breeze Online Cannabis Investing Platform
[30:42] – Troy talks about the growth in the Marijuana market
[39:23] – Troy’s book recommendation
[43:28] – Information on the next ArcView event

Learn more about Troy and the Arcview Group at:
http://www.arcviewgroup.com
and
https://www.cannainsider.com/136

Important:  You can use coupon code: CI100 to get $100 off the most compelling industry research in the cannabis industry, visit, http://www.arcviewmarketresearch.com

The Top Stories in Cannabis Trending Right Now with Alex Halperin

alex halperin of weed week

Read Full Transcript

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

Today we’re going to discuss the latest and most important stories in the cannabis industry. To help us on this journey I’ve invited Alex Halperin to the show. Alex is a freelance business and cannabis reporter based in Denver. Alex’s work has been published in the New Yorker, Mother Jones, Fast Company, Fortune, Al Jezeera, Business Insider and Rolling Stone. Alex has launched Weed Week, a newsletter that captures and distills the week’s most important cannabis news in a brief and digestible format. Alex, welcome to CannaInsider.

Alex: Thank you so much for having me.

Matthew: Alex before we get started can you tell us a little bit about yourself, your background and how you got involved in the cannabis industry and writing about the cannabis industry?

Alex: Sure. So my background is mainly in journalism. I’ve worked for Dow Jones and Business Week and so on, and as a freelance reporter for a bunch of different places. I was working as a freelancer in 2014 and I had written one story about the industry for Fast Company, and then they were nice enough to send me to the big conference in Las Vegas in November and I was coming from New York and I was just blown away by what a big deal it seemed like it was going to be. I thought wow, and I instantly was fascinated by there’s so many different avenues and issues involved. Everything from culture to the shadow economy that’s grown up around the industry that sort of mimics the real economy and some of the people involved. And I thought wow this is the business story of the decade. So I moved out to Denver in March 2015, a little more than a year ago and since then I’ve been writing about the industry for various publications and that’s what brought me here.

Matthew: Got it. And what’s Weed Week?

Alex: Weed Week is a weekly newsletter that I started last summer and what it tries to do is in the industry there are so many different aspects. There are legal aspects. There about business aspects, political. Political especially since it’s happening in 50 different states at once as well as in Washington. Culture, health, both the benefits of cannabis as well as potential dangers of it. So I wanted to put together a newsletter primarily for people in the industry or people who are interested in the industry that would really capture everything that’s going on in the industry in a digestible form and with links to articles so that readers can find out more about the stories that particularly interest them or apply to their business. Subscriptions are free and confidential and you can subscribe at www.weedweek.net.

Matthew: Great. Well I know your Weed Week newsletter for the week comes out tomorrow. Is there any stories we can go over now with listeners?

Alex: Sure. It was a pretty interesting week and I think pretty illustrative of how cannabis news is everywhere. So one interesting story comes from Rhode Island where a Catholic bishop who is opposed to legalization feared that it would turn people into zombies. Rhode Island is a Catholic state and it’s also a state that’s seen as one likely to legalize soon so it carries some weight. What I think is interesting about this story is it sort of shows that while there are compelling arguments for opponents of cannabis to make, a lot of them come from different fields. Some for Watch Out for the Children, some for health aspects, some have an aesthetic distaste for it. The bishop seems to share all three, but what’s interesting is there is still a fair amount of opposition in this country, but it’s really not a unified movement.

The groups that oppose it generally have very little money and very little traction. So whatever valid arguments they might want to make often get buried or don’t get the attention they need. Oftentimes also, and this is certainly the case with the bishop, the opponents aren’t really up to date on what’s going on in the industry so regardless of the validity of their concerns the optics aren’t necessarily very effective to promote their agenda.

Matthew: I’ve got the story up in front of me right now. It actually almost feels like it could have been in the Onion or something, but it’s from the Cannabist and it says Rhode Island’s Roman Catholic Bishop Thomas Toban, that’s his name, he’s worried people will become “zombie like”, completely stoned, filling public places. Now this is something that’s really strange. When I talk to people that have not visited a recreational state where recreational cannabis is legal they have this image in their mind of oceans of people stoned out of their mind hanging out together. Every day, like they’re just going to arrive in Colorado and just going to be oceans of people all stoned, staring at the not stoned person as they arrive. It’s really funny.

Alex: Yeah, no absolutely.

