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While hotels have prohibited cannabis use for years, it’s now considered a benefit many guests are demanding.
Here to tell us about it is Matthew Singer of tökr, an app that creates a personalized cannabis experience based on individual preferences.
Learn more at https://www.trytokr.com
- Matthew’s background in cannabis and how he came to start tökr
- An inside look at tökr’s premium cannabis delivery marketplace
- How COVID-19 is affecting the cannabis environment in California and beyond
- How the hotel industry’s stance on cannabis use is changing in the US
- Ways in which boutique hotels are leading the charge for on-site cannabis use from trusted vendors
- Cannabis consumer behavior in hotels and what’s trending right now
- Matthew’s opinion on California’s black market problem and what needs to be done to fix it
- Why brands have a hard time telling their story in dispensaries and how tökr is working to solve this
- Where tökr currently is in the capital-raising process
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 that insiders that are shaping the rapidly-evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider.com. Now, here's your program.
We've been told for years that hotels don't like cannabis consumed on site, but that's changing and now considered a benefit for many hotel guests and for hotels themselves. Here to tell us more about it is Matthew Singer of tökr. Matthew, welcome to CannaInsider.
Matthew Singer: Thanks, Matt. Really excited to be here today.
Matthew K: Give us a sense of geography. Where are you in the world today?
Matthew S: Practicing safe distance. I'm at home right now in my apartment in Marina del Rey, California.
Matthew K: Okay. What is tökr on a high level?
Matthew S: tökr is a highly curated non-plant touching cannabis e-commerce marketplace and delivery platform.
Matthew K: Okay. Can you share a bit about your background and journey in how you came into the cannabis space and started Tökr?
Matthew S: Absolutely. Actually, started my career working in finance for RBS. In 2009, markets crashed and I was laid off with thousands of coworkers and quickly realized I'd never worked for a big company or a big corporate company ever again. I packed my golf clubs, my snowboard and drove from New York to Colorado. My first job in Colorado was a cloud communications technology company called Telesphere. We started with 20 employees that grew to over 200 in less than three years and was then acquired by Vonage, which is a publicly-traded telecom company.
Shortly after that acquisition, actually left Telesphere with my COO and mentor to help start a company called PlayerLync. If you've ever watched the NFL players and coaches are actually allowed to use tablets on the sideline to review film and communicate with the booth upstairs. We close 28 out of 32 NFL teams in our first year and quickly started to work with the NBA, NHL, and MLB to help teams communicate on and off the field and really get rid of paper playbooks and go digital.
At that same time, Colorado became the first recreational cannabis market. My friends started brands like Keef Cola, Cheeba Chews, incredibles, and cultivations and dispensaries like Native Roots and Herbal Cure. I quickly just realized from studying the market and being in Colorado that there just wasn't a really good resource for the curious or a new consumer. Everything was just still so much stoner-focused. With marketing being so restricted and cannabis, Facebook paid digital, Google, there wasn't really a good resource for premium brands to reach their target audience, and then on the flip side, the new consumer to have a safe place to learn about cannabis and how it can help certain aspects of their life. I quit my job and dove head over right into building tökr.
Matthew K: Great. We're in a difficult environment now in some ways, but a great environment and another area for cannabis businesses that are doing well. It's the best of times and the worst of times as they say. How is COVID-19 affecting, would you say, your business and then the larger ecosystem as a whole?
Matthew S: COVID-19, obviously, cannabis in most States, especially California, has been deemed essential. During the global pandemic, we've been okayed to continue to operate business and continue to get people our medicine. For the long tail of the future of cannabis, that really is going to help federal legalization in the cannabis space.
Matthew K: Okay. Just so people are clear listening, what tökr's role is consumers shop on the tökr platform and then they buy from a local licensee that delivers the cannabis. Is that correct?
Matthew S: Yes, tökr is actually the marketplace. That's where you're going to shop. Then California rules and regulations actually do not allow a cannabis delivery to be done by a non-licensed holder. We've actually partnered with-- our first depot is here in LA, mid-city Los Angeles. When an order comes into tökr, that depot partner license holder receives our order and then they handle the last mile, everything from transaction to actually bringing the product directly to the customer.
Matthew K: Okay. I remember going to cannabis conferences and events five, six years ago and the hotels having just really, really extreme language about not smoking cannabis in the rooms, but that's changing a little bit. Can you talk about what hotel's official answer is about cannabis and then what's allowed?
Matthew S: It really just comes down to culture. Cannatourism especially in California is huge. People know that California has legal recreational cannabis and these hotels really want to be ahead of the times. Our first mover, we definitely on tökr are not screaming, "Light up a joint in your room." That's certainly not allowed. We make it really clear that you can't smoke a joint in your room and you're still going to get that $200 fine that all California hotels do still implement. We push people to go on a hike or walk around the city or learn about Koreatown and then go sample all the amazing food there.
That's like I said, that the smoking fine is still going to be enforced and we like to actually feature more discrete products like a microdose edible or a cannabis beverage, vapes, and tinctures. It's a really good introduction and safe place to start for somebody coming to town visiting that might not be using cannabis. Hotels again, they want to be at the forefront of culture. They know people are doing this. People have consumed cannabis in hotel rooms for a very long time and now they can just offer a safe introduction to how to actually purchase these products as opposed to going to an illegal dispensary that they found on an illegal delivery service online.
Matthew K: Well, illegal delivery service, but what about legal ones like Eaze? Why did they look at tökr and say, "I want to order on tökr versus Eaze because tökr is endorsed by this hotel. I feel more comfortable about it," what's the thought process there?
Matthew S: We've had success in this area because our menu, the products we offer really fit the type of consumer that are staying at these high-end boutique hotels. We certainly aren't going limit-- the hotels can't really stop other delivery services from entering that property, but we actually are putting marketing in hotel rooms so consumers can really learn about how to safely and discreetly purchase products and not be recommending a guest to, like I said, go to one of these illegal dispensers that are just still really, really around here in California right now.
Matthew K: Why don't you talk about that a little bit? The illegal environment or the black market is just enormous in California and it obviously eats away at the legal market. That's just something that's still, it's not talked about that much. A lot of people say, "I buy for my friend or this or that," and it's just, "Why should I pay 30 to 40% more?" There's all these different dialogues going on, but how do you see the illicit market?
Matthew S: Yes, no doubt. This is definitely one of the biggest concerns in the cannabis industry right now. It's one of the primary issues that led to the downturn in the industry at the end of 2019, well before COVID-19 struck the economy. With that said, it really depends on whether we are talking about it in the short or long term. The long term, the economy in this country is just it's not set-up to tolerate a black market for a product that is available in locations that are paying taxes and so readily accessible.
We're really talking about the reality on the ground today, not in a mature cannabis industry because we're just not there yet. I can't give you a timeline on when this will take place, but the regulators will definitely get their act together and find a happy medium to start to incentivize the traditional market transitioning into a regulated environment.
Matthew K: You mentioned that you tried to encourage people in hotel rooms to maybe get like a drink or an edible, but what are the most popular things that they're ordering right now?
Matthew S: I'd definitely say a low-dose or microdose products, whether it be an edible from Pantry or Cuba or beverages from Cann and Artet. Microdosed low-THC products are just a really great place to start your cannabis journey and not overmedicate and then you might not want to ever try it again if it sends you to the moon.
Matthew K: Just circling back to the illicit market for a second, is it becoming confrontational at all between the regulated and the unregulated market where maybe they're starting to turn each other in or really pushing the politicians to get involved and to crack down on illicit market and in Southern California or California in general?
Matthew S: Obviously, for the sake of my own business and the health of the industry, I want everyone to be playing by the same rules in a regulated environment, but I refuse to view people as the enemy in this situation. A lot of the people that are still operating in the traditional market, they paved the way for legalization.
Demonizing these people, it's just a lack of understanding how we really got to where we are today. It's more failure of regulators, not of the people. Sacramento just made it so painfully difficult to even enter the regulated market, let alone thrive. A lot of people have just had no other option. Until we sort through the environmental factors, calling the unregulated market the enemy I just think misses the mark.
Matthew K: Okay. How are brands doing with this huge thriving black market? How does that impact them?
Matthew S: Struggling brands are definitely struggling and because of the traditional market over taxation, they struggle because a regulatory environment was just not really created to allow them to succeed. The struggle with brands and the traditional market, it's pretty endemic of a much larger problem. Like I said, having set people up to succeed, I don't have a crystal ball on when this is going to happen, but I definitely have complete faith that this will change.
Matthew K: That's a tough one. I think maybe the only way it could change is they really just lower the difficulty level to let the black-market operators in because otherwise, what's their incentive to change any behavior? It's a very decentralized thing. It's hard to get rid of it and many people say, "Why do I need to get rid of it? It's like a farmer's market type thing. I can buy apples or almonds from my neighbor in the north Central Valley in California. Why can't I buy a flower from them?" That type of thing. It's a tough dialogue to have, how your behavior should be. It'll be interesting to see how that works out.
It may just be that convenience, like what you're doing ultimately drives adoption. Just like Jeff Bezos' strategy was initially to be the cheapest, but now, Amazon is just wants to be the most convenient where it just shows up the same day or the next day. You don't have to do anything, that convenience trumps everything. What are your thoughts around that?
Matthew S: No, I totally agree and look, people want stuff brought to their house, right? We consume whether it be Uber Eats, or Postmates, or Amazon, or Netflix. We just-- people don't want to leave. The retail space not just in cannabis, it's obviously just been struggling, and that's why our aim to go directly to consumer and bring products within 90 minutes to their house. That's definitely our number 1 focus right now.
Matthew K: Okay. You're in Southern California and you have a highly-curated platform. Do you get invited to any celebrity functions in LA to help with these, with cannabis experiences or anything like that?
Matthew S: [chuckles] We actually, we just worked with one of our brand partners, Cann, to sponsor Paris Hilton's 40th birthday party. Paris wanted to offer a variety of premium cannabis products to her guests. We were invited with Cann to really help be a part of that which was pretty cool.
Matthew K: What is it like participating in that environment?
Matthew S: It's showing proof the times we're moving ahead in cannabis. Cannabis is being socially accepted, whether you're at a party hanging out with friends, it's okay to consume, you don't have to be outside in the back in an alleyway. It's pretty open and like I said, socially accepted.
Matthew K: Okay. You've raised capital and I think you're continuing to raise capital. What's the environment like right now? What are investors-- where's their mind at?
Matthew S: It's definitely different than a year and a half ago. This was the green rush and a lot of people had some pretty fictitious evaluations and weren't able to hit their numbers. Now, you look at the end of 2019 during the downturn when public markets in Canada, people started to release their numbers and stocks are down over 40-60%. That was even before COVID. Investors are definitely looking for lean and mean business models and unit economics that can really actually hit their financial models.
