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Cannabis banking has long been heavily regulated, but one company is weaving through the regulatory madness to create a service that delights both businesses and customers.
Here to tell us about it is Tyler Beuerlein of Hypur.
Learn more at https://www.hypur.com
[1:25] An inside look at Hypur, a payment and banking technology platform for the cannabis industry
[1:51] Tyler’s background and how he got into the cannabis space
[6:27] Obstacles the cannabis industry has faced in payments and banking and how Hypur is working to overcome them
[10:32] Similarities between Hypur and Venmo
[17:13] How Hypur profits off merchants, banks, and credit unions
[19:44] Ways in which Hypur helps merchants market the service to customers
[22:13] How cannabis retailers can easily integrate Hypur into their point-of-sale software and delivery apps
[23:22] Success stories Tyler’s seen among Hypur clients and his advice to retailers interested in using the service
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 Kind: Banking and payments for the cannabis industry is a heavily regulated and bogged down industry, but despite it all, one company is weaving through the regulatory madness and has come up with a compliant and seamless payment service that delights both cannabis businesses and customers. Here to tell us more is Tyler Beuerlein, CEO of Hypur. Tyler, welcome to CannaInsider.
Tyler Beuerlein: Thank you, Matt. I'm actually the Chief Revenue Officer. I don't want to get my head chopped off by the CEO of the company, but thank you very much. I appreciate it.
Matthew: No problem. That might be a harder role, to be in charge of revenue.
Tyler: Yes, especially in this wild world we live in, right?
Matthew: Well, Tyler, give us a sense of geography. Where are you in the world today?
Tyler: We're based on Scottsdale, Arizona. We've only got a couple of team members that work remotely, so our facilities here-- and we've been fortunate to have-- I would say a pretty mild experience all things considered with this. Very thankful to be here.
Matthew: What is Hypur on a high level?
Tyler: Great question. If you ask people throughout the industry, they'd probably all have a different answer, and that's for good reason. We started as a regulatory compliance technology company that was built to enable banks and credit unions the ability to serve high-risk industries. What people fail to realize in many cases is there are industries that-- I'm going to say dwarf cannabis from a volume perspective, that are perfectly legal, but have still been shut out of the banking industry for the most part. The reason being is because they oppose a significant regulatory compliance burden and significant risk to any bank or credit union trying to serve them.
We were built to really solve that problem for banks and credit unions. Think of us as almost a core banking system for a high-risk industry. In that, we knew we had to solve the banking problem for the payment side of Hypur to operate in an efficient sustainable manner. We're a combination of a regtech and a fintech in one cohesive platform. As we built out our foundation on the bank and credit union side, the payments side of Hypur went nationwide officially about a year ago, and we've been very fortunate to have a lot of success on that front.
Matthew: Can you share a little bit about your background and journey, and how you got into the cannabis space and became the Chief Revenue Officer of Hypur?
Tyler: Yes. I kind of had a-- maybe an odd path, but I was a professional athlete. I played baseball for a long time. Was fortunate to have a nice little career. I went to work for a private equity company in an offseason. It was in real estate. That company took off and I had stepped away from the game. I went through some injuries and some things like that. Then I actually started my own beverage company with a group that had had a lot of success in the alcoholic space, I mean with Carmelo Anthony.
We started a premium sports drink company. I had that for about five and a half years live the CPG experience on the front lines, and it was quite a learning experience as you can imagine. Then as I was transitioning out of that, I met the founder of Hypur and was fortunate to be with the company, really, day one. I've been with the company for over six years now and been on the front lines of this industry in a very unique way.
I've been able to not only be in front of most operators and licensees throughout the country and get to know them very well, been working closely with every bank and credit union, or most I should say that are serving this space. That's led to very deep relationships on the regulatory side of the fence, both at the state and federal level, and also at the state government level as well. It's been a wild ride but a great one.
Matthew: Could you briefly just give us some background on your baseball career?
Tyler: Yes. I went to college and was drafted. I won the seventh round in 2001 of the New York Mets. I came up through the system with them. Yes, I just had a great experience there and will always cherish that time of life.
Matthew: Yes, those New York fans can be great but also tough. Did you get a lot of lip service from the crowd at all?
Tyler: Oh yes.
Matthew: They'll let you know when they're not happy, right?
Tyler: Yes, you learn quickly at a young age to just have a thick skin and try and focus on the things you can control and not let those things affect you. It's actually a great learning experience to be used down the road because, again, you understand quickly that you can only control the things that are in your power, and you have to just drown the rest out.
Matthew: Also, I mean, having a batting out. What's considered a great batting average in professional baseball?
Tyler: Probably in the 300 range, I think, is-- You're hitting well if you're in that range.
Matthew: That's like 30% of the time you make it on base, that's what that means, right?
Tyler: Yes, it's a game of failure for sure. It's also a game I want to say we played somewhere in 165, 170, games in a matter of under 200 days. Again, you learn to shrug things off quickly, regroup, and go again. Then that's a metaphor for life, right?
Matthew: Yes. Well, Tyler, a lot of people that are listening have some sense of the difficulties and obstacles in the payments side of the cannabis space, but not everybody. Could you frame and give a snapshot of what makes payments challenging in the cannabis space and where we are today?
Tyler: Yes. Matt, most don't. Even I deal with very large sophisticated operators, and it never ceases to amaze me how shortsighted the approach is and where they end up as a result of it. In the state-legal cannabis industry, the branded card networks are opposed to have any cannabis transactions running on their networks until federal legality. I've seen a lot of people in the industry talk about how they think the SAFE Act is bringing Visa, Mastercard, to the table. It does not change the federal legal status of the products. Therefore, they will not participate even if the SAFE Act passes. That's one thing.
Two, we've seen recently operators go to market with things like cashless or reverse ATMs. Those are also prohibited. It's gone even a step further where technology providers in the space have formed partnerships with companies that are pushing those products, and they've raised money for their businesses based on revenues coming from transaction volume. The problem with it is you're dealing with fraudulent transactions again, and it's just a matter of time before those things get shut down en masse. In fact, I have a feeling there's going to be a significant shutdown here again soon of those products.
Everybody in the industry has been very stubborn about offering a card-based product to their member base. That's landed folks in hot water time after time. It not only has an effect on the consumer. It has an effect on the bank or credit union you're trying to bank them potentially. In the case of the deliverer-provider in California, you've now got the Department of Justice-involved in the investigation because they were offering credit card products to their member base, and to do so you'd have to defraud a bank or credit union.
I cautioned people constantly on doing things right and understanding that every decision they make in this space that's non-compliant is going to have a price, and it's going to be steep. Unfortunately, people just-- they keep making the same mistakes.
Matthew: I've definitely seen the ATM-type solution in dispensaries and so forth that you're talking about. It is complex. I mean, some people know that they're breaking the rules, others don't, and then others feel like they're damned not to have a simple or elegant solution if they don't take up one of these gray area payment solutions. I think that's why you're taking off. I've heard Hypur's name come up so much recently as kind of a solution. Just so we're clear for everybody, credit card, debit card's not allowed, ATM solutions, and dispensary not allowed. None of those things are allowed.
Tyler: No. Now, physical ATMs are allowed.
Matthew: Physical ATMs, but I'm saying--
Tyler: Physical ATMs, but on counter-reverse or cashless ATM is not permissible. Furthermore, one of the things that's happening with physical ATMs is regulatory bodies are very concerned about money being laundered through those physical ATMs, and so in many cases they're requiring that operators in the space use a third-party provider that owns and operates and stocks the cash. That's another thing that's been a bit of a pain point for the industry.
Matthew: Okay, but there is hope here. There's a way that Hypur works that can simply solve this problem, but it just doesn't involve credit cards, debit cards, or this kind of reverse ATM functionality. Let's walk through a scenario on how an order works with Hypur. Let's just say I am a retailer in California and I want to offer the most simple electronic payment solution possible, and I come to you. What are you going to tell me?
Tyler: Yes, we've gone to great lengths to make that process as seamless as humanly possible. Candidly, we've learned over the years as well on ways to streamline. We've taken a lot of input from the industry. From a consumer perspective, consumers expect an Amazon-type experience, right? They want to know that if they run a transaction, it's going to be reliable, it's going to be sustainable, and it's going to happen the way they expect.
In California right now, we've got some very wonderful partners, Caliva being one of them. If you go into Caliva's website as a consumer, first you would want to download our app. You can go on the Apple or Google Play Store, download our app, set up a quick profile. I've seen people do it in less than a minute. During that process, you would link your bank account, which is ultra simplistic. You just sign in with your username and password for whatever institution you're using, and then you choose a four-digit code that only you know.
Once you've done that once, when you go onto a site like, let's say, gocaliva to place your order, you choose Hypur as the form of payment. When the delivery driver comes out to deliver the product, they click on your name in their interface. A secure link is sent to your cell phone right there at the point of interaction. You're prompted to enter your four-digit code on your cell phone, so you don't have to touch the driver's device. That finalizes the transaction.
Our bank and credit union clients that openly bank the state-legal cannabis industry, and have built out their regulatory compliance programs to do so, move the money from the consumer's account directly into the merchants'. It's ultra simplistic, not only from an interaction standpoint, but also from a functionality perspective. There's a massive amount of compliance that has to take place behind the scenes, but from a user perspective, it's very seamless.
Matthew: How long does it take for that transaction to settle? It probably goes into a-
Matthew: - pay link status daily?
Tyler: Yes, daily. Many of our clients have shifted to Same-Day ACH. Again, we've shortened that settlement time significantly even over the last year.
Matthew: I put on my business owner hat here and I go, "Hey, if I'm going to go out, I'm going to get delivery to somebody's house, what if they don't have-- What if they have partial funds or not enough funds?" How do I know that they have enough funds to pay for this before I go out?
Tyler: We verify funds on three separate occasions. We verify funds the second the consumer places the order. We verify funds again the second the delivery driver leaves, and so we know that that consumer has funds available at the point of interaction. The transaction would be declined in a situation where they didn't, but we don't run into that, obviously, because of the additional verification.
Matthew: So it's fair to say this is very much like a Venmo or Cash App for a highly regulated industry?
Tyler: Yes, I think that's fair.
Matthew: If a consumer does get denied, do you tell them, "Hey, you have insufficient funds," or do they get a reason so they know?
Tyler: They do. They get a reason. Then, again, for a consumer ease of use and to benefit the retailer, when a consumer runs a transaction, they receive a text message with a copy of the receipt and the ability to leave a tip just like an experience with an Uber. They can leave a tip right there on the spot for the driver, which is nice for everybody. Again, getting cash out of the system, streamlining the process, and providing a really sustainable compliant means of payment.
Matthew: Now, is there anything you have to do in terms of language or psychology to help the end-customer feel comfortable with the process that they're going through because they're saying, "Hey, I'm putting my banking credentials in here. Is this high risk? How do I know Hypur's legit?" What do you say there?
Tyler: I think we encountered that more at the beginning because the industry didn't necessarily know who we were, but I think the more that we've tried to educate the community-- Again, our clients are banks and credit unions, so from a security perspective, our security protocols and the audits we have to go through on a yearly basis are far in excess of what a normal payment company would go through. That's one.
Matthew: Compared to a credit card, say, for example, that's usually like a three-day settlement process. Is that right, or do I have that point?
Tyler: Correct. Yes.
Matthew: Okay. So they're getting faster cash flow with Hypur than a credit card? That's good.
Tyler: Yes, and that will continue to speed up as more of our clients adopt Same-Day ACH.
Matthew: I'm trying to understand where it-- Sometimes an end-user might contest a charge or say it's of the wrong amount or entirely fraudulent. I would imagine much less so since there's so much in the setup process here. Do you have any stats on how that compares to, say, a credit card?
Tyler: It's not even close to being comparable. There are a number of reasons for that. One, the consumer is identified through the process on multiple occasions. Again, we've got access directly to available balances, and then they've got to authenticate the transaction at the point of interaction. The chances that something would be fraudulent on our platform is virtually impossible for those reasons. Then from a dispute standpoint, it's rare if ever that we see it, and typically, it's a quick fix between the merchant and the consumer. At the end of the day, we're just there to move the money in a compliant, sustainable, and convenient manner.
Matthew: How does Hypur make money here? You have to keep the lights on. If you're doing a good job, everybody wants you to make money. How do you strike the right balance of profitability and then the cannabis retailers' profitability? How does that work?
Tyler: Hypur is compensated in a number of ways. Again, you've got to remember our clients are banks and credit unions, and they use our technology to banking industry, so that's a revenue stream. Then at the payment perspective, think of us as a network like Visa, Mastercard, for high-risk industries, so we charge a per-transaction fee to the merchant. Those are the ways that we generate revenue in the industry. That's our business model. As the payment network expands, obviously, that can be a very lucrative endeavor.
Matthew: Can you give us a range in terms of what your percentage is for retail cannabis companies, typically?
Tyler: Typically 3% per transaction is where we land, somewhere in that range, so very much in line with traditional mainstream fees for transactions.
Matthew: We've given the example here about a cannabis retailer doing a delivery to an end-user, but there's a lot of B2B cannabis companies that would love not to have huge truckloads of cash and so forth. Is that an option? Let's say I'm a wholesaler ,or a grower, and I want to sell to a retailer. Can I use Hypur?
Tyler: Yes, it is, and that's a great question. A couple of things there. One, I think the days of truckloads of cash are behind us. In fact, I would argue that if somebody in this industry is not banked at this point with an institution that knows what they're doing, they're probably doing that by choice, or they don't want to be transparent. Also, we built out a full Business-to-Business product, and we actually modified our pricing recently to be-- I'm going to say right in line with mainstream ACH processing so any distributor, any wholesaler, any wholesale platform can use Hypur to facilitate transactions between two parties. That's life today.
Since we modified our pricing to be more in line with mainstream, we've seen huge interest. I think you'll start to see the infrastructure of this industry start to shift to Hypur for those B2B payments.
