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Blue Moon Creator Keith Villa Invents First Cannabis-Infused Beer

keith villa ceria brewing

Only a few months after leaving MillerCoors where he invented the company’s wildly popular Blue Moon brand, Keith Villa launched Ceria Brewing Company to embark on new territory: cannabis-infused non-alcoholic craft beer.

A spin on Blue Moon’s Belgian-style white ale, Keith’s new beer, “Grainwave,” is a medium-bodied ale with blood orange peel and 5mg of THC, the psychoactive component in cannabis.

In this episode, Keith shares the goings on at Ceria Brewing Company, the variety of “sensations” his new line of craft beers have to offer, and his insights on the booming edibles industry.

Learn more at https://www.ceriabrewing.com

Key Takeaways:

  • Keith’s background in craft beer, his experience at MillerCoors, and how he came to launch Ceria Brewing Company
  • The process behind earning a PhD in Brewing
  • Why Keith decided to launch Ceria Beverages and create THC-infused beer
  • The ins and outs of infusing non-alcoholic craft beer with cannabis to ensure the THC is evenly emulsified and each bottle contains the proper dosage
  • Where Ceria is aiming to make its beers available in 2019
  • Keith’s goals to overcome the stigma surrounding cannabis
  • The THC doses within Ceria’s two beers and the different sensations they offer
  • Keith’s insights on the future of Ceria and the cannabis industry at large

 

Read Full Transcript

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

Matthew: With the stigma around cannabis falling away, one entrepreneur is seizing the opportunity to create a cannabis beer. I'm pleased to welcome Master Brewer Keith Villa to the show today. Keith, welcome to CannaInsider.

Keith: Well, thank you so much for having me on today. It's just my pleasure to be here and talk about what we're doing.

Matthew: Give us a sense of geography. Where are you sitting today?

Keith: Well, I'm in our offices, which are on our property, and sitting right here in Arvada, Colorado, which is a suburb of Denver. Not many people come out to Arvada, but it's just a really nice place to think about beer, brewing, and cannabis. The crazy part is that there was actually a moratorium on cannabis in my home town of Arvada, so we can't really sell any cannabis in this city. But our headquarters is here, and it's just a great little place to live and raise kids.

Matthew: That's right by Golden, right? Most people have heard of Golden.

Keith: Yes. I would say, if in your mind, if you could think of a triangle where you've got Denver, Boulder and Golden, that's the triangle, and Arvada would be almost in the middle.

Matthew: Okay. I am in Austin, Texas, today.

Keith: Then you're up a lot, especially for south by southwest, great place, great city.

Matthew: Yeah. A lot of California refugees here. Every day I'm meeting people that have decided to relocate from California to here for a lot of reasons, but interesting migration patterns going on.

Keith: Yeah, that is kind of interesting. But I don't blame them. Austin's a great town. California's a great state, awesome state, but, yeah, every time I go, it seems like the price of gas keeps going up and a lot of people moving in.

Matthew: Yeah. The price of gas here is under $2.00 today, so that's pretty impressive. For me, when I see that, that's pretty impressive.

Keith: Wow.

Matthew: But enough about Texas here. Tell us about your beer. What's the name of the beer?

Keith: Our first beer is called Ceria Grainwave Belgium-Style White Ale.

Matthew: Okay. What does Ceria mean? Is there any significance to that name?

Keith: Ceria is the name of our company.

Matthew: Ceria.

Keith: Ceria, it rhymes with area.

Matthew: Aria, okay.

Keith: Yeah, so if you would think of Area 51, then this is ... Ceria rhymes with area.

Matthew: Okay.

Keith: Ceria comes from the name of the Roman Goddess Ceres who was the goddess of the harvest, fertility, agriculture. The Romans looked up to her as this goddess who was responsible for great harvests of grain especially. Additionally, CERIA was the name of the ... It was an acronym and the name of the campus where I studied brewing in Belgium. That's where I got my PhD in brewing. Over there it stood for the Center for Teaching and Research in the Food Industries. On that campus they had the brewing school, the chocolate-making school, the culinary school, the hotel and restaurant management school, and all of those industries that are essential for the food world to exist.

Matthew: Okay. I want to dig in a little bit to your background here. It's not often I speak to a brewer, much less someone that has a PhD in brewing. Can you talk a little bit about what that was like in Belgium, and what the process is to get a PhD in brewing?

Keith: Oh, of course. Yeah. The process is pretty difficult. When you go to get a PhD in brewing, the first thing you realize is not a lot of schools offer a PhD in brewing. In fact, in the US you can go to the University of California Davis. But back when I got mine, which was ... Gosh, I was there from 1988 until 1992 ... really before the true onset of the craft beer revolution in the '90s. It was also before Belgium became well known for beer. But it was very difficult to find a school that had a brewing educational program. What I found quickly was that the most well respected programs were in Europe. There were two schools in Germany, one in the United Kingdom, one in Scandinavia, and four of them in Belgium.

Keith: What I did was chose the University of Brussels, the Flemish-speaking one, because they offered me the choice back then to do everything, actually, not everything but to defend my dissertation in English. Because at that time, they were really pushing English as the international scientific language, and so they were pushing all their own students to learn English and to do as much in English as possible. It worked out very, very, very well.

Keith: I was there. I wrote a dissertation, and I did all the research on specific enzymes and proteins in brewing yeast that were responsible for an off taste of butter. Butter and as beer is aging, it's freshly fermented and what you smell in fresh, green beer is a buttery aroma. The reason you age beer is to get rid of this buttery aroma. Through my research I found that you can do things to the yeast to minimize your aging time. But once I passed, we had a party. I had Trappist beers. I had all kinds of Belgium beers, and it was a great celebration and that.

Keith: Yeah, but it was very difficult. Then from my perspective having lived there and experienced that beer culture, I knew that someday that culture of beer and pairing beer with food and having small breweries in every town, I knew that someday that would come to the States. That really provided a lot of inspiration for me to get back to the States and start brewing.

Matthew: Wow. That's a fascinating background. We have some Belgium friends, and they are always pulling out interesting snacks from their bags and stuff like glazed waffles that they made themselves and these cookies that I've never had before. It's interesting. They have their own little unique culture for a lot of different things. Obviously, the chocolate, they're really well known for, too. But, yeah, it is. I think they have to explore with their culture because it's such a small area, a small place. But can you tell us a little bit about why you decided to create a cannabis beer, and what your day job was prior to starting Ceria?

Keith: Well, prior to started Ceria, I worked for MillerCoors, Molson Coors, Coors ... just the organization ... for 32 years. I started there, worked there for 32 years, and I retired. I actually had the opportunity to retire, really, with a great situation mainly because I had created Blue Moon Brewing Company as part of Coors, and it grew to become a very successful craft brewing company. To this day, it's the number one selling craft beer brand in the United States. Because of the success, I was able to retire last year. I was literally able to walk out the door with a full pension, health insurance for myself and my family. I was able to cashout all my stock. Literally, I could have walked out and just retired and relaxed and had fun the rest of life.

Keith: But the one thing that I had been researching the last four years on my own time is cannabis. Because I think I grew up in the same, I guess, state of affairs that everybody else did that as you're growing up in the United States, cannabis was something illegal. That notion of, I guess, it's a Reefer Madness was pounded into the heads of school children at least in Denver, but I'm imaging throughout the United States. Children grew up viewing cannabis as this terrible drug in the same league as heroin and all these other terrible drugs.

Keith: When you're a child and you're exposed to that, you believe it. What I found was that when cannabis started to become legal in the State of Colorado, I started hearing stories and reading stories of people using it and people actually benefiting from it. I'd read stories of returning veterans from the military who had PTSD, and they were using cannabis with a very successful rate of being cured or treating their PTSD. Then I was reading articles of people with cancer who were using cannabis to cut the pain that was caused by the cancer or to decrease the nausea that was due to the drugs that they were taking. I read about people with epilepsy who were going from several hundred seizures a day to zero or one or two seizures a day with cannabis.

Keith: I read enough to know that there was something going on there, something very significant. Then as I read more, I saw that, well, the reason that's happening with these stories but not in the scientific press was because this was an illegal drug at the federal level. Because of that, universities were not allowed to study this in depth. There was just a whole complete lack of information on cannabis. I kept digging down deeper and deeper and finding so many articles, most non-scientific but, nonetheless, articles that were showing that cannabis does something. I thought, "I am gonna start looking at this thing," because in 2014, that's when it became legal for recreational cannabis in the State of Colorado. I would start getting extracts and cannabis. I used them. I was trying them out, and I would talk to people. Really, there was something there, and I thought, "You know, this is not the plant that everybody was blaming for society's ills. This plant is actually useful."

Keith: There's a whole history of this plant being used by native cultures going back a long, long time. What I read was that the first people to really use it were in Asia. Over there, they were the ones who first started identifying that this plant could be helpful and used in many different ways, and it just spread throughout the world. I started experimenting, and I thought, "You know, this could be a really great replacement for alcohol in beer, because beer is one of the beverages that's been with Western civilization for thousands of years." I think any textbook of brewing will tell you that the first written history for beer was with the Sumerian culture, which was something like, I believe, 5,000 years ago, something like that. So beer has been with us for a long time.

Keith: The issue with beer and other alcoholic beverages is that alcohol, it's a high calorie food, if you will. It does cause problems when you drink it in excess, so liver issues. There are people who get addicted to it. A lot of different things happen with alcohol. In moderation the science says that it is healthy although lately, there have been some scientific articles saying that even one drink of alcohol is bad for you. There's still a lot of stuff coming in, a lot of science coming in saying that alcohol could be negative for your health even in moderation.

Keith: Whereas with cannabis, I wasn't able to find any conclusive scientific proof that cannabis has led to deaths of humans through ingesting it or through smoking it. Certainly a lot of cases of people who would feel sick because they took too much, but they recovered fully and got back to great health. Also, I read about cannabis being used to wean people off of drugs like opioids, people completely addicted to opioids, which doctors legally had prescribed and which cause a lot of deaths in the United States even up to this year. I found that cannabis could be used successfully to treat people who were addicted, and so I thought, "This can be a great, great way to introduce people to cannabis through beer."

Keith: I was able to retire this year, as I said, and my wife and I started Ceria. The first thing we did was lay down the brand architecture and the groundwork for Ceria. Part of that was the fact that we saw cannabis as something that should be for the people. That is, it should not be illegal. It should be available for everybody who needs to use it or who wants to use it. For us, cannabis became a like movement. On our labels you see in Latin it has the phrase, "Cannabis pro Omnibus," which means cannabis for the people. That's become our rallying cry, and beer is the vehicle that we've chosen to provide cannabis for all those people 21 and older who want to be exposed to cannabis and experiment with it safely and see that it really isn't something to be afraid of. It's something to add another level of enjoyment to your life. Well, this year, 2018 is when we started, and we did so much that it seems like that year of 2018 was, for us, it was about five to six years' worth of time crammed into one year.

Matthew: Oh, yeah. I can imagine lots in getting a company off the ground. For people that are listening and wondering like, "Hey, wait. Is cannabis like the active ingredient here? Or is it cannabis oil and alcohol together?" What's the answer there?

Keith: Well, the first thing we found was that cannabis and alcohol cannot coexist in a liquid legally in the United States. To clarify that statement, what I mean to say is that alcohol in the United States is overseen by the Tax and Trade Bureau or the TTB. The TTB is the governmental organization that really regulates alcohol, and they will not allow anything federally illegal to be put into an alcoholic beverage. At the state level, so in Colorado, we have the organization that oversees cannabis, and this is called the Colorado MED. That is the Marijuana Enforcement Division, and the MED does not allow alcohol to be put into any cannabis beverage.

Keith: To satisfy the feds and the state authorities, we have to remove the alcohol, so Ceria does not have any alcohol in it. It has only cannabis. The cannabis we use is an extract. We don't use varietals. Some people might say, "Well, is it Indica? Is it Sativa? Is it a hybrid?" We don't use any varietals of cannabis. What we do is we extract the THC and use only THC in our beer. This is mainly to get people experienced with THC and also to really just to start with that. In the future, of course, we can put any number of cannabinoids in there, whether it's CBD or CBG, anything. But right now THC, I think, is the one cannabinoid that a lot of people look at when they want to have, I guess, just a nice experience similar to drinking alcohol.

Matthew: Okay. How does the emulsification work so the THC is evenly distributed within the drink, and you're not getting it all in the first or last sip?

Keith: Yeah, that's very critical. There are two ways you can do that. One is to make a water-soluble extract. The other way is to make an extract with the right emulsifier to get it in solution, in suspension, so it stays there and doesn't come out. Those two ways work perfectly for the different beers we make. For our Grainwave, which is on the shelves right now in Colorado, it's an unfiltered, Belgium-styled wheat beer, so when you pour it into a glass it has a really nice haze in it, and everything looks good. It smells like a beer. But what we do is, for that one, we use an emulsified THC oil. We can't say exactly the emulsifiers we use because that's proprietary, but we do use emulsifiers to get it in suspension, in solution, and it does not come out. It does provide a little bit of haziness, and so that works perfectly in our unfiltered beer because it is a hazy beer.

Keith: The other thing is that the extraction process pulls away the smell and the taste of cannabis, so what we do is focus on the smell and taste of the beer with the effects of THC inside the beer.

Matthew: Okay. All right. You mentioned that the beer is available in Colorado. That's the starting geography and then there's gonna be other states? Or, how is that gonna work?

Keith: Correct. It's in Colorado. We started, we were on-shelf, I think it was the third week in December. We sold-out the very first day. It was the Friday before Christmas. We went into 16 stores. We had a launch partner, a dispensary chain here in Colorado who agreed to be our launch partner for our brand. I'm not sure if we could name them on the air.

Matthew: Yeah, please.

Keith: Oh, The Green Solution, yeah. They've been fantastic to work with. Of course, there are other chains and other independent dispensaries throughout Colorado that are also really, really great. But we decided to focus the launch with The Green Solution, and we sold out the first day. We were very happy. It's just great to go see our products in the dispensaries and then just wait 24 hours and see them gone. We know that we've got a product that people like. We've heard numerous accounts from people saying they love the taste. They think it tastes like a beer, a great beer. They said they could not smell cannabis or taste cannabis, but they felt the effects. For us, that's exactly what we were looking for.

Matthew: Now, how do you arrive at the proper dosage per bottles, and what does the bottle look like?

Keith: Well, at this point in time, we're using an aluminum bottle, so it's in aluminum. That's mainly because the state has had a rule in place that you should not be able to see the liquid inside the package. What we decided to do was use an aluminum bottle to make sure that it was completely obscured from the customer's sight to satisfy that rule. It is a 10-ounce serving, and it has five milligrams. The way we got at five milligrams was in Colorado the standard serving size is 10 milligrams per serving, 10 milligrams of THC. The state really doesn't have a lot of regulations on the other cannabinoids. They have only regulations on THC since that is the main psychoactive in cannabis, so the regulations really revolve around THC. The standard serving is 10 milligrams per serving of whatever you have, chocolate or liquids.