Matthew K: Okay. Matthew, I'd like to pivot to a few personal development questions to help listeners get a better sense of who you are as a person. With that, is there a book that's had a big impact on your life or way of thinking you'd like to share?
Matthew S: I actually just finished The Cannabis Manifesto by Steve DeAngelo and he talks a lot just about the history of cannabis as medicine science and the consequences of cannabis and prohibition. He really touches on the future of cannabis as a regulated consumer product. Steve's worked his entire life for social justice and the legalization of cannabis. Definitely recommend this book to anyone looking to get into the space or that's currently in it.
Matthew K: Okay. Besides what you do at tökr, what's the most interesting thing you think is going on in the cannabis field?
Matthew S: I just think you have to look at COVID-19 right now. During a global pandemic, you have cannabis being deemed essential and that obviously has to really start to help the federal legalization process of cannabis. The challenging part about this right now, you have an essential business, but yet, cannabis operators and cannabis employees can't take advantage of the COVID-19 reliefs that are out there right now. I'm still being a federal illegal product. We are essential but can't receive any of the public funding that is out there helping many of the struggling businesses during this pandemic.
Matthew K: I've heard you mentioned that regulators are the problem a couple times. It seems like there's a theme here, it's getting in the way a little bit.
Matthew S: A little bit. They tend to do that sometimes.
Matthew K: What's one thought you have that most people would disagree with you on?
Matthew S: Oh, peter to a question. [chuckles] I'll relate it to cannabis. It's just the fact that tökr is really aimed after this new canna-curious consumer. As I started tökr almost three years ago, and even so now, everybody just kept telling me that it was just going to be too hard to continue to go after that new cannabis-- canna-curious consumer and more of that high-time stoner crowd. Well, it was what was going to continue to dominate for many, many years.
Matthew K: It is interesting because you look at who's doing dabs and how much they spend, and there is a tiny bit of the market that spends an outsized amount, but their preferences are already so dialed in. They know what they want, and they generally know where they're going to get it from, and they're not looking for new avenues as much because they're data-efficient auto already and pretty biased on their options where the canna-curious person's more open and open to suggestion and ideas of what inexperience might look like.
Matthew S: It's also just the lack of education that's out there. My mom, for example, my mom doesn't necessarily want to go into a dispensary and talk to a budtender. I've tried to do that and I've been recommended products that here's an edible, but it might be something that that budtenders used to using and they have a completely different tolerances as myself. It's going to be a bad experience and I might not ever want to use cannabis again.
That's why tökr is really after that canna-curious really being able to help them get a safe introduction on starting their cannabis journey and then being pointed towards brands that really can a fact-based help whether it's cannabis for sleeping or cannabis to help with pain relief. Really understand the products that are out there to help and safely navigate getting into the market without again, overmedicating and never wanted to use this product again.
Matthew K: All right. That is a problem. You could ask a budtender like, "Hey, will this 20-milligram cookie affect me as a [chuckles] first-time user of cannabis?" Some budtenders would say, "No, that's a pretty low dose."
Matthew S: I went into a dispensary and I was looking and I just-- I test the market and I asked the budtender, "What would you recommend for a vape pen?" They recommended ASCND by Kurvana. I said, "Okay, great. Why?" They said because it's potent and it hits hard. I said, "Okay, thank you." I said, "What would you recommend if I was a first-time consumer that was looking to try and vape?" They said, "Oh, well, I'd probably recommend the same thing because it's potent and it hits hard and you want to really get the experience."
To me, it's like that's just such a miss. I'm a new consumer and you're recommending something that you'd recommend to a person that's been using cannabis for however long. Again, that's just going to make me not want to return to cannabis. Meanwhile, there are so many amazing brands that are coming out right now that are really-- they know their target audience, they're building a fact-based products but the dispensaries because they might be maybe a lower-dosed item that that budtender a buyer might not want. Really have trouble having an identity in a dispensary.
Matthew K: Much better to stair-step up the affects than stair-step down because you can go up much easier than go down. This can be scary.
Matthew S: Actually, you can always take more.
Matthew K: If there's any entrepreneurs listening, that'd be some way to solve that problem where people can have an on ramp where they can feel comfortable with the dose they're taking and confident out of the gate instead of being scared it's going to be too much like some way to give them that certainty of a good experience. That's a big problem. So, anybody out there listening, please crack that one for all of us. Matthew, as we close, how can listeners learn more about tökr? If they have a hotel or some other property where they'd like their guests to partake on that platform, how can everybody find you?
Matthew S: Yes, so you can visit our website. It's www.trytokr.com, T-R-Y-T-O-K-R.com, and also, anybody can feel free to email me directly at Matt@trytokr.com, M-A-T-T@T-R-Y-T-O-K-R.com
Matthew K: Great. Well, thanks so much for coming on the show and educating us and good luck through this COVID-19 scariness. It will end at some point and we'll be back to probably a different world, but good luck to everything going on, and best wishes in the capital raise. I should mention for accredited investors, are you welcoming accredited investors for your capital raise still?
Matthew S: Yes, absolutely. Actually, we're currently halfway through our seed round, so we've closed two million out of four, and our lead investors are Meredith Capital Partners, Arcadian Fund, and Cannabis GrowthOp out of Toronto.
Matthew K: Okay, so accredited investors can reach out to you at that same email that you mentioned.
Matthew S: Yes, exactly. That'd be great.
Matthew K: Okay, well, thanks for coming on the show. Good luck to you and hope we can check in soon.
Matthew S: Matt, I really appreciate the time. Thank you for having me.
Matthew K: 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 email@example.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. Emotional consideration may be provided by select guests, advertisers for companies featured in CannaInsider. Lastly, the host or guests on CannaInsider may or may not invest in the companies' entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.
Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:23:14] [END OF AUDIO]
Is speed paramount when it comes to a good cannabis delivery service?
Not according to Sava founder Andrea Brooks, who joins us to share how she’s gained more customer satisfaction and larger order sizes than her much faster competitors.
Learn more at https://www.getsava.com
- Andrea’s background in cannabis and how she came to start Sava
- An inside look at Sava and its mission to provide the highest quality cannabis products for delivery in the San Francisco Bay Area
- How Andrea won the AVG Best Pitch Award and what about her presentation resonated most with investors
- What investors need to know about unit economics and basket size
- Common obstacles in cannabis delivery and how Sava has overcome these to get ahead of other services like Ease and MedMen
- Ways in which Sava has gained so many repeat customers
- Sava’s generous compensation for drivers and how this impacts the company’s overall success
- Where Andreas sees the cannabis drink category heading in the next few years
- Andrea’s conservative approach to growth projections and meeting investor expectations
- Where Sava currently is in the capital-raising process and Andrea’s goals for the years ahead
Matthew Kind: Hi, I'm Matthew Kind. Every Monday, look for a fresh, new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now, here's your program.
The only thing people want from a cannabis delivery service is speed and convenience, right? Our guest today is Andrea Brooks of Sava. Andrea has found a niche in the delivery market that does prioritize speed above all else. Today, we're going to learn how that has led to more customer satisfaction and larger order sizes. Andrea, welcome to CannaInsider.
Andrea Brooks: Hi, thanks for having me.
Matthew: Give us a sense of geography. Where are you sitting today?
Andrea: I am in San Francisco, at my home office in the Castro.
Matthew: Great. What is Sava on a high level?
Andrea: Sava is a highly curated e-commerce marketplace that also fulfills its own orders throughout the Bay Area.
Matthew: Okay. Can you share a bit about your background and journey and how you got into the cannabis space?
Andrea: Yes, I'm happy to do that. I entered the cannabis space after a very intense personal experience in which cannabis played a crucial role in my recovery. 10 years ago, I had a major injury, and it left me with a bunch of nerve damage and chronic pain. I had to stop working. My doctors told me I was going to be on permanent disability for the rest of my life. My life really just, all of a sudden, stopped overnight. It remained in that phase for a few years until I had a chance encounter with a cannabis cultivator. In talking with him, he put me on a protocol. After one month of using cannabis to manage my pain and inflammation, I weaned off of all of the pain medications that I've been taking for years.
Cannabis was an incredible game-changer for me. It wasn't even a last resort. It wasn't even on the radar that cannabis was something that could help me. Coming out of that experience, all I can wonder is, why didn't I come to cannabis sooner? Then I wanted to solve all of those problems. I realized there were so many people out there just like me that were just having some barriers to entry that needed to be removed.
Matthew: We're going to get into more what Sava is in a minute, but first, I want to wish you congratulations on winning the ArcView Group Best Pitch Award recently. That is a big honor. What about your presentation in business do you think resonated with most investors?
Andrea: I think really being able to succinctly drill down into the unit economics and why our business model makes sense, especially these days when there's been a high frequency of high valuations, high projections, which a lot of people haven't been able to meet. We've been a little bit more conservative this whole time, but we are meeting our projections. We are really transparent about the unit economics that are getting us there. I think that transparency is extra valued right now.
Matthew: Well, talk a little bit about what the unit economics are and the basket size and what investors like and need to know there.
Andrea: Well, I think in creating a shopping experience that encourages customers to stay longer online on the site, learning translates into them purchasing more. That is exactly how we've designed our shopping experience, in addition to being first-class e-commerce and making sure that we have really robust search features that can guide an individual to the right cannabis [inaudible [00:04:03] for them. There's also a lot of information about the brands. We tell the brand story.
We're really making a connection with the customer so that, again, they spend time and then really trust what they're purchasing. By spending that time, they find the right fit, which then keeps them coming back. It also increases the basket size. We're always trending north of an average cart size of 160.
Matthew: Wow. Many might say if [unintelligible [00:04:31] and MedMen are having a hard time with delivery, how does Sava pull this off?
Andrea: Well, there's a lot of things that we're doing different. Some of our model has been different and been different from the start. We're focusing on sustainable growth. We're focusing on a specific geographic area. Also, we're doing scheduled deliveries and not on-demand. I think there's numerous markets out there, and what we are going for is a higher value customer that is just fine with getting their delivery later that same day or the next day.
A major differentiator of Sava is in that we are a marketplace first, we treat cannabis as a consumer package good. We don't treat it like it's food. From our perspective, cannabis isn't pizza. It doesn't need to arrive hot and quick, but it does need to arrive in a timely fashion. You still want that convenience. We think that can be easily achieved with same-day or next-day delivery.
Matthew: Okay. Right now, you're just in the Bay Area, as you mentioned. What are your plans to expand?
Andrea: Immediately, we're just focusing in continuing our growth here. There's a lot more for us to dig into in the Bay Area, but then, we are looking to expand into SoCal and throughout the state, obviously, California. This is our home base. It's where we want to be. We are seeing incredible stickiness with our current area. Over 70% of our monthly orders are from repeat purchasers. We just want to deepen our presence here and work with our brand partners to increase our presence and their presence.