Matthew: And the article ends it says, “The bishop was disturbed by a recent report of a woman smoking pot in the back of a cathedral during a morning service.” So maybe that’s what got his hair up. Who knows. He does say one interesting thing in this article and I’m glad you have this in here. One thing I thought that was a valid point is the technology has the young people so engaged. They’re head’s down and they’re not even living a real life. They’re so consumed by the digital world. And recently going to San Francisco, I mean you see it everywhere in every big city in the world now, but some cities adoption is just higher than others. And in walking around San Francisco I was really like wow we’re kind of merging with these machines that are supposed to be serving us. They’ve totally captured our attention. A lot of us can’t go five minutes without getting a little fix, like a little update of what’s going on. That point, I thought that was a pretty good point he made about that. The technology probably could be more of a threat than the cannabis in that way but I did feel like he did deserve some recognition for that one point.

Alex: Sure absolutely.

Matthew: How about any other stories in Weed Week this week?

Alex: A fun, not a fun story but sort of an interesting story was that in Colorado it turns out, at least in one county near Denver, probably fair to say in other areas of Colorado as well, there’s been a big uptick in dogs getting sick because they ate marijuana or ate some cannabis or ate some edibles or something like that. It says it’s rarely fatal but there’s a tradition I guess blowing smoke in a dog’s face and watching him sort of stumble around a little bit. If you put some gummy bears in front of a dog, it’s going to eat them all and it could get very sick. So it’s an issue and sort of an unexpected one but an issue.

Matthew: Yeah especially since dogs have no throttle. Like oh I’ll just eat this whole thing, whatever it is. I wonder though if it’s one of these situations that you can’t hear the dogs that don’t bark. I don’t know if you’ve ever heard of that expression, but when cannabis was illegal in Colorado it’s like people would probably be scared to report that because if my dog ate pot, that means I had pot. You know what I mean.

Alex: Yeah sure. I mean that’s actually you thought of as an explanation for the increase in humans visiting the emergency room as well. They’re not as scared as they would be in an illegal state.

Matthew: Yeah that’s a good point. Please keep an eye out for your dogs. Keep it locked up because no one wants to see a dog have a bad trip.

Alex: Yeah. Dogs and kids, keep it away from them.

Matthew: Yes. Okay anything else in Weed Week this week?

Alex: There’s an interesting story in the Atlantic, I think the headline is a little overdone, but it says “The Failed Promise of Legal Pot”. It’s an article about economics and it talks about why the black market is still in business, although in greatly diminished terms than it used to be in states like Washington and Colorado. The reason for is pretty simple, price. People who have sort of street dealers often pay less for it. And there are different ways that states can try and break the black market. Both Washington and Colorado it says taxes but not very much. And as a result there’s still a gray area between the profit margins that legal businesses want and the profit margins that illegal dealers are willing to accept. And there were similar issues coming out of prohibition. Sort of a compliment to this piece was a piece in Buzz Feed which talked about a report from Colorado that came out a little while ago where it says that arrests, since legalization, arrests of black and Latino youth have actually increased. It plays to the racial disparities that have always accompanied illegal drug markets in this country and remain probably one of the most compelling arguments for legalization.

Matthew: Yeah. That is a tough dilemma. I think states are always loathed to, they’re like hey this is a golden goose. We don’t want to get rid of our tax revenue, but they can increase the base by cannibalizing the black market if they lower the taxes enough. Also the arbitrage opportunity with the medical cannabis because there’s no tax. It’s a tax free sale for medical marijuana in some places. So if you can avoid that tax you automatically have a double digit percentage cheaper cannabis than the rec cannabis so there’s an arbitrage opportunity there where you can go make a little spread if you’re a street dealer. So that’s definitely something. Gosh it seems like it’s a problem of both opportunity and there’s a lack of opportunity and then there’s an incentive for profit. Those are kind of the two driving forces. At least from my outside perspective. It’s hard to tell for sure, but it’s like how do you balance those.

Alex: Sure. One interesting thing about this article is that it did some reporting in Seattle and it hung out with a small time dealer who is also a dishwasher. And while it made clear that this isn’t the case for everyone, this sort of swinging a few bags of weed. It’s really not a very glamorous life although some people may think it is or aspire to it. He was doing this, he started doing it when his mom lost her job.

Matthew: Yeah, The Failed Promise of Legal Pot. You know I think about there’s this perception like when cannabis becomes legal everything isn’t perfect than the detractors say. There you go, especially in the beginning there’s kind of this balancing act, the working things out I feel like it’s kind of tipping over a Coke machine. You go back and forth a few times before you get it right.