Keith: We decided to start with five so that people could enjoy two if they want a standard serving. They could enjoy three or four if they want a little more than a standard serving and still be able to function without being completely stoned. Because from our perspective, we want to introduce this product to people who maybe have never had cannabis before or people who had a bad experience. Because the thing we saw over the course of the last four years is that a lot of budtenders in dispensaries, I think, their goal is to help the customers who come in. But what we've seen is that a lot of budtenders try to sell as much THC per dollar as possible to people who walk in. From our perspective we're thinking, "Yes, that is the case for a lot of experienced users, because they want as much THC per dollar spent as possible, because they want to experience the THC. But we started thinking that that's not what the soccer moms and the average Joe down the street who hasn't had cannabis, they don't want as much THC per dollar spent. They want to ease into it.

Keith: Yeah. We thought that the best way to do that is to offer beers that have low dose, micro-doses of THC to allow people to ease into it. Then as they become more experienced, then they can buy high THC strains and experiment with edibles, smokeables. Then who knows? If they really want to get into it, they can buy a dab rig and then start dabbing if they want. It's totally legal, nothing wrong with it. But that's for those heavy, experienced users. But from our perspective, the heavy, experienced users really aren't our audience. Our audience is that person who has never used it and who might be afraid of it but doesn't know where to start.

Matthew: Yeah. It's a great on-ramp for new cannabis users, because a lot of the stigma is around when they smell or have to light something. Those two things are just big stigmas still despite over 30 states having some sort of cannabis legalization. Lighting and scent or odor is a big thing, so that's great. Also, people that just love beer, this is a great on-ramp for them, so I see that as a big win.

Matthew: But one of the difficulties I see is most people listening that are of drinking age would know what one can of Budweiser will do to them. But it's hard to have that kind of universal kind of measurement where you could say to a friend like, "Oh, if you drink this cannabis drink, you're gonna feel pretty much like x." It's hard to pass that along because seem to experience it differently, onsets differently, liver metabolization is different. But, I guess that's true for alcohol in general, but I think we're kind of missing ... 10 milligrams, like you mentioned, is a good kind of good international standard or maybe five. Some people say a rookie cookie, five milligrams is good. But I think we're missing kind of that universal benchmark that could help people know where they'll be at after they consume something. It's a hard thing to do because it's very subjective, but we need something.

Keith: Right. You're absolutely right, because everybody is different. At least with alcohol there's been so much research that people kind of know what a standard drink is. They know that if they have a light beer, they can have a couple and feel practically nothing, whereas if they have an Imperial IPA craft beer, they know they're probably gonna get buzzed. If they have a couple of shots of whiskey, they know they're gonna definitely get buzzed. People have these guide rails with alcohol.

Keith: With cannabis, you're absolutely right. It's a different story for those people who have not used it before, and everybody's different. The fact that the THC has there are binding sites in the body, and those binding sites that accept THC to give you that nice high feeling, they are affected by different things. That is the terpenes, that is those nice aromatic compounds that are in cannabis or in beer or in lemon juice, fruit juices. Those nice aromas that you smell are terpenes, and those actually have an effect on the cannabinoids that you take into your body, so there's a compounding effect.

Keith: Since everybody's different, somebody may take five milligrams, and they may feel really, really woozy. Whereas somebody else may take five and say, "I don't feel anything," and so you're right. That's the way we are as human beings. But in general, what we can say is that with five milligrams the first thing is that our extracts, whether it's our water-soluble extracts or other extracts, those take effect within 10 to 20 minutes, so you'll feel it after you take it.

Matthew: Did you feel a little bit like Santa Claus on that day of the launch? Where you're thinking like, "There's all these people that are enjoying this beer that I created."

Keith: A little bit. Yeah. Because it was so much fun because it's low-dose. To me, getting people to try it, that's a huge hurdle. But to try it in a way that's socially acceptable, that was one of our big goals, to make sure that this is socially acceptable. If you wanted to smoke it, I see you could do that, but smoking is being frowned upon more and more in our society whereas beer drinking or drinking of alcohol, that's something that's very socially acceptable. To put cannabis into a socially acceptable format, for us, that was great. It just was a great feeling to see it sold out and to just imagine people using it as stocking stuffers and whatnot, because it's just a great feeling because people are getting their first tastes of cannabis.

Keith: The other thing is that by having a beer format, we're driving a lot of new traffic, foot traffic, into dispensaries. For people to buy our beer, they can't go to a liquor store. They've got to get into a dispensary. What we're very proud of is that our beer is actually bringing people who have never been into a dispensary right through the front door for the first time, and they're seeing that dispensaries are not these dark, scary places that many people imagine. Dispensaries now are, the majority of them, are well lit, well stocked. It's almost like going into a nice ...

Matthew: I say it's like going into Pottery Barn.

Keith: Exactly. Yes. To get people who have never been in to a dispensary to actually walk in to buy our beer, it's a great feeling because then they see that these places, that they're not scary. You go, you purchase the beer and do the transaction. You show your ID, of course, but it's no different than going into Walgreens and buying a six-pack of Bud or Coors. But in this case, people see that there are other products, and so if they buy our beer. Our hope is that they'll come back for more. But at the same time, something should trigger in their mind to say, "You know, I think I might want to try those chocolates or those jelly gummy bears. Or, I might want to pickup a pre-rolled joint or a vape pen." Have people just come in and see that it's not talking to an illegal drug dealer in a dark alley. It's legitimate, and our beer is helping to legitimize that and helping to remove that stigma.

Keith: To me, that was the best feeling ever is that here we are at the forefront of actually getting people to try cannabis, getting them into dispensaries, and helping to remove the stigma that still surrounds cannabis.

Matthew: Sure. Okay. The Belgium White Beer has five milligrams per serving. The IPA's 10 milligrams. Moving on to, now there's a company in Canada called Province Brands. We've had Dooma Wendschuh, the founder or co-founder, on the show. He is making a cannabis brewed beer. Can you talk about the difference between what you're doing and what they're doing just so it's clear in people's minds?

Keith: Oh, of course, yeah. Yeah, and we've met Dooma a couple of times. He's a very nice guy, very smart. He's got Province Brands up in Canada. His goal is to make a beer entirely from the cannabis plant with no malt, no hops, but something entirely from the plant. Our goal at Ceria is to make beers using malts, hops, water, and spices if we want and then remove the alcohol and replace it with cannabis extracts. Ours really is the beer in the traditional sense, whereas Dooma's is beer in a new sense that is made entirely from the cannabis plant.

Keith: I remember talking to him years ago when he first brought up that idea. I was one of the doubters. I still doubt it, but until I taste his product ... as a brewer who's classically trained and I have a PhD ... I don't see how you could make a beer taste like a beer in the consumer's sense with just cannabis. It might be possible, but I would not know how to do it. He claims to have done it. He says he will launch it when edibles and drinkables become legal in Canada this October. Until then, he's partnering with one or two other breweries to make beers with cannabis extracts.

Keith: Yeah, so our beer is different than his in the fact that ours is a traditional beer with the alcohol removed and replaced with cannabis. His is made entirely from the cannabis plant. I remember saying to him that I would think it would taste more like a tea or something like that versus a traditional beer. But he claims to have made a beer that tastes like a traditional beer, and it'll be out in October. But next time I go to Canada, I'm gonna have to get up there and taste it and see what he's done.

Matthew: Yeah, yeah. Let us know. What has been the reaction from customers that have tried your beer then? What do they say about Ceria?

Keith: I think the first thing is that people are expecting a taste of cannabis. When they taste it, the one thing we always hear is, "Wow, that tastes like beer." Then people say, "That tastes really good." I think those people who know my history of being the founder of Blue Moon Brewing Company and that taste that Blue Moon has, I decided to launch a Belgium White for a cannabis beer because I know that style and I love that style. But our Belgium White at Ceria is different than the Blue Moon Belgium White because ours is a little more organge-y and a little more citrus-y, but still a beer. I think people taste that and they say, "Wow, that tastes like beer and that tastes good." People drink it. I think just that, to me, I call it the wow factor. When I hear that and people say, "Wow, that's really good," that, to me, is just music to my ears, because that means we've accomplished our goal. We've made a beer that tastes like beer but has the effects of cannabis, and that's exactly what we wanted to do.

Matthew: I know it's still a small, initial launch, but have you noticed any kind of trends in terms of who's experimenting with it first out of the gate? Women, men, young, old? That's all subjective but ... what old is. Anything you can tell us there?

Keith: Yes, it's too soon, because we still have to get out to the dispensaries and do some tastings and talk to the salespeople, the budtenders, the management of the dispensaries, and actually ask those questions. Because, yeah, they're the ones who are on the front lines with customers every day. They're the ones who will be able to tell us firsthand who is buying our beer.

Keith: Yes, there are some great data companies like Headset and BDS Analytics that can kind of tell us numbers, removal numbers, but in general they cannot tell us who is buying it. Is it a 21-year-old's first purchase? Is it a mom and dad who came in here? Is it a soccer mom? That's what I want to hear is who actually came in and purchased this? Because to me, that will tell me who is interested in these products. As we develop more products, it'll help guide us to make even better products. Because if it is the craft beer drinker who's purchasing our beer, then that tells me right away, "Hey, our next product could be our double IPA." Or, if it's a lot of soccer moms drinking it, that's like, "Okay. Maybe we want a beer that's a lighter beer that doesn't have too much flavor but that's very refreshing." Yeah, it'll help guide us.

Matthew: Could you give us a sense of price for a bottle of beer? Or, are they sold in four-packs? Or, how does that work?

Keith: We have individual bottles and four-packs. A bottle is retailing for $7.95. The price point is always difficult, because you offer a new product out there that is really something completely new. You just don't know where to price it to be a decent value to people but also something that tells people, "This is a nice thing to enjoy. It's not a real cheap thing." Yeah, the price point is always something very difficult to establish.

Keith: Ours is $7.95 a bottle. We felt that's a really nice price point for our first off beer. Because if you look at the world of craft beers and you go to a bar and buy a glass of craft beer, it's gonna be about $6.00 or $7.00 or $8.00 depending on what type it is. We thought, "Well, $7.95 is right in that range. It's a good price point." We think people should be able to have enough money in their pocket to buy one and try it. If they like it, they can come back and buy a four-pack.

Matthew: Okay. That makes sense. Keith, where are you in the investing process with Ceria?

Keith: For us, we are closing our first seed round of investing, so we're very happy. We've got people who actually believed in us and put money up to help us get this company off the country and get started. Yeah, so we're exactly where we want to be right now. We may open up another round next year. Or sorry, this year, 2019. But we'll wait and see because our goal is, again, to really to offer great tasting beers with the effects of cannabis and to remove that stigma that's around cannabis right now.

Keith: Our goal isn't to be this massive producer of stuff. We have very modest goals right now, and we're all about beer. We love beer. It's just beer for us. We're a pure beer player. We don't have vape pens. We don't have other edibles, other drinkables. At this point it's just beer because we know beer, we love beer, and that's where we are. From an investment standpoint, we raised the money we wanted. We have our plans in place for this year and next. We're doing everything that we've said we would do. In 2018, we said we would form our company. We would produce a product with the right logo and have it one the shelf by the end of the year, and so we certainly did that. Yeah, we'll just keep working really hard to get our products out there and to change people's images of what cannabis can be.

Matthew: For accredited investors that might be listening that are interested if you do another round of capital raising, is there a list or something they can get on or anything like that?

Keith: Yeah. If they go to our website ... I think it's CeriaBrewing.com ... or just Google Ceria, and they'll see our home website. Down at the bottom they'll see the little buttons to push if they want to learn more about investing in Ceria. Of course, yeah, well, hopefully we'll never turn away money. But it's a small company. You need money to grow and to keep going and to make high quality products. But, again, one thing we have in our advantage is that we have a lot of years of experience. Myself as brewmaster with 32 years of brewing experience, having created the biggest craft beer brand in the world, having a PhD in brewing.

Keith: Then our branding company is out of California. They're the ones who helped us to build the architecture of our brand. That company, it's called Trinity Branding Group. They're one of the most respected branding companies around. If you've seen all the work for Corona, Corona Light, Modelo, all those beers, Trinity had a hand in that. They're very skilled at what they do in building brands. We think they've done a fantastic job with our brand, the whole brand architecture. Of course, we have Chief Marketing Officer, Doug Christoph, who really has done a fantastic job working with Trinity to deliver the look and feel of our brand.

Keith: Then we've got just a lot of expertise on our team that comes together to make Ceria what it is today. We're very happy with where we are, with the amount of funding we have, and we really look forward to getting out there and changing people's perceptions of what cannabis can be.

Matthew: If anybody's curious about the spelling, it's C-E-R-I-ABrewing.com. C-E-R-I-ABrewing.com. Keith, I want to turn to some personal development questions. Is there a book that has had a big impact on your life or way of thinking or career that you'd like to share?

Keith: Gosh, well, I'm an avid reader. I love to read as many books as possible, especially success stories from people who started with nothing or people who were not well regarded and ended up changing the world. People like Steve Jobs. I love reading about those stories. But the book that, I guess, use on a daily basis that really helps is A Textbook of Brewing by Jean De Clerck. He was a famous brewer in Belgium, and he wrote an early textbook that really talks to the art of brewing and the science but in a way that is different than today's textbooks of brewing.

Keith: Today's textbooks are very scientific and very focused on the facts. Jean De Clerck talked a lot about the art of brewing and the science. To me, that really is what we're all about is combining art and science. Because when it comes to cannabis and beer, obviously, Jean De Clerck did not think back then of putting cannabis in beer. But he went so far as to talk about putting fruit in beer or spices in beer. He talked about it in a way that made sense. It's like as a scientist you look and you say, "If I were to put fruit in beer, that's fantastic, but where do I start?" He gave these clues on how to start with things you don't know could go in beer. It's just a really great book that I've found helpful over the years. It's been out of publication for a long time, but it's just a very valuable book, at least in my perspective.

Matthew: Is there a tool that you use day-to-day that you find valuable to your productivity that you'd like to share with listeners?

Keith: Oh, gosh. I use a lot of different tools, whether real tools or apps or what have you, and I use them every day. But the one that I always go back to is one that I call it my brewing calculation spreadsheet. Over the last 32 years of being a brewer, I've collected and put together a lot of different calculations for use in the beer world, so things like calculating the alcohol content, the color or the beer, the IBUs, the bitterness of the beer, the body of the beer, the calories, everything like that. That's the one tool that I use on a daily basis. It's not written in stone because what I do is if I see a new calculation or a better calculation other than I've been using, I add it to my spreadsheet. It's a living tool, a living document that I keep with me on a daily basis. That's the thing I use every day.

Matthew: Wow. I could see where that would be very helpful. I'd like to ask a Peter Thiel question as the final personal development question. What important truth do very few people agree with you on?

