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Ep 307 – Dispensaries Forced To Adapt Turning To New Technology

matt-cutone-seed-displays

How can cannabis retailers adapt to the new post-pandemic environment and create customer comfort?

Here to help us answer this question is Matt Cutone of Seed Technology.

Learn more at http://www.getseed.io

Key Takeaways:

  • Matt’s background in cannabis and how he came to start Seed Technology
  • An inside look at Seed and how it provides dispensaries with in-store displays that improve customer experience
  • How cannabis retailers have been impacted by the pandemic and what Seed is doing to help them adapt their retail environments
  • Matt’s advice on how dispensaries can create a successful in-store “flow” and where curbside pickup fits into that
  • How dispensaries can use handheld tablets to significantly increase profits and customer satisfaction
  • The most popular cannabis products on the market right now
  • How dispensaries can benefit from in-store displays
  • The mature and emerging markets in the US and how they differ from state to state
Click Here to Read Full Transcript

[music]

Matthew Kind: Hi, I'm Matthew Kind. Every Monday look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now, here's your program. How can cannabis retail environments quickly adapt to the new post-pandemic environment and create customer comfort? Here to help me answer this question is Matt Cutone, CEO of Seed Displays. Matt, welcome back to CannaInsider.

Matt Cutone: Hey, thanks for having me back, Matt. Appreciate it.

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

Matt: I'm in South Orange County, San Clemente, California, so almost directly between Los Angeles and San Diego.

Matthew: I am in Chicago today. Matt, what is Seed on a high level?

Matt: Seed is a software for cannabis retailers, specifically within the store. What we do is we help enable all the customer-facing screens and technology, whether that's interactive menus on tablets or kiosks that provide cannabis education and self-service order. We've recently started helping our customers and prospects with their digital menus. Our vision really is to help dispensary operators with safe access and successful consumption of cannabis with their customers and that translating into a more profitable operation.

Matthew: These are really helpful. I've seen some of these displays and kiosks and messaging. It's just amazing how far they've come. I would say in different industries I've interacted with screens and kiosks that just have not been helpful, but just the last few years it seems like wow, that's really crossed over into just a totally different experience. I want to get more into that. Let's first talk about what you're seeing right now, and how cannabis retailers have been impacted by the pandemic, and also, now, riots and looting.

Matt: Yes. Exactly. Certainly, crazy times, and what continue to be uncertain. We're still trying to figure this out and help our customers, our clients navigate this, and et cetera. What we're finding is that the good news, I guess, to a degree, as several months ago when we started to experience the shutdown globally, not just on a national level, is that cannabis was deemed essential, kind of an interesting scenario based on the fact that cannabis is not considered legal on a federal level, but it was deemed essential during the shutdowns and during COVID here. Great, because, obviously, being deemed essential, cannabis being viewed as medicine, that's a lot of what we want.

They had to adapt in a lot of ways in how they service their customers, in how they handle transactions. With Seed specifically, our first initiative was to reach out to all of our existing customers and let them know that we're here to help in any way we can, give them general guidance on how to sanitize and maintain the technology in a way that customers and their staff could interact with the screens comfortably. More importantly, and one of the nice things I think about this industry as a whole is very collegial where everybody is very community-based and looks out for each other. We reached out to everybody and just said, "How can we help? We're here to help in any way we can."

Prospective clients we backed off of, we knew not many people were looking to make any changes, and et cetera. It's still uncertain times. We're all collectively navigating this and trying to understand what the new norm is going to be. We're slowly starting to move out of that, but, certainly, still impact and still trying to figure out ways that we're going to successfully adapt.

Matthew: How has some of the messaging changed from a retailer in terms of social distancing, or curbside pickup, or what they're putting on their displays?

Matt: A combination of things. Like I said previously is, how do you operate differently? How do you support your customers? How do you successfully help your customers select the appropriate products? How do you handle transactions differently? Now that the stores are starting to open up and individuals are allowed to go back in, interact with staff, and et cetera, things are improving. For a while, as mentioned, curbside pickup was something that didn't really exist in a lot of ways. One of our strategic partners I Heart Technology, or I Heart Jane, excuse me, they helped a lot of their clients and their customers adapt very, very quickly in enabling them for curbside pickup, and et cetera.

Now, as far as social distancing, and et cetera, one of the things that we've noticed specifically, and, I think, there's a lot to learn from the mature industries, I always talk about this when retailers are trying to understand how to provide a successful customer experience and create a store layout or a customer flow, look to the mature industries, look to who's been doing this for quick-serve restaurants, even Target, et cetera, the entities that have a lot more resources and a lot more experience. Social distancing is now something that is being successfully executed through communication, whether it's markers or signals or Xs on the floor, and et cetera.

For us, the nice thing about our kiosks is that it almost facilitates social distancing in a way where you can separate the kiosks in [unintelligible [00:06:04]. You can have someone on your staff queuing up individuals. One, showing the individuals, showing the customers that you've cleaned the kiosks, you've cleaned the device, and that it's safe, and it's ready for you, and then pointing and saying, "Here you go." Again, I think Target's done this really, really well. Queuing for people through self-service, getting them introduced to self-service. There's now this element of concern around human-to-human interaction, and that technology can help address this concern.

There's this marriage between analog and digital. You have to have the staff there queuing up people, communicating with people, making it obvious what they should do. Fortunately, after a little while, I think the customers- it's a little bit of a monkey see, monkey do. They see how they're supposed to go about it, they get comfortable with it, and the next time back, they do it comfortably and successfully.

It's important that the retailer is, again, deliberate in the way that they communicate to their customers, but also, at the same time, setting up your store flow, separating the self-service, maybe having to eliminate a self-service device between the different kiosks, and etc, so that people can comfortably complete their transactions, and et cetera.

Matthew: When you think about the flow of a dispensary pre-COVID and then post-COVID, what comes to mind- it's how a dispensary retail environment should flow, how that should feel, how that should look?

Matt: Sure. I think, for starters, when we talk too about our clients is for starters, what is the brand experience that you're trying to communicate and convey? What do you want your customers to feel as they come in and interact with your staff and purchase your products and when they leave? I think that falls into really two different buckets. You still have your emerging and mature markets, and we can even simply call it medical versus recreational use. If it's a medical or an emerging market, you might want to create a customer flow that is much like a doctor's office, and that's something that's important to you. That's going to involve a very formal check-in process. It's going to probably have a waiting room.

It's like your name gets called, and you're allowed into the retail area. You might be interacting with staff quite significantly. That might be important to your brand. That might be important to what kind of a customer experiencing you're trying to convey. In a more recreational environment, it should be like traditional retail. There's a less formal check-in process. You're inside the store, you can walk throughout it and interact with the staff, interact with the different technology. You can interact with the different products in a much more traditional way.

I think what's most important is that you maintain flexibility. What we have learned over this past year is that flexibility becomes very, very important to customer flow. We're still a young, young industry. We're still learning a lot. There's all kinds of new customers and products still being introduced.

Having flexibility, and what I mean by that an example of something that when I say maintain flexibility and be nimble is, when a customer of ours purchases floor standing kiosks, we always say, "Don't bolt them down to the floor," because at some point, you may want to change the customer flow. You may want to highlight certain products. You may want to move them. For an example, during COVID, we had a client here in Hollywood, and they moved all their kiosks to the front of the store.

It was a great way for them to address this new issue, these new challenges, as well as facilitate social distancing. It was great. They just can pick them up and move them and separate them by six to eight feet. Now, they're flexible to what these new challenges are. I always say, "Maintain some flexibility. Things are going to change. You're going to learn new things, and you're going to want to change the customer flow. I think that's what's most important.

Matthew: Curbside has been a huge thing because it allows people that are uncomfortable with going into a dispensary to stay in their car where they might not have gone if they didn't have that option. It also continues to let revenue flow into a retail store, but not all curbside is done equally. Sometimes it's a great experience, but then the owner of a dispensary might not have the resources to properly educate the staff, or they might be helping a customer and not see that there's a curbside order. Now that needs to be fulfilled.

How do you mitigate that in assigned roles and message it properly, so the flow, back to the flow, can make it a win-win for both customers and the owner of the dispenser?

Matt: That's a great question. Just to be clear, we don't facilitate curbside. This is something we're looking at today. It's something that's on our product roadmap for 2020 and potentially handheld tablets where there's actually a card swipe and et cetera, again, helping to facilitate transactions and customer activity outside of the store. For starters, it's great that, again, the cannabis dispensaries were deemed essential so they could continue to operate and support their customers and get them their medicine and the things that they needed throughout this very stressful time. Adapting to it was, again, very unique on a state-by-state or a market-by-market basis.

You say- you mentioned resources. Do they have the right resources? Do they have the right tools? Do they have the right technology? Do they have the right processes in place? I've seen examples of where a dispensary just set up card tables. They had these pop-up tents and they had these banners that were just printed up. I know in certain cities- you're in Chicago, I'm originally from Boston, there's certain dispensaries in certain neighborhoods, there's traffic and there's no parking and it's hard to pull up and curbside is not easy. I think it's been a real challenge. I think it's great that the municipalities and the certain cities have allowed for this.

I think there's a lot of learning that's still going to happen. I don't know if it's going to be fully sustainable. I hope it is, while, yes, we facilitate transactions and support our clients inside of the store, but we want them to be successful no matter what that transaction looks like. Curbside is something that has provided some convenience for certain kinds of customers. It's something that if they can maintain, we'll see. When we're fully opened up and running, like we normally had been previous to COVID, we'll see if the cities allow for this.

I'll be surprised if they do. Certain markets are very conservative. It's been good that they've allowed for this for now. Some dispensaries have done a really, really good job. There's others that have just been challenged. They didn't have the technology in place. They didn't have the processes in place, and they really didn't know how to fulfill. It's been a pretty steep learning curve for these folks. There's still some things to be figured out and some things that are still quite uncertain as it relates to that.

Matthew: What about for people that are in line? If you go to a fast-food restaurant like Chick-fil-A, let's say, and they have people out on tablets that are getting one part of the order started maybe your name and then you move on and then they add some other things as you move along the line. How does that work? How can that facilitate order?

Matt: This was one of the things that we were looking at. Our hardware partner, a company by the name of ELO is launching some handheld tablets with card swipes for this summer. We expect to get that hardware in hand to our product development team shortly so we can start to understand, again, how do we support our dispensary clients and enable transactions and really transactional velocity. If you think about what you're talking about, Chick-fil-A, In-N-Out Burger, et cetera, there's a quick-serve restaurants that are-- What they're trying to do is-- One of the examples I always use is that when we go to a restaurant it's quite busy, and the waiter or the waitress gets you a drink.

At least you feel somewhat satisfied. You've got a menu in hand. You feel like you're moving in the right direction, but when you're sitting there and there's no correspondence happening and there's no service happening, and you feel a little bit lost. Do they even notice that I'm here? Et cetera. When you have the handheld devices and staff outside of the store that are taking orders, and et cetera, one-year increasing transactional velocity or servicing more customers in a more expedited way, which is important for the profitability of the business. Nobody likes standing in line.

I don't care who you are. There's nothing enjoyable about it. That's one of the big reasons why we've really heavily invested and really focused on self-service ordering. I think that, again, this is playing out significantly in mature industries and quick-serve restaurants, and people are becoming accustomed to it. If you go to the airport, yes, we've been printing our own tickets for a while, but now we're bagging our own luggage. That whole operation, that whole process has been pushed to the other side of the counter. It's great. To be perfectly honest, it's harder and harder to be profitable in any industry in any business.

The more that you can put in at the end of the customer, in a comfortable way, the better. Southwest does a great job of it. Now they've got a couple of people that man could be 12 kiosks, and then we're actually printing out our baggage tickets and sticking them on our luggage ourselves. We never would've thought that that would happen, but it's happening. This is something that needs to be looked at. Drive-thru. There's not a lot of drive-thrus today. Harborside has recently opened up a dispensary out in the Palm Springs area with drive-through.