Alex: Sure, no, exactly. There was also a chart I’ll bring up in the newsletter this week just on industry profitability. Since so many of the companies are private it’s really hard to get an idea of how much companies are making. It’s not necessarily a huge surprise but companies seem to be doing pretty well. And it’s the companies that report themselves to be the highest rate percent of being very profitable, ancillary services firms. Whereas dispensaries tend to be less profitable, but pretty much across the market companies seem to be doing pretty well.

Matthew: Yeah it’s interesting that everybody has this perception that once you get into the cannabis industry you’re just printing money, but the ancillary businesses do the best. I wonder if it’s because they have a lower risk, lower startup cost perhaps, not always but sometimes, and then the regulatory burden is way less because they’re not dealing with a controlled substance.

Alex: Exactly. I could say technically Weed Week is an ancillary services firm and I’m probably not profitable yet.

Matthew: So any other surprises on that chart where you felt like; so there’s ancillary services, cultivators, who else? What other categories?

Alex: Wholesale cultivators do pretty well because it sounds like they can basically be cash flow positive as soon as they start harvesting. I was a little surprised, I believe this data is all self reported so it’s hard to say what very profitable and modestly profitable is, but I was sort of surprised that infused product manufacturers seem to be doing better than dispensaries because if you’re making products you need all sorts of expensive equipment and there are pretty strict regulations. Of course there are regulations for dispensaries as well but it doesn’t necessarily involve the sort of machinery and fixed costs that manufacturers have to deal with.

Matthew: That’s true, but at the same time that is a little counter intuitive, but now that I hear you talk about it I’m thinking okay if you’re processing, you’re buying some cannabis wholesale, you’re infusing it with some fat of some kind like a butter or an oil and then you’re making something and then you’re selling it to a dispensary. So you don’t need a staff, a retail staff and you don’t need this big grow operation. So I guess that makes sense in some ways.

Alex: Yeah, no definitely.

Matthew: Well any other stories for Weed Week or is that a wrap?

Alex: Usually in the newsletter I get through about 20 stories in 1,000 words or so, but just one more I’ll bring up was a piece in the Guardian and it was picked up by Fortune as well about the so called ex-pots and these are people moving to Colorado from other countries essentially for medical reasons, for the same reasons that kids have; some American families have done the same thing when they have sick children. I think it’s a cool dynamic and it illustrates how the weird asymmetries in this industry lead to unexpected changes. I think that’s what makes this such a great story and why I’ve enjoyed covering it so much.

Matthew: Yeah that is an interesting trend with this cannabis refugee type situation. I interviewed a family from Australia that moved to Canada to support their two kids that had a degenerative lung disease and the only thing that could help them was cannabis oil but when they consumed the right amount they essentially became symptom free. The mom was saying I haven’t seen my kids like this in years and they were worried about going back to Australia, but it sounds like they’re coming around in Australia which is great but it’s like sometimes you can’t wait for that to happen and you’ve got to do something. It does frustrate me a little bit because it raises the question are we truly free people. If you can’t do what you need to get a plant that makes a massive difference in the quality of your life from a medical perspective, are we truly free. I don’t know. That’s a good question. I feel frustrated that we even have to ask that from like these gatekeepers. It’s a crazy thing.

Alex: That’s a big, big question.

Matthew: You’re right. One of the things I love about Weed Week is how brief, digestible and distilled it is. You really break things down into great bullet points and I do read it every week and I recommend it to a lot of friends. I forward it to friends and so forth. So you’re doing a great job with it. Two more questions before we wrap. Personal development type questions, Alex. Is there a book that has had a really big impact on your life where you look over the arc of time and you say looking back this really had a big impact in my life and I would really recommend it to CannaInsider listeners?

Alex: Well it’s not really a cannabis book, well it’s not a cannabis book but forms to some extent my journalistic sensibility which is Friday Night Lights which was subsequently made into a movie and then a TV show as well. It’s about a year in the life of a football team at a high school in West Texas and the reporting is so immersive. It’s about football but it also uses football as an entry point to discuss so many of the other issues of life in this rather desolate city in West Texas. It talked about race issues and class issues and sort of the ambition an all of these important things, and football serves as sort of a unifying node for the author, Buzz Bissinger the great journalist, to explore so many other things. That’s sort of how I think about cannabis. I kind of think in some ways the least interesting thing that happens to the football team is what happens on the field. And to some extent, to least interesting thing that happens with cannabis is what happens after somebody takes it. I mean from my view I think the most interesting thing is all the crazy dynamics that have surround the emergence of this legal industry.