Keith: I think, to me, the one truth that not a lot of people agree with me on is that in the world of craft beer, there's a common perception that small equals high quality. It is something that I think is just ingrained in craft beer drinkers. So many of them think that the smaller the brewery, the higher the quality. Over the years, I've come to see that that is the case sometimes, but it's not a truth. There are a lot of small craft brewers out there who maybe last year they were a banker and this year they're a brewer, and they don't make very good beer. It's hard to convince people because they'll go and they'll have beers and they'll say, "Oh, man, that is an awesome IPA that that brewery's making." You taste it, and then you want to explain to them why this beer has faults and what can be done to make it better.

Keith: But it's a truth that so many people just believe steadfastly in and, really, to me, it's also applicable to the cannabis world. Because there are some small cannabis producers out there who are fantastic. There are others who make product that is kind of mediocre. But to me, it's all about quality, and it's all about the way that a company, whether it's cannabis or a brewery, the way that they approach making beers or cannabis products. It has to be infused with quality all the way from obtaining the raw materials to packaging the final product. Once you've got this mentality that's focused on quality, then you know the product is gonna be really good.

Keith: Again, whether it's beer, whether it's cannabis, and small does not necessarily equal high quality. That's that truth that I see it just everywhere. Most people think, "Oh, this is a little mom-and-pop shop, then it's got to be really good." In the case of Ceria, it is good. But, yeah, but in the case of a lot of little breweries, it's really, you have to train yourself to say, "Well, let me taste it first. Let me see it. Let me smell it." Then you walk away with your perception of this is a high quality, great product.

Matthew: Your beer is good not because it's a small batch, but because you made it the right way?

Keith: Exactly. The way that we go about making beer and the extracts we put in, everything about our beer, it's the highest quality. Whether it's selecting the malts and the hops and the spices, whether it's removing the alcohol using the latest technologies, whether it's preparing the cannabis extracts and putting those in, everything has to be done with the highest quality mindset that you can possibly have. The end result is a product that's gonna be great. When you put every aspect of quality into it, there's very little risk that it's not gonna be great.

Matthew: Okay. Well, Keith, this was a really compelling interview. I feel like I learned a lot, not just about cannabis beer, but beer in general. It's just a fascinating art form. Really, there's a lot of history and tradition into it that make up our culture, so thanks for that. As we close, can you let listeners and also accredited investors know how to reach out and find more about Ceria Brewing and where they find you and where to find you in dispensaries and so forth?

Keith: Oh, yeah. Just look up our website, CeriaBrewing.com. On there you'll see how to contact us. You'll see a locator on where our products are available. Right now they're only available in Colorado. But this year, 2019, we will expand to California and Nevada and then after that to every state where it's legal. You'll see investor information. You'll see the latest news stories about Ceria. Yeah, that's how to contact us if you want to learn more about our beers. We're beer-only right now, but we're very focused on removing that stigma that surrounds cannabis and on bringing new people into the world of cannabis and into their friendly dispensaries that are in their towns.

Matthew: Well, Keith, well done making this beer. Congratulations and good luck for the rest of 2019 and also a great job making Blue Moon Beer. I enjoyed many of the beers that you created and your blends and so forth. That was a real grand slam. I hope Ceria is big as Blue Moon. Good luck to you, and let us know how it goes.

Keith: Well, thank you, Matthew. Yeah. I hope to come back on your show in a year's time and report back that we're doing fantastic and that we're all over the US. Who knows? We may even be up in Canada by this time next year.

Matthew: Yes. All right. Good luck. Happy New Year.

Keith: Happy New Year to you, too. Thank you very much.

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

Matthew: What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at CannaInsider.com/trends.

Matthew: Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at Feedback@CannaInsider.com. We'd love to hear from you.

Matthew: 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.

Matthew: Promotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider.

Matthew: 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.

Matthew: 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.

The Best Opportunities for Cannabis Investors and Entrepreneurs Right Now

cody shirk cannabis investing

A firefighter out of college, Cody Shirk’s expertise in finance is self-taught.

Today he’s a full-time investor and the founder of Explorer Equity Group (EEG), a global alternative asset manager that works to capitalize on investment opportunities off-the-beaten-path.

With investments in industry household names including Kush Bottles and Regulated Solutions, Cody’s latest non-mainstream investments lie in – you guessed it – cannabis.

In this episode, Cody shares his insights on the future of cannabis and advice for both entrepreneurs and investors looking to break into the industry.

Follow Cody at https://www.explorerequity.com/canna

Key Takeaways:

– Cody’s background in investing and how he came to start Explorer Equity Group and Explorer Partnership

– Ongoing propaganda against cannabis and how the industry is working to improve public perception

– The cannabis businesses Cody has invested in thus far, including Kush Bottles and Regulated Solutions

– What Cody looks for when investing in cannabis businesses and his advice to startups seeking funding 

– Cody’s outlook on startup investment and the price of cannabis over the next 1-2 years

– Asia and South America’s developing economies and the exciting investment opportunities within

– Cody’s tips on how entrepreneurs should go about approaching investors as well as ways investors can determine the best entrepreneurs to get behind

To learn more, visit: https://www.explorerequity.com/canna

Read Full Transcript

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

Today we're going to talk with a cannabis investor who has a global perspective and has some tips for investors on how to find diamonds in the rough and for startups looking to raise capital. I am pleased to welcome Cody Shirk to the program today. Cody, welcome to "CannaInsider."

Cody: Hey, Matt. Thanks for having me. Really happy to be here.

Matthew: Give us a sense of geography, where are you sitting today?

Cody: Today, right now I am in Palm Beach, Florida, which is actually it's freezing cold today. And you know, you think it's sunny and warm here always but it's cold this morning. But there's big wave so today is gonna be a good day.

Matthew: It seems like a lot of the capital from the northeast and from California is moving to Palm Beach County. I know I just read about like Tony Robbins moving there or he's moved there. And also, a lot of hedge funds moving there. You've seen a lot of that?

Cody: Yeah. It's funny you mentioned that, I'm actually from LA. I just moved to Florida, earlier in the year, early in 2018. So I'm an LA native, and that's where my heart is. But man, it is much more attractive to be doing business in Florida. And when I went to get my new driver's license in the Florida DMV, the lady who was processing all my paperwork, she laughed and said, "Huh, you know, you're one of, I don't know, 100 today that has come from either California, Illinois, New York, New Jersey, so you're completely right, there are a lot of people moving down here.

Matthew: It's amazing how these migrations happen. I read a book a few years back called "The Fate of the States" by a former Wall Street analyst name Meredith Whitney, and she described how this phenomenon was gonna happen. People would flood out of these high tax, over-regulated states, and seek shelter elsewhere. Do you think that some of the high tax and high regulation policies are gonna migrate with the people? Or are they the very people that don't want it to come?

Cody: I think it's both. Human nature is for people to be capitalists. They want what's best in their life, and they wanna get rewarded for the work that they do. That's regardless of any political affiliation. That's how people operate. And you can see that with the way people migrate from one country to another, or from one state to another. So people will go where they're treated best, and hopefully, states and countries will try to accommodate people to attract them there. And when countries don't treat their people right, you know, everyone will leave and we can see that happening in many places throughout the world. Like Venezuela is a perfect sample. Everyone's leaving because their country is in crisis. You have other places like Singapore, Hong Kong, you know, Florida where they are treating their residents fairly, with low taxes and a healthy business environment. And that's why people are moving to those places.

Matthew: Good point. And I also know that, you know, more about Puerto Rico being one of those destinations. And we'll get into that in a minute. But first, give us a high-level overview about yourself and what you do?

Cody: Sure. So I am a co-founder of Explore Equity Group. And we are a private equity and venture capital firm investing in a variety of different markets. And I'm also the co-founder of a social, a private social and investing group called The Explorer Partnership. And basically, that's a group of people from around the world that come together. And we have events really almost all over the world every couple months to check out new investing opportunities and experience the culture, see some weird things and have fun together.

Matthew: Oh, that sounds like a lot of fun. I think I'd really be into that. I like to travel the world and see weird things. So that sounds like my cup of tea. Perfect. So, Cody, tell us a little bit about your background and journey and how you got to this point, as an investor, world traveler, and also someone interested in cannabis.

Cody: Yeah, so my track record or my history is totally not traditional, in terms of the finance world. I was actually a firefighter out of college, didn't really know what I was doing after college like a lot of people, I think, and became a firefighter, it was a great job. I learned that if I worked really hard, I could become an accredited investor, which basically means I worked as much overtime as I possibly could. And then on my days off, I would travel. I would try to get on any cheap airline flight that I could find and travel the world. While I was traveling, I was doing this mostly to surf because I'm a surfer, and I always wanted to check out everywhere in the world. Everywhere I could go, I love exploring. And while I was traveling, I started finding all these great opportunities with real estate and companies and these are all things outside of the U.S. and my mind was just blown, I went wow, there's so many cool things going on outside of the US and in areas of the world you never would have thought of.

And so I started to invest here and there, little things, you know. Buy a small piece of land here, check out a company. I'm always doing all this. I was writing about it on a blog, and I was doing this because somebody recommended, they said, "Hey, Cody, you should be writing everything that you're doing, not so much to tell everyone about everything you're doing but more to keep track for yourself, to make notes and to keep track so you can look back a year or two from now and see where you've gotten and also to remember where you've been."

And through this process of writing everything down, people started to look at what I was doing and then going, "Hey, Cody, I wanna join you." And I was like, "Well, I don't really want you to join me. I don't want to be traveling with weird people." But this started happening more and more and I started meeting a lot of great people, and I said, "You know what? This is probably a great opportunity to increase my investment odds to pool capital together from like-minded people. And that's what we started to do. We started to create SPVs and an investing syndicate, which is Explorer Partnership and we started investing all around the world and had different opportunities.

So from there, cannabis obviously came up. As a firefighter, I saw a lot of pretty...a lot of things that you wouldn't wanna see. I was on an ALS rig, which is Advanced Life Support. So I was, you know, running a lot of calls from everything from full arrest[SP], to murders, to everything you can think of. And you see a lot of alcohol and drugs. And I'm talking hard drugs, and you realize, whoa, alcohol and all these other things, especially pharmaceuticals are so dangerous, and they're just so...you can't believe that all those things are legal. And then you see cannabis, which is really one of the most harmless things ever. And that's illegal. I was just...it was such a weird thing to me.

So through traveling, I started seeing a lot of cannabis involved in cultures outside of the U.S. How it was this nonchalant thing that was just part of everyone day's life, and, you know, whether they're old, young, students, whatever they were, people would use it all over the world. And it was just like, what is going on here? So as legislation started to change in the U.S, I said, "You know what, this is insane to not get involved. And this is such a good opportunity. It's only a matter of time until this is a part of everyone's life and I need to get involved in this." So that's kind of my background, my journey, how I started to get involved with cannabis.

Matthew: Yeah, that is interesting. And, you know, it seems so inevitable to me too. But if you haven't tried it, that propaganda was just so effective. I mean, I cannot even believe how effective it was, like generations were convinced that it was the devil and I just think like, "Wow, if that propaganda was that strong and that effective, like what...is there anything else out there that as a society we believe in double-digit percentage, that's totally not true." So I wonder about it. It's hard enough.

Cody: Yeah, I forget the quote. I think it's made by Einstein. It's the ability to hold conflicting points of view at the same time and try to basically argue against any opinion that you have. And for any investor or anybody who likes to think to themselves or read, that's a very difficult skill, is to question what you believe in. And it's very important for investing because you can get stuck on some idea. And you could be totally wrong if you're not asking those questions that conflict with your point of view. And cannabis is a perfect example. Especially in the U.S. and most of the world because there's been this drug war that's a massive failure. We've been taught that drugs are evil, you know, people die, all these horrible things. And, we've never taken the time to take a step back and actually question that and say, "Is cannabis really deadly? How much...like what are the problems that are being caused by it? Is this real or is this some type of story that's made up?" And I think people are starting to question that narrative that they've been taught, and it's clear with public opinion, especially in the U.S that it's flipping so fast and it's not because people all of a sudden discovered something new. It's that, you know, the tidal wave of sentiment is changing and a lot of their herd, I might say, like the sheeple are trying to...are now changing their mind just because they're realizing, "Oh, I wasn't taught, I wasn't taught this narrative. So I guess I'll just change my mind now," even though they never really dug into it.

Matthew: Right, right, right. Well, Cody, tell us what cannabis businesses or startups you invested in, to date?

Cody: Yeah so we've invested in five different companies so far. A couple of them are I guess quasi-household names, Kush Bottles, Prohbtd, Regulated Solutions, Heally, Kellock's Peak[SP], what else have we done? Those are our main positions where we are writing a check of usually half a million or larger, and those have been done so far through our investing syndicate. We'll be launching a fund in a couple months, which we can talk about a little later, but we believe that we are very involved in the cannabis spaces. I personally have been investing since about 2012. And I've been traveling the world looking at almost any company and any grow that you could possibly think of, in countries that you didn't even know existed, let alone with growing cannabis. So yes, we believe we're very connected within the cannabis industry.

Matthew: So when you look at these investments, you wrote checks for, what impressed you about these companies in retrospect?

Cody: Yeah, so one of the things that I noticed when I first started looking at cannabis companies is that they...a lot of them, and this is a couple years ago, were run by cannabis industry insiders and that may sound like a good thing but I discovered that it was actually a bad thing in a lot of scenarios, because you have a lot of people that were creating companies that were previously operating in the black market, which means that they were doing illegal things previously and with their new companies they were also not really doing everything up to par. So one of the most important things that we've been looking for is operators that are either doing everything by the book, 100% legal, crossing all the T's, dotting all their Is, or we're looking for entrepreneurs that have come from other industries, whether it be a regular entrepreneur from a non-finance background or someone from a real financial banking background. We look for those types of people who are leading companies to be successful.

Matthew: Okay. And what's your thoughts about investing in companies that grow cannabis?

Cody: We're totally agnostic to that. We don't mind investing in companies that touch cannabis. Clearly, there's more risk there, but the risk can be mitigated with understanding what the product is, who the team is, what their forward path is. Again, there is risk in the sense that you're subject to government laws. But as we all know, there's an unstoppable shift in the way legislation is moving, and we firmly believe that it's just a matter of time. So for now, it's just a matter of really getting aligned with the right teams that are not going to do anything crazy in the midterm and just hold their path and be ready for one last change.

Matthew: Now, do you have any ideas on where the price of cannabis is headed in the next year or two?