Matthew: You have a lot of repeat customers, and your drivers even know your customers by name. How does this impact loyalty and experience, from your perspective?
Andrea: It makes the experience incredibly sticky. A lot of our drivers are actually former customers that now work for us. Drivers are often also cross-trained to work in the office. We treat our drivers as much as the part of the team as anyone else on staff. Those drivers are the touchpoint of the customer. We really want our driver team strong, well trained, feeling like they're connected to the mission just as anyone else.
Being that drivers are doing regular routes, it creates a relationship with the customer as well. We frequently get customer support tickets, not of, "This driver did this wrong," but of, "I just want to say I love my driver. Thank you for doing what you're doing." We've had drivers with us for years. We invest a lot in them. We value that team incredibly, and we think that drivers should be valued just as much as anyone else that contributes to the company.
Matthew: I know you pay your drivers well, which is the opposite trend of many delivery platforms. How did you arrive at that style of payment, especially when it's such a juxtaposition to what the rest of the industry does?
Andrea: Just coming back to that thesis of how important the driver is to the overall experience. We're not just a marketplace, we're also overseeing all of the fulfillment. As someone who uses e-commerce and delivery, myself, I've had numerous experiences with different types of drivers from different companies. It does make a difference to me whether I return to that company or not. Again, so much of Sava is built on solving for what wasn't working for me in other experiences and having a driver that comes to my door that I trust that is giving me a clean, discreet package, that was important for me. That's what we're making sure our drivers are providing to our customers.
Matthew: If I put my investor hat on, Andrea, and I'm thinking, "Well, if the drivers are paid well, which is great, the margin has to come from somewhere for the investor and for the business to be sustainable." Your position is that margin comes from larger order size. Since the basket size is so much larger, there's more profit, even though the profit margin might be lower. Is that what you would say?
Andrea: There's a couple of different things that goes into cracking this code to having a profitable model. That high basket size is really key. What's interesting about what our data shows is that also repeat purchasers purchase more over time, so that basket size only goes up once they're returning. It's the combination of the high basket size, the retention, and also keeping our cogs as low as possible, and making sure our brand partnerships are really strong to help us with that.
Matthew: Okay. Anything surprising about the way that customers orders in terms of what they're actually ordering, anything that sticks out?
Andrea: Well, we show different purchasing patterns than other companies that are doing delivery or even brick-and-mortar. I would say that with most retail outlets, flower and vape is number one. For us, edibles are number one. They pretty much dominate across the board as the top category. It's again because we're going after a different type of consumer.
Matthew: If you were starting a cannabis business now, like a brand, some product that would be sold by a delivery service, it seems like it's super competitive. If there's anybody out there listening and is like, "Hey, I really want to create a product, but I'm worried dispensaries or delivery services don't want to put it on their platform," is there any advice you'd give them?
Andrea: Well, we look for some different things than probably other retail outlets. I love to really see a strong mission statement. I like to see a company that is going to give back, that understands that sustainability is an important part of the growth plan, that is understanding how they need to manage their top and bottom line to be here for the long haul. I'm looking for a lot of forward-thinking companies, different cannabinoid profiles, companies that know how to showcase their terpene profiles, companies that really shine with regards to education. All of those factors are really important. Again, to really understand what's different about your company compared to others in the space.
I know that's pretty basic, but so much is the communication and language that's going to resonate with the consumer. If someone looks at a package and doesn't understand how to utilize that product, that's a missed opportunity, not just for that company, but also in a general sense because cannabis does require so much education. I'm always looking at brands that are going to really up the game in terms of education and making sure that they can make an emotional connection with a consumer rather than just a sale.
Matthew: Speaking of emotional connection, you're excited about cannabis drinks and some of the connections being made there. Can you talk a little bit about that?
Andrea: Yes. I think the drink market is exceptionally exciting. We frequently have gotten feedback over the years of individuals that have lessened their alcohol intake in favor of cannabis but have also mentioned that-- Some of these people are not smokers and they miss some of the social aspect. I think drinks are really filling that gap where it's a healthier alternative to alcohol. It can replicate the same type of experience, especially if it's a nice, low-dose infused drink. You can have a couple to-- The first drink might feel like that buzz, and then if you want a stronger buzz, you can have that second drink.
I think it is bringing some of the social component that is missing for people that maybe are more just towards tinctures or edibles but want to have a shared experience. Being able to bring a six-pack of an infused drink to a dinner party, as opposed to a six-pack of beer or some wine. I think this is the trend we're going to see. It's something that I personally do. I'm someone who doesn't drink alcohol, so I love being able to have this infused drink component, myself. That's how I go to all my dinner-- When either I'm hosting a dinner party or when I'm going, I like to bring infused drinks with me.
Matthew: Now, growth projections for a startup like yours is a touchy grey area in the cannabis space because everybody projects growth, and then wraps narrative around that. You're more of a conservative approach with how you do it and how you meet investor expectations. Can you talk a little bit about how you're different there?
Andrea: Yes. We investigate the total available market like everyone else. We understand the potential just like everyone else. We also understand that while there are a lot of potential customers out there, they don't just convert overnight and that this is still a marathon and not a sprint. For my investors and the right investors, for me, these are investors that are looking for a company that might have a little bit more conservative projection right now but want that company to meet their goals. We've been able to do that for our investors.
It might mean that our growth looks a little slower on slides, but again, we hit our numbers, we hit our projected numbers. That helps me sleep better at night. I think for the investors that are already in, they're happy to be seeing that from us and that we're hitting our targets. We've always taken a bit more of a conservative approach. Some people don't want to see that. People might also want to see all the aggressive growth that we can hit. We're going to continue to grow. In fact, we've had 10x growth from 2016 to 2019. We're going to have that again by the end of 2021. I always want to hit the numbers that I'm projecting. That's just the attitude that we've taken. Especially in a time with turbulence, this approach is starting to shine more and more.
Matthew: You're raising capital now. Where are you in that process?
Andrea: We are raising our second seed 2.5 on a convertible note and we are halfway through that round and looking to close by the end of Q2.
Matthew: For accredited investors at the end of the interview here, are you able to give an email or something where they can reach out if they're interested?
Andrea: Absolutely. People can reach out to me directly. It's andrea@getsava, G-E-T-S-A-V-A, .com.
Matthew: Andrea, if you were to start from zero on your capital raising journey again, what would you have done differently? What do you wish you knew back then that you know now?
Andrea: Something I would have done differently is probably raised a larger amount in our first seed. We did hit our goal and oversubscribed. I like to do a lot of mentoring with female founders in the space. We have a commitment on Sava that 50% of the brands on our platform are women-owned. What I have seen a lot amongst female entrepreneurs is not being as bold in their asks as some of their male counterparts. I've done the same in the past. To keep being at the table, you do need to have resources, you need to manage those resources sustainably.
I watch every single dollar, I know where everything is going. I will continue to do that, and it does make our shareholders happy how on top of managing all of those metrics are. You also need to have the capital to compete and the ability to give yourself a cushion through all the ups and downs and navigating and unfolding-in-the-moment industry. I would have raised a little bit more in our first seed. I was really focused on continuing to prove myself. Maybe having a little bit more confidence earlier would have pushed me to go for that higher amount rather than feeling I still needed to prove something, even though we had already revenue at that time.
I would say a little more confidence out of the gate. I'm a big believer in transferable skills. I think people with the confidence and with the right skills can still come into this industry and succeed, but making sure you're getting as much boosting energy around you at all times, so you can really go and get the number that you need to make your company successful. Too lean can be too stressful.
Matthew: Right. It's like there's an hourglass. As soon as you raise that capital and the capital's going out, the sand is coming out from the top of the hourglass as you put that money into growth. You want to have enough in there before it runs out, so I hear you. Let's move to some personal development questions, Andrea. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Andrea: My favorite book of the moment is still-- It's been my favorite book for a few years. It's Sapiens by Yuval Noah Harari. I just love his perspective on the world. I love when someone can take complex ideas that span history and time and really put it in a succinct nutshell that's easily absorbed. I think there's a lot of important lessons in his book of how to interact with the modern world. I just love the way he was able to dial it all in, both in terms of concerns of where we're going as a species as well as where we can go from here and possibilities. One of my favorite books, I can reread it over and over again.
Matthew: I know he goes on month-long retreats to where he's just meditating and not talking and stuff like that. That sounds like a pretty good idea. We are so hyper-connected and everything. I feel like I'm merging with the matrix sometimes.
Andrea: I personally have an affinity for historians and philosophers. His approach as an academic is really inspiring, and also just the way he interacts with the world and making sure he's staying grounded and mindful himself. I love that he lives that balance because we need to have that balance in order to just be successful. I also love the way that his lifestyle has continued to change and talking about the environmental impacts of our modern society. I love someone who practices what they preach in an authentic way and that is an incredible part of what's drawn me to him and his books, particularly that book.
Matthew: Andrea, what is the most interesting thing going on in your field besides what you're doing at Sava? If you could get involved in some other part of the industry but not in any way with what you're doing with Sava, what interests you? What do you think is cool?
Andrea: Something I feel very strongly about is expungement for individuals that are incarcerated for cannabis offenses. I think the fact that cities have been-- as they move towards legalization, have been working on expungement and clearing those convictions is really important. I wish I had a whole other clone of me to be able to work on that end of it because I think it needs to go hand in hand with the business development of cannabis.
That really brings me back to what is so exciting, both in what I'm doing and also in the industry in general is we have an incredible potential for social impact with these for-profit businesses that we're building. I love the idea that we can build that capital and really truly be doing something wonderful in the world. I think it is important for cannabis businesses to be examining the way we're giving back or just giving as we continue to grow and have increased influence.
Matthew: What is one thought you have that most people would disagree with you on?
Andrea: One thing I would like to highlight is something we've been focused on and I've been focused on this whole time, which is that this industry is way more of a marathon than a sprint than people thought and that sustainable growth really is the way to be a winner in this industry. I've been saying that for quite some time and saying that against individuals and companies that have been putting out crazy high projections, people didn't really like hearing those words or hearing my thought process on that.
Again, I think there is a shift now where we're seeing that there has to be a strong component of sustainability woven into the fabric of companies as they're growing, especially with regulations still changing and supply chain changes and just the nature of being in an emerging industry. I'm all about being a turtle, slow and steady wins the race, and that's the path I'm continuing on.
Matthew: Andrea, as we close, can you tell accredited investors how to connect with you and also customers in the Bay Area that want to give Sava a try?