Matthew: Let's say I'm a cannabis retailer. I've been trying a bunch of different ways. Maybe I tried some credit cards in the past and different things, and everything just keeps on getting shut down. I'm frustrated. I want to do it right. I turn to Hypur and I say, "Help me with this." Do you have any kind of marketing or any kind of support to help a retailer inform their customers about, "Here we are with Hypur," and, "This is how to use it," and to get them comfortable with it?
Tyler: Yes, we're very aggressive on that side of the fence. We have a full marketing team in-house that supports our merchants with, really, anything they want to do from a marketing perspective within reason. We never want to be the type of company that drops something in a building and walks away. That's not our model. We're not successful unless our partners are successful, so we're there to hold their hand.
Really, we've done some really, really creative things with retailers across the country that have been very successful. We also can provide input on what we've seen work in specific markets, depending on the demographic. Yes, absolutely, that's something we really view this as a true partnership with our retail clients.
Matthew: How do you make sure that the end-users' entailed during the sign up session process? Do you just have them put in the bare minimum to get started on an order and then they have to provide more when it gets closer to the transaction being complete? How does that work?
Tyler: No, it's a pretty seamless sign-up process already. We can actually see internally where consumers are if they drop off, and so our customer service team will reach out to them if they have dropped off during that process. At this point, we don't see much of it at all. If consumers want a reliable sustainable means of transaction that's convenient, and my hope is that the industry finally realizes that, one, it's here, it's taken a long time for us to get to this point because we did it right. They're starting to really trust in that process.
Obviously, I'm going to say COVID sped that up a good six months to a year really industry-wide because the industry had to shift to a mobile or curbside pickup model, and that's where we thrive. All those things have been a big benefit.
Matthew: If a cannabis retailer has their Point of Sale software in the dispensary, and then they maybe have crafted a delivery app, is integration-- How does that work? Is it like there is an API or some documentation that shows how to integrate it into your app? Do you have a ready-made solution? What do you suggest, or what are the available options?
Tyler: Yes, we do. We've been fortunate to integrate with most of the major providers at this point, not only from a point of sale perspective, but also delivery. On the delivery side, the two dominant players in the space seem to be Jane and Dutchie. We're fully integrated with both of those providers, but our entire dev team is in-house. We have API's built out for everything. From an integration perspective, it's really up to that provider of how quickly they want to get it done. It's not a heavy lift at all at this point, so we've really tried hard to make that process seamless.
Matthew: You work with a spectrum of retailers or cannabis businesses. You see some that execute well, I'm sure, and some that just don't execute that well. Is there any kind of suggestions you would give to a cannabis business to really jump in with both feet and start accepting electric payments and just run their business well with this? Because you're seeing so many. Some execute, some don't. What are the ones that do execute? What do they have in common?
Tyler: The ones that execute it right understand payments through and through. They have sophisticated people in the building that understand that if they keep launching shoddy payment products, they're going to lose the consumer base that's going to be their long-term consumer. Because they're not going to sit around for a payment product that keeps going under, they're going to find something sustainable.
My advice to the industry is get people in your building that really understand this, or get to people in the industry that understand it through and through, and can point you in the right direction. Again, it never ceases to amaze me the short-sightedness when it comes to banking and payments in the space. I feel like over the last six and a half years I've seen just about everything.
Again, I see operators like Caliva in California that do it right, that get it, that understand it. Then I see multistate operators that are at the pinnacle of their game, and very highly regarded in the industry, that have no clue what they're doing, to be candid. It's very frustrating.
Matthew: I noticed this kind of variability in execution on a lot of different fronts, not just payment, marketing, packaging, and on and on and on. I think it's difficult sometimes because you have this internal team and they don't even really know what to compare themselves with because they don't know what their competitor's doing, how fast they iterate, how their mindsets may be more aggressive, and so on and so forth. It's good to hear that feedback, hopefully.
Tyler: Here's another thing too. Not to get off on another subject, but I think it's going to be the next pain point for the industry, candidly. To that point, you can't compare the cannabis industry to anything else. If you haven't been in the cannabis industry for a long period of time and learn these lessons, you're going to fail. With all due respect to the people that come from CPG, or they have retail backgrounds, or they come from the investment banking side, and they get into the C-Suite of a large operator, and they make decisions based on what they think is right based on their background, it doesn't translate. That's part of the problem.
My fear is, as some of these multistate operators fail, which inevitably they're going to, it's going to continue, and new leadership as appointed, these VC firms that are pointing that leadership are going to put people in the "don't get the industry", and it's going to take them 12, 18, 24 months before they really learn it and can really truly understand it. By that point, it's too late. They've already failed. Again, I know that's getting to a different shifting gears and getting to a different point, but it's a metaphor for everything that's happened in this industry.
Matthew: Is there any kind of consulting firm that acts as an outsource partner to manage the whole payment functionality for cannabis businesses? Because a lot of them don't have this as a strong suit. As we're talking about there's no one in the building, as you say, that is good at this, do you work with any consultants or anybody that helped make this possible?
Tyler: I would say there are legal firms that get it, that understand. They can advise, but even then, in some cases, that's few and far between. You really have to know who to go to in this space. It's not an easy thing. I say these things, and I understand why merchants make short-sighted decisions, because they just don't know better and they're being fed, aligned by somebody who's got a vested interest in them using their product. We call it whack-a-mole in the building.
Literally, I spent the last couple months watching a massive wave come into the industry. It's about to end really badly for people and they just don't get it, and they won't until it happens, unfortunately.
Matthew: Well, just expand on that a little bit more in what you mean by that?
Tyler: Oh, I'm talking about reverse ATM and cashless ATM products. They spread quickly throughout the industry and people are being told that they're permissible and sustainable, and they're just not. It's going to be interesting to see how that plays out, not only for the retailers that have launched those products, but for the investors that have invested in companies based on added revenue to their balance sheets from those products.
Matthew: When you look ahead the next few years in the payment space in the cannabis industry, at least in North America, how do you think it's evolving? Where's the puck going?
Tyler: I think it's going to be more of the same for the foreseeable future. I think you're going to see companies like ours innovate. We're about to do a couple of things that are going to have a big impact on the industry. Look, eventually, upon federal legality, the branded card networks will come to the table, they will participate in the industry. I think those that can make the right decisions, find the right partners, do things right and not shoot themselves in the foot for later, those are going to be the ones that really thrive.
I think that for us, again, we're building a network for a high-risk industry. Cannabis is not going to be the only industry we go after. We understand the branded card numbers are coming and we're building our network for that. We'll be ready when that day comes and it will be a huge win for our clients. Again, in the foreseeable future, it's going to be more of the same.
Matthew: Well, Tyler, I'm want to ask you a few personal developing questions but, because of your background, I'm going to change them up a little bit here. You mentioned you were in the beverage space. A lot of people are talking about cannabis beverages being a big thing and cannibalizing some of the alcohol industry. From where you sit and having your background in the beverage industry, do you think that's coming? If so, when, and what would that look like?
Tyler: Yes, I think it's coming in a way, but the part that people miss a little bit about the beverage industry, especially the non-alcoholic side, is it's a brutal world, and it's extremely difficult to get into shelf space. Every time you walk into a convenience store, you got to understand that those shelves are owned by many of those big companies and those distributors. If you don't have relationships there, you're not going to get in. It's not as easy as just launching a product and hoping it takes off.
For the cannabis space, it's going to take federal legality, obviously. For the foreseeable future, it's still going to be based on distribution in licensed operating retail shops. These beverage brands are going to have to sign the right licensing deals in the right markets. They're going to have to take the right market share, build up enough of a following to where when that wall falls, they're prime for takeover by one of the big distributors that can feed them into their network. I don't think I know--
In today's world, it's all about the licensing agreements you can do as a brand, what operators you're with, in which markets, which markets you can dominate. It's just going to have to be state by state expansion until, again, that wall falls.
Matthew: Having a background in professional sports, which is pretty rare, what have you taken away from your professional sports career and integrated into your life that you see like, "Hey, other people just don't do this," who don't have this kind of high-level sports mentality, and maybe you consider it as a superpower or at least an understanding that most people don't have?
Tyler: Gosh, so much. One, just cherish the time that I've been able to have with teammates over the years and the friendships that have come from it. I think being in the sports world-- I was talking to my best friend who played in NFL for a long time. We were talking about-- I remember living with people from different backgrounds. I mean, there were people I lived with who didn't even speak English at some point. I think one of the biggest takeaways is you find a way to find common ground with everybody. You find a way to create a family atmosphere with people that you don't necessarily know well. I think that's one big takeaway that's really helped me in my life.
When you're around different people every single day, and you're in different environments every single day, you learn to listen to your gut. It's not something that's easily explainable, I don't think. It's not something that's quantifiable, but it's always there. I think at a young age, for me to learn to really listen to that, it's helped me in every aspect of life. Again, if I had to interview every teammate and ask them that question, they probably all have a different answer, but those are the two biggest takeaways for me.
Matthew: Thanks for that, Tyler. Now, Tyler, as we close, how can cannabis businesses that are interested in working with Hypur, how can they reach out to you and talk about a payment solution and connect with you?
Tyler: I think mostly everybody in this industry probably has my phone number at this point, good or bad, so you should be very easy to get ahold of. They can reach out through our website, hypur.com, H-Y-P-U-R.com. They can find me on LinkedIn, shoot me a private message. Look, we're here to help, and I mean that. Even if somebody decided that they want to go a different path, at least they'll have all the information if they give us a call.
On top of that, one thing we've done for the industry for over six years now is, anytime somebody is in need of a transparent banking relationship, we will always pair them with the appropriate bank or credit union based on where they're located, type of operator, what their needs are, and we don't ask for anything in return. We believe in doing that for the industry. Please use us. We've learned a lot of these lessons the hard way. If I can help somebody avoid a landmine in this industry, we're happy to do it.
Matthew: Tyler, would you mind spelling your first name and last name in case anybody does want to reach out to you on LinkedIn?
Tyler: Sure. First name is Tyler, T-Y-L-E-R. Last name is pronounced Beuerlein. A little more difficult to spell, so it's B as in boy, E-U-E-R-L-E-I-N. Again, that's pronounced Beuerlein.
Matthew: Hypur is H-Y-P-U-R?
Matthew: Tyler, thanks so much for coming on the show today. We really appreciate it. I know everybody that's listening appreciates having a simple solution when they make an order, so that's really welcome. Good luck with everything you're doing. You're growing fast. Hopefully, you'll come back onto the show in awhile and tell us how things are going.
Tyler: Thank you so much, Matt. I really appreciate the time. Keep doing a great job.
Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guest to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at 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, or companies featured in CannaInsider. Lastly, the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.
Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will stuck in your head for the rest of the day. Thanks for listening, and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:37:21] [END OF AUDIO]
Delivery and curbside pickup sales are booming as cannabis retailers seek new ways to accommodate customers during COVID-19. Here to tell us about it is Socrates Rosenfeld, CEO of I Heart Jane.
Learn more at https://www.iheartjane.com
[00:54] An inside look at I Heart Jane, the first cannabis e-commerce marketplace
[1:25] Socrates’ background and how he got into the cannabis space
[8:32] The type of retailer I Heart Jane typically works with and how the company has grown over the last year
[13:10] How I Heart Jane helps retailers streamline their businesses with automation and real-time integration
[15:50] How dispensary delivery and curbside pickup sales jumped from 17 to 50 percent overnight and what that means for the future of cannabis
[20:55] How I Heart Jane is helping retailers overcome obstacles with delivery and curbside pickup
[23:24] Why I Heart Jane’s business model is superior to GrubHub’s
[29:34] I Heart Jane’s integration services for retailers, including everything from point of sale to CRM
[34:31] Where Socrates sees cannabis e-commerce heading over the next 3-5 years
[39:46] Where I Heart Jane 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 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.
As we suffer the lingering effects of COVID-19, cannabis retailers while an essential business, still have to deal with customers that don't want to come into the store. That means delivery and curbside pick-up options are booming. Here to tell us more about it is Socrates Rosenfeld, CEO of IHeartJane. Soc, welcome to CannaInsider.
Socrates: Thank you, Matt. It's a pleasure to be on.
Matthew: Give us a sense of geography where are you in the world today?
Socrates: I'm currently sitting in Santa Cruz, California so not a bad place to be holed up.
Matthew: Not at all. What is IHeartJane on a high level?
Socrates: IHeartJane is essentially a retail technology that allows consumers to shop online for their cannabis like you shop online for just about everything else in this world. On the backside of that what this provides for brands and dispensaries is a fully automated way to take every single product that's sitting in a physical retail environment and replicating that in real-time to an online platform.
Matthew: Great. Soc, can you share a bit about your background and journey and how you got into the cannabis space and started this company and what you were doing before?
Socrates: Yes, I actually never tried cannabis ever in my life until I was 29-years-old. I was in the army before that. I went to West Point for college. After graduating from there I was an Apache helicopter pilot.
After I had left the service, I experienced some challenges transitioning from a highly kinetic life and death decision-making environment to be in a classroom at business school. As much as I tried to figure this out on my own, whether that was trying to work out harder or trying to meditate more, for me, I couldn't find my balance again and cannabis ultimately helped me find my balance.
Then from there, I personally was experiencing all the wellbeing effects of this plant. Started to talk to more military veterans, started to understand that they were also feeling better and healing themselves by using cannabis.
I graduated from business school. Traveled out to Silicon Valley where I was consulting for some of the largest tech companies in the world and I started to realize that technology particularly with e-commerce provides a wonderful experience for the consumer. We call it purchasing power. Essentially, you can go on an Amazon or KAYAK and find exactly what you're looking for at the exact right time for the right price. You can read reviews from other people just like you. You can get recommendations.
Back in 2015 when we were ideating on this. We had the hypothesis that in five years or today, people will expect some kind of digital experience when shopping for cannabis and we wanted to be in the position to make that a reality. Unlike other market places, Grubhub, Uber, even Amazon I would argue, where they're essentially putting themselves in between the buyer and the seller. When you buy something, when you make an order on Grubhub, they're taking about 35% from the sale out of that dispensary or that restaurant's profit.