Cody: It's a great question. We don't mind investing in companies that touch cannabis. But we try to avoid any companies that profit directly from growing cannabis. So what that means is that if a company is just growing cannabis, and they're just selling the flower, we believe that cannabis prices will be crashing down. It'll become a commodity just like corn, wheat or hops for beer. And if you think of any beer company, if you wanna invest in it, you would probably invest in a brand or a company, you wouldn't invest in a farm that grows hops. Now, that's a generalized opinion. There's clearly high-end growers that provide great products that are, you know, for the higher end market and there's niche opportunities, but in general, believe the price is going down. One of the epiphanies I had, I think this was in 2012 or 2013, I was in Colombia. I spent a lot of time down there and we were touring some flower growers. I'm not talking about cannabis flowers, I'm talking about actual flowers that go in a vase. And Columbia's one of the world's top exporters for fresh cut flowers. And what they're doing is they're changing over these huge, huge farms over to cannabis. And they already have the infrastructure to grow everything. They have all these carts, they have workers, they have facilities, they have everything built out. All they have to do is literally change over the seeds of what they're growing. And they're currently doing this.

So when I saw this, I said, "Oh my God, these farms are massive." They have free water, because it rains every day. They have free sun, because they're close to the Equator, so their seasons are much more calculated. And they don't have the massive power bills that all these greenhouses have in North America and anywhere else that's cold. So I started seeing these farms and I said, "Oh, my God, this is only just a matter of time until this becomes a commodity, with the prices going down." You cannot compete with a producer that has, you know, free sunlight and free water. You just can't do that unless you're at a super high-end market. So we believe in general that the cannabis price will be going down.

Matthew: Well, the only place where that might be an exception is where states require it grown in their jurisdiction. But I think for every place else you're right, I mean, why wouldn't you want super high-quality low price, you know. That's why I look at a state like Massachusetts or Illinois and I think, wow, this is gonna kind of become like an oligopoly or something like that because it's so highly regulated that the price is gonna stay up." And I could be wrong about that, but that's what when I look at a highly regulated market that's what I see. And then the states or countries that open up to imports do exactly like you're saying and the price will drop precipitously.

Cody: You're absolutely right. And to be fair, we acknowledge that as well. The states, especially in the U.S. still continue to be regulated. And even if or when it becomes federally legal, that will still probably be the case where states have a tight grip on who gets licenses, who's allowed to grow, who's allowed to sell, you know. Vertically integrated companies will be, you know, we'll have a moat around the licenses that they have. And that will for sure, be the mid-term trend and how long that lasts, we're not sure. But like you said, for the major growers and the companies that are importing cannabis from other countries, it'll be a race to the bottom on the pricing. But for the midterm, absolutely right. It's a licensing play right now. And how long those states and countries will keep a grip on how they regulate everything is anyone's guess. But I guess like we started the interview off, it's a matter of who is gonna treat consumers and businesses the best and that's where people are gonna flock to.

Matthew: Yeah. As we look out of the year ahead, how do you see the landscape of investing and startups changing?

Cody: Well, this is a...I don't wanna be negative here, but I think I'm gonna try to take a realistic approach. You know, we're in the 10th or 11th year of one of the longest bull market runs in modern financial history. If you look at anything that's cyclical, which is basically everything in life, whether it's the seasons, or the tides, or the weather, or the way birds migrate, everything's cyclical, and we can say the same thing about the markets. We are going to have a market correction. When it will happen, nobody knows. Are we in there right now? Maybe. So that's going to affect the broader market as well as the cannabis market. So what's gonna happen for the, you know, the startup world and for entrepreneurs is gonna be really tough coming up, but that's a good thing too, because that shakes out the industry, it really shakes out who's not really serious, it cleans out the companies that aren't providing any value, and it is good in the long run because it makes the industry much stronger.

Matthew: Now, when you put your investor hat on and you're looking at startups or entrepreneurs, how do you look at the marketplace? Like when 10,000-foot view, you're looking down all these cannabis entrepreneurs, how do you kind of sort them or categorize them or get an idea of how you wanna invest in them?

Cody: It's a great question. I think that anybody investing in the cannabis space right now will have a similar answer because the truth is that we just don't know. This industry is so young, we don't have a lot of data to say this is right or this is wrong, and we see people coming from all walks of life into the cannabis industry right now. We invested in a company called 1906, the CEO is Peter Barsoom. He was a COO of Ice, which runs with the NASDAQ. He is, you know, he's a graduate of Princeton. He is, you know, the iconic guy that, you know, is from the finance world, and to see him come to the cannabis space, there is his big question mark thinking, "What the heck is he doing here?" But it ends up, he's a great CEO. He's the perfect guy to lead a company.

At the same time, you have people that are 22-years-old, fresh out of college and starting companies in the, you know, high-end cannabis, luxury space. And you go, "What do these guys know about business?" Well, turns out, they know a lot, because they don't have that jaded mindset about cannabis and they're very creative. So, to pinpoint who's a perfect person is pretty tough. But I think just like any investing world, you just look for the entrepreneur that kind of has that X factor that has this, you know, really positive attitude, a can-do effort and they just work their butts off.

Matthew: Now, outside of North America, do you think there's a thirst to invest in cannabis?

Cody: Absolutely. You know, we travel a lot, I travel probably too much. And it's a topic that comes up all the time and people are looking at Canada and the U.S. and a lot of investors still have a question mark over their head. They don't really know what to think of the industry just because they don't know enough about it. But a lot of other investors it's so clear to them, they know what is going on and they want to invest. And they are, you know, licking their chops to try and get some in into the U.S. market. That said I'm a huge fan of the U.S., however, the U.S. is unattractive for foreign investors because of a lot of tax laws and a lot of reporting issues. So in the midterm, I think investors are looking very excitedly from outside but they are also being very patient.

Matthew: Now, you travel around the world a lot, just like me, and you're seeing a lot of different things. How do you see the world changing, and what are maybe some misperceptions listeners might have about what's going on in Asia and how the economy there is developing and the tech sector is developing, versus maybe thoughts we had about Asia in decades past?

Cody: Yeah, that's a great question. And it's a hot topic right now because of the conflict with the U.S. and China and Russia. It's hard to generalize something because of all the misinformation and accurate information that we get. But the truth is that Asia will become the largest economy in China, specifically. What we get fed from the news and what we see a lot is just not true, what's going on the ground. Are there internal financial issues there? For sure. There's a lot of problems that will get shaken out over the years. And just like any company or country that's growing, there's gonna be a lot of hiccups along the way. But for people who have traveled to Asia, specifically to China and cities like Shenzhen, or Beijing, or Shanghai, when people actually go there and use the public transportation, when they walk into restaurants when they walk down the street, they're blown away. It is unbelievable. Shenzhen is a great example, their public transportation it blows you away. It's brand new, it works perfectly. It's on time, it's clean. You can walk down the sidewalks, everyone's nice, and you think, "What? I'm in a communist country, what's going on here?"

When it comes to cannabis, you know, Asia is kind of two extremes. There are some Asian countries you can't have any drugs and there's a severe penalty for having it. On the other hand, cannabis is a part of a lot of Asian culture and countries like Thailand and now South Korea are looking to legalize cannabis. So there's a lot of opportunity there. And, you know, Asia specifically is very interesting for all markets.

Matthew: And you also enjoy South America and feel like Colombia is overlooked. I've been to Medellin and really enjoyed it, but haven't traveled outside there. Can you talk a little bit about what you think is going on there?

Cody: Yeah, Latin American, in general, is just an incredible culture. It's very family-oriented. And when you travel there, you just feel comfortable and you feel like you're having fun. Columbia specifically, it's got a bad rap because of the drug war and everyone knows about that. I'm sure if anybody is listening and you're interested in cannabis you've probably watched Narcos on Netflix. And the truth is, is that I actually have a lot of friends that live in Medellin and Cali, and actually have an apartment in Cali. And one of my best friends who lives in Cali, his wife who grew up there said it was actually worse in Cali than the show depicts. So that's terrifying to think about. But here's the thing, is that that's over. Yes, they still have a lot of problems there, but the drug war is over in that sense. Specifically cannabis, it's a non-issue in Colombia right now in terms of people using it. The, you know, police officers don't even worry about it, they just walk by it.

Columbia is extremely inexpensive for anybody who's holding U.S. dollars. So going there it's a great way to have a European style vacation on a, you know, very inexpensive budget, and the lifestyle is great. And from a cannabis perspective, there is a lot of really exciting things going on there. It's like I mentioned before, they have great weather and the perfect agriculture environment. So I think we'll see a lot of stuff coming out of Columbia.

Matthew: Yeah, agreed. And they also speak an extremely clear form of Spanish, which is great if you only speak a little bit, or you wanna learn. So I like to get into the details a little bit, too. We've kind of went general, if you were to pick one or two investment opportunities, maybe in Asia or South America right now, that excites you the most, what would you say those are?

Cody: I think from a personal standpoint, real estate is very interesting in Latin America, specifically, Colombia. People, in general, are very hesitant to invest in real estate outside of their home country, because they assume that a foreign government will steal your land or take your property. And the truth is that that's just false. Yes, there are instances where that happens. But in general, property rights of other countries are just as, if not stronger than, you know, Canada or the U.S. or European countries. So the is a great opportunity now to invest in real estate in Latin America, extremely low prices still, and you can rent them out for a relatively high yield. We have a place in Colombia that gets in mid-teens yield and there's capital appreciation and we get to go use it anytime we want. So it's a great excuse to invest there. Asia, I'm not a big fan investing in real estate, they have different land hold laws. But in Asia, there are unbelievable companies coming out of there every day in the VR, you know, tech space that I mean, the honest truth is that they are surpassing the U.S. and the Western world when it comes to tech. And a lot of it is just not really looked at right now.

Matthew: Now, they have capital control, so how do you invest in some place like China? Does it have to be done through Hong Kong or how does that work?

Cody: Yeah, great question. Yes, the short answer is, yes. We invest in companies that are domiciled in a jurisdiction such as Hong Kong. Even though they may be doing a lot of work in China, there's a lot of issues. Obviously, there's currency issues, there's translation issues, there's cultural issues, and there's a lot of times it's difficult to translate that into a clean business transaction. So we look for companies that are domiciled in a jurisdiction that we feel comfortable in.

Matthew: Another upside with Hong Kong, their dollars pegged to the U.S. dollar fixed rate. So you don't have to worry about the currency exchange risk, although there's always the risk of uncoupling. But it's been pretty steady to date.

Cody: Yeah, but there's an argument for a lot of people that if they uncouple it, the Hong Kong dollar will actually be more strong or stronger than the U.S. dollar. So yes, it's kind of, in my opinion, it's a great investment for almost zero downside risk with upside potential because like you said, it's pegged to the U.S. dollar for now. If they decide to unpeg it, Hong Kong is much better positioned than the U.S. from a financial standpoint. So the Hong Kong dollar conceivably would be a much more desirable currency to hold than the US dollar.

Matthew: That's interesting, and there's definitely free marketplace still Hong Kong. Hope it just stays that way.

Cody: Yeah, it's definitely, you know, gives people wide eyes when they go there and see the way everything's going on. There's more pressure coming from China, but still, it's a great place to do business.

Matthew: Okay, and what about Puerto Rico? I don't know how many listeners are aware or maybe they've heard about but there's some huge incentives for Americans to move there and enjoy better tax rates and different things. Could you talk about that a little bit?

Cody: Yeah, I'm not an expert here, even though I spent a lot of time down there and spend a lot of money on lawyers and figuring everything out. But there's a huge opportunity for somebody who wants to move there and has a business that's exporting services from Puerto Rico. Basically, how it works is if you move there and have a business that exports services, you pay a 4% tax rate for yourself. And then any capital gains that you have, you pay zero percent on. So, and obviously, there's a lot more details to that. But that's generally how it goes. And from a comparison to the federal, U.S. federal tax rate, it's not even close. So if you run a business where you're doing something online, where you're exporting services, you have to live in Puerto Rico for more than six months out of the year, but it could be six months and a day and you qualify because you'd be a resident of Puerto Rico. So there's a tremendous opportunity, especially for somebody who's maybe younger and doesn't have a family with no extra baggage, they could move there for a couple of years, make a lot of money and then go off and do their own thing wherever they want to go.

Matthew: Yeah, and if you're maybe like a cannabis royalty company or somebody that has a business that could qualify to live there for a part of the year and enjoy those tax rates that are codified by the U.S. then that would be a huge advantage, I would think. I mean...

Cody: Oh, yeah, it's massive. And remember, it's a tropical island in the middle of the Caribbean. So the actual cannabis environment there is, you know, there's a lot of potential there as well. And the other thing is that there's this thing called opportunity zones in the U.S., which basically means that you can take any investment money that you have, that you are subject to a capital gain on and you can invest in certain zones throughout the U.S., and your capital gain is basically you don't pay capital gains for many years. So it's deferred. The entire island of Puerto Rico is an opportunity zone. So you could literally go anywhere in Puerto Rico and buy real estate and your capital gains would be deferred. The other thing is it doesn't have to be real estate, you can have a company in an opportunity zone as well and any investment money that goes into that company also qualifies for the opportunities zone which means any capital gains would be deferred.

Matthew: That's incredible.

Cody: Yeah, there's a huge opportunity in Puerto Rico. But I mean, I don't wanna pretend that it's a perfect place because there's still a lot of problems going on down there. And it is technically part of the U.S., but it is certainly got...you know, there's other issues going on down there. So it's not a total paradise.

Matthew: Yeah. But is it evolving into like a mini-Singapore you think, over the next 10 years or 20 years?

Cody: I would like to think that. I would definitely like to think that. There's some areas in San Juan that are very nice and provide a great lifestyle. There's other areas in San Juan that you probably don't wanna go. So hopefully, they're able to develop into something that's similar to Singapore, you know, my fingers are crossed, but we'll see if they get there or not.

Matthew: And for entrepreneurs that are listening and thinking about the best way to talk with an investor, can you give some suggestions on how best to approach investors and how to talk with them in a way that, you know, is transparent, builds the right expectations, but also, you know, intrigues investment?

Cody: Yeah. I think this conversation or this question could go into a two-hour-long talk. But I think there are some general things to look for if you're an entrepreneur. The first thing is that as an entrepreneur, whatever you're presenting to an investor, you have to look through the investor's eyes. So the investor is looking to make money. At the end of the day, that's what they're looking to do. Yes, they're looking to create, you know, great businesses and help people change the world and create great products, but they're also looking to make money. That's what how, you know, the wheels turn and that's what allows investors who want to the next venture. So if you can position your opportunity or your company and through the eyes of the investor, you have a much better chance of appealing to that investor and having a second talk.

The other thing is that just be up front, you know, entrepreneurs, those that are very experienced know how to approach investors, they know what information to provide, and they know how to get a meeting or a phone call. Those who have not done it before, it's very tempting to want to lead investors on or have multiple phone calls. But really that's a turnoff for a lot of investors because you're just wasting their time. You wanna get the right information in front of the investor's face, right away, so the investor can say yes, no or let's talk more, instead of trying to lead them down some path that's, you know, frustrated the investor down the entire way.

Matthew: Any other turn-offs that you've experienced where you said wow, that just left a bad taste in my mouth to kind of sidestep that.