Andrea: Absolutely. Customers in the nine-county Bay area can find us at www.getsava.com. We're also on Instagram and Facebook and all the other channels. Then for individual inquiries, people can email me directly, firstname.lastname@example.org. Again, it's G-E-T-S-A-V-A.com. People can also find me on LinkedIn, Andrea Brooks, B-R-O-O-K-S.
Matthew: Thanks so much, Andrea. Thanks for educating us, and good luck with your startup. That sounds really compelling.
Andrea: Thank you. I had a great time.
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 cannaninsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at email@example.com. We'd love to hear from you.
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Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening, and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:24:58] [END OF AUDIO]
If you’re concerned about the wildly fluctuating cannabis stocks, you’re not alone. But could there be a light at the end of the tunnel?
Here to answer this is returning guest Alan Brochstein, founder of New Cannabis Ventures and 420 Investor.
Learn more at https://www.newcannabisventures.com
- Alan’s background in the cannabis stock space and how he came to start New Cannabis Ventures and 420 Investor
- A 10,000 ft view of the cannabis stock space and Alan’s predictions for the future
- The meteoric rise and fall of cannabis and pharmaceutical company Tilray
- Stocks Alan is asked about most and where he sees them heading
- Companies creating shareholder value and how that can set them apart
- Popular challenges and opportunities discussed among cannabis executives
- Alan’s views on sovereign debt, class warfare, and other issues threatening the economy
- Where Alan sees hemp and cannabis laws heading in his home state of Texas
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.
Matthew: If you feel that cannabis stocks are all over the place with wild swings between euphoria and lately despair, there may be a light at the end of the tunnel. As the smoke clears, weak players go out of business to restructure and drive toward profitability emerges. A more sustainable landscape begins to come into focus. Here to tell us more about cannabis stocks is returning guest Alan Brochstein, founder of New Cannabis Ventures and 420 Investor. Alan, welcome back to CannaInsider.
Alan Brochstein: Hey, it's great to be here. Thanks for including me, Matt.
Matthew: Give us a sense of geography. Where are you in the world today?
Alan: I am in my home office in Houston Texas, where I spend a lot of time.
Matthew: Okay. For listeners that may not be familiar, can you quickly summarize what New Cannabis Ventures is and what 420 Investor is?
Alan: Sure. I'll go chronologically. I started 420 Investor back in 2013 if you can believe it. The idea was to expand upon some of the things that I had done with individual investors or retail investors in more generic stocks but to really focus on the cannabis space in-- This was a time when there wasn't really a lot of professional attention being paid to space, it was a very dangerous time, was OTC stocks. I created 420 Investor then and it still does the same thing. It's a community to help assess publicly-traded cannabis stocks and I have model portfolios there and share a lot of research in news and information and videos and chat. It's a great community.
Then two years later, with my partner Joel, we founded New Cannabis Ventures. The idea there was to take some of the filtration skills that I have that I was demonstrating it, 420 Investor. A lot of people care about the cannabis industry from a financial perspective, business news perspective, but there's just so much noise. I always like to say, we're the news, not the noise. We prove that and so we're public-facing, there's no paywall or anything like that or registration required. What we try to do is really shine the light primarily on really good cannabis companies and good investors and we take some time also to highlight some bad ones as well.
Matthew: To give some background on you, you've been in the investing arena for a while, you're a regular contributor for major news outlets, you're a chartered financial analyst. I mentioned all these things so listeners can get a sense that you're really focused on this cannabis stock space, and you have some credentials. Now that we got that out of the way, where are we at a 10,000-oot level with cannabis stocks for people that have been paying some attention, maybe, but really not at the granular level that you do?
Alan: Yes, we are in- I hate to use the word crisis mode, but I would say the industry is having a crisis. I've seen the ups and the downs over the years and a lot of times, it's been stock prices of bad companies that should be zero going to zero and that's not the situation these days. Just to back up a little bit, the window opened for large multi-state operators or MSOs to go public in late 2018. That was a time when the overall stock market was retrenching, if you recall, and said It was just a debacle. These companies went public and their stock prices plunged. We saw a big rally at the beginning of 2019, that lasted all of a quarter. At that point, it was like a 55% gain.
At that point, we were hit with a series of issues. First of all, we started to see, insider selling and founders and early investors, taking some chips off the table. That wasn't super concerning, but more concerning was, we saw these companies needing to raise a lot more capital, and it became more and more challenging. The stocks were holding up, Matt, but then at the end of the year, if you recall, the vaping crisis hit. That really changed everything. The reason for that there was a lot of fear about what was going to happen on the demand side, which has never been a problem, right? There was a lot of fear and we saw states like Massachusetts implement a ban for cannabis vaping.
What this did was, it really woke up investors to the fact that the industry is undercapitalized. If you fast forward a little bit, we've seen this year some of the better companies access capital in different ways, whether it's sale-leasebacks or straight debt. I think it's a two-edged sword because on the one hand, the companies that can do that are going to in your intro, they're going to come out of this on the right side, so that's good. The downside though is when you're stripping out your assets for sale-leaseback you're taking on rent, and when you're taking on debt, when you have another problem like we're having right now a global economic crisis, all the sudden it's is a little bit more challenging. I maybe gave you a little bit too much detail, but I think the Cannabis industry always goes through ups and downs. That's for sure, for regulatory reasons, capital reasons, what have you investor sentiment reasons, but right now, it is the most trying time that I've seen in my seven years of coverage.
Matthew: Wow. Now, most people that are listening still might know the name Tilray and obviously, hardcore cannabis investors definitely know that name. Tilray had our meteoric rise as you mentioned, with a lot of stocks went up a lot and then it's crashed back to Earth. Peter Thiel has taken Tilray and then he sold off part of it. I can't remember exactly when it was going up into its heights. Do you consider Tilray still a leader in the space? Sometimes I feel like they are but I don't really know.
Alan: Yes. Your listeners should understand, Tilray is a Canadian LP. I think they're below a billion now, but I've been including them in the top five in terms of market cap that were all above a billion. I think Yesterday changed that for Tilray, but maybe in Canadian dollars, maybe [unintelligible 00:07:13]. When I was talking about meteoric rises, I was really talking about the more distant past. That was a more recent one and that thing was spooky. The parabolic spike there. $17 IPO next thing, it's 300. That's insane. Unfortunately, the company wasn't able to raise any equity at that time. Because going public, they had to wait a certain amount of time.
They did something that was really detrimental. They issued convertible debt, and it's really debt and they issued a lot of debt. That's not detrimental in and of itself, but when you have a business, it's not cashflow positive. When you take on that much debt, you really run a risk and so what's happened subsequently. Like a lot of companies, they've had huge operating losses, they haven't really made a ton of progress on the revenue side. They're running these big losses. They're losing, I'm sorry, their revenues not growing fast enough to excite people and they did. They've done some acquisitions.
Their cash balance, it's got really low, and now people are really worried about whether or not they're going to make it through 2020. Through 2020, actually. This is the state of the industry. Philosophically, it's interesting that these companies, all five of the large Canadian LPs, they know that Canada has been just a terrible market. The reason for that, by the way, is regulatory issues on two fronts, or maybe more. One certainly is the lack of stores that have been open primarily in Ontario. Also, the conservative nature of the- it's not the Conservative Party, it's the Liberal Party, but the conservative nature of government in Canada has led to just regulatory strangulation of the market.
They can't really advertise. They haven't been able to sell very many products and I know, you know, the cannabis industry. If you walk into a Colorado dispensary, you can buy or basically most states, Oregon's different but you can buy edibles hundred milligrams, 10 pieces or broken up into more a bit of milligram max. Well in Canada, each package is only 10 milligrams max. You can sell two fives or for two and a half, but it's so inefficient, especially in a world where everybody cares about packaging waste, but it just adds a lot of costs. That's just an example of some of the regulatory failures. All these companies in Canada as well is where I was going [unintelligible 00:09:51] with this, they all have their eye on the United States and the CBD developments here since hemp was legalized in the end of 2018, have also been a regulatory failure. I think that's a big problem for Tilray to get to your point.
Matt: Okay. Besides Tilray, what stocks do you get asked about the most and what are your thoughts about them?
Alan: I think more and more focus is on the largest companies. It's always been a lot of focus, but many of the smaller companies, especially in Canada have gone by the wayside. Their stock prices have dropped to 2¢, 5¢, 10¢. There were just way too many of them. I get a lot of questions about the big five in Canada, which would be in alphabetical order, Aphria, Aurora, Canopy Growth, Cronos and Tilray. Then in the United States, there's a big four and that would include alphabetically, Cresco, Curaleaf, Green Thumb Industries or GTI, as people call that one, and Trulieve, which is operating mainly in Florida.
Matt: Do you think the pessimism in Malays in the cannabis stocks is warranted then? The way I think about is, it's almost like a wild west in that. We've got a lot of I don't know, you could call them crooks, charlatans, and unsavory characters in the space, but then there's also really legitimate players. Sometimes when things are going poorly, they get lumped in together and then-- but then when things are going well, we forget that there's a lot of charlatans and scary things going on too. Would you feel like the pessimism is here and no one likes it, but do you think it's warranted and necessary like going through some sort of illness to reemerge healthier?
Alan: In the past, I think I've seen this earlier, these stocks would go up and you'd look at the underlying fundamentals and there was no way, even at the depressed price, you could justify it. I mean, they were headed to zero. A lot of these companies have actually been delisted, they're gone. This is a totally different environment in-- I think, yes, we still have the charlatans and I have to subscribe to something just to keep up with all the lawsuits going on. It's a service that I pay for, just to keep on top of it. Through that, I learn about more and more charlatans emerging.
I always like to say, Matt, opportunity breeds opportunists. To your point, we are seeing-- This industry is so much different than when you and I talked probably even the last time.
We're seeing much more professional managements and that's been a big story of CEO departures, especially up in Canada. I guess I'm talking more about the United States, much more professional managements and they're bringing in people from the consumer packaged goods industry with appropriate experience to help scale people that have solved similar challenges in different industries.
The access to capital while it's not as good as I'd like it to be, and there's a lot of reasons for that. I think it's much better than it ever was. The hardest question is as an investor is what's priced in? I really think some of these large US operators can achieve their goals of- and we'll see $1 billion in sales and the Canadian licensed producers were supposed to get there a lot quicker and the US companies are going to beat them to that.
Matt: As you mentioned, you subscribed to some service that allows you to see the lawsuits and if you follow Ellen on Twitter or on New Cannabis Ventures. You're not scared to call people out and call companies out for not doing the right thing. Is there any right now, top of mind that you feel like is not doing the right thing or that's shareholder or investors should maybe be wary of?