We don't do that but instead what we're trying to do is reinvent this idea of a marketplace so that everybody can participate, consumers, the tech company and also the sellers in a really fair equitable way. We think we can do that both from a technology standpoint as well as a business model standpoint. We launched in April of 2017. Now, we're the largest consumer platform in cannabis here in the US supporting over 1,600 dispensaries across 31 states. It's been a really exciting run so far.
Matthew: Yes, you're doing a couple of things different that I think retailers will love, and maybe other platforms will feel jealous that they didn't start out the way you did with the business decision. Just first, what's it like to fly an Apache helicopter?
Matthew: What's that feel like? That just sounds cool.
Socrates: I've never been a bull rider but I imagine it's much of the same. I remember strapping myself into an Apache for the very first time and I had flown traditional Bell helicopters, your normal traffic helicopter or newscopter. Then getting into one of those, it's not unlike the experience of being an entrepreneur where at times you're just holding on for dear life and you are just trying to focus on what you can control in the present moment.
It really teaches you that, to balance what we call being inside the cockpit and outside of the cockpit. Making sure the aircraft is flying but also keeping ahead of what's coming down the pipeline and I'm sure there's some parallel there with being an entrepreneur.
As fun at it was to fly an Apache helicopter, I'll be honest with you, Matt, I'm actually having more fun and more exciting times being an entrepreneur here with the Jane team. Yes, both exciting I'll say.
Matthew: Just one last question about that just because I'm geeking out over here.
Socrates: Yes, please.
Matthew: Do you have like a visor that has something where you can like-- your eye-- what you look at, you can shoot at right through your visor?
Socrates: Yes. It's strange for me to talk about this because I wish on the other side of that visor there was maybe a joint or something like that other than a 30-millimeter automated cannon but that's exactly right.
You strap on your helmet in an Apache and the technology there is amazing. This technology has been there since the late '70s, early '80s, where the sensors will follow wherever your eyes look so will the weapon units. You become the Apache. When you are the pilot of that, you really immersed yourself into the machine and there's really no separation between you and the aircraft itself, which is-- it's a remarkable piece of equipment. I just again wish it was used for more peaceful things but yes, astonishing nonetheless.
Matthew: Yes, I agree with you. We have got to move to a more peaceful planet. It's just whoever puts down their arms first is at a disadvantage. You're trusting that who you formally called your enemy is now going to be benevolent and-
Socrates: Oh, man.
Matthew: -it doesn't seem like we're there yet.
Socrates: Not to say this is what we want to talk about on the episode but you can take that metaphor into the cannabis industry. I feel very blessed that I was able to experience the tail end of a medical market here in California where there was a lot more cooperation than competition I'll say because we were all in this together to move this industry from the dark into the light. I am hopeful that we continue to maintain that, to say, "We don't need to be the first coming to pick up arms and then force everybody else too. Can we create a peaceful industry where everybody can win and everybody can provide value to those who need it and in areas that need it?
Optimism of course but I believe that is the future of this industry if we do things right and take care of each other.
Matthew: You did a great job of taking Apache helicopter and transitioning into the cannabis industry. I have not heard that being done. Well done there, Soc.
Socrates: Thanks, man.
Matthew: Tell me again how many retailers are you working with right now?
Socrates: We're working with currently 1,600 retailers across 31 states.
Matthew: Yes, and what would you say the primary benefit is? If I'm a retailer listening right now and they're saying, "Well, I have an app or I'm doing something else, why do I need this?" I heard some good things about IHeartJane and that's why you're on this show so I know a little bit about this, but talk about that a little bit if you would.
Socrates: Thank you for asking that. Just taking a step back even outside the cannabis industry because this is retail. If you think about where retail has been for the past 30 years ever since the .com-- I think it's still 30 years. I was on 40 years. I think it's 30, but if you think about what's now emerged on a spectrum of e-commerce, on one side of the spectrum you have Shopify, WooCommerce, these are great companies but what they do is they support individual micro-sellers more times than not.
Why that is is because let's say, Matt you and I had a small little company and we sold dog beds for whatever reason. I'm just looking at my dog's bed, and we want to sell online. We want to ship our products to the consumer. Well, there's no better tool than a Wix website. Let me get my Shopify plugin. I got my dog bed, maybe I sell two sizes. Maybe I have three colors. A finite amount of skews, not too much complication. We plug this in, away we go. We're happy campers as direct to consumer sellers.
Then on the whole other side of the spectrum, still direct to consumer, you got the behemoth that is Amazon. Amazon likes to call themselves a marketplace, but really, it's the Amazon show. No one knows who the seller is. When you're buying your products, you're really buying from Amazon's customer. What Amazon does is they inventory the product and they distribute the product themselves. They're this massive behemoth, but the issue that we've seen the past five, 10 years, is it completely disintermediates retailers in the physical communities.
That leaves this middle swath and I would argue the majority of retail sits in this middle swath where you are a let's say a dispensary. On average, a dispensary in the United States cares about four to five hundred skews. On average, a dispensary in the United States turns over their inventory 15% day in, day out. If you're trying to maintain accurate digital representation of what's in inventory, that has required really since the onset of the legal market before Jane, for you to manually reconcile what's in your store with what's being represented online.
I don't know if you've ever worked retail, Matt, but I have and there's no time in the day to even go to the bathroom, let alone sit down at a laptop, reconcile what's in store, download a photo, write a description, upload it back onto your menu. What we've done is essentially, because we can't go to direct to consumer, which I think is a blessing, we can't disintermediate the retailer, which again, I think is a blessing, now what we've had to do is actually think less so as the retailers as just the distribution of our network, but more so as really our retail partners.
We provide for them software that can essentially automate e-commerce. Meaning through point of sale integration, we extract all items in their inventory, we apply the right content directly from the brands, the photos and the descriptions, the taxonomy effects, flavors, et cetera. Now, what that means is retailers, whatever products are sitting on their physical store shelves or in their delivery depots, is in real-time being streamed to their online digital menus without any work required on them.
What that means now is that they have a part of their business, which has been really the biggest limiter of their business. To think of a retailer having to build their own software is like, think about MIT engineers trying to open up a dispensary. It doesn't really fit. Now, what we're doing is we're saying to the retailers, focus on what you guys do best and allow Jane to automate the really complicated stuff so that you can build your business on top of that. Again, in partnership with that dispensary, not in competition. I think that model's worked out for us so far.
Matthew: Okay. There's a big automation and convenience factor here because as you were mentioning, there's a lot of heavy lifting to look at the inventory, make sure the menu's up to date, people aren't ordering things that are out of stock. That's a massive advantage there. You integrate with how many different point-of-sale system here because I know depending on your geography, different POS systems are popular and other ones are more popular here and there. How does that work?
Socrates: We actually have a few utility software patents on our ability to through point-of-sale integration, automate e-commerce. We integrate now proven real-time integrations with over 50 points of sale systems across the country. We're always looking for more. We say we integrate with every single one. The bottom line is whatever the client wants, whatever our partner wants, whether that's the dispensary or the brand and they want us to integrate into, we'll go and do that and make that happen for them.
Matthew: This is interesting because your outward-facing benefit is, we help your end customer find you and find your product and a for sale to occur. Behind the scenes, I'm imagining this API and what you're doing and keeping invisible is a huge undertaking.
Socrates: That's exactly right. I got asked on a panel a couple of weeks ago, and they asked, and I was sharing the panel with Harborside, and Charlotte's Web, two of the most prolific historical I would call pioneering brands in their own respective verticals, retail and brands or products. I got asked the question, well, what is Jane doing to promote Jane? What is Jane doing to advertise Jane? My answer was, it's actually not about Jane. We actually prefer to be in the background.
This is why we white label completely our e-commerce menus that live on the sites of the brand and/or the dispensaries is because we want to be able to support them. They're the ones who are doing the heavy lifting. They take all the risks, they're opening their doors, they're hiring, they're engaging with the consumers on the ground. Let's promote them in a smart, fair way.
Not what we've seen in the past where let's pit one against the other in LA and whoever pays us the most we're going to promote, but exactly like you said, Matt, if you're providing great service, if you're carrying great product, and you're serving your local community, as all retailers should, and you're doing it right, let us showcase that and connect you to more consumers who are looking for those products and those services. That's what I think we do very well.
Matthew: Let's talk a little bit about what the delivery and curbside pickup looked like in January in February and what it looks like now. If someone didn't know what was going on, how would you describe the change?
Socrates: Sure. I think worth noting, overnight, when back in early mid-March when COVID and the pandemic was really scaring a lot of people. Number one, the cannabis industry proving to the world, we are essential. Number two, I think the cannabis industry is stepping up and providing a vital service during a time when it's perhaps most needed in the history of this country. I want to take that opportunity to be like, I think we're moving really in the right direction showing the world that we're here to help.
How things have changed? At the beginning of the year, online throughput, meaning all orders at a dispensary, about 17% of those orders were going online, though, the 83% was going offline. Now we're sitting at about 50/50 and that was really an overnight switch. For dispensaries that were thinking oh automation and this digital experience is really a nice to have but it's more secondary to my core business and that is serving people in my store, now that has completely reversed. Now, it's digital-first and then maybe the in-store consultation as a secondary service to only really those who need it.
I think Planet 13 is a great part of- that I like to highlight because they adapted so well they're a very big dispensary. Here they were in Vegas, if you've been to their showroom floor, it looks like a casino in and of itself. It's beautiful. They've obviously spent a lot of resources making that experience wonderful, but now nearly overnight due to the pandemic, they had to close those doors and shift completely to a delivery-only. What we're seeing now is delivery has ticked up significantly in states like Nevada, California, obviously, Colorado starting to think about it. Florida obviously is a massive delivery market for us.
What has emerged, and I think you're alluding to that, Matt, is this curbside pickup is a very interesting thing. What I mean by that is a dispensary like Planet 13 can maybe do 1,000 deliveries in a day and I'm completely making up that number. They have to go and wait and traffic and load up the cars, they can only hold out so certain inventory, so it's actually pretty inefficient for the retailer to process 1,000 orders via delivery. They could probably process 1,000 orders in a couple of hours doing curbside pickup.
That's actually where we've seen a lot of innovation go, is in this what was overlooked, curbside pickup because that really didn't exist. If you ordered for pickup, you'd actually walk into the store, maybe go to the back through a Jane lane, and then pay and pick up your product. Now, really what to do is, and depending on how the store wants to run the flow, you'll say, "Hey, I want to order for pickup, I'm driving in a white sedan." They assign a parking spot for you, you drive up to it, you pop your trunk, and they drop the cannabis in you, you hand them your cash and away you go in a matter of minutes.
Now, what has emerged is what the digital world is proving to retailers is that actually it's not something to be afraid of, but it's actually something now to adopt because you have a lot more efficiencies, you have a lot more throughputs through your store. The consumers love it because you no longer have to wait in line and by the way, you're keeping safe and physical distancing.
Also, now what that's doing is if you do want to build an in-store experience and a consultative experience, which I think should never go away, particularly in cannabis, now you are identifying only consumers that really want to come to the store. The worst thing that could happen is you order online, you go to the store and you still have to wait in line. Maybe you experienced that pre-COVID.
Now, there are separate lines or separate entrances for curbside online orders, and what that's doing now is maybe you're a new consumer to the space, you want to actually go and talk to someone. You can do that, do it efficiently and once you find the product or brand or category that you like, now you're plugged into their digital network.
Now you can order for delivery curbside pickup, and that's how we're seeing the evolution of retail is, new customers come in, they get familiar with the product set, they understand flavors, profiles. Okay, this helps me sleep, and then once they find the products that they want they convert to online users and that's either through delivery or curbside fulfillment. I think we saw this change happen overnight, Matt and honestly, I don't think this is going to go back.
Matthew: How well are the different retailers executing and waiting for, or I should say, when a customer pulls in they're assigned to a spot. I know that I'm just at a short attention span and every second feels like a minute. I'm like, "Do they know I'm here? How long am I going to have to wait?" Is it a huge spectrum on how well they're executing and messaging, "We know you're here. We're getting your order ready. It's going to be ready in five minutes." How does that work?
Socrates: Absolutely. We're all learning together. Six months ago, no one was doing curbside, not even Best Buy and Whole Foods. Now, everybody's doing it. We're all [unintelligible 00:21:41] quite exciting as an entrepreneur to where if you think about it, the cannabis industry is starting at the exact same place as other retail verticals. Let's go and innovate together.
To your question, does this vary? Absolutely. Are there still circumstances? Now you can reserve a certain time slot down to almost 15-minute increments. Retailers are getting tighter and tighter and better and better and more accurate with their execution and we're also unlocking different things from a tech technology standpoint to help that. Now put in your license plate number. Hey, you have to pick from one of these three parking spots. When you arrive, hit this button and this will message back to the staff and they'll come out.
All those different nuances, as a tech company, that's what we love because let's go and build very flexible technology and software to where we can say, okay, Jane curbside module, how do you want to run your curbside? Do you have assigned parking spots? Do you require someone to fill in their license plate number? Do you want them to hit a button and notify you when they've arrived? Should they wait in line out in the back? All these different nuances because no retail operation's the same.
The software should be nimble enough and inflexible enough and adaptable enough to support the retailer however they want to slice and dice their operation. Again, that's really exciting for us and that's going back to this partnership ethos at our company. We only uncover those wonderful ideas when we're working in partnership with our dispensaries. Again, I really feel blessed that we have developed that relationship with our retail partners.
Matthew: This is where I think you stand out, is how you get paid. We talked a little bit about how Grubhub taking 30-35% from restaurants, which restaurants have a really low margin to begin with so I don't know how that works. Talk a little bit about how you get paid and how that's different from other platforms.
Socrates: That's a great question so thank you for asking this. A lot of people mistakenly think that Jane is the Grubhub of cannabis and iheartjane.com is a marketplace that looks- you could argue it's like Grubhub. I won't bore your audience with how I think we're different but that is part of our business.
Really, what we do though, unlike Grub-- I'm going to pick on Grubhub for a little bit, Matt, I'm sorry. For all the Grubhub fans out there, and it's nothing against anybody at the company. I think they've done some great stuff, but we're learning from them. What they done for the- they started 10-15 years ago, out of Chicago, and they came up with this unbelievable idea. I love takeout. Could I have some aggregated platform where I can go as an end-user, find all the restaurants and just order online for delivery or pickup? It was a phenomenal idea.