Cody: Yeah, actually, we just had an experience with a company, a cannabis company that would...which I won't mention, but a lot of, not a lot, but some entrepreneurs will create a sense of urgency for investors, they'll say, "Oh, our round's closing, we've already raised this amount of money or so and so has committed, if you don't commit by the end of this week, you know, you're out." And that's that sales tactic of trying to pressure investors into placing money. And any good investor, first of all, knows what's going on and they're not gonna fall into that trap, but second of all, it's a huge turnoff. If you are looking at a company to invest in and then you realize the CEO or whoever's raising money is pressuring you with sales tactics, it's a huge turnoff. And you realize that hey, why are these people, you know, doing this. Their companies should be able to stand on their own two legs and attract investors on their own, they shouldn't have to make this weird sales tactic. So I've noticed that a lot lately and it's a huge turnoff.

Matthew: Yeah, and how about for investors because one question I get a lot is especially via email is that I want to invest but I'm not sure which founders to believe in and what they're telling me and I'm not, you know, it's just that it all sounds good but I don't know if it is good and what should they look to avoid so they can, you know, make a good decision?

Cody: Yeah, you know, it's funny you...that question is interesting because when I started investing in my early 20s, when I was doing it all my own, I was out in the world making a lot of mistakes. And I lost a lot of money. I can't even tell you how many mistakes I made. But a lot of people wanna put professional investors up on a pedestal. You graduated from Ivy League school or you did this or you did that. So you must know something more than me about investing. But investing is really simple. It's really, really simple. You find a company that, if it makes sense or sounds like they have a good product, then you go forward and you go, "Okay, what are the entrepreneurs about, oh, who's leading this company?" And then you get a gut feeling about who this person is. But those two steps of finding the company and then introducing yourself to whoever's leading the company, is exactly like any other scenario in life. Like if you were at a barbecue with your friends or with your family and you met one of the neighbors and the neighbor is just a total jerk or they give you a bad feeling. It's the same exact thing in an investing world and it totally applies. We all, regardless of our background, have something in our DNA that tells us this person's good, this person's bad, they're lying to me, they're truthful. And you can use those same gut feelings to really vet which companies are the best and what people are doing the right things.

And the same thing goes with companies. You can look at a company go, "Wow, that product works or I don't understand that product." And if you don't understand something, or you think there's too many steps along the process or just something you're not interested in, do not be afraid to pass, just say no. If you don't understand it, and you're, hopefully, the target and your customer don't invest in it. So I would say overall for investors is just keep it simple. It's really not that tough of a process. It just requires a lot of digging, a lot of asking questions and just really spending time with entrepreneurs really get to know who they are.

Matthew: What about for a startup founder that's like, "Hey, you know, maybe Cody or someone else passed on investing in me," but they circle back around and say, "Hey, would you give me feedback around it as advice about how I did, you know, what your concerns were, now that the pressure is off and the round's closed or I know you're not interested." Do you welcome that type of thing and try to contribute that way or how does that work?

Cody: 100%, 100%. Any entrepreneur that's successful, typically, goes on to have other successful ventures. So, you know, most great entrepreneurs are not one-hit wonders, they have multiple successes. So let's say there's a young entrepreneur that contacts me or somebody else and I or somebody else passes on that opportunity. Well, maybe it was a mistake for me to pass it but I wanna know what's going on with the company later on down the road. I wanna see what their success is. And even if it was a failure, I enjoy seeing the journey of people developing companies because they learn every step of the way. And maybe they have two or three failures and then the third or fourth one is a success because of all the things they learned previously. So for any entrepreneurs staying in contact with investors is so important and even if they pass on you don't take that personal or anything like that. Just think okay well they're not ready now, I'll make sure to keep them in a list, I'll reconnect with them in a couple months, update them with what we're doing and you never know what will happen. And that's just like friendships, I guess like going back to keeping it simple.

We have that scenario all the time. You may see somebody, you know, every couple weeks at some restaurant you pass by, and then you see them more and more and you kind of warm up to them, get to know them and you feel more comfortable with them, it's the same thing in the investing world.

Matthew: Yeah, well, Cody, I'd like to ask a few personal development questions to help listeners get a better sense of who you are personally. With that is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Cody: Oh, I hate this question because I read a lot. I love a lot of books so I don't like to pinpoint one, but I'm gonna do a couple. So just bear with me. Pretty much any book by Napoleon Hill, and the kind of self-help books, like for example, "Think and Grow Rich," and they're cheesy if you think about it, just "Oh, Think and Grow Rich," but for somebody who maybe didn't grow up in a very successful family or environment you typically have an assumption that other people are better than you or you're not allowed to go work in certain industries. But that's just not the case, it's always your mindset. So a lot of being successful whether you're an entrepreneur or investor or whatever, it just is your mindset. You think I can do this, go do it. Just a matter of putting one foot in front of the other and doing it. So I like any of the Napoleon Hill books because they really simplify things and make you think, "Yeah, I am that guy, why don't I just go do that and be successful." And then I'll mention one other book, it's "The Creature from Jekyll Island," and it's a...

Matthew: The gateway drug to all monetary theories. It's really interesting, yes.

Cody: I think that's such a must-read for anybody who is investing or even likes or cares about money. It is man, talk about questioning what you've been taught in your past and putting some perspective on the financial world.

Matthew: Yeah, that's a real one. And back to Napoleon Hill there and that book "Think and Grow Rich," there are some edits made to that book where they didn't include, the editor didn't wanna include everything that he wrote because it was a little controversial, but you can find some of the edited pages on the internet. And he talks about kind of like the metaphysical aspect of positive thinking and goal setting and these things, and he comes at it from, I wouldn't say a new age point of view, because that theme really didn't exist back then. But it almost has that flavor to it, which is kind of interesting, interesting also that they edited it out, because it was too, you know, I don't know, metaphysical.

Cody: Yeah, I've actually read that version and you're totally right, and it's kind of applicable to the cannabis world just because I think a lot of cannabis enthusiasts are able to have interesting introspects about their life and perspectives about what's going on, and that book really hits, you know, hits a lot of points that deep down inside you identify with, but you're like, "Wow, why haven't I ever read this before? How did nobody ever articulate this to me?" And that's why I like the book. A lot of its, you know, a lot of people like to skim over, but there are some really good points in his books I like.

Matthew: Me too. So Cody, what is one thought that you have that most people would disagree with you on? Doesn't have to be specific to the cannabis industry.

Cody: Well, I always get critiqued about investing outside of the U.S. or investing outside of Western countries. So anytime I say, "Oh, I'm traveling, you know, wherever, Colombia or Chile or you know, Hong Kong or Indonesia, people will say, "Oh, you're crazy. Why would, you know, invest anything there, you're gonna lose all your money. And there is a, you know, people are jaded to think that wherever they're from, is the best and everywhere else is dangerous and you're in, there's no opportunity there. So a lot of people disagree with me about this stuff. And I think it's just because they haven't looked, they haven't gone out there. So there are opportunities around every corner. And that applies to every industry including cannabis. You just have to look, you just have to go and hear it for yourself. And like I said before, it's very difficult to hold an opinion with two conflicting viewpoints. How do you balance that? And I don't know the perfect way, but you just got to go out there and do it. So I would encourage anybody to just, you know, not be afraid to step outside your box, look at other opportunities even if you disagree with them and just take a hard look at them.

Matthew: Great answer. Cody as we close, how can listeners learn more about you, your travels, your investor groups and so on?

Cody: Well, the best way is just to contact me. You can go to explorerequity.com/canna and we're having something there so people can reach out. But we do meetups, really almost every month throughout the world. We've done them in London, Hong Kong, Singapore, Italy, Vegas, New York, San Francisco, I mean, literally everywhere. And it's a great opportunity to meet myself and our team face-to-face. We don't like to do business with anybody, unless we've met them face-to-face, shook hands with them. Not only does it create trust for our investors and for our partners, but for us. We don't wanna do business with anybody that we don't trust. And I think that's something that's been lost in the digital age, is having that face-to-face interaction. So we place a huge importance on that. So we really encourage anybody to reach out to us and we'll make time to meet people.

Matthew: Great. Well, Cody, thanks so much for coming on the show and educating us and good luck to you on all your travels for the rest of 2019.

Cody: Thanks, Matt. Hope to see you somewhere in the world.

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

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

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

Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.

How Robots are Revolutionizing the Cannabis Industry

jon gowa bloom automation

The cannabis industry is projected to hit $31 billion by 2021, and with its growing demand comes a desperate need for scalability.

Enter Jon Gowa, founder and CEO of Bloom Automation, LLC, a Boston-based company revolutionizing the way we harvest marijuana through robotics and automation.

Designed to “trim with the precision of a human, but the efficiency of a machine,” Bloom Automation’s robots use smart optics and proprietary algorithms to increase efficiency and cut production costs – an enticing proposition to the next generation of cultivation.

In this episode, Jon shares a little about the goings on at Bloom Automation and the importance of robotics to the future of cannabis.

Key Takeaways:

– Jon’s background in robotics engineering and how he came to be founder and CEO of Bloom Automation, LLC

– The benefits of robotics and problems the industry is working to resolve

– The ins and outs of Bloom Automation and the technological solutions it provides the cannabis industry

– Price versus ROI and the increased production rates cannabis business owners and cultivators are witnessing thanks to Bloom Automation

– The 2-3 days of training required for new operators

– Challenges Jon is working to overcome during the company’s beta development phase

– Jon’s outlook on the future of robotics in the cannabis industry

To learn more, visit: https://www.bloomautomation.com

Read Full Transcript

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

As cannabis cultivators begin to see automation and efficiency as a necessity to keep their profit margins healthy in standardized workflow, they are turning to robots. Here to tell us all about cannabis robotics is Jon Gowa of Bloom Automation. Jon, welcome to "CannaInsider."

Jon: Thank you, Matt.

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

Jon: We are here on Woburn just north out of Boston, Massachusetts.

Matthew: Okay, and I am in Edinburgh, Scotland.

Jon: Oh, wow.

Matthew: Yeah. It's kind of a cool place. Dark and rainy as you might imagine. But it's fun.

Jon: Some windy streets.

Matthew: Yeah. And Woburn, there's like all kinds of weird names for towns in Massachusetts.

Jon: That's right.

Matthew: I know Worcester is spelled like Worcestershire sauce, but it's pronounced Wooster.

Jon: Wooster, yeah.

Matthew: What's the deal with that? Can you give us any historical reasons with the naming conventions in Massachusetts?

Jon: I wish I could. They're primarily the New England style, but coming from Philadelphia myself, I haven't delved too deep.

Matthew: Okay. Okay. Now tell us, what is Bloom Automation at a high level?

Jon: Bloom Automation really is an agricultural technology and automation company. And we have a current focus here on automating processes in cannabis harvesting.

Matthew: Okay. And tell us a little bit about your background and journey, Jon, so we get a sense of who you are personally and professionally, and how you got into this business?

Jon: Excellent. I came in as a robotics engineer first at a company called Harvest Automation, and that's really where I got my grounding in agricultural automation and robotics, that is. And then I continued contracting for other robotics firms around Boston. But along the way, I've been designing robots for agriculture, designing robots for some other tasks. And I see a show on CNBC and it's called Cannabis Inc. Here We Go, and I see a lot of manual processes and pretty arduous processes that could be automated.

Matthew: I think if I had your skill set, the first robot I would design would be one to give me a shoulder rub.

Jon: Yeah, so that's second on my list.

Matthew: Okay. Now, I know Boston Dynamics is probably a robotics company most people are familiar with in the Boston area, people have seen images of a dog, it's like a robotic dog jumping up on wood platforms and people trying to knock it over, but it can self-correct and self-balance. Is Boston the place to be for robotics?

Jon: So I actually think that is true. Boston is the place to be for robotics, that's why I put my company here. And actually, the robot you're talking about, SpotMini, I'm not far into SpotMini because that was one of our projects when I was contracting.

Matthew: Okay. Interesting. And just out of curiosity, what other problems do you feel are like ripe for robotics that nobody's working on or very few people would think about? What are your pet ideas in your mind that you think like, "I could solve that if I could clone myself and there was three Jons"?

Jon: Interesting. There's a couple of things. There's some agricultural things in cannabis and beyond. But beyond cannabis primarily that I think really could use some automation. And then there's some adaptive things such as...like something I've been imagining is a robotic wheelchair, which obviously, is in progress. But I can imagine that being immensely useful just as a self-driving car would be. A self-driving wheelchair, I think, would be invaluable.

Matthew: Yeah. I agree. That's a great idea. So, let's jump back into cannabis here. Tell us, because we're in a audio medium here. It's kind of difficult to paint a picture of what Bloom Automation does. If we were looking over your shoulder, tell us what your robotics solution does for people with cannabis plants?

Jon: Excellent. So, I guess the primary thing to remember about a robot, if you're trying to visualize it, is that it's a stand-alone machine or a piece of equipment, and it doesn't actually have wheels to navigate around. Instead, the cannabis comes to it on conveyor belts. And the idea is, to give you a little picture, it's an aluminum framed machine with plexiglass sidings so that obviously, the operator is protected from the robotics inside. And it stands about 6 feet tall by 6 feet wide, and it's about 4 feet deep. And it has its own little conveyor, and the idea is that these robots would be paired up or even placed in teams of six.

And the primary goal of our robots is to trim the cannabis, and that's a process after harvest. So, the plant's been cut down and now the cultivator wants to separate pretty much all the parts of the plant, the flower, from the sugar leaf, from the fan leaf. And so we've developed algorithms that allow the robot to understand each flower, each sugar leaf and all the fan leaves where they are located, and then remove the sugar leaves and all the leaves. The primary process is known as trimming.

Matthew: Yeah. I'm curious now. How does that work exactly? Is there a camera looking at the plant and then there's some sort of algorithm going on, or how does that work?

Jon: You got it exactly. So, we have a conveyor belt that it looks kind of like a vertical conveyor that you would see at a dry cleaner. So, one that's transporting your clothes to and from the back of the dry cleaner. So, instead of your clothing hanging down off the conveyor, there are upside down branches of cannabis anywhere from 12 to 18 or 24 inches long, and those have been cut right off the main cannabis plant. So those actually come into the robot.

The robot has a pair of cameras, just as you said. The cameras observe the cannabis branch top to bottom and 360, and it feeds into an algorithm. And that's really where Bloom Automation's technology lies is an algorithm to segment or understand the cannabis branch and be able to say, "Okay, in this exact region or these pixels specifically is flower, then there's sugar leaf or fan leaf or a branch." And by understanding that, where it can feed another algorithm that determines a map to actually command the robot to go ahead and remove each sugar leaf, each fan leaf, but keep the flower intact.

Matthew: Okay. I can see that's why you say that's where your technology lies because if you can do that accurately and quickly, that's really where the value is.

Jon: That's right.