Alan: Interesting. You may not remember, but I got sued for $100 million for libel. It was fixed pretty quickly but I'm actually a little bit more careful about calling things out that I will call one out because I have been calling out publicly. It's not like it's a fraud or anything like that and not necessarily unsavory characters or anything to that effect, but high times has been out there very aggressively trying to raise capital. I just have never understood the value. It's been a sad situation in my view because they have been out there selling their stock in small amounts to unsophisticated investors at a level that I don't think can be justified and they're about to go public in-- when they go public.
I think that their investors are going to be very disappointed, that's one. There's a lot, I don't know if I want to call them out now, but I would say at the same time as we've seen a lot of progress in the industry, we're still seeing these situations. I called out something publicly recently. I don't want to go into the names. It's not that important, but we're still seeing some aggressive stock promotion. To me, that's like a last-ditch effort. Well, people do it as a shortcut or it's a last-ditch effort to get some interest in the stock and that never works and to me, it's ridiculous that's still going on in this space.
Matt: When I say the words creating shareholder value, which cannabis companies come to mind right away without having to think about it?
Alan: Well, one that's really interesting, in that I think shines a good light on the cannabis industry for a lot of reasons is this company Trulieve, down in Florida, is where they're based and where the vast majority of the revenue comes from now. We're an industry that's progressive yet you look and there's a pretty valid criticism that the industry's too White and too male, like other industries. Nothing special there but it is refreshing that this company is run by a female CEO. That's one little distinguishing thing.
The more important distinguishing factor about the company and why I think people outside the industry should at least start with this company in terms of seeing if value can be created is that the company has- they were all startups in Florida market when it went legal and this being one of them, but they somehow have managed to be a 50% market share leader. On top of that, they generate more revenue in that single state than these Canadian LPs generate when they can sell into lots of markets, whether it's Canada or globally, so high revenue and then this is where it gets really different Matt, they're profitable.
With that said, this is the cannabis industry they were attacked by a short report recently and it was interesting. There was nothing in the short report, at least in my view, that wasn't something that somebody could find by reading their filings. Every company has some issues and like an example, I think that there were some insider transactions with respect to real estate. Or the CEO's husband, his company helped on construction.That stuff's all disclosed with somebody, said, "This company's a fraud." because of this which isn't the right thing.
I think that's a good place to start, on can value be created? Here's a company that started up very quickly went into huge revenue generation and great customer satisfaction and profitability.
Matt: You talked to a lot of cannabis executives at conferences and probably in other ways. What challenges and opportunities are top of mind that they mentioned the most recently?
Alan: Oh gosh. It's capital, capital and capital really. That's top of mind right now. I think if you go a little bit deeper, right now their biggest challenge obviously is the raising of the capital, but when they raise capital, it's not going to be-- Let's back up. In Canada, the operating model was raise as much money as you can plant as many flags around the world as you can and then raise more money. That model never really took off in the United States because you couldn't raise as much money as you could in Canada if you are a federally legal Canadian licensed producer.
The planting of a flag as many places as you can was definitely a mistake that many of the companies made. When you hear about it, obviously, it's capital capital capital. Then the second thing would be how do I grow my business when I have all these opportunities set and a limited amount of capital? There's a prioritization. It's tricky because do you go into New York or do you stay in New York, which is a terrible medical market? It's better than it used to be, but it's just not significant economically and it costs you money to be there and then they legalize. I think that's really the thing they talk about is which markets do they want to really focus on given the constraints?
Matt: Billionaire Ray Dalio is among probably the most successful hedge fund managers in history. He's been writing a lot about secular trends, like sovereign debt, class warfare, and other issues, threatening the stability and very fabric of the economy. Do you identify with any of those concerns that Ray mentions, and what are your thoughts on how those issues may play out?
Alan: Yes. I have to confess, I know exactly who he is. I know him more for kind of some idiosyncrasies around the [unintelligible 00:20:00] office runs didn't-- I haven't really read his stuff, Matt, so I'm not real prepared to comment on that. I think one of the issues that you may have just said or one of the issues that he's talked about is healthcare, right?
Alan: This is a big issue of mine, I'm self-employed essentially, a small business person and I'm in Texas. How much I have to pay for insurance and how hard it is to get help for health insurance is abominable. The other part is, I look at how much people have to pay for health insurance. I'm a libertarian so don't get me wrong, but this system is broken. We can't expect families to pay 30% of the median for healthcare. You don't have any money left over for the basics of life, for healthcare insurance I should say.
That is a huge problem for our own future. I think a broken healthcare system. I don't think Medicare For All is necessarily the answer either. I think there's some better approaches like allowing insurance companies to right across state lines that would create some more competition or something like that but we're way off track from the cannabis space.
Matthew: No, I totally agree. We spend more than any other country in the world per capita for healthcare and our outcomes are not even in the top 20 anymore, so it's what are we spending it all on? I have to disagree with you and say, that it's the system is actually, I think it's working as exactly as designed and that is to extract as much profit out of every patient as possible, whether it be from the pharmaceutical or to the care. Even by the fact that the pricing isn't transparent.
I went and got some dental work done in Prague when I was there and they have a menu up on a board that just says, "This is how much--" because they're known for their dental care. That's why I went when I was there. They had a menu up on the board that tells you how much everything is. I asked someone back here in the States and they said, "That's illegal for dentists to do here."[chuckles] I was like, "What happened? What's going on?” we talk pf no transparency.
I think just having price transparency would be a big thing, being able to sell over State lines would be big. I'm really curious to see what Warren Buffett, Jeff Bezos, and Jamie Dimon come up within their joint venture to try to bring down the cost of healthcare because it's neither a free market nor is it like a public utility, so it's the worst of both. If we could get either a free market and I wouldn't want a single-payer system, but it'd be better than what we have now.
I'm possibly, I don't know, I could be wrong, but I would love to see it go free market. You think, if I want to get an MRI done and I have to pay for it, wouldn't it be great just to do an online search and to see like, “Oh, it's $700 here, $300 here, $500 here." That just bringing those forces to play with these [crosstalk].
Alan: I can't even find out in advance how much certain medications might cost me. It's really [inaudible 00:23:22] as a consumer of healthcare, so yes I'm with you on that.
Matthew: Yes. Obviously it's a hot button for me too. You're in Texas as you mentioned and that's four of the 10 largest cities in the US are there. There's droves of people moving there, particularly from California. What's the deal there? What's going on? How do you think this could play out with hemp and cannabis? I know it's really early there, but I feel like once Texas decides to go as they do with everything, it's just going to be massive.
Alan: Yes. We have a sitting governor that I'm pretty sure nothing will ever happen and it's not just him. If it were up to Austin and Dallas and Houston and San Antonio probably, but certainly those other three, which I'll tell you something interesting in a moment, but maybe we'd have some hope in terms of having a better program. The program right now, it did get a little bit better. It was as bad as it could be. You basically, there were three providers. I think only two of them are operating and to get the medicine, you had to be a child with epilepsy. That was it.
By the way, that's really silly because you can also buy the pharmaceutical and get insurance coverage through GW Pharma, but anyway, they have expanded it very slightly, but it's a CBD only and very limited and extremely limited, Matt. What's interesting is there's so much confusion over CBD and THC that the district attorneys in the three cities I mentioned are no longer arresting. We have de facto legalization. Not 100%, but they are not prosecuting. It's made a social change without a legal change. It's interesting.
I think four or five, six years from now, I don't know how long Abbott can stay there, but in the future, I think Texas will have the great benefit of being able to look at all the state, legalization implementations and come up with a great plan. One of the challenges is Texas doesn't have a ballot initiative and the legislature meets only every two years. This industry is always full of over-optimism. But where I really hear the over-optimism the most seems to be Texas. It ain't happening.
Matthew: I don't know. I feel like something can happen quickly there but you're right while Governor Abbott's in office, I don't think anything will but when he leaves, we'll see. I'll ask you again.
Alan: Let me tell you the path. The path is to get a better medical program and everybody will see that the sky's not falling. Then after that, we can move towards legalization. By the way, outside of Texas, I think that's probably the best path. We've seen California make a huge mistake trying to implement medical and adult-use at the same time. It just doesn't work and we're seeing that in Michigan now as well.
It's funny because you have the civil libertarians that just say, "Legalize it." I understand that and I certainly don't think we should be putting anybody in jail for consumption of cannabis but it's not as easy as that. I think even within the industry or within the movement, there's mixed view. I'm not going to name names, but I was talking to somebody the other day. Medical cannabis operator does very well in a single state and he told me he's against legalization. I'm like, "How can you be against legalization?" He explained his view. I don't agree with it, but it's just prestigious honor.
Matthew: There’s competition probably for him, right?
Alan: Yes. I think that there's a little bit of that, but I don't think that's the whole story. He had views on the products being just not responsible, I think. I don't know. The point I'm trying to make is Texas has a rural opportunity to improve its terrible medical cannabis program and overtime and then let the legalization follow.
Matthew: Before we transition to some personal development questions, Alan, what's one thing that you're still really excited about in the cannabis space? Because we're in a dark mood right now across the industry and there's something that still titillates you. What is it?
Alan: I think I started this year and I'm standing by it, even though I know prices are down like 40% and I didn't say this is the buy right now thing. What I said at the beginning of the year I think holds, which is, the legalization Illinois isn't extremely well understood and I think it really bodes well for the real driver of these companies. People make a mistake when they think about the cannabis industry and they think that the driver is federal legalization. While there will be some benefits as well as some challenges associated with that.
I think they miss the point that the real driver is state legalization.
Traditionally, states have legalized not through just creating laws and passing them, but through ballot initiatives and those are tough. They take a long time and then you have a legislature that hasn't necessarily bought in and it's not the most ideal way to solve the challenge of implementation. Illinois was the first state to go legal through the legislative process and there are others that have talked about it. We've seen some epic fails, New Jersey in New York but they're looking to come back and try again. I think the success of the Illinois program-- It's funny that I'm saying that because I was making fun of their medical program where they used to fingerprint people.
Matthew: Yes, I do too.
Alan: Anyway, and I don't remember her name, but I think she's called the lieutenant governor's her title and she was at the Benzinga Conference in Miami last month. They put so much thought into this and a big part of what they did and this is a hot button in the industry social equity. I actually like the concept. I think it's hard to do it correctly and that's where people will disagree, but they made social equity a big part of that. I think states have to understand-- When we get to the federal level, it's going to be the same thing.
Legalization can't just be a good thing for rich White men. I think Illinois did a reasonable job of addressing this. The rich white men have to understand that's the politics, the cards that they're dealt I think that's the case. I think it was a win-win. I think that the success in Illinois will encourage other legislatures to move forward. I think there's a secondary benefit of a midwest state being legal, two of them now, Michigan and Illinois. It encourages others. Well, by the way, Oklahoma, is de facto legal. I don't know if you know about that. Anyway, that's what excites me. I think we have a lot more legalization ahead of us. That will drive the industry forward.