Then they went to the restaurants and they said, "Hey, restaurants, we're going to plug you into this marketplace." Where now if you were a Chinese food restaurant on the south side of Chicago, you now can actually access customers on the north side of Chicago. If they're looking for Chinese food and you get good ratings, now we're going to bring more customers to you. They loved it and it was a really virtuous relationship they had going.
Then all of a sudden, not all of a sudden, they started the take rate at taking 5%. Which to your point, Matt, restaurants operate on like 1-2% margin, no one's really making money, but they said, okay, "Let us take 5%." The restaurants thought, "Okay, that's fair."
What ended up happening though, was their plan all along was, I don't know if it was their plan but it's how it unfolded, the more restaurants they got the more leverage they had to increase the take rate. Now if they had every restaurant in Chicago on their platform, they could go to you as the Chinese food restaurant, say, "Hey, we started you at 5%, but I'm sorry, we're now going to have to increase this to 10%, 15%, 20%, all the way up to 35% take."
Guess what, they didn't do anything differently. They didn't say, hey, I'm going to increase my take rate from you and here's the value I'm going to give you in return. Really, all they did was use their aggregated marketplace as leverage against the individual seller, which if you paid attention to the public markets, Grubhub stock went down because DoorDash and Uber came in. DoorDash and Uber said, "All you guys provide is online menus for restaurants and you charge 35% take. Well, we could do online menus for restaurants and we could just charge 34% 30%, 25%", right?
Now, this is what's going on to the point where like in Oakland, Santa Cruz where we're based, cities have actually capped the take rate because it's unfair to the individual restaurants.
Long way of saying, Matt, when we were looking at the space we said, "That is unsustainable. How do we create this virtuous cycle, this model where can we charge on a SAS $300 a month all in for any retailer, or dispensary, or brand that wants to join our network and use our automated e-commerce? Then from there, can we create a network where we can sell other things, again, not in an egregious price, to where if we can do that at scale and create monetization in other parts of our business? Can we subsidize our e-commerce business and keep the cost low for that small business corner dispensary in Santa Cruz?"
I give my credit to my team and the investors that had the foresight and quite frankly, the courage to say, "Hey, let's go give this a shot." Now what we're seeing is, we have minimal churn, no one really leaves our network, we provide really good software in partnership with the supply side of our business. What that's doing is it's allowing us again, in partnership with the brands and dispensaries, to grow the size of the pie so that we can all monetize and keep costs low for everyone.
That's our ultimate goal and I think we're well on our way to setting that flywheel, which is exciting. Hopefully, if you look at, to beat a dead horse, but actually there's a company out in the restaurant industry called ChowNow that prices not only percent take, but instead on a monthly SAS, and they are disrupting in that restaurant industry. My guess is that they're probably going to force the hand of an Uber and Grubhub to where now they're going to convert to a SAS.
That's my hypothesis but I think the days of going to a small business and saying, hey, we're the tech company, but you cook the food and you deliver the food and you pay the taxes and the rents and everything and hire all the employees but that doesn't matter we're still going to take 35%, I think those days are done. I'm hopeful that other tech companies who have the aspirations to do something like this in cannabis think otherwise because that's not going to create a healthy industry where we can work all in unison and in a zero-sum game where the only way we can make more money is if we take more money from our supply side. That's not the game we want to play.
Matthew: Definitely much more sustainable and retailer friendly. No doubt about it. Now, can you integrate into other parts of the business part from just the POS? How does that work?
Socrates: Yes. You have touched upon probably the biggest pain point for any retailer, is the integrations. If you think about what a retailer has to manage outside of the physical infrastructure, but from a tech standpoint, they have a point of sale system, they have a e-commerce solution. Hopefully, it's Jane. They have a CRM solution like springbig or Sprout. They have a payment solution like CanPay or HyperPay tender or something like that. They have in-store displays like Divvy. They just have all these decisions to make.
Then when you make a decision, you buy a point of sale, it's really frustrating when it doesn't talk to your in-store display, or when you buy a payment solution and it doesn't push back into your point of sale. Or when you use Onfleet as a fleet management and it doesn't speak to your e-commerce.
What we've done is we've actually said, "Hey, where should our core-competency be right now? Where should we double down, triple down, quadruple down?" Really, it's in the integrations. Now, not only do we integrate in over 50 point of sale systems, but now we integrate into every payment solution, nearly every CRM solution, I think every in-store displays, fleet management.
Now, what has occurred is you have these large MSOs or these large single-state operators that are utilizing Jane as the software backbone. Say, "Okay, I use Jane. Jane is this connective tissue that makes my point-of-sale actually speak to my payments, which actually speaks to my CRM, which speaks to my fleet management." We can connect all those dots, which is really exciting. I won't hang our hat on many things, but systems integration, data, architecture and cleansing, that's what we do very well.
Matthew: Great. You're not a SAS developer. You're a helicopter pilot.
Matthew: How do you even know where to start when you're creating a SAS product here? There's certain things you have to worry about. I heard if IHeartJane goes down, you're not getting love letters, people are putting pins in a voodoo doll, Socrates.
Socrates: Oh man, yes. I ask myself that question every day. I say that jokingly. I love this metaphor with the Apache. I was a pilot. I was a commander of a company. I had about 50 soldiers, eight aircraft and I had to maintain that in Baghdad, Iraq 24/7 for an entire year. Like I'm a CEO of a company, we have about 50 headcount. Why I draw that metaphor is, even as a pilot, I didn't know how to turn the engine. I didn't know how to fix the engine and maintain the transmission and download all the data, read the weather and look at the intel. I had specialists who did that. I trusted and took care of and supported the experts.
That's no different to what I do now, Matt. I am not the expert, but I take care of the experts on my team. I help them grow. We learn together. That is how you build a team. That's what I learned in the army. Any success I ever had in the Army was because we did it as a team. Any success we have at Jane is shared. There really is no one guy leading the charge. It's all of us being experts in our own fields. It's really exciting to see that all come together. All different people, all walks of life, all different passions, all different expertise, all coming together to move the mission of Jane forward.
I'll tell you what, as fulfilling as it was in the army to do is equally as fulfilling, if not more, to do if you're in cannabis because I truly believe we're writing history as we move forward. We take that position very seriously at Jane. The things we do, the things we say, the technology we produce, how we communicate and partner with our dispensaries and brands, that's going to set precedent for years to come, not only for Jane, the company, but for everybody else who comes behind us, all the other tech companies.
You want to say, "Hey, let's do this the right way. Let's learn from other tech companies and other industries. Let's make sure we take the best and apply them here, but also the stuff that we can improve upon, let's do that." To your original question, how do you build a SAS company with technology? You attract, retain and grow special people. I'm grateful that we have special people here on team Jane.
Matthew: I've watched how this is evolving so quickly and COVID-19 certainly been a catalyst, but just technology in general before that is just really moving quickly. I feel like in five years I'm going to think about a cannabis product, a drone is going to emerge a minute later and shoot a vape pen into my mouth. I'm joking around, but where do you think in the next three to five years improvements will be made where we're going to remove more and more friction points. There's not much friction now, but I feel like that's coming.
Socrates: Maybe not as sexy as a drone that shoots a vape pen in your mouth, although that would be pretty neat. Maybe Jeff Bezos and his team at Amazon is doing something like that. For us though, what we see to be the future, particularly we obsess about the future of e-commerce is we don't think the future of e-commerce is going to look like Amazon. Amazon's been around for 30 years. They run a lot of things, but I don't think you're going to see another company emerge as the next Amazon because Amazon has done a phenomenal job at structuring the chess board to make sure that no one can build another Amazon.
Zappos tried it, Wayfair tried it, Jet.com tried it, they all failed. The reason behind that is that they will just wait for you to improve where margin is, and they're just going to undercut you. If you also think about what's happened with Amazon is they found their own limitations. Again, they inventory the product and they had to deliver the product to you. They have their 747 jets and 18-wheelers. That's how I get my toothbrush to my doorstep in two days. Actually, I think the future of e-commerce instead of going to an Amazon, will go to the company or companies, I will say, that are able to completely digitize all of existing analog retail infrastructure.
How do you take the dying shopping mall and transform that for the digital age? How do you take the local corner dispensary in Santa Cruz and transform them into the digital age without overpricing, without over complicating, without creating more work for these small businesses and retailers? How do you do that? I think the cannabis industry is ripe to prove and leapfrog other retail verticals. Every other retail vertical has been anchored on direct-to-consumer other than alcohol really. If you think about it, when I say, "Hey Matt, let's order something online." You're really thinking about, "Okay, is this going to be mailed to my house?"
Matt, I don't know where you're based, but I'm not too far away from San Francisco or Oakland. The products that I'm looking at on Amazon, I bet are based somewhere in the Bay Area or California or the United States sitting on a store shelf somewhere at a small business or a retailer that's desperately trying to sell that product. What if we could create a system where you, as the end user, can be afforded the same level of convenience and curation, you can compared by price, you can read reviews, you can bundle products except instead of it coming from just one seller, Amazon, it's coming from all available settlers across the country?
I think that's where the future goes. That's where we're really excited. I think that's what we're using this cannabis industry for. Not only to help and support this industry, but prove to the rest of the world that in doing so we could provide a new definition, redefine what this means to be a tech company working with physical infrastructure so we don't run into the same scenario as an Amazon or Grubhub but these tech companies are working actually in unison, in partnership with physical retail businesses. I think that's where the future will go.
Matthew: Do you think there's any possibility of Shopify buying FedEx and actually executing that strategy?
Socrates: Perhaps, but again, Shopify is going to support that small micro seller who can really already go and mail his or her product in the mail. Everybody's focusing on it. You got Etsy, Shopify, Wix, WooCommerce. They're all supporting that little microseller. No one s supporting J. Crew, no one supporting Macy's and Sears. No one is supporting that hardware store or the local grocery store in Santa Cruz. Those are the ones left behind that can't use Shopify due to their limitations, can't use Amazon because they're the competitor.
They're left with either building it themselves or being left in the dust and having no digital tool to advance their business. This is where Jane comes in. I think we're proving it here in cannabis because largely these are fragmented small businesses. Hopefully, one day we can prove to the rest of the world that perhaps there is a better way to shop online.
Matthew: Soc, where are you in the capital-raising process?
Socrates: We're always talking to investors. We're really very interested in forward-thinking investors who aren't trying to jam an old model, a Grubhub, a Yelp and stick it into this industry and say, "Hey, make it fit." Instead can build something from scratch on the ground with the retailers in cannabis to build truly a tech solution for this industry.
We raised our Series B last year. We have no reason to raise again for a lot of time, but we are looking at the opportunities we have before us. We are accelerating our business faster than ever before. We are scaling into different business lines faster than ever before. We see the opportunity to continue to carry that momentum. Always talking to investors. No formal raise plans anytime soon, but when the opportunity arises, hopefully, we'll be able to make it happen.
Matthew: Okay. For accredited investors that are listening, that are interested, is there a list they can sign up for anything or just to keep on checking on an investor's tab or something on your website?
Socrates: Send me an email. I'm always looking to connect. My email is SOC S-O-C @iheartjane.com. Shoot me a note and we'll get on a call.
Matthew: Okay. Soc, a couple or a few personal development questions to help listeners get a better sense of who you are as a person. Although, I feel like we've got a pretty good sense [inaudible 00:41:22] cannabis entrepreneur. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Socrates: Many books, but one that I recommend to any entrepreneur, quite frankly any leader, is a book called Endurance. It's a story of Ernest Shackleton in his expeditionary crew as they went out to go and explore and traverse the Arctic and be the first ones. I won't spoil the story for you, but their boat crashes and the story begins. Okay, what do you do now as a leader? How do you take care of your people in a time of uncertainty in absolute fear and death all around you? How do you maintain normalcy, organization accountability? How do you stay productive? How do you find the small victories and celebrate those as a team?
That book is really powerful. It's a wonderful story. It's a true story. Something we go back to and revisit as a team at Jane all the time.
Matthew: As you mentioned, you were an Apache helicopter pilot, West Point graduate. I've never met a lazy West Point graduate or Annapolis graduate. I don't think that's coincidence.
Socrates: That's my mom [laughs].
Matthew: What's one skill that you feel like that wasn't necessarily taught in a classroom, but you've taken away from your experience in the army and at West Point that you feel like you use like, "Wow, I really leveraged that skill a lot."
Socrates: Wow. That's a great question. Many of them, I will say I left West Point not really remembering what I studied in the classroom, not really any tactics that I learned. That was more on the job. Really, what I walked away was some of the deepest friendships I had ever developed through love there and values. Not values that were written on a wall, but what really courage means. What does persistence really mean? What does loyalty really mean? Again, not read out of the dictionary, but lived and observed. That's what I got away and pulled from.
Applied now fast forward 16 years to today, at Jane, I'm working with people who I admire, love, trust, and respect. We have values that are lived in upheld and breathe every single day. That's why, in my opinion, coming out of West Point, there's a certain standard there that you can expect for graduates. The same thing is true here at Jane, no matter who you're talking to on the team, there's a certain standard there, whether it's customer support, partner success sales, all the way up to the CEO, respect, love kindness, that's really what we try to maintain and uphold here at Jane. I think that started from my time at West Point in the army.
Matthew: Okay. Here's a Peter Field question for you. What was one thought you have that most people would disagree with you on?
Socrates: If you ask my wife, there are many thoughts. I'm still pretty bullish on-- I think a lot of people think that cannabis drinks is going to have their time in the sun. I agree. That's not one that people disagree with me on. I think the pet category has yet to see their time where a lot of these pet owners--
I don't have children, but I got a white fluffy dog we call Larry. I give him CBG. I give him CBD, he's healthy. He's 15 years old. He's running around like a puppy. I'm not giving him these pharmaceuticals. I think we're starting to wake up to that as humans. I think we're going to start waking up to that for our loved pets. I say that the pet category will be a very strong one in the future, but I don't think a lot of people agree with me right now.