Matthew: How is that iterative process gone of kind of tweaking your algorithm to make sure like, "Hey, let's separate this fan leaf and this flower differently and categorize them differently." How is that process and journey been to get it to a point where it's accurate and doing the things you want it to do?

Jon: It's certainly been a challenge starting with the beginning of the company, I would say, in about April 2016 when we first started getting into it for hours before work every morning. And perhaps we had an algorithm at that point that could see the cannabis and see the flowers, but maybe it was only 20% accurate. So that's not too good.

And we've changed major architectures from just conventional heuristic or mathematical-based algorithms to now what is our primary algorithm is machine learning and specifically a convolutional neural network. And that's driven by supervised learning. So essentially, you need a ton of photos of the cannabis and of all different strains and varieties to understand and train the computer properly, train the algorithm properly to understand each flower. And in fact, we used 68,000 images.

But the key there is that these weren't just images of cannabis fed in at random. Instead, they were unique photos. So, each photo showed either a completely different angle of the plant or a completely different branch. And then we would have, when we are talking in the thousands, of course, you have all kinds of strains and indicas or sativas. But we are not just feeding them in at random to the algorithm, instead, each image is marked up by a computer scientist to say, "Okay, this is the flower. This is the sugar leaf. This is the branch on this particular image." And so the computer is going to start to learn from the human's clues, from our clues, what's flower and what's not.

Matthew: Okay. So let's say I am a cultivator or a business owner and I'm thinking, "Hey, this sounds like it could really help me out here if I had a trimming robot." How much throughput are we talking about that could be done like if after a harvest? How much can the robot do?

Jon: So the robot, it works in teams primarily because this robot is not completely autonomous. It does require an operator primarily to feed the conveyor and monitor the robots. To get your efficiency, the cultivator's going to want to have teams of robots, at least six to eight robots per operator. And at that stage, you're trimming about 1 to 2 pounds per hour, and that's a dry equivalent weight. And now, to compare that by efficiency, if you're looking at manual trimming, we're aiming to be about twice as efficient per robot as a manual team.

Matthew: Okay. What's the kind of price range for a robot, so we can start to think about capital investments and ROI and things like that?

Jon: The price actually is still in development kind of like the robot. But the aim is to get your ROI down to 12 to 18 months depending on your utilization. That is, are you going to use your robots eight hours a day, three to four days a week? Or are you going to really utilize these guys and run them about 16 hours a day because, of course, they're robots, and then your ROI is going to be substantially quicker.

Matthew: Okay. Yeah, that makes sense.

Jon: So we're trying to...

Matthew: Go ahead.

Jon: Sorry about that. Just trying to craft our...making sure the market price is crafted such that the cultivator receives the ROI they need.

Matthew: And so, for the operator, is there any kind of training to make sure they're up to speed like web-based or in person or anything so they can hit the ground running, and then be productive pretty quickly?

Jon: Exactly. So we estimate the training to really last about two to three days, and typically, like a day would be spent on the basics, basically operating the machine and it's a touchscreen user interface. So, not all that dissimilar to an iPad, except a little bit bigger so you could see it in a typical factory, or cultivation. But the idea being that it's all touchscreen controls and not only does it walk you kind of through it in the actual user interface, so it's more intuitive than most automation equipment.

But also, we spend a day on the basics and then another day actually with the equipment practicing with it. Getting to know it and making sure the operator is familiar with typical operation and with also the common challenges that might arise.

Matthew: Okay. Who are the type of cultivators that are kind of reaching out to you now saying they're curious or they want in on this, or probably part of a beta? Is there a profile? Are they kind of futuristic thinkers where they're figuring or imagining like a "Star Trek" type of cultivation facility, they want to have the cutting edge? What kind of problems are they running into like a high turnover with trimmers, or what are you seeing?

Jon: Exactly. I would say some of all of the above. There are some of the cultivators that really want the most advanced facility. They might not even be yet up and running. They're kind of planning out their most advanced facility. But that's not really the typical cultivator. The typical cultivator is in Colorado or Massachusetts or California and has 25,000 square feet or more of canopy.

So, we're seeing cultivations that are actually on the smaller side, and then we go all the way up to the bigger LPs in Canada who are also now seeing the demand for a higher quality product as opposed to what machine trimmers can offer in the case of Canadian LPs. And just as you said, the challenges with manual labor or human labor, particularly in trimming which is not a glamorous position and it's quite arduous. Those challenges are pretty acute and prevalent throughout the industry, so I think that's why we're seeing clients from all walks with this industry.

Matthew: Yeah. You know, I've trimmed plants before and after a couple of hours, your eyes are strained and your fingers, and you've got a little scissors and it's not fun after just a few hours. Even if you had friends and stuff hanging around, you're just like, "Wow. I didn't think this could be kind of an arduous thing." People talk about robots replacing jobs, but I think they're replacing the jobs we don't want to do.

Jon: Yeah. Exactly that, and they're not even such replacing them as perhaps making them a more desirable position, such as a robot operator. So, exactly.

Matthew: Yeah. Now, I've been involved in hardware technology, and it's very difficult. Unlike software where you can make a change and make it live in a matter of minutes because you're dealing with bits instead of atoms. What are kind of the challenges in building these robotic solutions and iterating? Are you waiting for components from China or elsewhere in the world? If you could wave a magic wand and eliminate your biggest headache and make this ideal in your mind, what would you do?

Jon: I believe the magic wand might get us through this phase that we're in right now, and that's the beta development phase and beta testing. So that's really where we see the last 10%, but the most critical 10% of this product. Just as you said, it's a hardware product and it's a hardworking piece of hardware. It's moving about at quite high velocities, so everything from...some wear or a breakdown is all...just like a car, is all in the realm. And then, of course, making sure that the algorithms are also performing properly and that the robot's staying calibrated.

So, that's why we're in a phase of the company and of the development of the product where we really call it the beta and the hardening phase. So, we expect this to last anywhere from six to eight months and incorporate some of our partner cultivations, and there, we'll get a lot of actual runtime on these robots to say, as you mentioned before, to go ahead and iterate them and bring them to a production spec.

Matthew: And what about maintenance? Is that difficult to do or will be pretty simple? I'm sure you don't have it all worked out yet, but what are you thinking it's going to entail?

Jon: We think that there'll be typical maintenance such as the wear items like the blade. It's a small blade cartridge about the width of your thumb perhaps and maybe twice the length. And so, it's a small cartridge and you kind of pop that out and pop it back in, and it uses a little Allen wrench to tighten it. So there you go as the primary maintenance. And then, of course, there's also an ultrasonic bath there that helps the blade self-clean, so that needs emptying every day.

But other than that, the higher level maintenance would be accomplished by our technicians. And just like any automation equipment or any mechanical system, there's routine maintenance. And then, of course, if it needs emergency service, we also have technicians that we're trying to train throughout the country such that they're available at a moment's notice.

Matthew: I'm curious. What kind of skills have you taken from your previous robotics work and have been really helpful here with Bloom?

Jon: That's great. So, working in agriculture, I think you're exposed to a lot of particular challenges, anything from the product itself, which is obviously organic and... In Harvest Automation, we work to automate the movement of marigolds or rosebush plants that were all in potted plants...potted containers. So there, we weren't observing the plants. We were actually observing the container. But here, we're observing the plant and so it's organic. But we did have those challenges at Harvest as well.

So there is everything from making a system that's reliable and essentially industrialized because that's how cultivation is needed. They're going to be using it all the time, and it's not always a clean process. You're trimming up the cannabis, of course. So making products that are industrialized, I should say, and reliable for the agriculture industry was definitely the unique skill that I think I gleaned from my experience at Harvest Automation.

And then, I did work for a product development firm, and that's where I contracted for like a lot of firms including Boston Dynamics, as we mentioned. But there, I learned really the skills that it took to both manage a small team of engineers, small and varied. So there, you would manage engineers both in your own office, in the headquarters in California, and also a team of engineers in China to help the production of your product.

So, learning how to bring a sophisticated engineering product all the way from concept through to mass production was definitely something from the product development firm that really, I believe, will help us here.

Matthew: Okay. And you were in CannopyBoulder, the accelerator program in Boulder for cannabis businesses. I'm a mentor there. But can you talk a little bit about your experience there, and also your pitch at Arcview, the angel investor conference for...I'm sorry, for cannabis, so people can get a sense of what that whole ecosystem's like and your experience with it?

Jon: Sure. I guess I should start the story kind of early in April 2016 when we incorporated. But then our first Arcview event, as you mentioned, was in August and there, we were definitely newbies, deer in the headlight kind of thing. But we brought out...

Matthew: Don't feel bad. I still have the deer in the headlight look. It never goes away.

Jon: I guess not. No. Same here.

Matthew: Sorry. Go ahead.

Jon: Exactly. So, we brought our little prototype and we certainly got some interest, but nothing crazy. But we did meet an investor who brought us out to Colorado. And through a series of awesome coincidences, I met Micah of Canopy, and that's how I kind of started my journey into the Canopy accelerator. But also, more as a whole, I was still working fulltime at the product development firm until Canopy said, "Hey, you should really think about applying." And, of course, I thought about it and said, "This is pretty awesome looking. I'll apply." When I was accepted, that really changed the game because now I could work on Bloom fulltime and though I had a group of seasoned mentors that could really accelerate the business.

To elaborate on that further, I would say that as things go, the accelerator and specifically, the Canopy accelerator definitely accelerated our business, for lack of a better word, which I think there may be one, but I don't know of one. And that was exposing us not only to the cannabis industry there in Colorado and beyond, but also teaching us business specific skills that are of course necessary in any business, cannabis or not. And then, furthering conversations with investors and groups, preparing you to pitch at groups such as The Arcview Group.

Matthew: You've kind of brought a few different interesting skill sets to the table. You've got the robotics background, and then when you stack that on with cannabis, it kind of creates a unique value proposition. I'm reminded what the author of Dilbert, Scott Adams. He says he wasn't the best cartoonist, but he was a good cartoonist. But he was also good at understanding kind of the funny ironies of working in a office. And combining those two skills allowed him to create this segment that people thought was really funny. So he was the funniest kind of like office humor cartoonist.

Jon: Very interesting.

Matthew: So, you're building the cannabis robotics specialization, which if you're going to focus on a plant, why not one that's really expensive because people can...

Jon: Exactly.

Matthew: ... afford the robot.

Jon: That's right.

Matthew: That makes sense.

Jon: Yeah. That's right.

Matthew: Well Jon, I have a couple of personal development questions for you I'd like to ask.

Jon: Uh-huh.

Matthew: Is there a book that's had a big impact on your life or way of thinking that you'd like to share with listeners?

Jon: Sure. So I think the book actually that has the biggest impact is one that came from perhaps around the high school age, and that was a book called "Rocket Boys," which was the inspiration for the movie "October Sky."

Matthew: Yes. I remember that movie.

Jon: Exactly. So that really hit home for me. At the time, I was a rocket enthusiast and also starting to get into robotics. But really, I think what was unique there was really the story of amazing engineering that was built with very few resources. It was more built with drive than with dollars, I would say. And that's something we try to take to heart here at Bloom Automation is to work leanly and really focus on the engineering of the product.

And then "Rocket Boys," it's pretty fascinating how the main character Homer, as he is, creates a series of rockets and iterates on it until he eventually is accepted into the NASA and wins a science fair, and this and that. So he makes a lot from a little. And I think in the cannabis industry, we're not quite getting as many dollars as, say, a typical robotics company might get in terms of venture capitalists or a investment. And to a degree, we're trying to keep it that way so that we work leanly and efficiently.

Matthew: Is there a tool besides Bloom that really improves your team's productivity?

Jon: Yes, absolutely. I would say I kind of considered this at great length and when I was forming the company. A tool beyond, of course, the common collaboration tools that we use like Slack or something of that nature, the tool that I really found helpful was what we call the stand-up meeting and the stand-up board, and that's something I brought from Harvest Automation.

And the stand-up meeting is a meeting we have. It's really a 5 to 10-minute meeting 3 times a week, Monday, Wednesday, and Friday. And it's in the morning every day and every employee is standing there at the meeting. So the goal of our time there is to give each team member an opportunity to speak for 30 seconds to a minute about basically the task that they're working on that day and the next day. The task they're focused on, anything that's challenging them and particularly, if there's any areas where we can help out. And then they go ahead and update the stand-up board.

It's a physical whiteboard in our office and simply a whiteboard that you list exactly what you mentioned in the meeting. So that way, if another team member wants to come by and say, "What is Sam working on? Oh, that's pretty cool. Maybe I can help out." And I hope the team members also use it how I do, and that's for self-accountability, just to look at the board and say, "Okay. Oh, I have these tasks. I have to make sure I get to them before the next meeting."

Matthew: Right. Interesting. And that's yielded a lot of fruit for you, then?

Jon: Absolutely. So, I would say a great example of it was before the MJ Business Conference, kind of getting all those pieces together and making sure we were on track time-wise. We both have the stand-up board and we tracked it digitally on asana.com, which is just a task management tool. But I would say the primary tool there is the stand-up board and making sure that we were hitting our dates, and then the stand-up meeting to track any misses.

Matthew: Okay. Now, I have one more question for you because you're in robotics and kind of machine learning and all these neural networks and things that most people aren't tapped into. When you're that close to an industry and that close to the technology, you can usually see around the corner a little better than the average person, like myself. When you look out two to five years, do you think there's going to be any kind of cool inventions or things that are part of our lives because of robotics or AI or neural networks?

Jon: So I think if you're looking at where neural networks and AI hits the robotic spectrum, and then where that hits the typical consumer in the next two to five years, I think the primary robot you're going to see around is in your garage and it's going to be the self-driving car. And it's a pretty substantial development. It means that with nothing more than cameras, perhaps a radar and some lasers, but nothing crazy or revolutionary on your car or too expensive, and a series of artificially intelligent algorithms, the car is able to be aware of everything around it. I mean, things that people aren't even aware of because our senses aren't as in tuned to driving as this vehicle that's just designed for driving. And I think that's going to be pretty powerful and pretty revolutionary.

And I do think it is where some cars, perhaps the Tesla, have some half systems in them, not fully autonomous systems. I do think Waymo, that kind of technology will be utilized to really push forward autonomous driving. And in fact, Google's developed the TensorFlow architecture which we use here at Bloom and they use for their self-driving cars. So, I can personally attest to how powerful it is.

Matthew: How do you use that, TensorFlow?

Jon: So TensorFlow is the neural network architecture that we utilize in the algorithm. So, it's the actual framework.

Matthew: That's pretty cool and that's like open source. Anybody can use that?

Jon: That's right.

Matthew: Great. Well, Jon, this was very interesting talk. I learned a lot here. For listeners that are interested in learning more about Bloom Automation, maybe being a beta tester or buying one of these when it's ready for primetime, what's the best way to find out more?

Jon: So, the best way is certainly our website www.bloomautomation.com where you can reach us through the Contact Us form. And then also, we have a Twitter @BloomRobots and an Instagram @bloomautomation, and we're pretty active on both of those.