That's something that needs to be further explored and understood, considering COVID, considering all the things that are happening and allowing dispensaries to support customers as best they can in the same way that traditional industries, traditional operations do today.

Matthew: What have you seen in terms of what products have sold more or better recently?

Matt: There's certainly- inhalation-related products certainly took a hit with the COVID being a respiratory element. A lot of people backed off of that. Edibles absolutely saw a spike. People that had been maybe a little bit timid or apprehensive have now started to explore that. Again, a big part of our responsibility here is what we call safe access, successful consumption. We always say, "Go low and go slow." People are now starting to be more willing. Tinctures, topicals and other consumption methods are definitely seeing an increase in activity.

One of my secret shoppers, if you will, is my dad. He's in his 70s. He's a medical cardholder in the State of Florida, and he's an ex-retail executive, retired retail executive. I always go to him and ask, "Tell me where you've been? How was the experience? What'd you do?" Going back to your question on curbside. He recently did his first curbside pickup. His transaction was two X, what it normally would have been. He thought about it from a consumer perspective, maybe I should stock up a little bit. There was an increase in the overall sales activity. The very beginning of COVID, the dispensary saw some of the panic buying that was happening, toilet paper being the humorous example of what was being brought up quickly, but cannabis saw the same thing. My father's transaction was actually $400, roughly. I said, "Well, what would the average transaction have been?" He said, "200." I said, "Talk to me about the psychology on that." He said, "Well, it's because I didn't know when I was going to get back there. I want to make sure I have inventory, if you will." I said, "Okay, talk to me about the products you bought." He had historically been using a vape pen. He said there was no vape products at all. He went to sublinguals and tinctures.

I found that interesting. I think that will swing back around maybe. I hope it does, to be honest, but I certainly know that with COVID being a respiratory-related element, that people were really just trying to steer clear of anything that could exasperate that maybe, or cause more issue.

Matthew: I like the way your dad rolls. Dropping 400 bucks at a dispensary, not even thinking about it.

Matt: [inaudible [00:19:05] Part of the loyalty program over there. Jeez.

Matthew: I want to go to a Cutone family reunion, I think, now. That's on my bucket list.

Matt: It's a good time. It's a good time, I can promise you.

Matthew: Speaking of ordering and cart size and things like that, order totals, do you ever feel like there's too many things, too many products, overwhelming customers? You want choice, but then I call it the "Chili's menu problem," where you go to Chili's restaurant and they give you this book, and I'm like, "There's hundreds of options and permutations. I'm overwhelmed."

Matt: Absolutely. I agree 100%. I believe today that this is an area of the industry where we need to see some consolidation. There are too many brands. They do believe it to be overwhelming. It's a challenge not only for the consumer but also for the operator. Aside from the consumer, and it's a great example, when you say like a cheesecake factory. How can this one restaurant make so many meals successfully? It is, it's overwhelming. I also think it's a challenge for the operator in a way that like their staff has to be up to speed and educated on all of these various brands and how do they suggest all of those products in an equitable way. Then, the other part is that the operators are trying to be profitable. Inventory is a huge expense. You want to be able to offer all of these various products. You just don't know what's going to work, what's going to be successful, what's going to resonate. You want to have a little bit of everything, but that can become expensive. It's a challenge. That's a big, big reason why we created our consultation, is to walk people down a path and to have that be conversational.

Also, we ask people various questions on what are their goals in consuming cannabis. Then, we try to narrow that. We integrate with the POS and inventory management system so we can pull live product availability, and then they can throw that right into the shopping cart. This is an area where, I think, there's a lot of room for improvement. I think there are some great brands out there. I'm sure they'll succeed, but there needs to be some consolidation. I think it needs to be minimized to a degree to get people to be more comfortable and easier.

Matthew: No, I know when you specialize in industry like you do, you develop these mental models of what's successful and what you've seen work. Do you have a mental model in your mind of a retailer that's not- doesn't have any displays at all? Then they come to you, and they're like, "What? I really don't even know what I don't know." Then, how do you orient them in terms of like, "This is what you need, and this is the benefit you're going to see."

Matt: One of the things that I think we're seeing in the industry as a whole, from a technology perspective, we're very fortunate to have a great partnership ecosystem. We partner with some great POS companies Flowhub and Blaze and Treez, and then we also partner with, again, non-cannabis, noncompeting cannabis technology. I spoke of I Heart Jane and some of the loyalty programs Bring Big, and et cetera.

I think it's very important that everybody take a very solution-based or consultative [inaudible [00:22:13] approach. We all have a responsibility in helping the operators of this industry as a whole be successful. Teaching them, your prospects or your interested parties and what your technology can do to make them more successful is important. Not selling, and really more so educating them.

I'm finding that right now, it's important. This is a time where, I think, everybody on a personal level, on a professional level, is taking a bit of a step back and reassessing. From a business perspective, how can I run my operation a little bit differently? How could I be more nimble for the unknown? Things that are around the corner that we're not aware of. I highly suggest that operators take the time to learn about the different technology that's out there. Most of the companies that are out there today that we partner with have a great demo process. It's not a lot of your time. In a half hour you're going to learn about what's out there and how you can introduce us to your operation and do it successfully.

You mentioned there's still a lot of dispensaries today that haven't introduced a lot of technology, and I think that's okay too. I think it has a lot to do with the brand experience, consumer experience that you're trying to deliver. We find them the upper Northwest in areas like Washington and Oregon, and they're very hands-on. They don't want a real technological vibe, and that's okay. I think it's great.

I think it's important for the operator to at least take the time to understand what's out there, get the education, see where that will translate to profitability for them. You have a lot of different kinds of customers out there. Let's find a way to address all of them in a successful way that people that want to deal with a human being give them that capability. Just there needs to be a fine balance between the human element and the technological element of your customer experience.

It's a little bit of a challenge to get there, but you really-- I tell everybody now, "Take the time to learn about what's out there, see what works and fits for your operation." For us, it's like self-service. You said it at the top of this conversation, self-service kiosks are becoming a lot more common and certainly in the mature marketplaces, and we're seeing it in cannabis, certainly. I encouraged the operators, "Go through a demo, let us educate you on what it is that we can do to help you. If it is not a fit today, that's okay, but now you know, and maybe it can be introduced at a later time when the timing is right."

Matthew: You gave that example of your dad and the curbside pickup and how he felt like, "Hey, I want to stock up." When people are doing the self-service orders in a dispensary where they're interacting with display and putting their order together, prior to COVID-19, do you see a difference in basket size, prior to the "stock up" mentality?

Matt: Yes, absolutely. Again, there's a lot of data out there that communicates that whether it's at your house and you're ordering on Amazon, or if it's outside of a retail environment where you're utilizing a self-service device for the shopping process, that basket size is significantly larger. One has to do with the psychology of the buying process. When you can shop at your own pace, you're going to view and look at a lot of different products. That increases the likelihood that those products will get into the basket. Beyond that, this is a technology platform. A responsibility that we have is to make sure that our customers are more profitable.

We can smartly position certain products. We can pair certain products up. Certain markets we can see do if you will manage your specials. I think we might've talked about this on our previous conversation, but because of the sophistication of the Seed technology platform, we can identify slow-moving inventory, and then on an automated way, creative manager special and slash it at 50% and get it into the basket. How do we turn that inventory into cash rather than having it sit on the shelf?

Yes, absolutely, we're seeing a huge increase on customers that are utilizing self-service order in the average transaction. Minimally, we usually say it's around 10%. The goal always is, let's get X percent of your customers that come through your door to use your self-service devices. We usually will find that there'll be a sales lift of X percent, and very quickly, they'll experience ROI, but it's very-- Hey, listen, Amazon has done it very, very well. We're taking a very similar approach in some respects to getting the right products in front of the customers that they're for the products they're looking for.

Matthew: Now, the cannabis market in the US is bifurcated between now mature markets which- you're in a mature market, in emerging markets that are just coming online. What states are you involved in and how has it been different working in those different states?

Matt: We're active in every market today. We just recently penetrated the Puerto Rican market, so, slowly, shortly here, we'll be- we'll have the platform, will also be in Spanish, but-- It's interesting. I'm sure a lot of the folks that you have on the podcast would agree it's a super-challenging market. It's challenging in a lot of ways because it's emerging and it's young and it's evolving and it's changing on a daily basis, but it's also- on a state-by-state basis, every single market's different. That creates its own unique challenges. One from a compliance perspective, and et cetera, we're agnostic. We can be in any state, we can be in any market. It doesn't matter what it is. If it's medical, if it's recreational emerging, mature, it's fine.

We have a platform that's configurable. The platform is completely branded for the dispensary itself. We can introduce vernacular, we can eliminate vernacular, we can make it so that it adjusts appropriately for that market. We're everywhere today, which is great. Certainly, we focus more heavily on certain markets. When it's emerging markets, they're much more interested in the education, because they have new people coming in to be introduced to cannabis for the first time.

Mature markets, it's much more about self-service and operational efficiencies and how do you help me service more customers much faster and how do we increase that basket size? The messaging is much more focused in that respect for those kinds of markets, but, fortunately, we're pretty much everywhere. It's one of the benefits really when we built this platform, we wanted to be agnostic. We wanted to be able to service any and all dispensaries no matter where they're located in the United States.

Matthew: I don't know if you mentioned this, but if you're going through the self-service checkout and you're adding things to your cart, would Seed Display act in conjunction with, let's say, Flowhub to recognize that something sold out and not even show it to a prospective customer?

Matt: Yes, absolutely. You've got to be very careful about those things because, again, we've taken we got years of experience of really understanding the psychology of the buying process. What we don't want to do is create anything that would be negative. As soon as inventory levels hit a unit count of five or less, we eliminate it from the menu. That's, again, automated. Everything that we do as best we can today with some respective limitations is automated. We're always looking to provide a platform that doesn't create additional work for the dispensary. We want to actually make their lives easier. Yes. As soon as the unit count hits five or less, in an automated way, it eliminates. That's not even there for them to browse or shop any longer.

Matthew: That's good. Well, Matt, I'd like to ask a few personal development questions. Since you've been on the show before, I've come up with a few new ones.

Matt: I noticed.

Matthew: What is one change that came out of COVID-19 that is net positive for you?

Matt: I'm very fortunate that I've got a beautiful and wonderful family throughout this unique period that we've all been going through. It's been an opportunity to spend time with my wife and my three kids in an unstructured way. Typically, we're running in 50 different directions. We've got all kinds of things going on in the weekend and sports and obligations and, yes, of course, the kids would have school, but it's been unique in a way that we didn't have some of those weekend obligations. We can spend time together as a family. I let those things resonate with me.

Those are developmental opportunities and moments that help you hit that reset button. Then I allow that to translate into the business side of things. Throughout COVID, we were going through all the same challenges that every other business was. This uncertainty. What's this going to mean? I've always treated my employees and my company and everybody here like family and communicating on a consistent and a regular basis to try to lead us through this has been something that has been a real net positive.

That looking at both the professional and the personal side of things and really understanding how important my family is and whether they're, again, employees of Seed Technology or they actually have the last name Cutone is treating them all the same. It's been a real net positive for me.

Matthew: What is one skill that you have as an entrepreneur that you feel like is super important but wasn't taught in school?

Matt: I just said. Being an entrepreneur, what comes with it is a lot of risk. With those risks come stress. The management of that stress is something that today-- Again, I've been out of school for quite some time. Maybe they've introduced us another curriculum, but I really don't think so. It's the management of that stressing and maintaining balance. Being an entrepreneur, there's going to be days that you're absolutely knocking out of the park. You're killing every little thing that's in front of you and you're crushing it. Then, there's the days you just can't get a win. That's a reality.

How do you manage that and how do you deal with that? For me, there's been days where I'm like, "Man, I'm just getting my own butt kicked all day long here." There's been times where I've said, "Well, why don't I-- It's been four or five o'clock, so I'll pack it up, call it a day and I'll go home. I might just throw the baseball with my son for a little while. It's a great way to feel like I've been productive. Again, maybe more so on a personal level, but it's a way for me to meditatively just toss the baseball with him for a little while and relax and breathe a bit.