Matthew: Okay. On to the personal development questions, Alan. I've asked you some in the past so here's some new ones for you. What's one skill you draw on a lot that helps you day-to-day in your business?
Alan: Me, filtration. I think I used that word earlier. That is what I was born with. [chuckles] An ability to fair it out quickly what's important and what's not, because there's just so much information out there. That's what's allowed me to be successful with 420 Industry and New Cannabis Ventures. When you can be a filter and you operate with integrity, which is really my primary goal, I think the people really value that.
Matthew: What's the last show you binge-watched?
Alan: I don't really watch. Okay, so binge-watch. I don't binge-watch, but I will confess that the way I fall asleep at night is watching Friends. It's like, "I've seen these shows over and over and over."
Matthew: There is something therapeutic about Friends. It seems like a simpler time. The shows are funny. I could see why it had this huge comeback.
Alan: I don't watch too much TV. That's really about all that I watched and maybe a few sports things. My wife has convinced me. She's an avid reader. She has convinced me that I need to-- I read so much, but it's all just sitting on my screen and looking at it. She has convinced me that I need to read more. I don't know if she convinced me, but through her example, I've learned that I should read more.
I'll tell you, one of the things that's helping me get through these trying times, I've read some incredible stories. One about a Holocaust survivor. His name is Max Eisen. I'm finishing up a book now that you would like, by Erik, I'm probably not saying his name right, but Weihenmayer, it's called No Barriers. He was the first blind person to climb Mount Everest, but the story is about a lot more than that.
Alan: I turned you around on that one.
Matthew: Right, you did. You did. [laughs] Alan, what is one thing you believe to be true that most people would disagree with you on?
Alan: One thing that I believe to be true that most people will disagree? Well, I'll be funny and say that people can make money in cannabis stocks because it doesn't feel like it right now. I've seen this play out over the years. I said something to my subscribers, and I don't know if they- some of them didn't fully understand it. It wasn't a guarantee that the prices were going to go up but I used the words, "this time is different", a few years ago.
The reason for that was we were finally seeing-- It finally offers money and real money come into the industry into real companies run by real people. I think still, people don't necessarily agree. They kind of look at the industry-- There still are some of these legacy issues like these silly penny stocks. It's definitely out there, stock promotion. I believe that industries really come a far away. I think some don't agree with that.
Matthew: Okay. Alan, as we close, what's the best way for listeners to find both for 420 Investor and New Cannabis Ventures?
Alan: Pretty easy. The best way is 420investor.com, no S or anything like that, just for 420investor.com. That takes you to something that explains the service. New Cannabis Ventures is free. I want everybody to understand that. There's no charge or anything like that. It's just newcannabisinvestor.com.
Matthew: Well, Alan, thanks so much for coming on the show today. Really appreciate it. I think next time we talk, we'll both be in a better mood, things will turn around a little bit, and hopefully, this coronavirus will be behind us. Thanks for coming on the show.
Alan: I appreciate it, Matt. Always good to chat.
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 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 firstname.lastname@example.org. We'd love to hear from you.
Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider. Lastly, the host or guests on CannaInsider may or may not invest in the companies, entrepreneurs, profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:36:39] [END OF AUDIO]
A big problem for cannabis retailers is how to re-engage once enthusiastic customers.
CEO of Happy Cabbage Andrew Watson tells us how dispensaries are using his platform to rekindle customer relationships.
Learn more at https://www.happycabbage.io
- Andrew’s background in cannabis and how he came to start Happy Cabbage
- An inside look at Happy Cabbage, a data analytics and insights platform for the cannabis industry
- Ways Happy Cabbage re-engages previous dispensary customers with highly targeted, personalized messaging
- Analytic tools Happy Cabbage provides dispensaries that enable them to measure the success of their campaigns
- Generating customer excitement through experiential events
- Similarities between stripper economics and the economics of dispensary product placement
- Dispensaries currently working with Happy Cabbage and how they’re using the platform to re-engage their customer base
- Andrew’s experience with CanopyBoulder, a business accelerator and venture capital fund for the cannabis industry
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.
A big problem for cannabis retailers is how to reengage once enthusiastic customers. Andrew Watson, CEO of Happy Cabbage is today's guest and he's going to tell us how dispensaries are using his platform to rekindle customer relationships. Andrew, welcome to Canna Insider.
Andrew Watson: Hi, Matt. Thanks for having me.
Matthew: Give us a sense of geography. Where are you in the world today?
Andrew: Right now I am in Boulder, Colorado, but Happy Cabbage Analytics is based out of San Francisco, California.
Matthew: Okay. What is Happy Cabbage on a high level?
Andrew: On a high-level, Happy Cabbage Analytics is a integrated data platform that is really empowering cannabis business owners, particularly small cannabis business owners, with how to target their customers and revolutionize the insights that they're able to garner from their point of sale data.
Matthew: Andrew, how did you get into this crazy world? What's your background and journey like and how did you come to start Happy Cabbage?
Andrew: I come from a background of actually corporate finance, data science. I spent many years at Salesforce. I spent a few years at One Medical and I actually started getting involved in cannabis in about mid-2017 in which I started doing analytics consulting for a small delivery service out of Oakland that was doing maybe 30 orders a day. Started to do some very basic prelim analysis like said, "Hey, you know, you have these opportunities with your customers. Hey, you have these opportunities with your pricing." By implementing those insights, that customer was able to take his business from doing about 30 orders a day to about 110 orders a day, in a six-month time-frame.
It was a really wild ride, a really exciting time, and with that, we managed to see and my co-founders got involved in that process, and we managed to see how successful a cannabis business can be even a small cannabis business, who doesn't necessarily have a very technically adept business owner can be empowered by analytics and can be empowered by data if it's given to them in a very simple way. We took the software and the stuff that we started built with that owner, and we packaged it together into Happy Cabbage Analytics about a year ago and I've been going to market with it ever since.
Matthew: Okay, let's dig into this a little bit here and set the stage. How often do customers visit dispensaries right now based on your data, what's the average?
Andrew: A regular customer and that's someone we define as having ordered three or more times, orders on average every 20 days is what it looks like.
Matthew: In the intro, I mentioned rekindling customers who are once enthusiastic but have not been back to the dispensary lately. That's a really frustrating thing for a retail owner because it's like you have this relationship that's like what happened? What went wrong? Why did the enthusiasm fade? How do you reengage them and make them excited about the dispensary again?
Andrew: That's a core opportunity that we see a lot in our data is how cannabis business owners will have cannabis consumers, cannabis customers, who had been engaged, had been enthusiastic, hadn't come back in a long time, right? First, what we do is we empower with that business owner with being able to even know who those people are, and then we empower them with the ability to segment and target those customers with very personalized messaging, right? If I purchase edibles, right? I'm a regular edibles consumer, and I haven't come back to the store in many days and I get a text blast of advertising like we have discount ounces of flower, that's not going to be relevant for me. I'm going to feel as if, "Oh, this is just a robot texting me. I don't vibe with this. This doesn't mean anything important to me."
If that message says, "Hey, I miss you. I know you used to come in. I know you prefer edibles and because of that, I'm launching a really great new brand on my shelves that I think you'll like." That's a lot more personal and that'll resonate with me as a consumer in a much bigger way, and that's the kind of messaging that we out of the box empower these cannabis business owners with.
Matthew: Okay, so you mentioned this can really easily turn people off as well as turn them on depending how customized it is and understanding what the most important top of mind thing is for the person that's getting that text message. Everybody's gotten some of those and it's like, "Oh, man." In fact, I'm on somebody's list for the person that the cell phone number before me seven years ago, and I still get text message. That's very top of mind for me, how off-putting that is. It can be a really two-edged sword here if you use the wrong way, so you got to respect it like the force, dark side and the light.
Andrew: Now, I would say that makes a lot of sense. A key thing about us is that we see customers who start like that, they're like blast, blast, blast, blast. What we found is that we can drive a lot of ROI for our customers like tens of thousands of dollars of return on investment in a month. The average consumer in their customer base will receive a single text message that month, just one per month. It can be really impactful if you're doing it in a really targeted impactful way.
Matthew: Okay, so if you were looking over the shoulder of one of your dispensary customers who are using Happy Cabbage, how will they actually see how successfully an SMS campaign or text message campaign was, how is that measured? How does that look to them after it's sent out? Let's say it was sent out two days ago, and we want to take a look at what happened. How is that actually measured, it's like a conversion and see how successful that was?
Andrew: We surface it back up as a very simple UI, a very simple table where you can see hey, here's my messages that I sent. Here's how many customers I sent per campaign, what the opt-out rate, what the delivery rate was basic SMS numbers everyone's used to seeing. Then we have the actual impactful numbers which are 24 hour ROI, seven day ROI, 30 day ROI, and then we then service up the sum of all the ROI that they've gotten within the month.
The mechanism we use is the same thing that Google uses. When you see how much your paid Google searches drive last touch attribution. What we do is we see whether or not somebody went into the store after receiving a message. Did they go into the store? Or did they go online and order delivery within 24 hours, 36 hours, seven days, 30 days, et cetera?
Matthew: That's interesting, keep going.
Andrew: Well, in particular, then what we're also able to do is then if you talk about, okay, what segment did we go after? If we went after a segment that hasn't ordered in 90 days and then we see, "Oh, wow, we were able to generate thousands of dollars from that in 24 hours." That is a very impactful, very clear ROI to the end-user, and those are the ones that we try to focus them in on in terms of articulating our value prop.
Matthew: Even when you get an SMS message and it's the exact fit for your needs, the first time you might be like, "Yes, I'm coming in, and this is a exact fit, I'm going to buy some flowers, some edible, some infused products, some vape cartridges." Then there's this really fine line where it's, even though you know my psychographic profile, it's one message too many. How do you get right up to that where you're delightful and don't cross the line to pain in the ass?
Andrew: Yes, that's a great question. Making sure that we're not really texting more than one a month per consumer, I think is really important. Making sure that the messaging is actually powerful and impactful. Everyone has the right to opt-out, right? It's all based on opt-in opt-out behaviors. If they've joined the list, and they've said I'm willing to be on the list, I'm willing to receive this information, it generally means that they're more inclined to want to receive messaging.
That being said, we're a data-first company. We're constantly learning from what our customers are doing with our platform, and with that, we can start to actually build predictive models around these customers and say, "Hey, customers who have these attributes need only this amount of engagement in order to come back. Customers who receive too much engagement are likely going to drop off. Let's predict that utilizing our machine learning that we have the ability to embed into the platform."