Matthew: Yeah. Great points. I went to a football game in Texas. Being a northerner I went to one once, a high school football game about 20 years ago and I was absolutely floored at the scale and size and the athleticism of these kids because it almost seemed like a college or pro game. I mean it was a huge stadium, there was so much energy and enthusiasm I just couldn’t believe this was a high school game. I don’t know if anybody has had that experience going to the south for a football game but it’s really quite a spectacle. Pivoting to the next question, is there a tool web based or otherwise that you use daily or weekly and feel like it’s really indispensible to your life that you would recommend to CannaInsider listeners?

Alex: Actually the tool that’s indispensible for me to put together Weed Week is an app called Pocket and it’s just a way to save stories that I come across on social media and then at the end of the week I can go through the list of stories and put together the newsletter from them, but it’s just a great way to save things you want to read if you don’t have time right now to read them and you can also save videos or whatever else.

Matthew: Wow, I haven’t heard anybody else talk about Pocket but I use it daily. It’s this little icon that goes on your browser. If you see a story, you click on the Pocket, it saves into your Pocket account but also you have an app on your phone so when you’re out and about you can read it if you didn’t have time when you came across a story. But then there’s this other app that works with Pocket called Audiofy that I use and will take all of your Pocket stories and read them to you in this computerized voice while you’re walking around or doing whatever if you can’t read. I love Pocket, I love Audiofy so I’m glad you mentioned that.

Alex: Cool. Well Audiofy I will have to check that out.

Matthew: Yes it’s really cool. Well Alex as we close tell us one more time how listeners can find Weed Week.

Alex: Thanks so much for listening. You can get a free and confidential subscription at www.weedweek.net and the newsletter comes out on Saturday mornings.

Matthew: Alex thanks so much for being on CannaInsider and good luck with Weed Week.

Alex: Thanks so much for having me. It was a lot of fun.

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


Key Takeaways:

[1:21] – Alex’s background
[2:49] – What’s Weed Week
[4:19] – Weed Week’s top stories of thew week
[21:15] – Alex’s book recommendation
[23:48] – Alex’s indispensable tool recommendation
[25:09] – Where to find Weed Week

Matthew Kind and Alex Halperin sit down to discuss the top cannabis-related news stories that are trending right now. Topics include; Which kind of cannabis businesses are most profitable, why dogs are eating more pot, A Catholic Bishop coming out against pot, and why the black market isn’t disappearing entirely in states where cannabis is legal.

About Alex Halperin:
Alex Halperin’s work has been published in the  NewYorker.com, Mother Jones, Fast Company, Fortune, Al-Jazeera, Business Insider and Rolling Stone. Alex has launched Week Week a newsletter that captures and distills the week’s most important cannabis news in a brief and digestible format. You can follow Alex’s work at: http://www.weedweek.net

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

How to Avoid Pathogens in your Cannabis

cannabis pathogens eric lachance PathogenDx

Read Full Transcript

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

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

Eric: Thank you for having me.

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

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

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

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

Matthew: Okay. What is Pathogen DX do exactly?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Eric: Absolutely, absolutely.

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

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

Matthew: Are you looking for investors at all?

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

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

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

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

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


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

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

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

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

Comparing CO and WA Dispensary Sales Metrics

roy bingham

Read Full Transcript

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

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

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

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

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

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

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

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

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

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

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

Roy: Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew: Wow.

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

Matthew: Yeah for sure.

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

Matthew: Wow.

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

Matthew: I do too. I’m in that camp.

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

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

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

Matthew: Wow.

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

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

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

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

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

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

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

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

Matthew: Right.

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

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

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

Matthew: Right, right.

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

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

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

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

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

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

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

Matthew: Wow.

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

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

Matthew: Yes.

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

Matthew: Right.

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

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

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

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

Matthew: Yes I agree. Well Roy.

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

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

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

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

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

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

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

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

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

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

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

Matthew: Right, right.

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

Matthew: Oh yeah great one and revenge right.

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

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

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

Roy: Yes.

Matthew: So there’s all these…

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

Matthew: Exactly.

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

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

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

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

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

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

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

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

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

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

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

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

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