Stress is something that's real, for any entrepreneur without a doubt. Somewhere within the curriculum, there's an opportunity to teach people to understand how to maintain some balance and how to manage that stress because it's a key component of success. If you can't manage that stress here, I don't know if you're going to be around for it.

Matthew: You strike me as a big cotton candy guy, but you tell me what's your favorite comfort food.

Matt: [laughs] Wow. That's interesting. I've never heard that description before. It's funny. I hate cotton candy.

Matthew: I was just teasing. It's just like a fluffy, like whimsical [unintelligible [00:33:41]. That's why I was teasing.

Matt: It's so funny. Yes. I know. I know. It's pizza. It's pizza.

Matthew: Pizza, okay.

Matt: Again, it could be breakfast, lunch or dinner for me, hot, cold, I don't care. They always say there's no such thing as bad pizza, and I would agree with that. That's a big comfort food for me without a doubt.

Matthew: That's good. That's good. Well, Matt, as we close, tell listeners how they can find out more about Seed Displays, maybe see a demo or get some ideas and how they can put something like this in their retail environment.

Matt: Sure. I always like to offer up my direct contact information. I'm always looking to make friends and be of assistance and be helpful in any way I can. My email address is cutone, "c" as in cat, utone@, get, C-G-E-T-S-E-E-D.io, or you can go to the website, which is getseed.io and, certainly, take the opportunity to learn a little bit more about the platform, or you can go ahead and schedule a demo right there on the website. We'd be happy to help. I hope you understand how to run a more profitable operation without a doubt.

Matthew: Well, thanks for coming on again and educating us. This is really interesting times. It's cool to see how you're adapting and how you're helping retailers adapt. All the best to you in the rest of 2020.

Matt: Hey, thanks so much for having me on, Matt.

[music]

Matt: I wish you the best too.

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 at CannaInsider.com.

We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis for using it for medical treatments. Promotional consideration may be provided by selected 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 listening to will get stuck in your head for the rest of the day.

Thanks for listening, and look for another CannaInsider episode soon. Take care. Bye-bye.

[00:36:32] [END OF AUDIO]

Ep 306 – Born in Nigeria, Now He’s the Youngest African-American Dispensary Owner in America

seun adedeji elev8

What’s it like to immigrate from Nigeria, grow up in the US, and put yourself at the forefront of the cannabis industry in multiple states?

Here to help us answer that question is Seun Adedeji, CEO of Elev8 Cannabis.

Learn more at https://elev8cannabis.com 

Key Takeaways:

  • Seun’s background in cannabis and how he came to start Elev8
  • An inside look at Elev8 and its dispensaries across the US
  • Where Elev8 currently is in the capital-raising process
  • Why Seun decided to open dispensaries in Oregon, Massachusetts, and now Illinois
  • Oregon’s shifting supply and demand and how Seun is working around it
  • How Elev8 partners with local businesses to get customers in the door
  • Seun’s advice to those trying to get into the cannabis industry
  • Where Seun sees the cannabis market heading in the next few years
Click Here to Read Full Transcript

[music]

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

[music]

Matthew: What's it like to immigrate from Nigeria, grow up in the USA and put yourself in the center of the cannabis industry in multiple states? Here to help us answer that question is Seun Adedeji, CEO of Elev8 Cannabis. Seun, welcome to CannaInsider.

Seun: Thank you, Matt, for having me.

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

Seun: I'm currently in Eugene, Oregon at one of our dispensaries.

Matthew: What is Elev8 Cannabis on a high level?

Seun: Elev8 Cannabis is a retail cannabis store. We're a multi-state operators with locations in Oregon and Massachusetts, and we're looking to expand across the United States.

Matthew: I mentioned that you're originally from Nigeria, but can you share a bit about your background and journey and how you got into the cannabis space and started Elev8?

Seun: Absolutely. Like you said, I migrated from Nigeria at the age of three. I moved to Chicago, Illinois. While I was in Chicago, Illinois, I lived with my stepmom, and my home was not a wholesome home. There was just a lot of chaos. As a young kid to make money, I was a kid with a duffel bag with candies in my bag. I was selling the kids like, "Hey, y'all know you like Alexis, your breath stink. I got some gum for you." Kids used to buy gum from me, buy candy.

I used to go to a place that was like [unintelligible [00:01:48]. It's really big in Illinois. I used to buy a batch and mark it up, and the cafeteria people mark up was insane. I was undercut numb a little bit and kids just loved it. I progressed to cannabis. I saw that there was more margins in cannabis. I started selling cannabis to kids in school and I did really well. At the age of 13, I got busted. I got arrested for cannabis possession at a really young age, and at that time, I felt like my life was over. I had a stepmom that told me I would never amount to anything. I was in a destructive environment, and I just didn't see a path forward for myself.

Luckily, I had my auntie who said that I can move to Texas with her. My auntie's very successful. She's an entrepreneur/nurse. She gave me the opportunity to really hit a restart to really center my life and to encourage me. She was the first woman to show me love, meaning unconditional love. It really helped me focus my entrepreneur skill set to look at how can I be better? I started focusing more on education. I joined FBLA, future business leaders of America. We went to state, we went national, so different things like that really helped me out.

I then pivoted, moved to Washington state. At this time, I was about 20, 21, and I saw cannabis legalization unfold before my very eyes. I started looking at how can I get into this emerging market? Now, looking at the revenue being generated motivated me even more. I wanted to bring a level of unconditional love like my auntie brought to me to my company. How could I do that with a lot of capital that is required to get into the cannabis industry? Cannabis started to uplift Elev8 and encourage more people to have a better life. We got started, I only have $50,000. I was just a young kid. It was a process.

Like I told you earlier, it was a three-year process, where getting a license, getting everything set up. I called myself the CEO. I was the chief of everything, and we finally got our business open at the age of 23, where I was able to acquire a property here in Eugene, Oregon. Now, I was paying an arm and leg in a very hidden location, and what really helped us succeed in Eugene, Oregon was-- Customer acquisition is great, customer retention is even better.

We were really community-focused and we were able to really word of mouth spread. We really did great. Like I said to anyone, listen out here, I slept in my shop for a whole year because I was underfunded. I only had 50,000 to get my first shop open, and now we're multi-state operators with locations in Massachusetts.

Matthew: You're in Oregon and Massachusetts. That's right?

Seun: That's correct.

Matthew: You've raised capital more than that initial 50,000 seed money. Can you talk a bit about that?

Seun: Yes. Oregon one, is an over-saturated market. In 2018, we saw products going for $100 a pound. We saw a dispensary selling grams for about little to $1 a gram to consumers. Longevity, I saw that this was not sustainable. I didn't want to work and die at my shop. I saw a greater opportunity in Massachusetts because there's a limitation of licenses and the harder it is for you to get an application in, the better it is. One thing that we leveraged, the State of Massachusetts, for retail cannabis, they limited to three per corporation. What this corporation, what do they want to do? They want to be profitable for the shareholder.

I know how to win licenses. I know how to write applications. I went to Massachusetts, I read the law. I hired one of the top attorneys out there, Paul Feldman, and we worked together to win our first license in Athol, Massachusetts. We purchased the properties. We lobbied the politicians, and we were able to win a license in Mass, and we won two additional ones. Now keep in mind, Massachusetts is a hard market to win a license, so we had our host community agreement non-opposition. That's the first step of winning a license. You got to win it in the community before you can actually apply with the state, which is what we did.

Each city in Mass, they limit the amount of licenses that they are given out to entities. For us, we were able to go to cities they were only given out to, and we were able to win them. Now, the second phase is how do we raise more capital to complete our build-out? What I did was I had a relationship with politicians like Tito Jackson, who is very minority-focused and very minority forward. I told him my situation in raising more capital. He introduced me to an entity that saw the benefit of shelf space.

What I did was I basically sold my shelf space to raise more capital instead of giving up any equity. Long-term, we modified that into just strictly debt capital with X amount and percent after we open after six months period.

Matthew: That makes sense. Well done so far, that's a big accomplishment. How did you say you were again? You're in your 20s?

Seun: Yes. I just turned 27, May 23rd. I opened my first location at the age of 23.

Matthew: Oh, great. Well done. You have a multi-state operator who invested in your business. Can you talk about that?

Seun: Yes. We negotiated for about eight months. It was a back and forth. The reason why they invested in me, keep in mind, to get a license in Mass is very hard and they see this young kid that had a lot of hustle. I was able to articulate and speak on the market on a high level compared to a lot of other people. I think that they were super impressed by that. I also own property, so that's the other way I was able to get some capital. My real estate property, I bought it for a huge discounted price. One of our property, we bought for 50,000. Now, the property is appraised at a mil. What we were able to do was re-collateralize the property to get more finance out of it.

Matthew: You leveraged the equity in your existing real estate, you cashed out that equity to invest in your Massachusetts dispensaries. Is that right?

Seun: That's correct.

Matthew: Was it this politician in Massachusetts who was pivotal and introducing you to some investors that could help you out? That was a key introduction.

Seun: Absolutely. It was a politician and also their attorney, so the big multi-state operators. Keep in mind, I'm sitting here lobbying for myself to win a license in different cities. They had lobbyists, we were all sitting together because we had a presentation. They were all impressed by me. They were impressed by my knowledge show. Outside in the politician, we also had some big firm, Vicente Sederberg, their attorney spoke really highly of me.

All those people, your reputation follows you. When those people are speaking highly of you, and what you've accomplished in such a hard market to even get a license in, that also helped me out. It was a combination of just people speaking highly of me and my track record of winning licenses.

Matthew: That's great. How do you think you honed your mindset because unfortunately, the state of the world is that I think most people would rather complain that the system doesn't work and they can't get things done. You just see this as an opportunity and run right into it and just talk to people, figure it out. Did you read any books or have any mentors or anybody that helped illuminate like, "Hey, this is possible. This is how you do it," or was it just self-taught? What can you say there?

Seun: I believe nothing is given, everything is taken. What I mean by that is everybody has their own problems situation. You have to go out there and hustle, you have to go out there and get it in and nobody's going to do it for you. What I did was I learned from everybody. I assess every situation. I learned from people what their success were, what their mistake was, what decision they made to get them to the point they're at right now. I assessed those situations. I said, "Okay, this is what I don't want to be and this is what I want to be."

I started hanging out with people that I want to be like. I remember the first wealthiest multimillion-dollar person I met was in Eugene, Oregon. He was just wealthy beyond my wildest imagination. When I was struggling, he never gave me a penny but what he did give me was knowledge. I didn't want his money, I wanted knowledge. I called this man, I called him about a hundred times. I was like, "Hey, can I just take you out for coffee?" One day he finally returned my call and he's like, "Yes, I'll take you out and I'll pay for it." I said, "No, I want to pay coffee for you."

He came, we went to coffee and he started talking and I learned so much. I asked him about his journey. I don't want to hear about people's success, I want to learn about your journey for you to attain that success. I think that's super important. I read a lot of books. I think that a lot of people undermine kindness and love. I think that in these times that we're in, love win more than anything because back in the day you had to be firm, you had to be a hardcore, you had to be this mean person and control people. I think right now when you lead with love and passion and integrity, you can go a lot further than ever before

Matthew: Well said. You have a presence in Oregon now. You've got the three licenses in Massachusetts and you're working on Illinois. You're like, "Hey, how can I get into the most difficult markets?" [chuckles] That's the decision you made but that's also good. You have a moat around you. Illinois is maybe a little less difficult than Massachusetts but I wouldn't say it's easy. What do you have going on there?

Seun: Illinois is my home state, giving back is really big. What we did in Illinois is in 33 states out of the 50 States in the United States, all 33 states you need real estate before you can even get into or apply for a cannabis license. This does not say you're going to win. You're gambling hundreds of thousands of dollars. What we did in Illinois, we worked together, we lobbied and we had the opportunity to talk to the politicians that are writing a bill like Stein, Kelly Cassidy. We really advocated for the real estate to be removed as a criteria before you apply.