Matthew: Okay. Well, Soc, as we close, how can listeners learn more about IHeartJane?
Socrates: Please sign-on iheartjane.com, go place an order. Let us know what you think. We're always open to feedback and hearing what consumers and brands and dispensaries think. Shoot us a note on firstname.lastname@example.org and we just appreciate everybody's business.
The last message I'll say, it's not relevant, Matt, to this conversation, but I hope we can continue to just take care of each other. This industry was founded on community. I think this is a cross-section of many different things, particularly around social justice now. This industry is moving in the right direction. We're trying to merge the past with the present to the future. We're trying to take care of everyone. It's really an honor for us as a team to be involved. Again, I hope that as we move forward, we continue to take care of each other and ultimately make sure this plant is accessible to anyone who needs it.
Matthew: Soc, thanks so much for coming on the show. We really appreciate it. You've got a lot of exciting things going on and I hope you'll come back and share updates when you can.
Socrates: Absolutely, Matt. It's a real pleasure. Thanks so much.
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[00:48:21] [END OF AUDIO]
Founded in 2015, cannabis accessories company Hemper has quickly become an industry leader – and all thanks to their monthly subscription box. Here to tell us about it is Bryan Gerber, CEO of Hemper.
Learn more at http://www.Hemper.co
[1:56] An inside look at Hemper, a premium monthly subscription box for smoking essentials
[2:25] Bryan’s background and how he got into the cannabis space
[7:39] How influencer marketing helped Hemper get its start
[10:59] Ways in which Hemper uses their subscription box to collect real-time data on customer behavior and preference
[21:39] How COVID is affecting the community aspect of smoking and ways in which Bryan plans to bolster that community virtually
[26:55] How Hemper became one of the largest pre-rolled cone manufacturers in the world
[38:01] Why Bryan believes you must control the price in order to secure your place in the market
[40:56] How Hemper is working to become a leading manufacturer in different smoking accessory products
[41:46] Where Hemper 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 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.
Today we're going to learn how one entrepreneur uses his subscription cannabis accessories box to do research on what sells and how he created a cannabis empire from it. I'm pleased to welcome Bryan Gerber CEO of Hemper to the show today. Bryan, welcome to CannaInsider.
Bryan Gerber: Thanks, man. I appreciate you having me on. I'm very excited to discuss with you what's going on in the industry. There's a crazy world we live in nowadays.
Matthew: Indeed. Give us a sense of geography, where are you in the world today?
Bryan: Recently, I actually moved to Las Vegas and I was living prior in California, but we're now-- We've actually moved here literally a week before COVID hit. Now, we're here in Nevada.
Matthew: It sounds like a smart move and do you find yourself getting more flamboyant just by being in Vegas? You're wearing sequence outfits, blue suede shoes, pink Cadillac, anything rubbing off on you out there?
Bryan: You hit it on the nail.
Matthew: Oh, I did. [laughs] All those things, that’s crazy.
Bryan: No, not too crazy obviously with everything shutting down, it hasn't been-- We haven't gotten too wild yet but we're getting back out there. Vegas, it's definitely-- You can take advantage of that stuff or you can totally not take advantage of it. Luckily, I live in about 30 minutes away from the Strip and all the action. It’s kind of a schlep to get there.
Matthew: Yes. Well, tell us, what is Hemper on a high level?
Bryan: Hemper is direct to consumer discovery outlet for smoking accessories. It originally started as a subscription box for discovering new smoking accessories and then, it kind of segued into a trusted branded marketplace at this point.
Matthew: Bryan, can you share a little bit about your background and journey and how you got into the cannabis space and started Hemper?
Bryan: Totally. I got into the space early 2015. I think the inception for the idea was actually my last semester of college, around 2014, probably November. I was studying at GW, Accounting and Information Systems. Obviously, that has nothing to do with what I'm doing now. Personally, I was solving an issue that I had myself, which was-- I was in Washington DC, it just went wreck.
It was a pain in the ass to get smoking supplies because I lived on one side of campus where they didn't really sell any rolling papers or anything. Just stumbled upon to this and was buying off Amazon for a while and then, I just kind of got fed up with that and said, “Here, let me just start my own thing.”
Matthew: Was there any fear around that at all or doubt? I know, sometimes we have to overcome doubts like, “Hey, will this work? Is this something I really want to do or [unintelligible [00:03:43]?”
Matthew: Talk about that a little bit about it.
Bryan: When I first started, obviously, maybe not some people have gone to college who are listening to this and as we know, college doesn't really prepare you for too much in this world, specifically. Start-up, Cannabis, ecommerce, it's all-new. Obviously, when I was starting, everyone was like, “Oh, he's just a stoner kid with a stoner idea.”
Bryan: I was trying to explain to everybody and also I had my parents that were like, “Okay, you're applying to grad school, you're going to go and get your MBA or go to law school.” I was like, "I know you don't quite understand what I'm doing but it'll pay off. Trust me; this is better than the MBA." During my last semester of college, I was, instead of studying for my finals, I was putting the Shopify website together and creating the logos and all that.
When I first jumped into it, obviously, there's so many things you don't foresee coming up, but just going into it with the confidence. That I know that if I spent an obscene amount of time on something and I'm somewhat passionate about it, how could it not be successful?
It's partly the fears coming from exterior factors of people, that are maybe even closest to you and saying, "Hey, I don't know if you should really focus this, much time into something like that or--" A lot of things don't sound realistic to people. I like to say, and I go around the office saying this all the time, "Manifest your destiny." Seriously. You start speaking things into existence and you want to-- For example, you want to get in touch with that CEO at that company, or you want to get in touch with that investor, manifest it.
Go on LinkedIn, add them, send them a quick message, get them interested. That's really where I have a lot of-- My number one character trait is persistence. I had little startups when I was younger, and I think just being [unintelligible 00:06:03] and being able to talk to people and just-- I was fixing a simple problem with a simple idea that everybody says to me, "Keep it simple, stupid." That’s in terms of fear; I don't know if it was fear, I think it was more of excitement. I know where I'm going, people might not be able to see it, but I know and I think that's where people are just like, "Okay, we'll just see what happens." I told them so, right? [laughs]
Matthew: What percentage honey badger DNA are you? The higher the better, you just keep going, keep going, resilience and persistence and you just go. I call it the MacGyver quotient. I stole that from a VC but I learned it from that show MacGyver, that guy that could just get [unintelligible 00:06:59] he gets anything done with the smallest amount of resources just because he's determined to.
Bryan: Yes, scrappy is the number one trait. My investors talk about this, that's why they love us. We're scrappy, we're lean, we get things done with basically a few people wearing a million hats.
Matthew: You have a really strong sense of brand, which I'm going to talk about later, which is kind of hard to cultivate. I feel like there's something innate to people that can create it and if you don't have it, you just don't have it. You can build on it if at least you have a spark, and we'll revisit that later but I want to talk about now, what was the first thing that you saw that worked where you said, "Oh, my gosh, this is starting to work. I'm sending out these cannabis accessories and I'm getting feedback." Do you remember that moment?
Bryan: Yes. I think where the 'aha' moment hit was probably about six months into the business. Let's say a couple of hundred subscribers on the subscription. I came up with this whole guest-curated concept where I would bring in an influencer or a celebrity of sorts, they would pick the items for a month and then it would be as if you were smoking like them on your couch for a month. We had initially pilot-tested this with popular YouTubers in the cannabis community. We initially started with a lady named Jane Roe and I don't think she does videos anymore but she was the queen of unboxings at the time.
I contacted her and I was like, "Hey Jane, would you be interested in picking the items in a box one month and we'll deck out the sleeve with custom artwork?" At the time custom artwork was a custom stamp from Uline and we basically stamped every single sleeve. Basically, Jane started doing these promos like, "Hey, get Jane's box," and it became this kind of joke and it just hit. We went from a couple of hundred subscribers to over 1500 subscribers, the next month. We went from processing maybe $10,000 to over $50,000 in one month. That was our "Whoa, this is the value-add, this is the differentiator that we needed."
The concept in general worked but I think this catapulted the-- Hemper, in general, was through the influencer marketing. Obviously, not having a marketing background or influencer marketing or anything in digital strategy. I just stumbled upon this. It was just an intuition,
Bryan: That was our 'aha' moment.
Matthew: That's a great idea. That's like a case study in win-win. When people say "What's a win-win?" That's a win-win. You're helping her help her audience and she's helping you, there's nobody losing there. Sometimes there's this fixed idea in mind like "Well, if I win, some else loses" In this case, it's perfect that everybody wins, there's no loser-
Matthew: -it's not a zero-sum game. That was a brilliant idea. You've done a lot of interesting things here. Another thing I picked up when I was talking with you was about, I was thinking how you used a lean startup methodology here because you had the subscription box and you still have that, the Hemper box. How many people get the Hemper box now?
Bryan: Currently, we have about 25,000 active subscribers.
Matthew: In the lean startup methodology, you do the minimum viable product test and you're using your box in that way where you say, "Let's see what the feedback is when we send out the box this month," and if people say they love an item or hate an item, you take that feedback. If they love it, you make it a permanent item in your store. Can you talk about that a little bit?
Bryan: Yes, I think it was about 2016 we started realizing that the boxes were coming out faster than the market was making new stoner gadgets, right?
Bryan: We took a step back and said "Okay, what is the evolution of Hemper? Where are we going with this? What's the evolution of the box?" I was doing a ton of research and this was right around-- right when the subscription boom happened. I think if you got in around 2015, in terms of subscription, you're probably doing pretty well right now. When I was doing my research I really focused on Birchbox. They raised obscene amounts of money, never turned a profit, why? I'm basically in the same boat just instead of makeup, its smoking accessories.
What they really attributed to one of their biggest failures was not investing in developing their brands and products early on. What they failed to recognize is that you could go to any major department store whether be it Bloomingdale's, Macy's, Sephora, Ulta Beauty, and essentially purchase every single product that Birchbox had in their boxes directly from the store. I know that sounds productive because people are saying "Online's the future" but why buy a sampled thing when you can go buy the real thing. That's where I was like ding, lightbulb went off, I was like, "Oh, we need to start developing our own products and not just white-labeling," which is what most companies do, really invest in our own cool kind of gadgets.
The way I started taking apart the industry was I noticed that there were all these, we call it six or seven niche markets, all these different segments. There's glass, there's concentrates, there's vaporizers, there's cleaning gear, odor eliminating, storage, rolling papers and grinders and stuff. What we started doing was really taking apart all these markets, identifying the key players, take the top three to five products, and really dissecting them in its entirety and then coming up with better versions and innovating on top of it.
One way with basically coming into a new market, you either duplicate and innovate or you duplicate and lower the price. There's only a few things you can do. We duplicated and innovated, we made things better because what we discovered was the people developing a lot of these products may not actually be smokers. As much as we want to hope and think and wish that the Willy Wonka of smoking accessories designed this, he didn't.
For the first time, it was a group of millennials developing smoking accessories for other smokers. We're the customers and now is the differentiator is where we weren't just hard on ourselves, but if we didn't like it why would our thousands of customers like it? We almost had our own internal focus group, and then when we started landing on some winners in terms of products, what we did was we tested it through the subscription service, we would develop a new product, pay for all the mold fees and then immediately get it into thousands of homes overnight. As a startup, we always thought the North Star was getting into thousands of stores, but obviously fast forward five years, what is a storefront anymore? Nobody even goes to it.
We didn't really focus on the wholesale side of our business; we focused on driving as much value at an affordable price for our community and our subscribers. We put these products in the box, got initial feedback from thousands of people and whether they said they loved, perfectly hit it on the nail or if they gave us feedback, we went back and retooled or changed things up, made things more user-friendly or more cool or this or that, whatever it may be. That was actually how we started developing our own catalog of products, and we call our subscription service almost like it's a Trojan horse, it's our way of developing products for this industry at an affordable and fast rate.
Most companies don't have this luxury. A lot of people may have a couple of thousand dollars just for an initial mold or an initial product run, but they don't have the test market that we do. I think that's where we really excelled was we were developing products for people who wanted products to be developed for them, right?
Matthew: Yes. This like the Trader Joe's formula, why Trader Joe's is still enduringly popular because they make their own products. You can't get anything they sell anywhere else really, a couple of maybe 10% of the stuff there, you can, but everything else is like their own niche, and they're these fun products that you're just delighted to try.
Matthew: This is really smart. In your mind is your secret sauce that innovation you're talking about. You have to really make sure you're top of your game talking to other people in the community, talking to your subscribers what they like, what they don't like, what they're thinking. How much feedback are you getting monthly or through your team? How many people are you talking to and getting the pulse of what their thoughts are?
Bryan: It's a day-by-day thing, to be honest. This industry particularly is very vocal because we have to remember that we're secondary to the plant. People don't necessarily need these products so we need to make effort to drive serious value when we're developing products, and we're not going to just come out with something half-assed because our customers will let us know if we did, right?
Bryan: We're on YouTube, we got content going everywhere, we have influencers. People wouldn't want to work with us if we weren't delivering real value, right? I think we'd send out surveys, our social media is so active there's an action happening on it every second or multiple actions happening on every second. There's no hiding at this point, the painted gallery is coming out, they're going to find us and let us know. I think it's more of being reactive to it because we know they're going to tell us and I think it's more so like "Okay, they love that piece. Awesome." Every month we release new pieces, so every month when we do that first reveal promo people will tell us, "Oh, you guys hit on the nail this month. Oh, my god, it's amazing," or people will be like "Eh, I don't know about that one, I think I might skip this month." It's in our best interest to develop things that are just so much cooler than what's out there and so much more relatable, right?
Bryan: That goes back to "We're the consumer." The day I wake up and say I wouldn't subscribe to Hemper is the day the box is no longer, right?
Bryan: We continuously make it cool and fun and exciting with different themes, and influencers, and collaborations, and products and that's really where people fell in love with Hemper was we really became that branded, trusted marketplace and we really did create brand equity where it is difficult to do that. Trust me; I didn't even know what I was doing when I first started. If you ask me what our brand bible was or
just with your logos and color swatches, I would have been like, yes, no idea, right?