Matthew: Are you going to be raising more capital in the future? Are people, accredited investors welcome to reach out to you as well? Or are you good?

Jon: Certainly.

Matthew: Okay.

Jon: Certainly. So we are raising a raise right as we speak, and accredited investors are welcome to reach out.

Matthew: Jon, happy holidays to you and thanks so much for coming on the show and talking with us, and good luck. I know you've got hard work ahead of you with hardware iterations, so I'm really interested to see when these robots are totally ready for primetime.

Jon: Well, Matt, I appreciate it and you'll absolutely see as they come aboard.

Matthew: If you enjoyed the show today, please consider leaving us review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every 5-star review helps us to bring the best guest to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on "CannaInsider"? Simply send us an email at feedback@cannainsider.com. We'd love to hear from you.

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California’s Most Recognized Dispensary Expects Big Growth in 2019

andy berman harborside

Harborside is one of the oldest, largest, and most respected cannabis retailers in the world, and it’s expected to grow much bigger in 2019.

Led by CEO Andrew Berman, the company has played an instrumental role in making cannabis safe and accessible, and its stores are known for supplying the world’s best-curated selection of award-winning flower, concentrates, edibles, and other cannabis products from California growers and manufacturers.

One of Andrew’s first acts as CEO was to create a capital markets strategy for the company, and in so doing Harborside has raised over $25M in 2018.
In this episode, Andrew shares his insights, learnings, and what’s in store for the future of the cannabis industry.

Key Takeaways:

– Andy’s personal journey and how he came to be the CEO of Harborside

– Harborside’s focus on California and the company’s multistage strategy going forward

– Harborside’s projections and the cannabis industry’s growth following the legalization of adult-use in California

– Andy’s growth tactics in California

– Harborside’s clean, sun-grown cannabis and how the greenhouse method is more environmentally friendly and cost-effective

– Cannabis business licensing in California

– Shifting trends in customer preferences for flowers, edibles, and concentrates

– Harborside’s $25 million capital raise and evolution from a medical nonprofit to a for-profit company

– Andy’s predictions for reduced banking restrictions on cannabis businesses

– Tips on how to break into the cannabis industry for those interested

To learn more, visit: http://www.shopharborside.com

Read Full Transcript

Fresh off the heels of raising $25 million, the iconic dispensary Harborside has big plans. Here to tell us all about it is Andy Berman, CEO of Harborside. Andy, welcome to CannaInsider.

Andy: Thank you very, very much Matt. It's a pleasure to be here.

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

Andy: Oh I'm in Northern California. I'm actually, truth be told, transparency, I am right now in a home office in Marin County. And just, you know, given that it's 8:00 in the morning here, about to head on the road for commute. I figured I'd just do it from here, it's nice and quiet.

Matthew: Oh, great idea. Marin is a nice place.

Andy: It is. It's a great part of the world.

Matthew: Well, I think most listeners have heard at least of Harborside, if they haven't visited it. So but for the people that don't know, can you tell us a little bit about what Harborside is?

Andy: Sure. Harborside is a...well, today Harborside is a vertically integrated cannabis company in California. It started about 12 years ago at retail. Its founders are Steve DeAngelo and his partner, Dress Wedding. They started the first dispensary in 2006 in Oakland. And today, we've expanded to a second dispensary, we've got a couple of more under construction, a cultivation facility, products, but vertically integrated cannabis operator in California.

Matthew: Okay. And can you tell me a little bit about your background and journey and how you got to this point, both personally and professionally, to be the CEO of Harborside? That's a long question.

Andy: It is. And sometimes I'm amazed myself. Good fortune, right? I'm a lawyer by trade.

Matthew: Okay.

Andy: And I practiced law for about 10 years, 11 years, and then went to go work for a client, not as a lawyer, but on the business side, and spent a decent amount of time in digital media and wireless and technology, and also a little, about a year in a venture capital firm. We were doing some cannabis investments. I had done some outside of California. I met Steve DeAngelo in 2016. We were introduced because we were gonna look at doing a project together. And then Steve was doing a friends and family round at the time. I did an investment in Harborside. And then in 2017, Steve asked if I'd help him. We had a couple of, oh, I would just say, you know, just business issues to work through and he asked if I would him think through all those things. I was happy to do it. And then he just asked me at the beginning of this year, "Would I come inside?" And I did. Began as acting CEO, and it worked really well for Steve. And it worked really well for me and the company. The board appointed me officially as the CEO earlier this year. And that's my story for Harborside. It's good fortune, right?

Matthew: Yeah. Well, Harborside's focus has been a little different than some other cannabis companies. You've focused strictly on California. Can you tell us about the strategy there?

Andy: Yeah, it's pretty...and I have, I'm glad you asked that, because I have been asked all year, you know, "What's your multi-state strategy?" And I just...California presents a tremendous opportunity. And it also presents, I would say, some very unique challenges that we're well positioned to address because we're here. If you look at market size, California is at least a third, if not more, of the U.S. market right now. It's the dominant cannabis market in the planet. The San Francisco Bay Area is equivalent to, you know, a number of other states out there. And it's projected to stay that way. Just some of the reports that have come out just in the last couple of months have the U.S. market being roughly, you know, $30 billion, $28 billion over the next three to four years, and a third of that is California, a $9 billion market, with 32% of the share. And that puts it, you know, the size of Nevada and Arizona and Florida and New York and Pennsylvania and Illinois combined.

So my focus, while we can, grab share here, continue to grow here. We are here, we know how to do it, and stay focused here. I think multi-state strategies make a lot of sense if you're not in California. But if you're in California, then you ought to grab a lot. There's a lot right here in our backyard.

Matthew: And how big is Harborside's footprint? You mentioned...I know there's Oakland and Santa Fe, and you have a cultivation center, but maybe you can talk a little bit about that.

Andy: Yeah, sure. So I'll answer that two ways, because I think you know that we have announced a reverse takeover and, you know, a merger into a Canadian public company. So we'll change very, very quickly. But today, we have a farm down in Monterey County. It's, we have a 47-acre parcel, we use about five acres of that to produce cannabis. We have two retail locations, one in San Jose and a flagship store in Oakland. We are actually under construction for two more facilities, one down in the Palm Springs area, one in San Leandro. And then with the, you know, for the California footprint with this merger and reverse takeover, we'll add another dispensary here in the Bay Area, we'll add another cultivation facility here up in Northern California, and, you know, a couple of more brands as well, too. So that is, you know, it's a pretty extensive footprint, right? And that's just..and again, that's a California focus.

Matthew: And can you give us a sense of revenue and how many customers are served by Harborside?

Andy: Yeah. Well, you know, I think it's fun to look at us historically, right? Because we've been doing it so long. We have over 250,000 registered patients and customers in our database, and over the last, you know, 10, 11 years, we've done over $300 million in sales. So that makes us, you know, a significant, you know, I think a significant cannabis business on a relative basis.

Matthew: Yeah. And it is. That is helpful to look at historical view. But now that we have adult use in California, how do you...when you make projections, and I'm sure, you know, investors, and everybody always wants to know about projections. How do you do that? How do you extrapolate where growth will be? I mean, it's an educated guess to an extent, but how do you arrive at that?

Andy: Well, I'll tell you, we are seeing about 1,000 people a day. And when I...and what we're doing is really looking at the customers that are coming in the door and getting instant feedback on their preferences and their likes. And we clearly have a different set of customers that are coming in the door today. We have our traditional customer. Remember, California was a medical-only non-profit cannabis collective regulatory environment, you know, less than 12 months ago. And it flipped on January 1 to adult use and medical use.

So we are all navigating a pretty complex set of regulations and trying to figure out, you know, where this will all be in two, three and four years. But what I can tell you is we do have new customers, and they think about brands. And of course, the Harborside brand is a very, very strong one. And then I just look at...we look at how they buy and how they purchase. We can tell where preferences are, and we can adapt our product offerings that way too.

Matthew: Okay. And you talked a little bit about your grow in Monterey County, but can you tell us a little bit about how you grow and anything you might do differently or interesting?

Andy: Sure. I'm very, very proud of that grow. I'll tell you it's taken us a while to get it where it is, because cannabis is...everyone says, you know, it's a weed and anybody can grow it. Actually, growing great cannabis at scale is not easy. So I mentioned we have the site down there. It is, it's 47 acres. We use five acres of it under a number of licenses. We are doing greenhouse growing, so these are purpose-built, retrofit and brand new greenhouses. When you're sitting inside of them, you feel very much like you're just in a room. They are environmentally controlled and we are testing a variety of strains at any point in time. We have a fantastic exclusive cultivation relationship with the Dutch consulting company, which is founded by Sjoerd Broeks. And Sjoerd really understands our environmentals and the best strains to be able to grow. And we have strains that are very traditional that folks wanna have, we also have strains that are available and that are unique to Harborside.

And in terms of, you know, production, look we're vertically integrated, right? So at maximum capacity, there's an awful lot we can do down there. We don't push it to maximum capacity, right? Because we're feeding...the goal for me in terms of our business model is to feed our stores with the flower that they need, and to also feed our ecosystem of partners, right? Whose products are coming back on our shelves, too, whether that is with flower or whether that is with, you know, feedstock that can go into extracted products as well, too.

Matthew: What was kind of the particular reason to go with the greenhouse method? Is it to save on electricity and get fresh air in there, and is the sun's light the best or? Can you tell us a little bit about that?

Andy: Well, that's it. I mean, and this very much Steve, right? The notion of having sun-grown, clean cannabis. Remember what Harborside has always...Harborside was offering products and sun-grown, clean cannabis since the very beginning. We pride ourselves on, you know, we were pioneers in testing of cannabis. When there wasn't a lab to test cannabis, Steve went out and founded an independent lab so we could do cannabis testing. But yes, it's very much about doing environmentally sensitive flower and feedstock production that is sun-grown, get the full spectrum of the sun's light to be able to grow the best cannabis.

Matthew: And so there's a lot of different kinds of licenses in California, or I should say a lot, but there's a few.

Andy: There's a lot.

Matthew: Okay.

Andy: You were right the first time, there's a lot.

Matthew: All right, the first time. Maybe you could go over those and which ones you hold and how you think about the licenses in California?

Andy: Yeah, it's very, very complex. You know, every step of the value...so California is so interesting, right? Because it was not regulated. And in many respects, that's a real challenge for us, for others that have been in the business. People forget that we've had this, you know, 1996, Prop 215 was passed and we began a legal cannabis environment here. And now, they're just putting a whole bunch of regulations. So every step of the value chain has regulations around it, from growing to production, processing, transportation, distribution, obviously selling, branding, labeling. I mean, it's just...it's very, very complex. Our licenses, we have 30 licenses. We'll acquire about seven more with the merger. But our licenses are geographically located at the farm and in the stores. And then inside of each of those are distribution licenses, manufacturing licenses, processing licenses, nursery licenses, cultivation licenses, packaging and retailing licenses.

So we are allowed to transport our own cannabis, we can distribute our own cannabis. Those are all separate licenses. We can have a nursery and create clones to be able to grow our own cannabis, we can grow our cannabis, we can process it, and we can sell it at retail. And each of those require separate licenses. It's very complicated.

Matthew: It is, it is.

Andy: It really is. And it's really challenged the industry in a lot of respects here in California as well, too, right? Because this all went into effect on January 2. And people scurried at the end of the year to try to get temporary licenses. And if you didn't get your temporary licenses, then you woke up and...we all woke up in January with actually a smaller market right? Because folks didn't get all their licenses. Now we're compliant. There's a massive market here. There's a huge black market here. And the regulations and the taxes have just given it a real energy boost, frankly. But if you're compliant, right, the number of retail locations shrunk in January, slowly creeping back up. The number of distributors in the state shrunk, slowly creeping back up, you know. And cities, even though we have adult use, there are a little less than 500 cities in the state, and there's probably less than 100 that actually allow adult use. So it's a market in transition, in flux, in growth.

Matthew: Now, Andy, how do customers' preferences break down in terms of flowers and edibles and concentrates, and any shifting trends there, or has it been pretty consistent?

Andy: Shifting trends, Matt. And we were very, very surprised by it. And I don't think...look, geographies are a little bit unique. Right? So I know that there are retailers around the state that have experienced something a little bit different than what I'm about to share. But I would...you know, 18 months ago, 2016 and early 2017, and before that obviously, right, folks loved flower, we were selling a lot more flower. Two thirds of our product was flower. And folks are smoking less right now. Flower sales are about a third of our business. And what you've seen over the last 18 months in particular are the rise of oil-based products, whether those are, you know, vaporizing pens or vaporizing devices, or extracts, and of course, edibles. Right? And a lot of low-dose edibles as well, too, right? Where the unit, even though the state allows packaging of 100 milligrams, and up to 10 milligrams per unit, a lot of folks liking these, you know, two to five-gram doses that they can learn to use, right? Truly in the go low, go slow environment.

So edibles are probably 20% of our business today, oil-based products, and in particularly, these vape cartridges, right? Convenience items. And discrete items, probably another 30% of our business. So when you think about, you know, 80% of our businesses is flower, cartridges, oil-based products and edibles, that's a shift, right? That's a shift.

Matthew: That is.

Andy: It's very investing. I have to say, Matt, it is very, very interesting in what, you know, for a store like Harborside, seeing the people that we do, we get instant feedback on which products are liked and what kind of preferences people are experiencing.

Matthew: Now, I know Harborside has a reputation, you know, for being transparent, kind of leading the legalization front and leading in a few different ways as a name and a dispensary. But now that adult use is passed, how do you think Harborside's tact and direction and brand is going to change and evolve?

Andy: Well I hope it doesn't change or evolve much from what it's known for. We have always been about trust and choice and value. And we've prided ourselves on being a trusted source of clean cannabis, again, from the very, very beginning, right? We couldn't find a lab, Steve couldn't find a place that would test cannabis. And so he created Steep Hill labs, and it's an independent lab to look at that. So a place to come get, you know, trust that you're gonna get a good product, a quality product, a choice. We like to have choice in the stores. This is not...we have not created, you know, a Patagonia shop or a Lucky Brand store, where you're coming in and only getting our brand. We have our products, we have a few of our own brands, but we want people to come in and know that we're purveyors of very nice cannabis and there's a variety of choice out there, and of course, value right? We are not the cheapest company on all products, but we always have something there that can provide good value to a customer as well too.

So I hope those values around trust, you know, I hope those missions around trust and choice and value stick around and that we remain known for that, right? Just more of it, right? More retail locations.

Matthew: As you look out into the future and you see kind of a fiscal crisis on the horizon or what appears to be one for California as there's more expenses than revenue, maybe a demographic picture where there's a very small or actually a large group of very wealthy people, but the majority, perhaps not so wealthy, and a lot of people leaving the state in many ways, do you see Sacramento dealing with the fiscal health and kind of the demographic and migration shifts of California in a meaningful way?