We also advocated for funds for minorities to tap into so they can get their business started because when you look at all the states right now, everyone is looking at how to implement minority inclusion. The biggest thing that fail when people do that is yes, it's great that we have advocacy work that's being done and we have now social equity that people are rolling out with but the biggest hurdle is capital. Money talks at the end of the day. What we did in Illinois, we lobbied for capital to be implemented in the bill. To our surprise, they did that which was a huge one for us.

The third step was, how do we get this information out to the people that really need it? The people that have been affected by the war on drugs. Illinois bill was 800 plus pages. Just for you to read the law, the process on how to apply, you have to read 800 pages worth of legislation. When you look at the minority that have been most affected by the war on drugs, they live in a disproportional area, they have three jobs.

One of the things that we did was we started to Elev8 Our Community where we went out, we helped people from the Southside, Westside of Chicago and we helped them with understanding how to apply. We also had workforce seminars where we partnered up with Minority for Medical Marijuana, we partnered up with greenRush, with Good Tree Capital where we gave them the resources they needed to apply and actually have an opportunity to win a license.

Matthew: That's a lot. You've got endless hustle, Seun.

[laugher]

Seun: That's one of our core values. I'm young right now and the biggest thing is I'm the underdog. They don't see me so it gives me the ability to if I make a mistake compared to all the bigger MSOs, I can pivot, I can adjust. There's a lot more in the capital cost to build out our store compared to a lot of other people is a little bit lower because our target market, we don't really focus on big cities. Our goal is smaller border town, so that's what we focus on. You don't currently see Elev8 in Boston or any big city right now because we see that property acquisition in smaller towns are a lot cheaper.

We focus on smaller towns because they're on the border of illegal state, so all three of our locations in Mass are on the border of New York, Vermont, New Hampshire. We do that strategically because of those few things I initially mentioned, less capital and the lobbying power. You have a greater opportunity especially when you already have a track record, the ability for you to get in front of the mayor, and actually talking them buying into your goal and your vision and how you can help the city and the town is a lot greater. Strategy is big and understanding your market is big.

Matthew: Let's circle back to what pushed you out to look at Massachusetts and now Illinois. It was Oregon's flood of inventory. There was so much supply of cannabis flower that the price just dropped massively. You said $100 a pound and that was a couple of years ago. Where is it today?

Seun: The prices are actually coming up. You saw a lot of institutes sell out and you saw bigger corporations come in and consolidate a lot of the mom-and-pop businesses. Prices are going up again. You can get a b-bud from $500 a pound. Now, you could get some really great flowers from 1,000 to 2,500 so prices are normalizing. Before, that was not the case. As you know Oregon right now does not have a cap on the total amount of licenses they've given out so is a endless amount of licenses. Now, they put a pause on it currently and that is really helping the market.

Matthew: When you have a dispenser, you have the problem of chicken and egg problem is that you want customers, you want to serve them and you want to retain them. How do you get them in the door? Right now, Leafly and Weedmaps is probably the biggest chunk for most dispensaries. It's thousands of dollars a month that they're being paid to get people into the store. That's a valuable service, I don't want to minimize that. What else can you do? How do you drive word of mouth? Is there anything else that's less expensive or how do you get those initial customers to come in?

Seun: Partnering up with small businesses, that's what we really do. Vendor days where we get our local farmers to come out. COVID-19 is freezing that for us a little bit but we get local farmers. They have their following, they have people that trust them and we get them to come in, set up a booth, do different promotions where we both eat the cost. We get different discounts out there where we can really push. We look at different margins like what is your profit margin need to be? What is ours need to be? We partner up with those farms to get it to that where now we are pushing really crazy deals to get people to notice us but now once we get those customers in, the prices we then normalize it.

It's a win, win for us and the cultivator. There's a mom-and-pop-business that might be struggling to even push their product out. Now we've come up with a creative way where I'm not taking any equity in your company but we are coming up with creative ways where we can both win. We also do things like treat everyone like gold. We partnered up with University of Oregon local businesses, where our customers come in, they write positive note, each month we pass it our random strangers. What that does for us is it gives more visibility to who we are.

Those local businesses are putting our flyers at their business. They're putting different swags at their business, so really partner up with the community and local businesses has really given us the ability to save on costs. Like you said, Leafly is a arm and a leg, but those little small things where we could do a cross-promotion with local businesses has definitely helped us out.

Matthew: Three locations in Massachusetts strategically placed to border other states. It's a lot of logistics and capital and everything to get that open. When do you think the first sales will happen in Mass for you?

Seun: We are ready to go. We have our post provisional license right now. Due to COVID-19, we were set for our in-person walkthrough investigation. Right now because of COVID-19, they paused on that about two, three weeks ago. Mass Cannabis Control Commission, we've been lobbying for virtual investigation, our commissioned title and our Commissioner Hoffman has agreed to those things. They're now just working on the guidelines on what virtual investigations actually going to look like is in place. Once they figure that out, we're really hoping before Q4, we're going to open our shops in Mass and we'll be good to go.

Matthew: There's a lot of people that are listening that have been waiting and trying to figure out how to get into the industry. They maybe just send out a few resumes and then they say, "That didn't work. I guess this isn't for me." What do they need to do differently? You have a level of commitment I think that is way higher than the average person. Is it first just the commitment in your mind to get into this industry? Is that what it took for you, or once you got some traction that gave you the courage for the commitment? What are your thoughts there?

Seun: I'm scared. I was scared when I first started. I was terrified. I'm a young kid. Outside of selling drugs, I was a marketing manager for Sprint, but I never run my own store. Being optimistic and knowing that life, you can have-- I believe personally, this is me, this is just my personal opinion. I think that, like I said, nothing is given everything is taken. It's just how bad do you want it? There's a saying you have to want something as bad as you want to breathe. Has anyone ever try to hold your breath, how hard would you fight to make sure you're able to breathe? For me, I don't make excuses on what is not possible. I started looking at what can be done.

There's certain things that are absolutely out of my control. I really dive in on creating a core team around me, really great executive teams. Shout out to Catherine Tanner, she's our COO. She keeps me grounded. She's super amazing. For the people that feel like they're just having a hard time to get in, I think really understanding what part of the cannabis industry are you most passionate about that even if you don't get paid, you'll still do it. Figure that out first. Then once you're able to figure that out, look at now, how do you get paid?

Keep it simple. What step do you need to do to win a license, or to get this job? Who do you know, within your network? Can you go on LinkedIn and start looking at who works in this facility? Can you start interacting with them, emailing them, showing them your resume, showing them who you are, your personality? I think it's more about getting creative, thinking outside the box and inside the box. Look, I tell people leverage the laws to get to where you want to go. In every state, I read the laws. What that does is, outside of my attorney reading it, it gives me a level of understanding on how can we target this market and how do we win a license.

Like in Massachusetts, we had a lot of people that were targeting the same city we were targeting. I was the only minority African-American man to win in that particular city where everyone, big foreign firms looking to get in. How I did that was I understood the laws and I also have a track record. This is a mouthful, but hopefully, it answered your question on a mastery level so I'm going to leave it at that.

Matthew: All right. Seun, I'd like to ask some personal development questions to help listeners get a better sense of who you are as a person. I think in your case, everybody's gotten a sense already, but I'm still going to ask the questions. Is there a book that had a big impact on your life or your way of thinking that you'd like to share?

Seun: Yes, I have several books. The Four Agreements really played a big part in my life. How I look at it is what you speak to yourself is what manifests. I think that we are all-powerful beings, our mind is so powerful, so when we think something it manifest. When we are gloomy or sad, that's how we see the world. When we're elevated, we see it in a different light. We have the power to-- I believe in the blank page, and what that means is we all have the power to write our story because you didn't come from wealth, that does not mean you can't obtain wealth.

I'm going to say this again. I came from a third world country where poverty was everywhere, where is either you're rich or you're poor. There was no middle class. When I came to America and I saw the endless opportunity. Not everything is perfect, but I believe that if you have a level of hustle and grit, there is more possibility for your success than if you were in a third world country.

Matthew: I love it, man. That should be your slogan, grit and hustle. You got it.

Seun: [chuckles] Actually, that's actually part of our eight core value that we make all our decisions based off our eight core values, and that's how I live my life.

Matthew: Tell me, is there one thing that you believe to be true that most people disagree with you on?

Seun: Wow. Yes, that's a deep question. I'm a very optimistic person. Let's just say we get in a confrontation and you do something bad to me that really hurt me or you screwed me over. I have different options. I can sit there and harbor hatred and look at how to get you back, or I can pivot and use my energy in a more positive way to get the outcome that I want. I'm the type of person where I'm very optimistic. I don't take bullshit, of course, but if you do something to me, the way I would react is a little different than other people. I just don't have time, nor do I have the energy to apply on your demise when I could focus on my own success.

I believe energy and my time is precious, so I rather not waste it on negativity when I could be more creative when my mind is clear, when I'm a lot more positive. I have an example, somebody owed me a lot of money and it was getting to the point where it was just draining me. It was like, "Just pay me what you owe me," and I just told them to keep it. The amount of stress and energy that it was taking me to really get, it just messed up my whole vibe. It messed up my day. I just don't have time for that. Let me stop right there, but it's just your mindset is really powerful and what you focus on is what you manifest.

Matthew: Well said. Seun, as we close, how can listeners connect with you and find Elev8 online?

Seun: You can find us at elev8cannabis.com. You can also follow us on social media @Elev8Cannabis on Instagram, Twitter, and all social platforms.

Matthew: Awesome. Thanks so much for coming on the show and good luck with everything. You do have a lot of grit and hustle. I really appreciate the spark and energy you bring to the industry. It's really motivating. Keep it up.

Seun: Thank you so much for having me. I'm a huge fan of yours. I listen to your podcast every Monday.

Matthew: All right.

Seun: Yes, so huge fan. Thank you so much for having me on.

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

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

[music]

[00:30:55] [END OF AUDIO]

Ep 305 – Cannabis Retailers Accelerating Innovation In The Wake of COVID-19

dennis omalley caliva

Taxes, regulations, a thriving black market, and then COVID-19. How can cannabis retailers in California survive in this environment and serve their community?

Here to help answer these questions is Dennis O’Malley, CEO of Caliva.

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

Key Takeaways:

  • Dennis’ background in cannabis and how he came to start Caliva
  • An inside look at Caliva and how it compares to other cannabis dispensaries in California
  • Why Dennis decided to end his partnership with Eaze and create his own delivery app for Caliva
  • Pros and cons to using your own delivery app
  • Why Dennis has partnered with Hypur to provide contactless payment options for customers
  • How COVID-19 has impacted Caliva and where Dennis sees the company heading in the months ahead
  • How cannabis consumer behavior has changed during COVID-19 including popular products and curbside pickup versus delivery
  • Incentives and disincentives in the California marketplace that are making the black market three times bigger than the legal market
  • Where Dennis sees cannabis heading in California and across the US in the next 3-5 years
Click Here to Read Full Transcript

Matthew Kind: Hi, I'm Matthew Kind. Every Monday look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A-insider dot com. Now here's your program. Taxes regulations in a thriving black market and then COVID-19. How can cannabis retailers in California survive and thrive in this environment and serve their community? Who does help us answer these questions, is Dennis O'Malley, CEO of Caliva. Dennis, welcome back to CannaInsider.

Dennis O'Malley: Matt, thanks so much for having me. Great to be back.

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

Dennis: I am in one of our support offices in the Bay Area. I'm properly social-distanced in my office. Our support center has mainly remote workers today, so there'll be about six or seven people in the office with me, in an office that generally has about 50 or 60 people.

Matthew: Okay. Wow, that's a big change. What is Caliva on a high level for people that are just joining the show or outside of California?

Dennis: At the easiest level, we make and sell cannabis products in California. At a broader level, we are a consumer products company who is very focused on the direct to consumer channel. We've really built over the last five years a, what we call, full spectrum vertical integration to support that business.