Bryan: Obviously now to a different story.
Matthew: I don't know [unintelligible 00:20:11] keep you up at night is the, "I just cannot have my subscribers be indifferent. That would be the worst thing is if they open up the box and they're indifferent to what's inside, Oh shit, that's just a terrible sinking feeling like, "It's just okay." Not excited.
Bryan: Totally. Exactly. I would hate that, that's hampered, my baby. It's something I've nurtured for five-plus years and we've gone through ups and downs and jumps and hoops and it's what why drop the ball now, at this point? If anything should be getting-- our capabilities should be increased at this point. It should always be a level up. I think that's where people really genuinely appreciate us is where we keep leveling up the products and the quality and the designs and all of that. We always keep it fresh.
I don't know if you saw this month, but we have this really cool shark bong in the box. It almost looks like a jaws type theme. People are loving it. The smoke goes into the piece. It looks like the shark is smoking, it's just fun. I think that's where people miss the boat, where it's like, keep it fun, keep it fresh, keep it exciting. Keep it affordable, right?
Matthew: Yes. You're really so tapped into this. Is there any desire by smokers and consumers, dabbers to get online and consume at the same time, or is it just like now it's just me and my friends are solo, like don't really want to be online, connecting at the same time? I mean, maybe social media post, yes. But don't really want to be like on zoom or some sort of other collaboration or tool.
What do you see in there?
Bryan: Interesting idea there. We've actually been thinking about this with everyone staying at home and trying to figure out, there's obviously, I don't know, if you're familiar with the YouTube bans with cannabis content, they can't really freely make it anymore. The Weed Tube came out, which got some steam, and then I think they're just stagnant at this point. I think people are really looking for the next thing. We've been really thinking about this.
Early on, there are apps called High-There and MassRoots, and those were the first wave of social media and connecting, but I think they missed the boat in terms of-- I don't necessarily think that many people want to smoke with other people, they don't necessarily know, right?
Bryan: A lot of times people, are in fear of losing their job or someone finding out that they didn't want to. I think that's a whole thing. But kind of funny enough, and I'm going to bring this up. Last night, we were actually having a little brainstorm session. We thought that it would be-- well, I personally thought some people didn't think so. Whatever, we'll go with it. Almost like a Smoker's League, okay? I know, obviously telling people to smoke, it's not the best thing, but it is what it is. Where I thought would be cool is if we could basically set up almost like a call it whatever, working title Smoker's League. Basically, it was a $5 a month subscription to belong to it.
It was almost a combination between Twitch and Reddit, where the community basically uploaded certain videos by different people based on different challenges. The challenges would be randomized. You don't even know what you're going to get. You could be the worst joint roller in the world, but you get the joint-rolling contest. For example, maybe the joint didn't come out that great, but the video was hysterical, so you got up-voted to first place. I really think that this would get people and there could be a charity aspect to it. I think that it could be a fun thing for people to get into where they feel a part of a community and they're interacting. I don't know if this is the right move, this could be the start of something, but I think people are looking for entertainment and for some reason, we love watching people, inflict pain on themselves. Taking crazy bong rips and I don't know who or what the solution is, but I think the community is 100% looking for something fun.
I don't think it needs to be serious. I think [unintelligible 00:25:10] really cool with like brand partnerships. Let's say you have 1000 submissions for this concentrate video or whatever it may be. The video is sponsored by so and so brands. The winner of that competition gets a free bong or an E-rig or something. I think people would pay $5 a month to belong to a community like this, where they get to interact with the challenge, they get to vote on it, they get to do submissions of their own, things like that.
Matthew: Yes. That is really interesting what you're saying there and I'll be curious to see how you experiment with that and you certainly got the audience to try something there. You're right on some of the larger video streaming platforms; you don't have the liberties that you need to make that work. I'm curious to see what comes out of that.
Bryan: Totally. Were the inspiration, I would say, is stemming from this not just from everybody being home, but one of my competitors, actually, Grass City, they have a form that's been around for-- it could be 10, 15, 20 years at this point. They have a seriously active form on the website. We're on Shopify; we can't really do the form. That's where it stemmed from. But it was more of how do we connect the community in a fun way?
Matthew: Definitely. people want to be together, especially now with this COVID-19 thing. I think that's why I like drive-ins are having a comeback. We're separate, but we're together. It's these new things mashing up.
Bryan: Totally, yes. Well definitely keep developing it. But yes, I don't want to go off-topic too much.
Matthew: Yes. Well, I want to talk a little bit about what you did with cones here because this is an incredible case study, just talk a little bit about the cone market, what are cones? What you did here with cones?
Bryan: Obviously, again, going back to my initial thing about all the different segments of the market and obviously, rolling papers and cones and rolling stuff, in general, is a very big market. I would say about two years ago, in early 2018, there was this massive cone shortage in the market. For most people, they don't really know that cones are all handmade, which is crazy, but it is. There were really only a couple of major factories that were developing cones or producing cones for this industry.
I guess, just as cannabis sales go up. The more that goes up, the more you're going to need and packaging and pre-rolls and so on and so forth. What we did was we got wind of this shortage, and I was like, "Look, we have the Hemper, we have the box, it's great, let's diversify. I don't want to sell this for $20 million. I want to sell this for a billion dollars." That's what everyone wants. They want the crazy big exit. We need more tentacles.
Early 2018 get this wind of this cone shortage. I start doing research with my team. We basically it took us about six months to figured out pretty much where the papers coming from or who the paper suppliers are, the glue, how to make it. All the certifications we need to really get into it and a lot of people were talking about quality issues. I was like, "Guys if we're going to invest all this time, money, why are we going to half-ass it? We don’t half-ass anything here, right?" that? It took us about six months, but we essentially opened up the first-ever GMP ISO and Health Canada approved facility in the world.
What this means is, we're basically rolling cones in a medical facility. We uphold a different standard of manufacturing than the other cone facilities in the world. Because we're GMP certified, we pay fair labor wages. Most of the other facilities, located in Indonesia may not pay fair wages and may not have 18 plus people working there and we wanted to really do this right. The community, the cannabis community, in particular, is very conscious of people trying to bullshit their
way through it.
So we really wanted to make a point to come into the market with this new offering and really clean up the industry because that's what we had to do on Hemper. There's not the most trustworthy people in this space. I'm sure everyone can remember at all time when they got screwed over and I think that us going into it with whole heart and it's really coming out with something better.
Again, back to my initial thing where it's you either duplicate and innovate or you duplicate and go cheaper. We duplicated and innovated. So, we now are actually one of the largest pre-rolled cone manufacturers in the world. We operate 150,000 square feet of GMP certified cone manufacturing. We're again the only GMP certified facility in the world so we are just commanding most of the-- especially with regulation and compliance in the market increasing basically daily.
It's a lot of the big multi-state operators buy through us because of our compliance and we also have a very strict 13 point checking system before any cone even makes it to the market or a customer of ours. We just have a different level and standard of compliance than most of the other facilities do and that's why we are now producing upwards of about 40 million pre-rolls per month for this market and we have demand for over 80 million if you could believe that.
Matthew: For people who aren't familiar with cones most people listening are but how do you describe it for someone who can't-- We are not on a visual medium here but just go ahead and describe what a cone is.
Bryan: Totally. So, traditionally you have a rolling paper and you have a filter tip to roll a pre-roll. In this instance, we take the paper and then we roll it around a conical shaped filter tip which means that it's a little bit wider at the top and skinnier at the bottom. It's really rolled into a kind of an ice cream cone shape. The same concept as the little sleeve over your ice cream cone, it's just like that.
We basically have different components and we basically hand assemble them together. Pre-rolls are becoming increasingly popular throughout many different markets just in terms of the convenience factor; it's so easy now to buy a little pre-roll pack. What we are saying in the market is initially they started traditional sizes are one gram pre-rolls or 0.75 gram pre-rolls or half gram pre-rolls.
What we are now seeing is extreme popularity in this thing called "dogwalkers" which are many joints where it could be anything from a 0.15-gram joint to a 0.35-gram joint. We are definitely seeing a shift in the consumer habits and the consumption habits because one gram pre-rolls are becoming freebies at the dispensary. We are seeing an evolution on the shelf and it's going to continue going down that path.
Matthew: A lot of people would look at this and say, "Hey, this is a low margin product, I don't want to be involved in it," but you took a different tact and you went right down to manufacturing this yourself which you do now. You don't really have a manufacturing background, so what kind of hurdles did you have here and how did you overcome them?
Bryan: Definitely low margin or not low margin just low cost, you are paying a couple of pennies per account but when you talk about making millions of them pennies add up to dollars. I think in terms of this project I really leaned on my two business partners Henry [unintelligible [00:34:29] and Ajay Singh or Ajay [unintelligible [00:34:33] and they both have manufacturing backgrounds from their families who are in textile also for about 25, 30 years over in India.
We actually had a decent amount of resources and understanding in terms of the processes or QC, QA, or AQL processes, so we actually knew how to operate a manufacturing operation, we just didn't know how to make cones.
Matthew: Was that process, that journey to like make a perfect cone difficult?
Bryan: It was. We probably produced about 30 million okay cones before he produced one perfect cone.
Matthew: Then you're like, "This is it, let's make a mold around this one. Do exactly what you did with this one and we are good."
Bryan: Exactly. We basically took that and said, "This is the golden sample, everyone make it just like this."
Matthew: You sensed that there was this shortage in the market, you are getting feedback there is a shortage of cones. You go and there is a journey to start manufacturing yourself how long did that take then from the beginning to the time you were really confident in what you had?
Bryan: We made our first batch and came to market; I would say September-October of 2018. We had a lot of the bigger buyers in the space of the time we're packaging companies looking for cones and with Futurola and RAW being the number one brands and them not being able to feel the market demands simply because they don't actually own their facilities.
I think I mention to you this before but that was another reason why we got into the cone manufacturing was because a lot of times when Cannabis companies are price quoting out for jars or concentrate containers or [unintelligible [00:36:42] bags they are probably asking about 10 other companies. They are looking for the best cheapest price possible for what they are looking for.
With us, there really wasn't that many cone manufacturers and I think that because our competitors don't actually own their facilities which is another thing in terms of compliance control and such just in terms of security. Like if something goes bad at Futurola's facility they can't really do much about it, they don't have control over it, they don't have their employees sitting there managing the facility.
I think the market just caught up to them where they were just selling and their [unintelligible [00:37:21] like 15 plus weeks and we just kind of swooped and said, "Look--" our cone is passeable, at the time, and people bought into it. We started selling and we got feedback and some people said, "Hey they are great." Some people said, "Hey are they are okay." We took all that into consideration, went back to the drawing board and said, "How do we make a perfect cone?"
We just trial and error and changed things up and we got there. Since then we are now producing like I said anywhere from 30 or 40 million pre-rolls at month rate now for most of the largest entities in the States.
Matthew: Wow, so you kind of had it that epiphany that you've talked about which is if you control the price you can never be kicked out of the market. Can you just talk about your ideas around that?
Bryan: Totally. So, this is a really big concept, and especially when you're dealing with commoditized products you really need to take into consideration. Most of the things that are being bought in the packaging realm, let's just take [unintelligible [00:38:30] for example. I can have a customer coming in and say, "Hey, Bryan you guys do great on cones, what can you do in glass jars?"
I said, "Joey, I can go get these glass jars for you and probably save you some money," I'm thinking, "Cool, we already have this customer this is going to be an easy [unintelligible 00:38:51]." On the back end, he's price quoting out 10 other glass factories or packaging companies so my competition goes through the roof. I'm making maybe 10% to really make this deal happen while some of the other packaging companies are willing to even go-- essentially breakeven or negative margin at times, we've seen in the space.
I don't own the glass factory so I can't control the price. I know my floor but with cones, my floor is whatever I want it to be. so I control the price where if the market dims, the new prices of cones is going to be $0.3 or whatever it is and I know that I'm going to be able to back up and figure out my overhead and my operating cost, how to get down to that. For companies that are purchasing capacity which is pretty much everyone in the industry other than us. Purchasing capacity, they won't be able to maneuver
like we can because we control the facilities, we control the price. We can never be squeezed. Other competitors, they are always going to get squeezed because they're just bullying their facilities. They're saying, "Hey, guys, I want 20 million cones a month, you got to give me this price from going somewhere else."
Well, there really isn't anywhere else to go. That's the whole thing. Most of the companies that are in the market don't want to deal with manufacturing. They don't have manufacturing backgrounds. They don't even know what to do with a facility like this. That's where the epiphany moment was where it was like, "Hey, guys, if we own and operate the facility, and we control the price, no matter what happens in the market, we'll never get squeezed out, but our competitors will."
Matthew: Allows you to sleep at night better. Then you have this kind of philosophy now about how you can be squeezed out if you control the market. Are you bringing that to any of the other products where you're going to start being the manufacturer besides cones?
Bryan: Yes, we are diving into a ton of different stuff right now. Obviously, with COVID, there's been a ton of opportunities in the industry, and we're actually right now finishing out a capital raise right now, because we're tired of all the opportunities we're passing on due to cash constraints and all that, and we do run a pretty lean operation still. I think that you'll be seeing over the next 12, 24 months, we're going to be getting into a ton of new stuff. That's going to be very exciting.
Matthew: Where are you in the capital-raising process? You mentioned, you're raising capital, can you talk about that?
Bryan: Yes. Obviously, pre-COVID, we started hearing wins [unintelligible 00:41:58] all of this stuff. We talk to our investors and they're like, "Hey, team, hope for the best, but plan for the worst." Cash is king right now. Luckily, during COVID our cone operation did have to shut down for an extended period of time due to India going down. Obviously, with online sales taking up, there's a silver lining to all of this.
I think that in terms of where we're going, there's just so much still that's untapped because the first wave of cannabis companies that we've seen come through, really thought the endless cash wave was there. It wasn't going away. Everyone was like, "Oh, this is the tech industry. We're going to have billions available. Let's spend, spend, spend."