Matthew: What kind of customer data do you wish you could get that maybe it's not accessible now. Would you like political preference? Maybe you probably already have age but I'm just thinking for a political campaign the day after the presidential election, if you know someone wanted a liberal candidate and that candidate won, you could say, "Let's celebrate." If you knew someone who was a conservative candidate, then you could say, "Let's lick our wounds with this discount on a pre-roll." Is that getting too personal? Where's the line and what kind of data do you really want to get to complete that profile?
Andrew: Yes, that's a great question. I come from I mentioned a background doing data at health care companies. In a healthcare company I worked at, we had the same issue when it came down to thinking about what data do you need to understand whether or not somebody is going to go into the doctor. You gather so much information in healthcare.
You gather so much information about people's healthcare conditions, age, demographics, diagnoses and still it's not enough. What I find is that demographics, although they are the known knowns, although we can say like age does this, gender does this and although they are predictive most of the time, you can find out a lot about what you need to know based on just observing the behavior of what they're doing.
Going back to the healthcare standpoint, we didn't really need to know a lot of that extraneous information if you were able to just describe a model that really understood some of the causal factors that you're able to observe that lead to healthcare behavior, same thing in cannabis. Cannabis usage cuts across income, it cuts across demographics, it cuts across political preference based on the surveys that we've been doing.
What we can really start to see is let's describe people who are purchasing edibles on Friday at 12 and let's observe their pathway through their purchase and let's start describe them as a group, let's start to try to predict their behavior as a group. Ignoring necessarily, maybe inserting any other demographic information or other sort of things that we think are causal but focusing on the actual outputs of what they're doing if that makes sense.
Andrew: I think that's where really impactful, really good models come from is not throwing too many variables in, focusing just on the outcomes and similarities amongst people that are producing the outcome you're focused on.
Matthew: I feel like we're kind of reaching peak concern in privacy or people want a transition to something else and we're right now even talking about data points for customers, it's because we don't have specific examples that we can say, "Jane Doe or John Doe." I feel like sometimes data is like this impersonal thing and if there's some way to make it, treat the person like a person, how do you have that discernment to figure out how to treat the person like an actual person while still having a mass message?
That seems like a really tricky thing but are you really looking at what the headlines and the text message should be and the content of the message like is it fun? Is it playful? Are you relating as a human? Or is it more just get right to the point like "Hey, this much off, you come in today for this product."
Andrew: What it comes down to is a lot of understanding the business context from the business owners about what a certain group of customers, how that business owner believes that they behave, believes what they want, believes what they are. I can come in as the data person and I can say, "Here's a segment of people who order in eight every 14 days who are probably likely to purchase another eight at this point in time."
To that business owner, they go, "I've interacted with the people who purchase an eighth every 14 days. I know that resonates with me as people. I know because I've been in the store every day and I think that they would like this kind of messaging." Let's implement that messaging and let's see how it works. Okay, that messaging really worked, let's replicate that for other people that look like they would also like that same messaging.
That messaging didn't work? Now that we know that, let's test and let's figure out what messaging will work.
All basically using really the business brain of a small business owner, a dispensary owner who knows their customers the best. We do not know their customers better than them. We just have the ability to describe and segment the customer base in a way that makes it resonate with them as opposed to just having a list of 10,000 people you're texting every day.
That's I think how we can inform really personalization of messaging as opposed to just making it seem like a robot is sending you messages.
Matthew: You told me earlier there are creative ways you can make in-person events based on customer preferences. Right now we've been talking about sending text messages to get people into the dispensary just to purchase product but there is ways to generate excitement, an experiential event around a brand, can you talk a little bit about that?
Andrew: Yes, that's great. We have a retailer in San Francisco who-- One thing that he does is bring brands in for promotional events, set up a booth. I'm sure you've seen them if you've been into the dispensary. They set up a booth, offer to demo the product and everything like that but if that's between 4:00 and 7:00 PM on a Thursday, who's to know who's going to show up in the store?
What we're able to do is we're actually to take our platform, identify people who are likely to let's say that it's Canndescent in the store. Identify people who are likely to purchase Canndescent or people who really love Canndescent say, "Hey, look, we know that you really like Canndescent or we think that you're probably going to like Canndescent. In order to help you through your consumer cannabis journey, we're bringing them into the store so you can go to them and talk to them and ask them specific questions about the Canndescent products so that you can observe and learn more about CCanndescent."
With that, we're able to drive meaningful results of-- It's not going after a lot of people, it's maybe only going after a few hundred at a time bringing them into the store and actually having them engaged and then both the brand and the dispensary then make an ROI on the investment of having someone in the store for a few hours promoting the brand.
Matthew: That's really helpful. Now, let's talk about delivery. We already talked about people coming into the store and you mentioned delivery but how is delivery different in ways that are important for listeners to understand and what you can do in creating a campaign for delivery?
Andrew: California is a really interesting market when it comes to delivery. Most if not all of the four walls of recreational licenses also give you the ability to do delivery. Every dispensary, brick and mortar, technically also has a delivery business that they can run out of the back of the business. It's good for those businesses because as long as they make a margin on each individual delivery, it helps increase their profit because it helps get them more sales out of the same fixed costs of the store.
One thing we found that's very impactful a lot again with the tool is our geographic capabilities. We can say, "Hey, we know our competitor is opening up a brick and mortar store in the west side of the city." I live in San Francisco, I'm thinking like out by the ocean but we have customers who live on the west side of the city, out by the ocean. Now, they, because of the convenience, might get brought into that competitor store.
It would be really awesome if we could engage those customers with our delivery offering so we can actually compete in convenience against that competing store that's opening out. What we do is we find the geographic segments, say to those customers "Hey, what's it like living out by Ocean Beach? We know it's a hike for you to get downtown and purchase at our store, did you know we offer delivery? For you, we're offering 20% off, et cetera, et cetera, et cetera."
With that, you can actually seed an entire delivery business from your existing customer base and get a really great revenue stream without having to pay $5,000, $10,000, $20,000 a month to get on weed maps, to try to acquire new customers. We've seen that be very, very impactful and a very, very good thing for businesses in California to do if they're trying to get that extra amount of profit at the end of the month to keep their business afloat.
Matthew: What's the price points for people that are listening that might be interested in being a Happy Cabbage customer?
Andrew: We price competitively to other SMS products on the market right now. I like to say that we're not an SMS product full and through, we are a data product and we incorporate an SMS feature in order to action upon the data. That results in us being more affordable and we try to price it therefore more affordably than some other usage-based products.
In particular, we have no hidden fees, no upfront fees, no over [unintelligible 00:19:26] It's just fixed flat month to month. We price it at about $1500, gets you about 50,000 customer engagements.
Matthew: You often compare the economics of dispensary placement of products and brands to stripper economics. Can you talk what that means?
Andrew: [laughs] Yes. For the listeners who are not aware so strip club economics, the stripper economics as I like to call it refers to the fact that in a strip club because there really aren't a lot of labor protections around the strippers, they're contract laborers and they're forced to rent the stage they perform on. Then after they're done performing, they pay the rent and then they also have to pay the bouncer, pay the DJ, and essentially, it's a big pay to play market.
Shelving space in a dispensary is basically the exact same model. If a brand wants to be prominent and get a really good time slot or really good placement on a premium shelving spot, they have to or more and more dispensaries are asking them to pay to get into the store. That's hard.
It's good for the dispensaries because they are saying, hey, look, our shelving space is valuable. It's limited. It's good for the brands because if they believe that they'll get more traction they can pay, but both of them are going to feel a little bit like, okay, how much ROI am I really getting from this? The dispensary is going to say what if I had given that to a different brand and the brand's going to say I'm paying a few grand a month to be able to do this. Am I seeing results?
What we're able to do is bridge the information asymmetry and bridge the gap, and basically say to the dispensary owner, hey, if you want to prove out to that brand that their investment on your premium shelving unit was worth it, let's start driving that brand campaigns to people who we know via our recommendation engine or via just like they're purchasing these products a lot, people who would like to purchase that premium.
We say to the owner, hey, you can even go back to the brand, and we would love to be able to work with more brands with this and basically say, hey, I can guarantee your investment. I'm still going to need it but I can guarantee return on it because I have a tool and I have the capability to drive customers to that shelf. That's a big thing that we work on with our dispensary clients.
Matthew: Happy Cabbage is a pretty young company at this point, but you're already in some dispensaries in California as you mentioned. Can you talk about who you're working with and how they're using the software right now?
Andrew: Yes. Actually, most of our clients are now actually our delivery businesses, and then we have a dispensary in San Francisco. Each client is very different. The dispensary in San Francisco is catering to a more affluent client base. Generally speaking, more premium products, we can see that they're really big on how to do different brand promotions, how to do in-store traffic, bounce their delivery business. We also have a delivery client out of Oakland who actually has a geography that spans all of Sacramento, Tracy Stockton, lot of Central Valley, much more lower-income, but actually higher engaged population. They are really keen on making sure that they are making sure they're going geographies that may have lower retention, and they're re-engaging those geographies. They're really keen on making sure their VIP customers are constantly getting discounts.
When they do bring on name brands, they're also keen on making sure that those name brands get traction by promoting them through a tool before they invest necessarily in more upfront inventory for that brand.
We see it's clients of all shapes and sizes of populations that are all shapes and sizes. That's a really key interesting thing we see is just how different demographics across the Bay Area behave associated with cannabis.
Matthew: You’ve an interesting way to visualize cannabis flower on a cost per gram basis between markets in California. Can you talk a little bit about that and maybe where the price points are at right now?
Andrew: That's a really great point. One thing we do as a data company, we are always out there collecting information, collecting data. One thing we do is we mimic how Google collects information about what pages to search. We use that to collect pricing information available on different menus basically of dispensaries. We target some dispensaries and we monitor what they're advertising, so we can monitor price changes across the whole state and really, we have thousands of them across the country that we're looking at.
With that, we've been able to observe this really fascinating trend with flower in California, which is commodity pricing. Effectively, a unit of flower, an ounce of flower, a gram of flower, an eight of flower is all priced pretty much the same in a price per gram ratio. This is not true when you get to like vapes, concentrates, edibles. Basically brands there are able to ink a margin and they’re basically able to price a premium for smaller quantities. In flower, it doesn't matter. Basically an eighth is 3.5 times more than a gram and a ounce is eight times more than an eight. What that means is it's becoming a commodity. What that means is it's getting priced down to the way apples are priced and potatoes are priced.
It means that it's really great for consumers because they're getting some of the best prices we've ever seen in the open market. It must be much harder for brands and wholesalers because it means that it's very difficult to ink a margin on flower, and particularly if you think of like the vapor crisis and stuff, there's not a lot of other avenues for them to go to, to make sure that they're inking a margin and that they're actually getting a premium, as opposed to like I mentioned flower where pretty much they must be selling it at cost, given these price dynamics that we're observing.