Matthew: I want to get into that a little bit in a couple of minutes, but for people that may not understand the size and scope of Caliva, can you just talk a little bit about the size and footprint and maybe compare it to some other cannabis retailers and consumer brands in terms of size and scope?

Dennis: Sure. We're absolutely focused on California. In the Bay Area, we have four either-- We have three stores. We have two cannabis in store retail locations in the Bay Area. We have one hemp-based CBD retail location in the Bay Area, and we have a delivery depot also in the Bay area. Then in the greater Los Angeles area, we have three operational sites. We have a in store experience in Bellflower, right outside of Long Beach, we have a delivery depot outside of Culver City, and then we have a distribution center down in North Hollywood. Bay Area and greater LA is our focus areas.

Matthew: It's not that the Bay Area has light traffic, but LA has quite bad traffic when this virus wasn't going on. How do you compare the two in terms of how much foot traffic, and the density of people, and things like that? Do you have any shorthand in the way you compare the two markets?

Dennis: I don't today, simply because it's wildly different, certainly within shelter in place in the traffic patterns in both locations. Pre-COVID, the best thumbnail to look through is just that the LA traffic is generally worse than the Bay Area traffic, so the delivery radiuses are generally smaller in the LA area versus the San Francisco Bay Area.

Matthew: You've made the bold move to end your partnership with the very popular delivery app, Eaze and go your own way, can you talk about that a little bit?

Dennis: Sure. I think it's important to remember that we actually had our caliva.com and our delivery infrastructure up and running before our operational partnership with Eaze. As a operational and depot partner with them, we partnered with them for the last couple of years. While we continue to partner with many different delivery companies on our products, in that we make products and we sell products through many different channels, including over 250 dispensaries up and down the state and many other delivery companies.

What we exited out of was an operational partnership with Eaze from our depots to be able to really focus on caliva.com and that caliva.com experience. We wanted to both go beyond on-demand delivery and really what we wanted to focus on is what we saw is an elevated consumer experience. I think that's generally seen from just what our success rate has been from our online reviews.

Matthew: In the medium term and long term, this is probably a great move, but in the short term, is there any hiccups, or any loss of revenue, or anything like that, that you just said, "Hey, we're just going to get through this. This is what's best for Caliva and our visitors."

Dennis: I think it's a great question. At Caliva, we've generally taken longer-term views in terms of where we believe the market should be in and where we want to go. We've sometimes zigged when others have zagged, but we're all in this to build the next great American consumer brand. We really believe the ability for Caliva to offer an omni-channel solution to customers was the right long-term focus to improve customer experience and really to drive long-term customer loyalty. That omni-channel experience of being able to go into a store, being able to have pickup, if you need pickup or be able to have a product delivered to you, again, not just on-demand but also through scheduled delivery, was very important to us.

Yes, there was absolutely a change in terms of a drop off of our on-demand deliveries when we exited with the Eaze partnership. What we found is just an increase in, I would say, things like average order size, customer retention, customer feedback, and online ratings. That's what we're really trying to build towards.

Matthew: I can understand why you did that. I could see why Eaze has a lot of benefits for people, but at the same time, if you sell on Amazon, which a lot of people do, you're on a platform that you can be kicked off of, they control the rules. As we were reading now in like the Wall Street Journal and some other news websites, Amazon collects data on some of their customer products or they're alleged to doing this, and then creating rivaling products. Then you're kind of left out in the cold. You're not on equal footing because they have the platform and you don't, so I can definitely understand this.

Then, like I said, in the medium term and long term, it seems like it's a smart move. Also, there's probably a lot of flexibility in terms of what you can do and the experiments you can run and directions you can take it to customize the experience. Can you talk a little bit about that?

Dennis: Yes, sure can. I agree with you on the differences between Amazon, for instance, and going directly to a product company for fulfillment. We took a different, I'd say, guiding principle in terms of this move. What we really looked for is this informed consumer. What we're finding is consumers really care about where they actually spend their money. I think it's more prevalent today in the time of COVID, and unemployment, and everything else. If there are limited discretionary funds in terms of where you want to be able to purchase something, you really want to purchase something with a company that you know, that you trust, and that's not just the brand, that's not just the product but that's the service.

What we really leaned into is the notion that consumers really wanted to be able to go to the source. We grow over 10,000 pounds of indoor high-quality flower and produce hundreds of thousands of products a year within San Jose. When a consumer in the Bay Area is ordering from us, they're getting it truly fresh from the farm. What we really wanted to see is does this thesis make sense where sometimes consumers want to go into the store, sometimes they want to get pickup, sometimes they want delivery.

What we really found is that the trusted capability around straight from the source, doing what you said you're going to do on delivery, meeting those types of delivery expectations, having good followup, and sometimes just being able to pick up the phone and ask somebody a question, and having somebody there on the other end was a very big deal. Those were the types of things that we really focused on and have seen great customer feedback when we've really implemented those and continue to iterate on some of those offerings.

Matthew: I didn't realize that was a bigger care about in the mind of the customers, they wanted to see all the way through. We want to understand your whole supply chain, who Caliva is, what's behind it, what's your farms, and know that you're handling it from beginning to end, so I can understand the story better instead of a nameless intermediaries handling it. How fresh is it, where did it come from, how is it handled?

Dennis: We 100% agree. Our thesis has always been that cannabis is a very challenging consumer journey. That there's a lot of information out there, especially if you're a new consumer. People, in general, want to be able to go to people that they trust for a recommendation. Pre-COVID, that trust was in our stores, and people spent 12 to 15 minutes with us before they made their first purchase decision. Now, we found that in our peak, Matt, we had over 3,000 customer interactions in a day, whether it was online through our chat, through our phones, or through emails, simply being able to ask questions and engage our wellness consultants.

There's this voracious appetite for people to still connect with people around cannabis. It still is a very highly considered purchase when you look that people are averaging, for our deliveries, it's over $100 per delivery. It's still a lot of money. They're putting something into their body because they want to achieve a certain state. We believe all of that combined, what consumers look to the most is trust.

Really, we have continued to aspirationally been trying to guide Caliva to be the most trusted name in cannabis, which really goes throughout all of our ethos in terms of what we built. That is what we think that consumers are looking for is a trusted product, a trusted brand, and a trusted service.

Matthew: This is interesting because you kind of have like a flywheel effect here where we have the chat, the email, you go to the website and you learn, you have delivery, all these things feed into and reinforce each other in a way. Do you feel like generally is there a difference among demographics and how they first engage with you and then follow-up engagements? Is it over a certain age, more comfortable going to the store the first time? After then on that, they go to the app or they call but they don't do chat. Anything you notice there?

Dennis: Mainly anecdotal data. We're trying to get much better in terms of I'd say prescriptive online data through what we would call progressively profiling our consumers so that we know who they are and what preferences that they're looking for. I would say that anecdotally, what we've seen is that the boomer generation, generally is coming to Caliva based on a word of mouth from a trusted friend.

It is notionally, "I have somebody who's recommended you Caliva or these products for what I'm looking for." In our hemp-based CBD concept store, which is a non-licensed store within San Carlos, California, when you have hemp-based CBD there, you don't need a cannabis license for that. Think of it on main on main, in a town where there's no cannabis dispensary 30 miles north of 30 miles south. What we find in there and those customer interactions, that is mainly prevalent around, "I need to be able to sleep. I have some anxiety and my friends recommended me to come in here and look at these products."

I think for younger generations, their points of reference are largely based on at least anecdotal data on what just the online reviews are. Given that we have thousands of reviews that are in the 4.5 to 4.8 ranges, I think, whether it's Google, Yelp, Leafly, Weedmaps, et cetera, that those are places that people look to, to help with their purchase considerations as well.

Matthew: How closely do you look at suggestions, "If you liked this, you might like this." Or how do you know what the right products are to suggest if someone's ordering in an online way? Where you say, "You're looking for flower, this is popular, or this is a good companion." Do you put data behind that or you just go with what budtenders are saying? How do you do that? How do you manage what--? If they came in the store to buy flower or an edible, how do you suggest something else they might like and feel pretty confident there's a good chance?

Dennis: It's certainly not an exact science, and I think there's art and science to it. While we have a great data analytics team and I think we have the industry's best technology team that underlines and tracks most of the consumer consumption, everyone's individual, whether it's preferences or just biomechanics are different within how they ingest and react to cannabis. It is very much an art and science, but what we can at least say is that we can provide as much data as we can for a consumer to make an informed decision, which is to say, "Other customers who have purchased this product have also purchased these products."

At Caliva, we simply try to provide as much information for consumers to make the right information for them. When we talk about helping a customer build a profile with us, that is really their ability to determine what type of products are viewed first, what type of emails that they receive to us. We let them build, whether it's by category, or by product, or by state what their profiles should be. Consumers have the 100% ability to be able to change that. Obviously, we keep consumer privacy extremely important, so all of that data is anonymized when it's going into our recommendation engines.

Matthew: Now California deem cannabis as an essential business during the COVID-19 self-quarantine period. Depending on when people in LA hear this, they still might be under self-quarantine. What patterns in cannabis consumer behavior change during that time? Anything that surprised you or stuck out that was a stark contrast from pre-COVID to COVID period?

Dennis: Yes, and absolutely. I think there's a couple of different areas to look at there. Probably the biggest surprise that we had within the entire COVID and shelter-in-place situation was the willingness and the responsiveness from the Bureau of Cannabis Control and our municipality when we went out to them and had some proactive outreach.

I was most impressed by that.

What we saw was the day that shelter-in-place was announced, if you think back on March 16th, it was announced in around a, or at least it was reported on, I shouldn't even say announced, about [12:30] on Monday, March 16th. I know that because we were in an executive team meeting and it just came down, and somebody said, "We're now in shelter-in-place." I had to look it up around what that meant.

I immediately went over to our main store and there was a line of about 50 people by the 15 minutes that took me to get from the meeting to the store. There was just so many unknowns. To be able to talk with some of those people in line we were handing out our hemp-based CBD coffee drink called Soul Grind, just because they were waiting so long in line and talking with some of the people around, "Hey, tell me why you're here." Cannabis was truly essential medicine to them.

Being able to see the planning that they needed to have it on the unknown was humbling. I think that the BCC was one, the consumer needs were another. Certainly, we had so much pride in terms of the continuous courage that our essential workers, or our drivers, our wellness consultants have that serve thousands of people on a daily basis. To see all of them step up to ensure that we are there for the community, that they were there for Caliva was just outstanding.

Then from a consumer behavior, we were the first ones in the Bay Area in San Jose to have curbside pickup. By the time that the shelter-in-place came in, we had already had notions of that we were wanted to be able to ask for curbside pickup. We asked for curbside pickup that day, was granted access to be able to do that, both from the state and the city, very quickly. Midday on March 16th, we had curbside pickup launched. Without much fanfare on a marketing basis, that's become a hugely popular way to be able to order and pick up cannabis. That was a complete unknown for us if that would happen. Today, that's about 20% of our business right now is curbside pickup.

Matthew: Wow, 20%. Okay, really interesting. Now, one thing I think about a lot, Dennis, is the Pareto principle, and that is the 80/20 rule as most people know it by. 20% of your customers make up 80% of your revenue, but you can drill that down further in 4% of your customers make up 64% of the revenue or something close to that. Those 4%, they're investing more in a Caliva. Do you reward them more? Do you invest back more in them? Is there perks or how does that work? How do you think about it?

Dennis: One is, I would say least at this time, that principle is not applying to us, simply because of the sheer amount of new consumers that are coming on board to the caliva.com platform. I think there's two areas of focus and it's an informed question. One is, what do we do to ensure that that new customer has a fantastic first time experience with Caliva? We really think it's the content meets commerce, so we need to be able to invest as much into content education and have them have a great experience, and get their questions answered, and do what we say we're going to do.