We thankfully have awesome investment groups, evolution corporate advisors, Greg Smith over there, unbelievable mentor, and investor guy literally does not lose. Poseidon, Morgan, Emily, unbelievable, whenever we need a door opened or advice or whatever they're there at a moment's notice.
Taking into consideration what they were saying was, "Guys cash is king right now, we got to basically plan for the worst and we're also getting it from them. We're going to see 2.0." Once we started getting wave of all this, we started going to the market, seeing what was out there. A lot of people were trying to figure out where the market was, and unfortunately, with some of the bad apples, I don't want to call any names, but companies like Madmen where it's like everyone thought they were going to be the end all be all and it's not.
People are starting to question the market, question the comps. When you come in and say, "I'm worth 50 million-plus da, da, da." They're looking at the comps in the market and they're saying, "No, you're not because, look, this company does X, Y, and Z, and they're only worth this." We're still in that cleanup duty phase where, and I was on a call the other day with a couple of investors, they called them the Clint [unintelligible [00:44:20] clowns, are now being moved out of the market to make room for companies like Hemper to come in and really do things right.
In terms of where we're at, we've gotten offered the term sheet out there, we're not biting at the first thing, we're really-- this round, specifically, is a major growth capital round. It also is very important we bring on various strategic partners, this round. That will really help us to take this business to; let's call it a 200-million plus exit. That's where we're currently at.
Matthew: I don't forget here, is there a way for accredited investors to learn more about this?
Bryan: Yes. Technically, they could email me. We don't have like a website or anything for this. It's more private thing. If anybody's in the market and isn't an accredited investor and think they can add value, totally reach out to me.
Matthew: How can they do that?
Bryan: You can send me an email. We'll call it Bryan B-R-Y-A-N @hemper.co.
Matthew: Hemper is H-E-M-P-E-R.co, right? Hemper.
Matthew: Well, Bryan, I want to pivot to some personal development questions here. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Bryan: A book? This is such an interesting topic. I had an interview a couple of weeks ago about this. I am actually probably the worst person to answer this question because I don't read books.
Matthew: Okay. Well, how about this? Is there a piece of advice that someone has given you that has stuck with you that you think about now and again?
Bryan: Totally. Throughout the last five years, I've been very fortunate to find mentors in the space that really have helped me, guided me, helping figure out different situations. Just touching on that, that's really important, is to find people who really want to help you genuinely.
In terms of one specific thing to carve out, honestly, we'll just go with what is current right now and hope for the best plan for the worst. Just when you think things are going great, that's when-- There's a saying that when things are going great and you stop worrying, that's when the pedal smacks you right in the ass.
Matthew: Never stop worrying is the advice?
Matthew: That's good. I don't know if you know the internet marketer, Noah Kagan, but he keeps something called the kill list. That's the different ways that his business can die. Then he mitigates it proactively.
Bryan: Yep, exactly. I do something similar, actually. I have a running list of all of basically our vulnerabilities, and basically all of our problems. I basically match the problem to the vulnerability. I say, "Guys, if we don't fix this problem, we're going to be vulnerable to someone coming in and taking over."
Matthew: Your favorite book will be Antifragile, by Nassim Taleb there, boom. I just named your favorite book. You don't even know, but based on your answer here about the best advice. That is good advice. Let's move on to a couple of other questions here. I know you're sweet; you're becoming a Mac user. Is there any other kind of tool or collaboration, digital tool or anything else you and your team use that you feel like, "Hey, if I didn't have it would be a big setback to our productivity? What's the tool that helps you most with team productivity?
Bryan: Team productivity? We use a couple I would say. For all of our planning and projects and to-do lists and all of that stuff, we use Asana, as our workflow management. Then we internally use Slack extensively, just for communication between different parties and groups and people in different offices. I think that communication is the biggest thing, especially now that we're working in this kind of remote environment.
I would definitely say Slack, Asana; I think that would probably be pretty much in terms of productivity and just making sure everyone stays on track. It's really important to mention this that I use a lot of different stuff to stay on track. Email is as simple as it still is. It's basically your everyday to-do list. That's where I strive the most and where I make it a serious point for not just my sales guys, but anytime we're conversing even externally with other organizations, I make it a serious point to respond back to emails quickly. People want responsiveness. They want to know you're on it. That's a big thing is, just getting back to people, clear your email
just not feeling overwhelmed and just diving into it.
Matthew: One thing I'm trying to do is to make my emails as short as possible and I really appreciate it. Some people have a knack for making their emails as short as possible. Now I make it so that if the person only reads the first sentence and reads nothing else, they know why I'm contacting them and what I want and what I can do for that either way and it's like, "Oh, this is great. I don't have to read this other thing, but if I need additional detail, I can get it down below."
Matthew: Well, here, final question for you or repeat to your question. What is one thought that you believe to be true that most people disagree with you on?
Bryan: One thought that I believe to be true, that everyone disagrees with me on?
Bryan: I did not prepare for this one.
Matthew: Maybe you believe Bigfoot still exists. Elvis is still alive; any of those are fair game.
Bryan: You know what? I'm going to sell this business for a billion-dollar.
Matthew: Boom. Wow. I like that. He goes on record. that is gritty. Well, I think that's a great place to end a billion-dollar ending. Bryan, you gave out your email before, give it out one more time and also give out your website for people that are interested in getting a cannabis accessories subscription box.
Bryan: Totally. If you're looking for any Cannabis accessories or discovery outlet, that would be hemper.co H-E-M-P-E-R dot C-O and then if you're looking for a pre-rolled cone for anyone that's listening in, that would be a harasupply.com, that's H-A-R-A supply.com. Then my email is Bryan B-R-Y-A-N at hemper.co, H-E-M-P-E-R dot C-O.
Matthew: Well, Bryan, I love your honey-badger quotient here. It's really high and I think there's great things coming for Hemper already. It's a successful business, but even more so good luck to you and everything you're doing in 2020 and beyond.
Bryan: Thanks, Matt. I appreciate you having me on and I look forward to coming back on a maybe post res.
Matthew: All right.
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[00:53:52] [END OF AUDIO]
A critical component of any cannabis cultivator’s business is establishing best practices around breeding plants. Here to tell us how to create thriving genetic nurseries is Matt Gaboury of House of Cultivar.
Learn more at https://www.seattlecannabis.co/house-of-cultivar/
[1:04] An inside look at House of Cultivar, the largest cultivator in Seattle, WA
[2:03] Why Matt has shifted his focus from designing grow facilities to plant breeding
[4:51] Types of clients House of Cultivar works with, including I-502 licensed growers and processors
[7:24] A breakdown of propagation through cloning, mother plants, and tissue culture
[16:14] How House of Cultivar validates genetics to ensure they’re the best expression of the plant possible
[19:31] What it means to “reinvigorate” a plant
[24:11] The behind-the-scenes on how House of Cultivar delivers their clones to customers
[29:18] Where Matt sees the cannabis industry heading as it undergoes more specialization across the supply chain
[33:17] How large-scale nurseries will revolutionize cannabis from home growers to commercial cultivators
[34:16] How grow room technology has evolved and where Matt sees it advancing in the next few years
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 critical component of any cannabis cultivators business is establishing best practices around breeding plants. Today I brought back returning guest Matt Gaboury to discuss how to create thriving genetic nurseries so you can create consistent quality harvests every time. Matt, welcome back to CannaInsider.
Matt Gaboury: Thanks so much for having me back. It's a pleasure.
Matthew Kind: Give us a sense of geography where are you in the world today?
Matt Gaboury: I am in my home base here in Seattle, Washington.
Matthew Kind: You're right in the dead center of the CH autonomous zone, correct? You're the warlord of that.
Matt Gaboury: Absolutely. We're broadcasting live from Chaz right now. Luckily, I've been up there multiple times, but not the best situation to take an interview. I decided to do this one from the office today.
Matthew Kind: I've been to Capitol Hill. That's a nice neighborhood, right?
Matt Gaboury: Absolutely. It's the thriving bars, restaurant, young nightlife area of Seattle.
Matthew Kind: Tell us about your business. What is House of Cultivar at a high level?
Matt Gaboury: House of Cultivar, we are actually the largest cultivator in the city of Seattle. That's our little claim to fame. We're a collaboration of multiple different hardcore medical growers and passionate enthusiasts for the cannabis plant, who all coalesced around this idea of bringing this thing mainstream to the recreational marketplace. We all started out in our basements 10, 15, 20 years ago and here in Washington had the ability to grow organically as the medical system grew. Then me and my other business partners coalesced when recreation was passed here in our state in 2013. We got this building in late 2014 and built out and we've been in the marketplace ever since as a top tier flower and concentrate cultivator and processor here in the state of Washington.
Matthew Kind: You've shifted your focus from a design of grow and extraction facilities to now focus on plant breeding. Can you talk about that a little bit?
Matt Gaboury: We had a consulting firm for several years that we started during that same process that I just mentioned back in 2014. Through word of mouth, we got to work in a lot of different states and help people with that design process, and I really enjoyed that as a trained architect myself, had the privilege of designing over 3 million square feet of production processing space. I really got to learn a lot about different marketplaces, different environments, different systems, and different crops. In that process, we were able to also build out our own facilities, which was our primary focus in our professional careers.
Bandwidth is one of those things that are starting to get limited so we had to really focus on what the core things that were affecting us as well as impacting our business. That really was, how do we make this be more efficient and work better. Since our main focus as growers really are the genetics that we cultivate, focusing on, how we do that and how we maximize that became one of my primary focuses. In that evolution, tissue culture really became one of the primary tools in order to accomplish that. Through those means, we had naturally amassed a very large genetic collection, we had perfected this tissue culture process of propagating it very effectively. We started to have an overabundance to be able to give out to the marketplace.
Following some trends that were very prevalent in other major agricultural crops, you can really see there's a differentiation between the people who make the genetics propagate the genetics and distribute the genetics and the individuals who grow those and fruit those and flower those for production. Our business we started to see evolved in the same way. This is something that was very integral to how we run our production facility, and we feel like we could aid the rest of the industry in that as well. We decided to try to pursue this more so.
Matthew Kind: Today we're going to talk about Plant Breeding, but you have a deep specialization as we talked about in designing growth facilities extraction facilities also around automation in those environments. At the end of the interview, I'm going to ask you a couple of questions about that for people that are really interested in that. For now, let's go back to House of Cultivar and plant breeding. What type of clients are you working with most now? If someone's listening and they're not sure, like, "Hey, can House of Cultivar help me or not." Who is your ideal client?
Matt Gaboury: Here in Washington, we primarily only or actually we only work with other i502 licensed growers and processors. That's the limitations of the law. We're in the process of trying to set up other facilities around the country. Currently, California as well as Massachusetts and Illinois, and our primary individually, we work with our large scale, commercial grows, looking to make their production more efficient, and/or acquire new genetics because we built such a large genetic catalog we've become a source for those hard to find rare genetics plus, we're constantly going through breeding and phenotyping exercises to expand that catalog. Being able to offer those to the general marketplace is one of our main services.
In addition, people like large scale outdoor grows or nurseries, who are looking to acquire their production starts, we've been able to provide them with either one time or periodic starts so that they can essentially eliminate that portion of the process from their cultivation facilities. Then I think lastly, individuals looking to store their genetics. That's been one of our most popular services is maybe, let's say your greenhouse and you don't have maybe the infrastructure for holding your mom plants throughout the wintertime. We provide the service of being able to take those, tissue culture those, clean them up through the sterility process and then hold them on our shelves until you need those genetics back. That could be the next season that could be two or three seasons down the road.
One of the great parts about it is we call it cloud storage. We have the ability to put these things into a state where they don't really metabolize very much and hence, they can stay in a suspended state for prolonged periods of time. It really aids in that genetic storage process.
Matthew Kind: It's really interesting to see, as the cannabis industry matures, that specialization services like yours emerged as part of this ecosystem where some part of the cultivation chain people either don't want to do or don't have the specialization to do. That's really cool to see start happening. We're starting to throw around some terms here that most people are familiar with, but people that are not, can you describe what propagation through cloning is, what a mother plant is and what tissue culture means?
Matt Gaboury: Yes, absolutely. Conventionally, most people understand the propagation method of having mother plants, and then you essentially cut-off a small branch off of that mother plants. Then you put that into a cloning process or several different forms of it that roots and then you have an exact 100% replica of that mother plant. Tissue culture is very similar, but at a much smaller scale and with more steps in the process revolving around sterility. In a TC process, there's many different ways you can do it, there's nodal tissue culture, there's leaf tissue culture, there's meristem. It depends on what you're trying to accomplish. Each one has its own pros and cons.
For instance, many people want to try to clean their plants. In that case, you would do something that was more of a meristem. If you're looking for quick propagation, you could do something that's more nodal, but essentially you're doing something similar where you're taking a portion of that plant, whether that's the node or leaf, or just that very, very tiny bit of cells of the meristem and then you are using a medium and some hormones, just like in rooting, to initiate either a shooting process, that's where the plant grows more shoots and leaves. Or a rooting process where it grows roots, and essentially creates that whole organism, that whole-plant in vitro, within a sterile vessel, whether that be a test tube or a jar. In that process, you're able to, like I said, mentioned earlier, and I'm sure we'll talk about further is do several different steps to it that go above and beyond what you can do to control a clone, mostly in the form of sterility.
Matthew Kind: Keeping mother plants alive and healthy sounds like a simple thing, but it's a specialization in itself. Can you talk about that a little bit?
Matt Gaboury: Yes, absolutely. That's probably one of the biggest benefit to tissue culture is that you get to remove a large amount of that mother stock, especially if you use tissue culture for your propagation. Mom plants, like any other plant in your facility, it needs water, it needs light, it needs electricity, it needs resources, it needs time, it needs labor. If you fail on any one of those, it can have very detrimental effects through different stresses. It can genetically change a plant, it can do little things to the plant, major things to the plant.
Even if you take something like time for instance, every plant gets older, there's no way to pause time, and eventually those mother plants will get root bound, they start to show their age, they start to affect the efficiency of how those clones perform as well. Because of all those things, in the lab you're able to reduce that and you can create mother plants within a jar. Then you can propagate off of those jars to create new plantlets as well. You can reduce the amount of mother stock that you have in your plant A in your facility, and hence the amount of time, labor, light, water and all of those things that I just mentioned.