Andy: In some ways, yes, and in some ways, no. And you've absolutely, you know, hit spot on the issues that a large state has. I don't think Florida, any different, lots of people populating it. Arizona, New York, California, these are big, big states. I think Sacramento's, you know, what they're doing with cannabis and trying to capture some revenue and putting it into the coffers is smart. I think they continue to struggle on the education front. I think the UC system, you know, at the post high school level still remains an excellent system, but it too struggles with rising in-state tuitions in order to maintain its academic standards. And on the education front, I have concerns also just in the public school systems, right? Very much ZIP code driven on where you're gonna get the best education.

And it hits home for me, obviously, because I do have, you know, I've got four kids. I've even got one that's a teacher in a very challenging school district here in the Bay Area. And it's sad because these are kids that need great teachers, need great, great teachers. And she earns very, very little. I mean, this is a Berkeley Phi Beta Kappa grad who is, you know, really giving back to the community. And her siblings, you know, her siblings love the kids, but she's got a sibling's gonna earn, you know, twice what she earns coming right out of college. Right? Just going into a different skill. So education I worry about with the state, and I don't know how they're gonna solve it. Housing, very, very difficult, right? Getting affordable housing here in the state. On the other hand, they are finding some ways to do some of the infrastructure repairs that California definitely needs as well, too.

Matthew: Okay. Can you tell us about the recent capital...

Andy: Probably more than you wanted, but [inaudible [00:22:34]

Matthew: No, no, I actually could talk about it quite a bit because I'm really...

Andy; Yeah, me too.

Matthew: I'm wondering how, like, I look at this, and it just looks like a big fishing knot. Like it's all gnarled and a mess. I don't know how it's gonna be fixed.

Andy: I mean, I don't know how much you know about me, I was...I mean, I've been very involved in my local community. I've been the mayor of Mill Valley, California, twice. I really believe that the only place things are getting done truly in America right now are at the local level. So I'm a very local, local mindset here, right? That we have to fix things at the local level because in the big picture, you know, Sacramento and the federal government just can't do what needs to be done. And so I do think about local level and local support and local funding. So this stuff, you know, you asked me a question, you know, edit it as you want, but you hit something that's very near and dear to me. And the only way to really fix some of this stuff is for people to get involved, not get paid for that, and work it at the local level.

Matthew: Yeah. Well, let's switch gears to your capital raising and what's going on with the reverse takeover and everything. So tell us about the recent $25 million raise and then what's going on with the reverse takeover?

Andy: Yeah, so we've been...so one of the things I did immediately as getting hired was think about a capital market strategy and some of the fundraising. Again, this was shifting...and that comes with the turf of shifting the business from a medical non-profit, where you're not supposed to make a profit, you know, and taxes are very low, to a fully regulated system, and, you know, everything you have to do to drive the business forward becomes more challenging. We did a series A that we closed in April, and then the series B that you're just referencing was closed a couple of weeks ago, it's a $25 million raise. And that's very much, you know, that's very much to help us build out the farm that I talked about and continue the construction on the retail that I just shared with you in terms of use of proceeds.

One of the other things that I learned in the whole capital markets approach is, you know, folks have shifted very, very quickly. The investors that...when I joined Steve as an investor, I didn't particularly worry about the fact...I wasn't thinking about whether this was a plant-touching or non-plant-touching business, but we had created a services business so that we could have investment for folks that wanted to be in a non-plant-touching business. And of course, by this year, the world has shifted, folks are more comfortable investing in plant-touching and non-plant-touching. But what they've also gotten in a more traditional sense is you wanna be able to figure out, "Well, when will I have some liquidity?" So that required me to raise money and also think about truly being in a capital market. That led to looking at mergers, looking at acquisitions, looking at sale of the business, looking at doing a public listing on our own, or merging into an existing public company. And Canada is where this is happening right now because of the schedule one controlled nature of the cannabis plant, so plant-touching businesses, which we are, can't go public in the United States. So that led to the decision on the RTO, being able to give investors a sight towards liquidity.

We announced a merger with Lineage Grow. It's a reverse takeover. They're not your typical public shell in Canada, because they came with some cannabis assets. That's why I like Lineage, right? We weren't just, you know, we weren't just bringing our own assets into it. We grew as a result of it, with an additional dispensary and another grow facility as well, too, and another brand. So that all made some sense to me to give our investors path to liquidity, doing it in Canada, because that's the market where you can do it in a public market, doing a reverse takeover, because it is a little bit easier than doing a full public listing on your own, and then choosing Lineage Grow Company because it was already in the cannabis space.

Matthew: Okay. And what's Steve DeAngelo's day to day role these days?

Andy: Oh, he's great. He helps me, gives me a lot of great cannabis advice. We're both on the board of directors. He is the chairman emeritus of the company. And Steve is doing what Steve does best, right? He is outward-facing for the company. He's a very, very big name in the industry. Harborside has great name, Steve has a great brand. So we have two great brands out there. He's doing his speaking engagements, he's doing media work, he is a daily advisor for me on cannabis-related pieces. When we go to market, Steve and I, we went on the road together to raise money. It's a very unique proposition in a room, a business focus, a cannabis focus, you have both of those sitting in a room in front of a table. He's very, very articulate, if you've ever listened to him. And he will continue to stay with the company in a chairman emeritus role.

Matthew: Any predictions on banking restrictions being eased for cannabis businesses in the next 12 months or so?

Andy: I hope so. Yeah. I mean, it's a hard prediction, right? We see, I don't know if it's in the next 12 months. I certainly expect it to be in the next couple of years. Right? What you see, our California's Treasurer John Chiang has already created a banking committee here to help do that here in California, maybe leveraging state chartered banks. You see things happening. State of Ohio, for example, in its medical cannabis program, has created a safe harbor for banks, Ohio state banks, to not be criminally prosecuted for working with, you know, working with local operators. So I think it's gonna have to be state driven at first. There is some legislation, obviously, pending in Congress to ease that up. So I don't know if it happens in 2019, but I certainly expect it to happen by 2020.

Matthew: Okay. And if you had to pick a market besides California, what would it be?

Andy: Well, I pretty, I mean, I would do western state adjacencies here. I've already started looking in Nevada and in Arizona. We do have two small dispensaries that we're acquiring in Oregon through the Lineage RTO. And that helps me in time zones, it is similar regulatory environments with medical and adult use, and sort of that western state alliance. A lot of the western state operators at some of the states' attorneys generals out here are already talking with each other about how you work with maybe the STATES Act that's pending in Congress and allow some collaboration between and among these states, which are big cannabis states, you know, once you have some federal...once you're alleviated better at the federal level.

And by the way, all that's gonna come, it has to come with descheduling right? So I think the Farm Bill passing and hemp-based products now being legal, which was all announced yesterday, you know, you begin to see, you know, the iceberg or the tip of iceberg. And I think you're not gonna fix banking till you get, till this becomes descheduled. And I'm hoping some of yesterday's news begins to tip that, tip towards that.

Matthew: Now, Andy, I wanna turn to some personal development questions to help the audience get a better sense of who you are personally. With that, is there a book that's had a big impact on your life or way of thinking that you'd like to share with listeners?

Andy: Sure. I would encourage everyone...I love this book. There was, Larry Brilliant wrote a book called "Sometimes Brilliant" and I just happened to read it last year. And it was a good time for me read it. If you like history, you're gonna love the book. And if you enjoy a good spiritual journey, you're gonna love the book. On the history side, the backdrop of the book, Larry's a doctor and a leading physician at the time with the World Health Organization, does a lot of work with the CDC, has a number of TED Talks, and I happen to know him as well, too. And on the history side, the backdrop of the book is the eradication of smallpox in the '70s. You know, it's not that long ago that we had the worst plague that was still in existence and still sitting in India. So the backdrop of the story is a historical view of a group of doctors that actually finally eradicated smallpox from the planet.

Larry is on a spiritual journey at that time. He was a young doctor, actually finds himself at an ashram in India. That's how he met Steve Jobs, who was also studying at that ashram. So it's a book on the spiritual side, I have to say. It's a book about love and compassion and determination, you know, to get through all this, to get through the mission they were on. Lots about having faith and appreciating the fact that faith is, faith's best friend is doubt, which makes faith so delicate and tender. And about service, right? Doing good. And that's a lot of what Harborside's, you know, and it's a lot about me, right? Just joining my community and being a mayor and giving back and trying to do good even though it's a slugfest out there almost every day. So yeah, I enjoyed it. I thoroughly enjoyed the book. I really did.

And again, if you're a history buff, just learning about the eradication of smallpox, what a chore that was, and the odds, insurmountable. You know, it's a war against a plague. And it didn't happen that long ago. So yeah, "Sometimes Brilliant," great book.

Matthew: How about is there a tool that you use personally or as a team that helps you a lot with your productivity?

Andy: Yeah. I would say...I mean, I don't wanna sound trite here. I don't know..this is a technology-driven world and texting and phones and everything. I actually make people meet with me face to face. Tuesday is my "in the business day." You know, I don't take phone calls, I don't do email. This is when I meet with the managers, particularly the critical high-value people that are putting food on the table, the people doing production, the people doing sales, the general managers, will, you know, let's spend time together, let's talk, let's look at each other, you know, across the table. The other thing that I do just for the team, I minute the week every Friday. You know, when you think about investors and you think about how you look at businesses, where do you start? You look at, you know, show me what your board does, show me what your board's approved, let me look at your board minutes. I minute the week for the company for my key team every Friday, and just go over the week, the view from my eyes and, you know, what I've learned from the week and share it with them. I did that when I was mayor here. I used to write a little post in the local paper every Friday, right? Just tell the community what's going on in my head. And I think they're good tools. Right? They force me to look back, reflect on the week, what's important, what rises to the top, and what do people need to know about what occurred that week and where we're heading next week. So those are two big tools for me.

Matthew: Is there one thought or idea that you have that most people would disagree with you on?

Andy: On the business setting, I'll tell you, and I don't know whether it's...I still believe, and it's not that they disagree, but maybe it's a small d, right? You're the CEO of a company that's about to go public, there are decisions I have to make that are unilateral, you make decisions. I am still a very firm believer that there's an opportunity out there to have a discussion, right? To build some...to find a compromise among divergent views and think about this. You got shareholders and you've got founders and then you've got management sort of running a business. So I still try to find a way to listen to people and find compromise and build consensus. The problem is that takes time, so I find myself a lot, folks saying, "Andy, you gotta move faster. You gotta move faster," right? And so I'm trying to be on a personal journey, right? Balancing that way of doing things with the need to move very, very quickly.

Matthew: Okay.

Andy: And not everybody agrees with me on that, right? Not everybody agrees that I should be doing...you know, sometimes people they say, "You know, just make the decision and move on."

Matthew: Yeah. Now, I get questions all the time about, "How do I get into the cannabis industry?" Are there any recent hires you can think of where maybe someone came from outside the cannabis industry or did something that was valuable to get your attention and found their way into Harborside, or you saw them go elsewhere in the cannabis industry that you could share?

Andy: Totally. I think it's a great time to get in the cannabis industry. And I think it's a fantastic time to actually get in the cannabis industry if you're not in the cannabis industry. Because what we're looking for is some of that outside-the-industry thought leadership as this becomes a much more mainstream business. You know, our general manager in Oakland came from Target. Our general manager in San Jose came from Whole Foods.

I see people also...the second part, so yeah. So that expertise, the nice part is under a regulated environment, is that, you know, you could sell books, you can sell cannabis, you can sell, you know, you can sell clothing and apparel. At the end of the line, where Matt is purchasing some cannabis product, it's a retail experience. So if you've got retail experience, and know how to talk to a customer and how to answer their questions about the product, there's no reason why you can't come into the cannabis business, and I think there's a lot of opportunities there. On the folks that are inside the business looking to go elsewhere, definitely opportunity there too, right? Because look at the value chain. I just described a cultivation, and when you think about cultivation, it's growing and genetics and breeding and all the ag tech that goes around that, the environmentals in the systems and the soils in the systems, curing plants, curing chambers, right? Post harvest production, lots of interesting electrical stuff, mechanical stuff, engineering going on. And then, obviously, products and brands. This is where things are heading. Right? Consumer preferences, no different, right? Everybody needs to have an experience and an association and an identity with a brand and a product. That's what Harborside has tried to do. So that bad aspect of, you know, folks are...if they leave us, I wanna go work at that brand. Or I wanna go work in manufacturing, right? Processing. I'm interested in these oil-based products. I have a science background.

So I think yes. Right now, if I were telling somebody to come in, don't think about the fact that it's cannabis, accept it. You have to have a comfort level that you can be in the cannabis space. And I can tell you, I've had people who came all the way down to the last mile with me, and then said, "Oops, I suddenly woke up one day and realized I couldn't look my kids in the eye and tell them I'm working in the cannabis space." So if you can get around the comfort that you're working in an industry that is still involved with a schedule 1 controlled substance at the federal level, it's no different than anything else, right? The same skills can apply. And if you wanna get deep in a particular aspect of the industry, then there's more and more of those coming on. Look at the research side. We have a medical and research side, right? That's so fascinating. Just thinking about our own internal endocannabinoid system and how cannabis interacts with our own systems. Studying the plant. Because, there's a ...I find it fascinating. And if you're a lawyer, go practice law. Fascinating, interesting environment. Our general counsel came over from federal, former federal prosecutor, our tax counsel, former IRS prosecutor. Lots of ways to get into the industry. Don't think, you know what I mean, it's any other industry right now.

Matthew: A lot of good suggestions there. Thanks for that.

Andy: Yeah, you're welcome. Yeah.

Matthew: Well, Andy, as we close, how can listeners learn more about Harborside, visit your dispensaries, and find you online and learn more about investment opportunities, the RTO, etc., etc.?

Andy: Yeah, you know, I think most people today we have retail-facing websites I'm building a, as we speak, I have a couple of calls today, obviously, with the RTO, we're building a, you know, a true investor relations website as well, too. Do your Google alerts on, or whatever you're using on your alerts, for Harborside, Steve DeAngelo, we're putting myself out there these days obviously as well too. There are a number of conferences that take place, both business and cannabis related. And I would encourage people to do the tools that people use best and social media. You can follow us on Instagram, you can follow us on Twitter. You can follow Harborside Farms. Just go sign up on Instagram, follow Harborside Farms, just to see how beautiful that product is coming off the farm.

Matthew: Great. Well, Andy, thanks for, so much for coming on the show and talking with us. Really appreciate it. And good luck with all you have going on. You've got a lot of moving parts here and a lot of growth planned, so you're gonna be busy.

Andy: Yeah, it's busy. It's seven days a week. Matt, thank you very much. I wanna thank everybody also who just is taking...whoever is taking the time to listen. But thank you very much for thinking of Harborside and giving me this opportunity as well too. It's been a real pleasure.

Matthew: Oh, you are welcome.

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