On the consumer loyalty end of things, we're always trying to improve in terms of a customer loyalty program, but we've really relied on some of our loyal customers for, I think, of feedback on focus groups on what products that we have in development that they think would be best to think of focus groups as a early testing on and feedback on tested products. For instance, we have a-- We're really excited about a new category that we're going to be entering into at the end of the month and being able to have focus groups against some of those products or just general feedback on our experiences.

We engage different pockets of those loyal consumers, but also think of loyal consumers by different demographics. We have, for a long time, provided the highest veterans and senior discounts in the Bay Area. We've given them in COVID, some special shopping hours in terms of times in the store. While there's traditional loyalty programs of points and those types of things, I really think that our best marketers are our customers. The more that we get feedback from the customers and the more that we enable our customers to market for us, the better off that will be in terms of spreading the truer word around Caliva, because we still believe word of mouth marketing is the most effective form of marketing for us.

Matthew: It is amazing too to think a lot of businesses really focus on, "Hey, let's get new customers in," but you're taking it next level there, saying like, "What is their experience? What do they experience viscerally? Do they think we run well? Does their expectation meet what actually occurred for them in terms of the ordering process? How fast, did they have an expectation of how fast it was? Did it meet their expectation? What was their feeling after consuming the product that arrived or that they picked up?" That does make a lot of sense. That's high ROI thinking because it doesn't cost tremendously more. It costs a lot to get a new customer to walk in the door, but to make sure they're happy costs a lot less. Any thoughts on that?

Dennis: Yes, I fully agree. What I love about this industry is and what I love about Caliva is the engagement rate of consumers. They care, they care a lot. They care a lot about what they're putting into the body, they care a lot about plant-based solutions, they care a lot about the businesses that they patronize, they care a lot about their wellness consultants, they care about our drivers. Hopefully, that is because our wellness consultants, our drivers, they care too. They truly believe in our mission to make people's lives better on a daily basis through plant-based solutions. You can't fake that.

When you have such an engaged customer base who really wants to advocate on your behalf, it absolutely behooves us to be able to tap into their feedback knowledge and be able to give them what they want sometimes, which is it's just a megaphone to say, "Hey, I had a great experience." Or, "Wow, I had a breakthrough on a product." It's cannabis is this still unknown to most people. When somebody has such a great experience, our Chairman of the Board, Carol Bartz is probably our best salesperson there is, simply because the Caliva lotions that she uses helps her play a full round of golf. Once she sees that it actually works for her, that credibility around telling one of her friends, "Hey, you have to try this. It's a miracle lotion type of thing," certainly goes a long way.

Matthew: Now, you mentioned that you were launching a new category at the end of the month, is that something you can talk about?

Dennis: We haven't launched it yet. It's under wraps for now.

Matthew: A teaser. How dare you, Dennis.

Dennis: [laughs]

Matthew: I'm only kidding. How do you see the cannabis market in California and then more widely in North America change in the next three to five years? Probably changed more than you thought it was going to in the last eight weeks, but how do you think it's going to change in the next three to five years?

Dennis: [laughs] I have no idea.

[laughter]

Here's what I can tell you that we're focused on. If you looked at the Wall Street Journal today, and this is when Uber's trying to buy a Grubhub and the consumers are in shelter-in-place, they actually had a graph that says that carry-out is still 40% of the preferred way that consumers are getting their food from restaurants. That drive-through is the next 45%. While delivery is growing at the fastest clip, at least for food delivery, it's still about 10% basis in terms of how consumers are receiving their food. There's some corollaries between food and cannabis, not a ton, but if you just think about general consumer behavior and what consumers expect as a staple of an essential type of product like cannabis, consumers expect convenience.

Consumers should be able to access their cannabis in the manner of their choosing. If that is the equivalent to a carry-out, which would be a pickup, and whether it's in-store pickup or curbside pickup, those are two corollaries. We don't have a corollary for drive-through. Maybe curbside pickup is the closest to that. Still, in-store and delivery are still important as well.

While I certainly believe that there will be a massive amount of product innovation in terms of new form factors, new efficacy towards that, I really think the educational capabilities around what cannabis products and what plant-based solution products are right for our consumers and their ability to be able to access that on demand are going to be some of the most important innovations that we'll see in these next couple of years.

Matthew: California had 3.1 billion in legal cannabis sales in 2019 and an estimated 8.7 billion in illegal or black market sales. Charlie Munger, a famed cooperator of Berkshire Hathaway has been quoted as saying, "Show me the incentive and I will show you the outcome." What incentives and disincentives exist in the California marketplace to make the illegal market nearly three times the size of the legal market, in your opinion?

Dennis: It's a good question. I would contend that California specifically is the most difficult state and most difficult market in the world to compete in if you are a legal cannabis entity. That is simply because of the size and the history of the black market. However, at least I've always believed that if we can't make a product, a service that is better than the black market, then we should not use the black market as an excuse as to what our growth limitations would be. For instance, there is no black market for a THC lotion.

The black market is very focused still today on inhalables, and flower, and vape, but when you look at the broad portfolio of products that cannabis and CBD have and if you look at some of our portfolio, I mentioned our hemp-based CBD drink of Soul Grind, but we also have face serums and bath bombs of hemp-based CBD. We have what we just launched, a fresh flower vapes, which are strain-specific, high quality, 100% cannabis derived vape pens. Those are things that just can't be replicated at the black market. You can't replicate a scheduled delivery that provides you text-based updates and gives you an ability to review, and get a coupon, and tell your friends, and pay electronically, and do contact list delivery.

The black market by nature makes us more competitive. We have to be able to improve what we do, but to your question specifically around incentives, disincentives, to me, at least, there's two big things. One is obviously the tax rate in San Jose that the compounded tax rate is essentially a 35%, 36% tax rate for our consumer. It's way too high. Consumers are purchasing cannabis for pain, sleep, and anxiety, and that type of tax rate is punitive for those who are looking for non-synthetic, not addictive, healthy plant-based solutions to improve their daily lives. That has to change.

The second thing that has to change. It has to be easier for consumer online and in the store to understand if that store or a delivery place is licensed. Weedmaps has done a great job of being able to eradicate almost all of the illegal listings, and I give them a lot of credit for a lot of work that they've done online. When you go into a illegal type of retail shop in LA for instance, there's no Better Business Bureau seal that you would easily be able to see that said, if you were a consumer, that this was a legal shop versus not illegal shop. With counterfeit and those types of things, it's very hard within products to be able to see.

Those are the two things that I know the BCC and governor are focused on but that is certainly what helps the black market thrive, but at least for Caliva, we really focus on the best consumer experience possible.

Matthew: Where are you in the capital raising process?

Dennis: We've had great, I'd say, current investors and in terms of access to capital and we are continuing to be able to look and feel out what makes sense for our growth. Like everybody in cannabis, we're always exploring those opportunities. There's no new news in terms of where we're at, other than just exploration mode, but I think what's more important around just the access to capital is in a business model of what we look at towards a profitable business model in terms of both scalable capabilities and what we see as some of the investments in asset-like type of capabilities, but our general business model, which is we make our products and we sell our products, has the highest margin throughout the value chain.

What we're really focused on rather than just continuous to fundraise is really just building a profitable business. That profitable business, whether it's our partnership with Hypur through contactless payments, or whether it's innovating around curbside pickup, or whether it's focusing on our essential employees in the month of April, we've really taken the time on the COVID, a time period to just be introspective on that and really focus on our business fundamentals.

Matthew: Talk a little bit more about the contactless payment with Hypur, just so we can get a picture there, because a lot of people are interested in that more than ever.

Dennis: I really have a lot of interest in terms of what the evolution of payments are going to be. We did a market scan for a while in terms of electronic payment partners. We tried a number of different type of providers as well. Hypur far and away has stood out to be the most frictionless way for a consumer to buy cannabis electronically. We would have proceeded with Hypur regardless of COVID. What we found within Hypur is just a team like us that could innovate really well.

By the time that we signed our partnership and rolled out within all of our locations statewide, Hypur has the ability where we can deliver a cannabis package to you and you simply are connected through phones, through the driver and through your own personal phone where you confirm that you've received it. You don't do anything other than show an ID and click a button and there's no other contact. That's true for our curbside pickup. We have seen a massive consumer feedback thanking us for the ability to be able to do that. We're thrilled with the Hypur team in terms of their level of partnership and innovation. We were very happy to be able to innovate that for our customers and our community.

Matthew: Dennis, I'd like to ask a few personal development questions to help us-

Dennis: Sure.

Matthew: -get a better sense of who you are. Since you were on the show last time, I got a fresh few for you here, so I'll go ahead.

Dennis: [chuckles] Okay, sounds good.

Matthew: Is there anything interesting you learned about yourself or business that surprised you during the COVID-19 crisis that you'd like to share? It can be anything at all.

Dennis: I would say a big leadership learning lesson for me, just continuous importance around communication. We had set up a hotline where I was providing daily updates on a voicemail message. We did video updates to the teams and did some emails as well. You can't communicate enough in terms of times like this, and that the worst information is no information at all and uncertainty. What was really, I think, impactful for me is just understanding how important it is to continuously provide updates and communication information to teams, whether that's your internal employees or whether it's your customers as well. That was a big aha for me over the last six weeks.

Matthew: Apart from what you're doing at Caliva, what is the most interesting thing going on in the cannabis industry?

Dennis: Short term to me, it's what Hypur is doing around electronic payments. I really think the massive barrier that we've seen for consumers just being able to pay electronically for their cannabis. We certainly see when they have the ability to pay with somebody like Hypur through Caliva that that average order value goes up significantly. I really look forward to the more innovation around the electronic payment space.

Longer term, I think I'm very interested like a lot of people in just the continued development of biosynthesis and some of those less known cannabinoids and really product development around both those areas, just a lower cost of production around cannabinoids, and then more development around some of these other minor cannabinoids in terms of what form factors and in terms of what use cases will come out of that.

Matthew: Here's a Peter Thiel question for you.

Dennis: [chuckles]

Matthew: What is one thing that most people would disagree with you on that you believe is true? Your most controversial thought that you stand by?

Dennis: [laughs] The most controversial thought, wow. I think people would disagree with me [laughs] on a lot of different things. Personally, maybe it's that the Cleveland Browns still will have a shot at winning the Super Bowl in the next 10 years, so maybe it's that. What the drumbeat that I've had for a very long time is that people trust people, not ads. I think a lot of people would say the advertisement or online and people will just believe and see what they need online, I don't subscribe to that. I think especially for cannabis is that people trust people. That also means that there is a significant role in the future for in-store retail for cannabis. While delivery and access is insanely important, I still believe that there is a very high need for that trusted expert within the cannabis industry.

Matthew: Last question, what's your spirit animal, Dennis?

Dennis: [laughs]

Matthew: I'm only kidding. You don't have to answer that question. You already told me it was a unicorn. We're just going to move-- I'm only kidding. You can answer that question.

Dennis: I can tell you, my ten-year-old spirit animal is pandas. She obsesses about pandas. At least that one runs in the family.

Matthew: Okay. Dennis, as we close, how could listeners connect with Caliva and visit one of your dispensaries or try out your app?

Dennis: I'm thrilled just to say and it's a big improvement from last time we spoke, Matt, was that caliva.com can be accessed from anywhere in the Bay Area and anywhere in the Los Angeles area for both scheduled deliveries and online deliveries. That's the easiest way to be able to understand our product selection. In those areas, there's in-store capabilities too, but that's the best way to reach us. I appreciate the opportunity to share that.

Matthew: Well, thanks, Dennis. Good luck with everything you have going on. It's really interesting to hear how much curbside has grown. 20% was a huge number. I'll be interested to hear how all these different numbers change next time we talk.

Dennis: Yes. Thanks so much, Matt. I really enjoyed the show as always.

[music]

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five star review helps us to bring the best 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. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis for using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider.

Lastly, the host or guests on CannaInsider may or may not invest in the companies, 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 your listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye bye.