Matthew: I'm not sure if you're in CanopyBoulder now or you are alum. For people that aren't familiar, CanopyBoulder is a seed-stage cannabis accelerator focused on ancillary cannabis startups. Can you talk a little bit about your experience there, Andrew?
Andrew: We are currently in the winter 2020 cohort, about halfway through it, which is why I'm out here in Boulder, Colorado. It has been an amazing experience. For us as a smaller company, we were able to gain revenue, gain traction before we took the investment from Canopy, which made us feel as if we are actually really well set up for a program like Canopy because we're able to go into it and really have intentions about what we're trying to achieve. Where before maybe it would have taken us time to maybe iterate and market test an idea with advisors, mentors, major players in the industry. Now we're able to talk to folks across brands, across retailers, across investors, and very quickly gain feedback, gain understanding and get some rapid iteration on our product and our sales cycle that is really helping supercharge our business.
It's been fascinating. It's also really fascinating to see how cannabis out here in Colorado is performing how different than it is in California. The ability to branch out and see how different markets are working are very valuable as well.
Matthew: What is your perspective being from California and Colorado right now? How do you compare and contrast the two markets just from being a visitor?
Andrew: I like this. I always like to put this point about how we really need to put the size of California into context. Colorado, I agree. It has become a more "mature" market. It is more vertically integrated. You have multi-franchise things. You have more corporate operations in place. The entire state of Colorado has fewer people than the San Francisco Bay Area, and the San Francisco Bay Area is less than half the size of Southern California. California is the sixth-largest economy on the planet.
It is so large, so vast, and so wealthy really in a lot of ways economically that it's really difficult to make equivalencies across smaller markets like Oregon, Washington, Colorado, with the entire state of California. I think that there's a mentality that California is a little bit more of the Wild West, that things are a little bit more nascent, things are a little bit more hectic, things are a little bit more mature and calmed down and stabler here in Colorado. There's truth to that. Again, because of the size, let's say San Francisco managed to be a solid consolidated market like Colorado, and the rest of the state is Wild West.
We would still think of the whole thing as Wild West simply because of the relative sizes. Because of that, I do think that there's a huge opportunity in California for people who are willing to go for the ride, but there's a lot of learnings in Colorado about what this business is able to achieve that we need to take back there, but really do them at scale.
Matthew: I also read that I think it's Los Angeles County consumes more cannabis than all of Colorado. Colorado is such a big state but not densely populated that sometimes it's hard to visualize how the different populations are. There is a California vibe in Boulder, and also now in Bozeman, Montana, which feels like it's becoming like Boulder-like. Interesting things happening there. Where are you in the capital raising process? You mentioned you took investment to be part of Canopy Boulder, do you have other investors? Where are you at right now?
Andrew: CanopyBoulder was our first outside investment outside of our founding team. We are actively in the program seeking to raise our next round. If there are any investors listening and they would like to get in contact with me, please do, but we're pulling that together. Our hope is to be able to raise some capital by the end of June.
Matthew: We'll get your contact information out there for listeners at the end. Let's go to some personal development questions here to help listeners get a better sense of who you are personally, Andrew. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Andrew: Yes, I went to Reed College, studied economics there. One thing at Reed is that you have to write a year-long thesis to graduate, which is the most intense and rewarding experience I've ever had, I guess outside of founding a company. [chuckles] One book that was published that was relevant to my thesis at the time was Thomas Piketty's Capital in the Twenty-First Century, which actually was published the second semester of my senior year. It was relevant because I was writing a thesis on income inequality in the United States and that book fundamentally changed my view and understanding of how one can take a very data-driven approach, a really thorough look at historical data, a really thorough look at even sparse data sets, things that we didn't really have. He goes back to the early 1800s, early mid-1700s to pull together and weave a strong story about data, but then also to lead it to easy- not easy, but powerful conclusions, I would say, an understandable conclusion about society.
That book was really impactful for me because it taught me how one can use data and information to describe society. Then one can go one step further and also use that data information to advise and how we can improve society. That was really impactful.
Matthew: Now, what kind of results does Piketty promote? I'm trying to remember, is it more of like socialism or what is his endgame in his mind?
Andrew: He's a prominent economist at the Paris School of Economics. What he points out is if the return rate on capital, the rent that people make on capital is higher than the GDP growth rate, so if you make 5% interest rate on a loan, but GDP growth is 3%. That means that that extra 2% you have to be taking from somewhere.
What he points out is that the majority of human history that was society. He said that look, feudalism has lasted a lot longer than the Industrial Revolution, and based on the data, feudalism is probably returning. The conclusions he makes is we've seen in a few times if you basically just make sure that your GDP growth, you stimulate growth, and you do it in such a way that you make sure that the capital is flowing throughout all parts of society, then it can increase and so to that aim, I think in America we have probably labeled a few of those policies probably like "socialists." It's capital taxes. It's making sure that we're redistributing wealth appropriately, but what he points out and what he correlates to other studies that have been done is that if you don't do that your overall growth of a society, overall growth of a country is probably going to lag and stutter as a result. It's very data-driven and I would encourage it for anybody who wants a really good understanding of just how modern economic analysis and modern economics, macroeconomics is working.
Matthew: What is the most interesting thing going on in your field besides what you're doing at Happy Cabbage?
Andrew: I would describe my field as the intersection between cannabis and data science. One interesting thing that's going on in data science is the concept of machine learning fairness, which is a concept pioneered really by the Google AI folks, and I recently sat through a keynote talk at a Data Science Conference with them and it's really fascinating. What machine learning fairness comes down to is if you have a machine learning model that's trying to predict something like probability of repayment on a loan, and that machine learning model has the ability to observe certain factors of people. For example, it can observe race, it can observe income, it can observe gender.
That machine learning model is likely to inherit the biases that we as human society have into its own model in its ability to predict the outcome because the majority of people who get loans and have been able to repay back loans come from a certain segment of society, and the machine learning model is probably going to say that qualities of people from that segment of society are more likely to repay back loans and therefore that machine learning model's going to recommend if you have a bank, that only people of a certain race and class receive loans.
This is a concept of fairness. Basically, what it comes down to is if the society has biases and racism, the machine learning model will also have it. There's entire departments at Google who are responsible for making other models to check whether or not the models that they're making are racist at the end of the day. In cannabis, we have all of this great data and there's all of this movement into saying, okay, let's like start applying ML. Let's start applying AI to cannabis data. One thing I'm very conscious of with that is hey, wait a second, where are the majority of all the cannabis data? If we talk about all the major market research providers, where are they getting their data from? It's not from the smaller kind of gray market retailers who are serving maybe lower-income communities. It's from the nice stores in San Francisco that are serving higher-income communities, which means that if you start building models around people's cannabis preferences and predictions about their cannabis usage and stuff like that, you'll start going to actually do the same thing, you're going to inherit the bias of the society of the data that you're selecting from and start to use that to predict certain things and start to use that to serve that community.
That's something I'm very conscious of. It's something I'm already starting to see in our own data when we look at different cuts I mentioned in the city of San Francisco versus the Central Valley. Just I think it needs to be more upfront and talked about the fact that hey, this industry is inherently political. What we're doing here is inherently comes on the heels of years and years and years of a relatively messed up society. As we're producing data, and as we're producing insights, and as we're empowering people with data and insights, we need to be really careful that we're not propagating biases in society because data can do that.
Matthew: Good point. Here's a peer review question for you. What is one thought you have that most people would disagree with you on?
Andrew: As it relates to cannabis, I would say the one thought that I have a lot of people disagree with me on is the power of the black market in California. I think that the concerns about the black market are valid. I think that they're a little bit overblown. I think it's blame every problem with the fact that the black market or the legacy market still exists. Just say that that's the reason why things aren't successful. I think that when you look at the pricing behavior I just described, if you had a legacy business who survived for years off of the fact that a gram of flower cost $20 to the cannabis end user, and all of a sudden, everybody can go online and search cannabis prices and they can see that oh, I can get a gram for 15. I can get a gram for 10, I can get a gram for five because of the legal market bringing on that amount of information, that's going to compete prices downward.
Unless your legacy organization can survive and thrive despite the falling price, your legacy organization is going to go under. In Oregon, the price of an ounce went from a few hundred dollars to $50 because of the supply. There's no way that that didn't impact these long stronger legacy businesses, particularly those ones that basically need to price a risk premia if they're operating in the black, or I guess in the illicit market price a risk premia at every step of the way. It'd be very difficult to compete against delivery that can give me an ounce for, I guess like $50 in an hour.
I think that there's a lot to be said about how to price economics can really turn an entire market around in that maybe the gray market is still a large problem where people are taking it out of the legal market at the last step of the way, but I think that the black market is definitely struggling due to the competition for the legal market in California.
Matthew: Now, final question. You mentioned you went to Reed College, and that's where Steve Jobs went before he dropped out I believe.
Matthew: In his Stanford commencement address, he talked about how you can't see how the puzzle pieces fit while they're going on, but he took a calligraphy course there and just because he had an interest in it, not because it was requirement or anything and that was directly responsible for the ability to change fonts and personal computers and most listeners may not remember, there was only one font in early PCs. Did you take anything at Reed that just for the love of it to calligraphy or otherwise that you felt, hey, this was just for fun, but it really enhanced my life?
Andrew: Yes, I was a very serious theater kid at Reed. I study economics, data science, and theater. Theater changed my life. I cannot stress it enough. If you've ever wanted to do an acting course, you ever wanted to try theater out, you got to try it. I think what I enjoy about it is the parallelisms between putting on a play and founding a company. Where what it comes down to is this notion of you create something from nothing. When you make a play, when you put on a Shakespeare production, you're taking a blank stage, and you're pulling together a whole bunch of people and you're pulling together a script, which is just a few pieces of paper, really, and you're building something and you're training people and you're creating life, really and then you're getting people to cry and laugh at it and then you tear it down at the end of the day.
That experience of creation and that joy from creation is something that I feel passionately about, and something that I always wanted in founding a company and then led me to entrepreneurship because it's a lot of the same ways. You start with just an idea and you really build it into something, something that can add a lot of value to people's lives. You go from there.
Matthew: Andrew, as we close, how can people that are interested or dispensary entrepreneurs that are interested in using Happy Cabbage reach out to you and also how could accredited investors reach out to you that if they're interested in investing?
Andrew: We have a website, happycabbage.io which you can go to to check out some of the information and then I encourage you to email me directly. I'm Andrew, A-N-D-R-E-W @happycabbage.io if you have any questions, accredited investors, potential customers, let me know and I'm happy to answer them.
Matthew: Andrew, thanks so much for coming on the show. We really appreciate it. You've got great traction, you're still in the accelerator, and you've got traction. That's awesome. Congratulations, and we look forward to hearing more.
Andrew: Thank you so much.
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