[00:42:08] [END OF AUDIO]

Ep 304 – Multinational Companies Creating CBD Products in Stealth Mode

justin singer caliper

Consumer packaged goods companies are in stealth mode waiting to capitalize on CBD the moment the regulatory fog clears. Here to tell us about it is Justin Singer of Caliper Foods.

Learn more at https://www.caliperfoods.life

Key Takeaways:

  • Justin’s background in cannabis and how he came to start Caliper Foods
  • How Justin’s core brand Ripple has become the best-selling soluble cannabinoid powder in the US
  • Why consumer packaged goods companies (CPGs) are waiting for regulatory clarity in the CBD industry
  • How Caliper Foods provides soluble CBD ingredients at scale to some of the nation’s largest food, beverage, and supplement companies
  • Where Justin sees CBD heading as an active ingredient comparable to caffeine
  • An inside look at Caliper Foods and how it provides soluble CBD ingredients at scale to CPG manufacturers
  • Caliper Foods’ research on how the solubility of CBD affects onset and impact
  • Where Caliper Foods currently is in the capital-raising process
Click Here to Read Full Transcript

Matthew Kind: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com that's C-A-N-N-A insider dot com. Now, here's your program. Consumer packaged goods companies or CPGs are in stealth mode waiting to capitalize on CBD the moment the regulatory fog clears. Here to tell us more about it is Justin Singer of Caliper Foods. Justin, welcome back to CannaInsider.

Justin Singer: Great to be back. Thanks for having me.

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

Justin: Beautiful Boulder, Colorado, sitting at a desk looking out over my backyard, and really just enjoying the fact that I'm not going to quarantine in my grad school apartment in New York City.

Matthew: What is Caliper Foods on a higher level?

Justin: We're a functional food company that specializes in cannabinoids. We've got three core business lines today, we have a consumer CBD products line that sells dissolvable powders in 20-milligram packets that you can buy at trycaliper.com, and soon, we'll be in brick and mortar retail outlets, coming towards the end of the year. We also sell B2B soluble ingredients to national food-beverage supplement and topical brands with a focus on offering regulation-ready ingredients that are backed by robust clinical data. Finally, we've got a consumer THC products business in Colorado under the brand name Stillwater in the product line of Ripple.

Matthew: Okay, that's a lot of stuff you have going on.

Justin: It is, but we have different exposures to the cannabinoid opportunity. At the end of the day, we believe cannabinoids represent a new category of functional ingredients. Unfortunately, the regulatory space is very crowded, even though the IP is very similar across all of them. To one degree or another, we have had to diversify our business lines, but we have tried to keep headcount low and be very careful as we explore those lines and wait for regulations to unlock the greater opportunity that makes it worth really investing heavily in any of them.

Matthew: You were on the show a year or two ago talking about your consumer-focused brand Ripple. Can you tell us about how Ripple and your business has evolved and changed since then?

Justin: Yes, Ripple has been a tremendous success in Colorado. I think it's got a really good brand awareness, really good net promoter. Consumers love it. The way that people describe it has to do with consistency, reliability. The dose levels are functional. It's just been a really successful product. It's still to this day, sort of the only unique in the national market. We love that product. We're also really excited, just this week, we're actually launching and addition to that product line called Ripple QuickSticks.

The idea there is that you can tear open the packet and pour it directly on your tongue. There's some flavoring to assuage the bitterness of THC and CBD, and you can just have a nice instant, consistent experience with no muss, no fuss. That came after we saw some consumer survey data saying that people were doing that by themselves. We had tried that and we were like, "Yes, this isn't an optimal experience. I bet we can make this into a product that people actually love instead of something they just tolerate because they don't have water around."

We also at the same time, rebranded our gummy lines which used to be sold under Stillwater Gummy Supplements as Ripple Gummies. Again, the whole point here was we wanted to really standardize for consumers the three different dose levels across all our product lines, we have a THC only, a balanced one to one ratio of CBD and THC, and a high CBD skew in each product line. We have three different products, and they all use the same Ripple technology, soluble cannabinoids that we have done clinical research to prove will be absorbed faster and not create that [unintelligible [00:04:06] experience that everybody is so scared of.

Matthew: That's kind of your consumer-focused product. Glad that's going well. That's an interesting take you've made. You mentioned that you got some feedback that gave you the idea for QuickSticks that people were taking the water-soluble Ripple brand and just putting it right on their mouth. How do you get that feedback?

Justin: We're pretty religious about running consumer surveys. We put a little card in every box we sell. We offer sweepstakes entries to try and get people to come in and fill out some questions about the products, how they bought it, why they chose the dispenser they did, what drove them to buy that product, and we get some fantastic information out of it, and not the least of which is how people are actually consuming the products.

I think every new product starts out with a lot of hypotheses. A lot of ideas around how people might use it, how people you think should use it, but at the end of the day, you really got to listen to your customers, and see how they're using it, then try and serve those needs and expand upon them.

Matthew: Let's talk a little bit more about the B2B side of the business here. When you talk about regulatory clarity in the CPG companies or the consumer packaged goods companies waiting for regulatory clarity, what exactly does that mean to these big enterprise companies?

Justin: For them, it means-- Let's start with the threshold question. Threshold is, what is a regulation? Something that's operable, consistent, and written down. It's not just something that's ephemeral, up in the air, and subject to interpretation or reading of tea leaves. FDA needs to say, they need to write that non-drug consumers CBD products are legal to sell in any store. They need to hold manufacturers liable for inaccurate labels. They need to tell retailers that carrying these products won't imperil their business licenses. They need to set clear standards of identity for CBD and other cannabinoids so consumers aren't confused by undefined terms and ambiguous terms like full and broad-spectrum.

They need to enforce consistently against unimproved disease claims that brands make so that good actors have incentives to continue acting good and aren't outrun by bad actors. They need to kick bad actors out of the market and reinstill trust that what's on the label is what's in the product. This is the premise of all of our food safety laws going back to 1906. It's crazy to me that we aren't applying them to CBD when 20 million Americans a day are consuming these products. It's the Wild West and the Wild West only got so far. Before it can really come to society, you need law.

Matthew: I often wonder what would happen in the absence of these regulatory bodies if there would be consumer reports for drugs and for foods where people would pay some nominal amount to get access to independent research that's not biased and things like that. It's really hard for us to conceive of that now because we're so deep down this one direction, but I do think about that sometimes because there are some industries that self-regulate. That's hard to do, but then when the consumer is empowered to seek out some third party that has no other thought but the best interest of their subscriber like consumer reports, then there's those possibilities.

Justin: I'm an ex-attorney. I spent a lot of law school looking at regulatory frameworks, market frameworks. At that time, telecom was a big thing. I have certainly since starting this business, looked all around the world trying to figure out if there is a model of government where self-regulation actually works, and my answer is no. It augments, but at the end of the day, and it's useful for distinguishing things, but it doesn't protect from latent defects. Like I said, the 1906 Pure Food and Drug Act came about because of the jungle, because of Upton Sinclair's book, and he has this famous quote where he says, "I was aiming at their heads and I hit their stomach," or, "aiming at their hearts and hit their stomach."

He thought that he was writing this treatise that would get people to rise up in support of workers. Instead, they were like, "Wait a second, you're telling me that my ground beef has dead human body parts in it, and there's absolutely no way for me to tell that ahead of time?" No, that's where the government has to step in. You need a body that ultimately has the ability to put liability onto manufacturers and hold them accountable. The only body that really does that in any way that saves people before the fact is the government.

If you really want a true free market, I always advise people, go to Russia. That's a true free market where just the strongest, loudest person wins. Everybody else operates under rules of law and markets, even markets that are ostensibly self-regulated, have the rule of law underpinning them that says, "This is what the truth is. This is what the fact is. This is what--" They define what the terms are. They define property rights. They define all these things that make markets possible.

I don't know, it's like asking to like, "Can you do pickup soccer?" "Yes, absolutely." You don't need a rulebook to put a bunch of guys in the field and to run pickup soccer. Do you want to run a World Cup? You need rules, or else nobody's going to participate in that.

Matthew: Good points. Who are these CPG companies? If you can't name names, just give us an idea of what they do and how big they are and their geographies.

Justin: They all are national and international. You're talking some of the nation's premier tea brands, some of the nation's premier craft brewers, premier juice and beverage brands, and other RTD beverages. In other words, I think the commonality amongst our core customer set is there are companies with compliance departments, with quality programs that carry complete insurance, often with their own manufacturing, often with their own distribution infrastructure. They are enterprises. They see the value in a bioactive like this with the safety profile that it has in getting it out into the larger marketplace and providing relief to millions and millions of consumers and the incremental revenue that brings.

Matthew: Do you think we're moving to CBD as an active ingredient so much, or is it a benefit? I know you mentioned the active ingredient, but in the consumer's mind, the active ingredient has something it does for them, so maybe that's one and the same, but talk about that a little bit.

Justin: I see CBD as caffeine's doppelganger. Instead of amping you up, it calms you down, but it has a better safety profile and no risk of addiction. I will fully admit that today's formulations, tinctures, and dose levels. Those tinctures, you're talking oil-based products at low-dose levels, the effects, the dose-response curve of those products today, I would bet a small proportion of people actually are sensitive enough to CBD to really get the effects they want out of that from a physiological perspective.

There's a lot of things around anxiety where that are placebo psychosomatic, and that's real. The placebo effect is real. If you're taking something and it is making you feel better, you're feeling better. That's not what's going to keep people going forever. It needs to have that bioactive effect that they can really get behind. I don't think we're that far away, to be honest. I think the standard serving in today's market is 20 milligrams.

You put solubility in there, so you get better absorption. Then, maybe you amp it up to 30 or 40, and now, suddenly, I think you're somewhere in the 40% to 50%, the median range of that bell curve of dose-response where it's undeniable that people are experiencing true relief effects from this, not for chronic disease or anything that would run afoul of FDA.

Just the same reason why I drink a cup of coffee to wake up a little in the morning, I can have a cup of CBD, of the Caliper CBD to just feel a little more relaxed before I walk into a meeting that I know is going to make me irritated, or If I'm just feeling irritable and want to go play with my kid and not take that out on him, a little bit of CBD really helps to just tamp that down and put you back in the right headspace. It goes beyond the belief into feeling, again, at slightly higher dose levels than I think we've seen so far, but also products that are more attuned to getting the CBD into your bloodstream.

Matthew: For your clients and prospects for Caliper, they already have their own brands, their own manufacturing facilities, supply chains, compliance departments as you mentioned, you're focused on adding value in one precise point in their workflow or process. Just talk about that a little bit.

Justin: Yes. I don't know if it's one precise point because it starts at one precise point. We think that infusing CBD products for credible brands should be as easy as infusing any other active. They have invested heavily in their manufacturing processes. They've invested heavily in their supply and in their distribution. Why should they build up something new around that when they can add this in right on top of it and take advantage of their existing infrastructure?

The CPG supply chain is the largest, most robust supply chain in the history of the world as far as I am aware in my research. Why would we want not to live on that? Yes, we're trying to just pick the leverage point that opens up optionality for our customers as much as possible so that they can be creative, and not tied into what works for us. We really need to create that thing that is enough of a commonplace that they can make it into something that their customers really will get excited about.

Matthew: What was the light bulb moment where you decided to pursue Caliper, and why?

Justin: I don't know that there was a light bulb moment. We were a company that was founded on food science. That's always been our mantra. We are a food company that happens to work with and specialize in cannabinoids. We are not a cannabis company that thought it'd be fun to bring in some food people. We have always looked at this as a food problem. Our very first director of R&D came to us from the health and nutrition venture group at M&M Mars where he was working on cocoa flavanols and all sorts of science about functional ingredients.

That was just core to our DNA from the beginning. At first, we were just trying to solve this problem for ourselves with actually the Stillwater tea, which is a micro-dose tea product. That was the first thing we launched on the THC side. We were trying to do 2.5 milligrams of THC in a format that didn't require elderly, and seniors, and boomers to self-identify as drug users when they were consuming it. Teas are something that people understand for function, and nobody really thinks poorly of themselves for consuming. The problem at that point was nobody had [unintelligible [00:15:17] anything. Everyone was just cooking in butter.

We started with the first soluble products back in 2016, just to get them into a tea. Then, through a series of just evolutions, we started seeing that the powder product that we were using to infuse the tea had a bunch of fines that we were throwing out, and it was screwing our yields. We thought, "Hey, maybe this is releasable as a product on its own." That's what became Ripple. It was just the refuse of the tea product. Then, that took on a life of its own and became the core product itself.

At some point in 2018, we were approached by somebody who was trying to launch his own CBD beverage in RTD format. He had called up people who claim to have water-soluble, and everything he got was terrible. He then took our high CBD Ripple packet and bought those in bulk and started using those to prototype. He approached us and said, "Hey, I would love to buy this as an ingredient." That was something we had always thought about. We certainly believe that our business was really indexed to this space, so opportunities could arise both on the consumer and wholesale side, but we weren't set up to do it at that point.

There were legal issues around selling CBD to a non-licensed vendor out of a THC facility, but we really liked the opportunity. We believed in the concept enough that we went ahead and invested in building a new space, new business entity, new manufacturing facility, devoted 100% to CBD, and then the Farm Bill happened.

We started seeing that this was an opportunity to bring cannabinoids or just this whole new category of functional ingredient with true bioactivity and wonderful safety profiles into the mainstream, where they have always existed in the mainstream, they just have existed underground. The strategy here is taking something that is more or less has broad demand. It's clear, its extent, and bring it into the light in a regulated manner. We saw the opportunity to do that at the federal level with CBD, so we ran at it.

Matthew: What's the sales cycle like for Caliper clients? They probably have a lot of questions. There's a lot of back and forth. They want some surety about your processes internally and ingredients and everything. How long does that back and forth dance take?

Justin: Very long. It hasn't even wrapped up for almost any of them because they don't have regulation. This is a business that is very oriented in the long-term. We are not a white labeler for people who are just trying to get out and make a quick buck. We are very focused on enterprise and people who don't want to even start until they have some sort of regulatory clarity. To that end, I have a saying here which is that enterprise buys process, not product.

If you are a large company, you have a lot of equities to balance in an internal sale. They want to know that you have partners that you can invest in and rely on because you have to go sell those partners around to compliance, to quality, to manufacturing, to procurement, to legal, all of it. SMEs want price and some suitable level of quality that they don't really know how to define because they don't necessarily have the resources to that quality and claims.

We've recognized that there's a big difference between saying you care about quality and actually investing in quality. For that to be a worthwhile investment, you need to find customers who are willing, and not just willing, but obligated to do the diligence to distinguish between people who are saying they're doing things and people who are actually doing things. What does that process look like?

We encourage people, "Come out here and see it for yourself. See your competitors for yourselves. See everybody for yourselves with your own two eyes. You can't just trust anybody's word in this space. Send out your quality team. Go over all of our quality processes. Make sure that they are in accordance with yours. Look at our insurance. Make sure that it fits with what you need. Talk to our lawyers. Make sure that you like how we have approached claims, and that you think that there are learnings that are things that make sense to you."

We encourage people to always do full product trials. Do your benchtops actually to formulate the products. Do it across multiple batches that we give you because there are still inconsistencies despite everything we've worked on, and you need to understand what the limits are of certain products. Then run your shelf stability studies. Don't run accelerated trials. Don't skip steps. This is a novel science. Everything is new. You've got to run every experiment. You've got to sit it on a shelf and see how it's going to work, and how it's going to perform. Then, you got a subject its analytical. Then, you've got to actually to work around the lab side. Labs, there's a lot of work still to be done.

On the analytical side, lab variance is a real thing. Even the highest quality labs like Eurofins on the food side are taking time to get up to speed on the cannabinoid potency especially in a complex matrix. You got to do some work with them to help them put a validated method in place so they can test consistently. It's just really checking all of these boxes one after another so that the company feels comfortable with the fact that, "Yes. We are taking some regulatory risk, but we're not taking undue risk. We're not taking execution risk. We're not taking food safety risks. We're not taking quality risk."

It's really important if you're a company to pay attention to what risks you're taking because the return here that you're betting on that people are going to buy this can be blown up in a heartbeat if you make that bet in the presence of a vendor who's been hiding a latent defect from you like what the actual ingredient deck says or what the shelf stability really might be.

Matthew: You invest so much in the upfront knowing that if you get a key relationship with an enterprise client, that it could potentially, you become part of their process, then it could go on for years with huge scale.

Justin: Very much so. I think the ability to scale with one of these national brands. What are they scaling to? They're scaling to what they already have on all their other brands. They're not figuring out how to build new partnerships and expand their brand portfolio across geographies. They've already done that. This is just leveling in. You look at some of those technology adoption curves that VCs pass around on Twitter every so often, they're like, "Man, look at how much more quickly refrigerators were adopted than electricity." It's like, "Yes, well refrigerators depend on electricity so that makes a bit of sense."

Matthew: You mentioned your Ripple product and the QuickSticks. I'm curious. Are there any studies out there or research you're doing on how solubility affects onset and impact?

Justin: Yes. We work with a couple different public universities, our main ones are CSU and Rutgers. We're running human pharmacokinetic trials on all of our individual formulations at ends that we find statistically significant in well-designed studies to demonstrate the pharmacokinetic differences between soluble formulations, specifically, our soluble formulations and things like oil-based tinctures, and they're really significant. We're also running Rutgers trials on skin penetration to actually see how deep does CBD get into the skin, into the dermal layer.

There's lots of people with interest of CBD as something to help with sore muscles in a topical application. That's only a sensible application if CBD can actually get to that level. First, you've got to prove that it can get to that level before you can even start thinking about what effect it has when it reaches that level. It's similar with ingestibles. You can sit around and talk about what effects CBD might have in high doses, but until you standardize your understanding of how much is actually absorbed into the bloodstream, then you're still looking at the world through a mirror, and you really would much prefer direct observation.

That's been our strategy around clinicals is strong academic partners, really credible third-party research, everything should be publishable in a peer-reviewed study, which our most recent PK study was. That was a scoping study. It was published in the Journal of Phytotherapy. You've just got to stand up to the scrutiny because substantiation in a space like this is enormously important. I keep talking about what it's like to operate under regulation and not regulation.

In an unregulated market, you can say this is fast-acting because a bunch of people reported it to me when they sat around the table and I was paying them. In a regulated market that doesn't fly. You've got to be able to say, "I have direct quantitative evidence that is not subject to respondent bias that shows that X amount absorbs in Y minutes." That is something that a large company with attorneys and an asset base to protect can get on board with. The former one? That's only for people who are fly-by-night or really have nothing to lose.

Matthew: The difference in absorption between a tincture and water-soluble form of CBD as you mentioned can be significant. How significant are we talking here?

Justin: Massively so. The first formulation we tested, we were seeing 550% better absorption in the first 15 minutes and 450% percent bioavailability overall. You're talking four to six times as absorptive. That's just a different product in terms of efficacy, in terms of effect. Look, CBD is poorly water-soluble. You look at the WHO's clinical review, they were reporting numbers of bioavailability in oil-based ingestion form as low as 6%. That's not going to do you much. Before we can even talk about whether CBD has to affect, we got to talk about whether CBD was actually absorbed.

I think it really is going to come down to water solubles, not just for the functional effect, also for the benefits for which products you can put them in. There's only so much market space for a dropper tincture that's oily. I think when you look at powders, when you look at supplements, when you look at foods, you need something water-based and low fat.

Matthew: Where are you in the capital-raising process, Justin?

Justin: We raised capital late last year again, and we are really stable right now. I'm proud to say we got through lockdown without any layoffs, furloughs, or cuts. We have always positioned our company for the worst-case scenario. I'm not going to pretend like we predicted global pandemic, but I think we were at least closer to being ready than any people who were for preparing for the most optimistic scenarios. That said, this is a company built on the catalyst of regulation. We need regulation to become what we hope to be so we've just got to survive till then.

In the meantime, we are focusing on the fundamental research, on the basic science, really crossing our T's, dotting our I's, getting all of those things in order that larger CPGs will need to feel comfortable digging into such a new space very quickly. We can do that full speed ahead right now, and we are.

Matthew: Justin, since you've been on the show before, I like to ask some personal development questions, but I've got some different ones for you since you've answered the previous ones. Did you have any personal discoveries, difficulties, or pleasant surprises in your work or personal life during the COVID-19 self-quarantine period that you'd like to share?

Justin: I feel a little bad, everybody seems to have an epiphany moment in quarantine, I don't. The greatest thing is I love my backyard, I love watching my kid and my dog run around it. I'm just, again, so glad this didn't happen when I was stacked four people-deep in a tiny New York City apartment, but I've got a two-year-old. During quarantine, I've gotten to watch him really start to become a human which has just been wonderful to see up-close because I would have gotten much less of this if I were in the office every day.

Matthew: Good. You got a dog to act as a shepherd and keep the two-year-old busy so they wear each other out.

Justin: I'm looking forward to those days. Right now, she just annoys the two-year-old by trying to steal his milk, and he just freaks out about it, but I really want them to start playing together because-- Yes. Exactly, tire each other out.

Matthew: What is the most interesting thing going on in cannabis or hemp apart from what you're doing?

Justin: The stuff going on in extraction is fascinating. I don't know how necessary it all is going to be in terms of the broad spectrum chromatography. I think really the most sustainable way to move forward is isolating individual cannabinoids unless you're talking about more of a processed product. If you want the plant chemistry to be a locus of scientific investigation, and I think it clearly deserves to be, then you need to standardize the process by which it's put out so that that becomes the sole focus.

Right now, we talk a lot about CBD and cannabinoids, and those are ingredients like alcohol or caffeine. They can be isolated, and they should be because that way, they can be controlled in a lot of end products, but there are other products like whiskey that we don't regulate the end content except in a range, but really, we're much more focused on the process. You have to use barrels of a certain wood, and they have to be in there for a certain period of time.

The whole goal there is that what you're left with is a quality parameter that's built around the agricultural side. I think if you want tinctures to have that, or if you want hemp to have a full robust market that is built around the agricultural side, then what you need to do is regulate the tincture process and say, "A tincture is something that is full-spectrum that uses cold pressing only, only this specific solvent, and has a CBD's content of X to Y, and a max THC content of Z. Now, tinctures are compared more dependent on the inputs than on the process itself, and then it really becomes around the plant science which, like I said, is fascinating. I would love to see really evolve.

Matthew: What is one thought you have that most people would disagree with you on?

Justin: I touched on it earlier. There's no such thing as a free market. All markets are built on regulation of some sort, whether it's the rule of law or actual rules. Sometimes, regulations can go too far, yes, but we really need a common foundation to grow and thrive from. I've been saying way too often lately that 22 guys beating the hell out of each other in a field doesn't spontaneously evolve into the NFL. You need to put a rulebook in place. You need to put referees on the field. You need to contract. All of these things are what's required to actually take just a wild game and turn it into an organized industry.

Matthew: Justin, as we close, if there's a CPG company listening that would like to learn more about what you're doing with Caliper. How can they find you? For people that are interested in learning more about Ripple products also, please let us know how to find those.

Justin: Yes, so three quick plugs then, trycaliper.com if you're interested in the Caliper packets or the soon to launch Caliper QuickSticks that will be CBD-only drop on your tongue. That'll be out in a couple of months, caliperingredients.com if you are a CPG company interested in discussing CBD, all of its potentials and pitfalls. Then, stillwater.life if you're looking for Ripple products like QuickSticks in Colorado, and hopefully, by the end of the year, coming soon to a state on the East Coast. Oh, I was going to say Instagram, trycaliper, and stillwater.life.

Matthew: Justin, thanks so much for coming on the show. Good luck to you with all you're doing. You've got a lot going on. I'm curious to see how all of these balls in the air are going to augur for you here in the next weeks, and months, and years. Keep in touch with us.

Justin: Me too. I appreciate the talk and looking forward to talking soon.

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