Matthew Kind: Cool. If I were to walk into your lab right now with you and you were to point out a few things to me, what would I be looking at?
Matt Gaboury: The lab is a separate area of the building that we try to keep secluded mostly for sterility reasons. It's much more like a conventional lab space than it is a conventional grow space. All of its surface are antimicrobial, we use all sterile processes, aseptic processes, and that includes how you enter into the room. There is a HEPA air lock before you can get into the actual tissue culture lab itself. Then the lab is differentiated into multiple different zones depending upon what's happening there.
Essentially, you have spaces that go from less sterile, like where you wash your dishes and maybe where you do some of your prep, to areas that are more sterile, like where your flow hoods are, which are these large cabinets that create a laminar flow with HEPA-filtered air so that anything you perform inside those hoods is done in a completely sterile space. That, for instance, is where we take the plantlet and put those into the in vitro jars. Then there's another area where there's storage. The storage is primarily in the form of stainless steel racking with lights. It looks like a bunch of test tubes essentially piled in rows on these stainless steel shelves.
Matthew Kind: Now, talk about the stages of getting a cutting from the mom plant. What do you do right after a cutting? Or I should say before the cutting you're probably putting that cutting device, dipping it in alcohol or something to make sure it's sterile, and then right after there's a steroid involved, maybe for rooting. I'm not sure exactly how you do it. Can you just walk us through that?
Matt Gaboury: Yes, absolutely. In particular, for our tissue culture, there's a couple of different things, as I mentioned earlier, that you can do. Tissue culture gives you the ability to take various different parts of a plant and be able to propagate off of that. For our sake of this example, we're going to use what we do pretty much on a day-to-day basis for a micropropagation, which is we take nodal tissue culture samples. Essentially, we're going to be getting our gear all prepped. In the garden you don't have to be as sterile as you do in the lab.
The first step of the process is really inoculation, where you're going to be cleaning all of those things in the lab. You're going to be taking clones of the plantlets, let's just say off the mother plants, in a very similar way that you would clones, only these are going to be much, much smaller cuttings. We make up a mixture in a pyrex jar, a sealed pyrex jar that essentially has some very mild sterility agents, stuff that you could basically find off the shelf. That provides a suspension for those plantlets after we cut them off the mother plant while we transport them into the lab. So they're in this sealed vessel.
Then when we go back into our lab we're able to spray down that bottle really we with lysol, and make sure that's completely clean, as well as change all of our clothes that we were wearing within the garden, put on our lab coats as well as the rest of our PPE. Then take that sterile jar into the lab, into the next area. In the next area, we essentially run it through a sterility process. There is both some physical agitation that's involved through micronization as well as some sterility agents that we use. Again, nothing that's would be deemed crazy, most things can be purchased at your local grocery store.
Then from there we go through a rinsing process, which is really important, and with very sterile water. After that, the plants get trimmed and manicured to the right size. That happens underneath the flow hood. We also then will autoclave all of our consumables now, you're going to need it throughout that process. We also clean and sterilize all the glassware. All that's going to be under the flow hood, ready to go as well.
Then the technician is going to, essentially plantlet by plantlet, dissect that down to just the nodal area that's needed. Then with forceps, in a very sterile manner, place than within the in vitro vial, which then contain some of our media. There's different media for different phases of the plant process. Then from there it's capped, and then once that sealed plant is in that test tube, it can then be removed from the flow hood and then put into the storage. Then, depending upon the phase of the plant, it may go through some other elements as well.
Matthew Kind: I can see why there's a lot of companies outsourcing to you, because this is just a lot of detail that you specialize in. A lot of business owners are thinking more big picture, "If I can outsource this and they do a better job than me, why not just do that and accelerate the whole process and have more confidence in the whole process?" It makes sense. How do you validate genetics to ensure they are the best expression of the plant possible?
Matt Gaboury: That really comes down to the downstream cultivators, the gardeners, analytics, and really study too come into play at that point. It's really a constant effort to phenotype new strains in the buretting process. It's a lot of work on the flowering department in particular, because every plant likes slighty different parameters. We're constantly throwing curve balls at the flower gardeners just to be able to deal with multiple different types of phenos all at the same time, to try to figure out really what are those best parameters.
For us, the only way that we've learned to not pull out our hair is to use pretty rigid data analysis in that process. Throughout the grow cycle, there is lots of different parameters that are recorded, tracked and then analyzed at the end of the process to show that plant's performance from purely a grow perspective, what is the structure of the plant, what times did it take, how'd it yield, how'd it perform, did it have certain stress factors, did it require more nutrients, didn't they show deficiency? Yadda, yadda, yadda.
Once the actual plant is harvested, then it goes to various different people for either anecdotal analysis or into study groups, mostly through our employees. We have a really good employee sampling program where we use the people who smoke the product the most to be able to test and validate, and give opinion on the qualitative effects of it. Then we take both that qualitative analysis, as well as that quantitative analysis through the grow process, and then we try to pick who are the winners. Even with all that data, it still is tough because there's just so many exciting strains out there, and unfortunately there are limitations on what you can grow. There's only X amount that can be space available.
Matthew Kind: Any strains you're just excited about right now, or you don't like to name favorites?
Matt Gaboury: Man, there's so many. I got into this industry in the first place because I'm a passion smoker. That really is what keeps on fueling my fire, and I constantly get very excited about new things. I think, in the garden right now we have about six different internally-bred strains of zkittlez crosses. There's one, there's a zittlez with dread bread cross that is just phenomenal. It is a combination of that-- Like how when you open up a bag of zkittlez, that smell, which is--I know most people don't think of the smell of zkittlez but it is a very distinct smell. Combined with this kind of hazy, gassy terpene, which to me is the combination of the best of the both worlds. It grows great, it smokes great and I think it's going to be a really big fan favorite out there.
Matthew Kind: I just think you created a little bit of cannabis salvation there, like a Pavlovian response with plenty listeners. I can just feel them say, "Ah." Let's just go over a few more things to help listeners understand. What does it mean to reinvigorate plant?
Matt Gaboury: This term is thrown around a lot, especially when tissue culture is being talked about. First and foremost, I want to let people know that there is no magic bowl. I think a lot of people think tissue culture can cure anything that's happened to a plant, and that's just really not the case. It can do a lot though. It's been very impactful for us in particular in a state where you are very limited on what you can use from a pesticide or from a preventative approach.
We run a completely organic garden where most of what we use is in the form of live biologicals and certain things, let's say powdery mildew, for instance, are very hard to get rid of in a plant once it becomes set in, because it gets underneath the laminar surface of a plant. Any topical preventative or actionable item really doesn't cure the plant unless you use something that's really gnarly like Myclobutanil, Eagle 20, something that's banned that you wouldn't really want to spray on your plant anyway. I wouldn't recommend that even if it wasn't going to be smoked. Tissue culture provides that ability to remove those very commonly dealt with pest and pathogens as well as some other more intensive viroids and things along those natures.
Something like a powdery mildew or a mite or a thrip, all that is going to be 100% eliminated in our tissue culture sterility process. Just knowing that you're starting your plants off with something that doesn't have any of the major contaminants is crucial. I've seen gardens just pass that stuff along from generation to generation. You see reinvigoration a lot of times just from that, just from taking plants that had been stressed by those major contaminants, pests, or pathogens, and removing that for their future stock. Then reinvigoration also happens at a genetic level we see sometimes by what we think is a reversal of different genetic factors that have been turned on from stress responses.
As you know, there is genetic traits, but there's also epigenetics that play a factor in how a plant performs or grows or evolves. Epigenetics happen from the environment. Say, your mom plant got too much water, too little water, too much light, too little light, whatever it may have been that stressed that plant. Those stresses can become systemic and could then pass on to every cull you take off of that mother plant, because that cull is 100% genetic replica of that mom plant. With tissue culture, in recent theory, provides is a stop-gap in that process, especially when you take meristem tissue culture. You have the ability to almost reverse some of those stress factors that were turned on throughout that plant's life and return it to more of a youth-like state, so to speak.
In that process, we've anecdotally seen some huge reinvigoration happen to plants. We had an OG Kush Cart that was around for years. It just became so stressful and it would grow lanky, and it would be really hard to clone, and it would just yellow out early, and it would show really just stressful-- It just look like a plant that just wasn't happy its entire life. After running it through the tissue culture process several times, we've noticed that, and this is the end-goal as growers, that it is a much more vibrant plant. It veggies at a much more rapid pace, and it yields much better that it had been for years, without really much effect on its terpene profile or its tastes or really all of the good qualitative features that we learned to love about the plant.
However, what I need to caveat all these by saying is we really haven't done a ton of empirical scientific evidence to back up or support a lot of these claims. Unfortunately, we don't have the ability or the resources yet to really partner with those kind of institutions in order to provide that. I'm really hoping, in the near future, that large scale education as well as potential government resources will be available to be able to study this to the extent where we can start to really understand it, and we control it better than the end-goal results that we're seeing today.
Matthew Kind: Then for someone that has a huge cultivation facility, can you ship these clones on palace, or how does it work getting the clones to customers?
Matt Gaboury: The TC plantlets are really, really easy to ship, especially if they're shipped while they're still in vitro, because they're in, essentially, sealed jars which can be stacked and flat-packed and put on a pallet and shipped in a very secure manner as well. Whereas, conventional clones, typically they're in a clone dome or they're just on trays, and there's possibility for those things to get contaminated anywhere from the time it leaves your facility to the time it gets to the client's facility. Tissue culture provides, definitely, a much more secure way of transport. However, there are some difficulties that go along with that as well.
Matthew Kind: What advice do you give to clients when they're receiving pallets of tissue culture clones? How do you best get them integrated into their garden?
Matt Gaboury: Yes, absolutely. That's where some of the difficulties I just mentioned come into place. Most farmers are used to conventional clones. The conventional clones, as probably a lot of listeners know, are pretty easy to deal with. You order some clones, they come in, they're rooted, you put them into your next phase of growth, whether that's veg or directly into the soil, or maybe just want to do a [unintelligible [00:26:05], you want to flip those right away. We still sell a lot of our genetics in conventional clone format because that is the easiest way for people to deal with it.
Essentially, we'll grow out TC mother plants, and then we'll take clones off of those, and then we'll sell those like conventional clones for the ease of it. However, we've started to see that and we've tried to start to educate people on how to use the plantlets, because ideally, as we were mentioning earlier, that's the much more effective way of transporting it and a much safer way of transporting, and then you can ensure sterility upon arrival at the destination farm. However, with plantlets, you can't just directly plant them into your next medium like you would with clones. You have to go through what's called hardening off process.
Essentially, that's because when you open up that jar-- That plant has been sealed in that environment for its entire life cycle. It's been in this perfect protected in vitro environment where the humidity has been very high. The plant hasn't created its own waxy cuticle over its leaf surface to give it its protection in the ambi environment. You have to go through a two to five-day period where you acclimate these plants from this very protected high humidity environment inside that jar to your natural ambi environment. There are some steps to go through. Like I said, it's an education as well as you need some infrastructure in place, especially in the form of a room to be able to control those environmental conditions in order to accomplish that.
Matthew Kind: Do feels like your role is almost like a sommelier in some ways, because you’re dealing with a lot of different cultivators. They know that your perspective is wider than their particular business, and you can give them some insights and to what genetics you like the best and some guidance there.
Matt Gaboury: I think that that's one of my favorite parts, and especially my older business partners as well, because we want to see other people be successful as well. We want to be able to give the genetics that match the grow environment, methodology, as well as the goal. Some people just want to grow for biomass. We have strains for that. They're just going to hook out huge colas and really have massive yield. We have other people who are growing for really high-end concentrates. They're making just bubble hash rosin, and they want really just the most fire, terpy, flavorful strains that they could possibly get. We lead them down the road of a certain portfolio for that. We had people with all sorts of different things within that spectrum in the middle.
That's what I really want to stress to listeners, who may not have the diversity or had grown a wide variety of different genetics, is that not every genetic is going to grow for you the way that you want it to. You really had to choose genetics based off around your environment and your grow methodology. What grows well in a greenhouse in Northern California isn't necessarily going to grow well in a greenhouse in Arizona or an indoor operation in Boston, or wherever it may be. You have to choose based upon your skill sets and what you have available, as well as what you want that end-goal to be. You're going for that yield or you're going for those terps or you're going for something else in between?
Matthew Kind: Just as you're taking one part of the cannabis supply chain and really specializing, are you seeing other areas of the ecosystem really start to specialize?
Matt Gaboury: Absolutely, yes. I think extraction is a primary example of that. I think the CBD industry in the last two years is a great president for what's probably going to occur, especially in the biomass sectors in the cannabis industry, which is a large toll processing set up extraction facilities. Really that's all they do. For most people there's going to be a reduction in cost as well as probably a higher quality that comes from that because those individuals are really focusing on the equipment, the technology, as well as the infrastructure to accomplish those things at large industrial scales.
I know for us we definitely have started to third party a lot of our strategy, especially our hydrocarbon extraction. We are in a facility where we to build a D1 class one or two room in order to accomplish butane extraction would be so cost-prohibitive that it just makes so much more sense for us just to outsource that to somebody who's probably going to do it better anyway.
Matthew Kind: You just mentioned butane and there's some people listening and saying, "Hey, won't there be butane residue on there?" Then there's others that are saying, "Hey, that's how you can really get the extract you want." Can you fill in some detail there so people understand?
Matt Gaboury: Yes, sure. Every different extraction solvent kind of lends itself to a different format that comes out the back end. Some things like CO2 lend themselves better for vaporization cartridges, other things like a bubble hash or rosin lend themselves better for concentrates and for dabbing or direct consumable concentrates.
Butane is really one of the ones that we found that it pulls turpines better in that extraction process and then it lends itself to a more dabble concentrate, especially for somebody who likes some THCA in there as well, because, through certain kind of butane extraction processes, you get a lot of THCA crystalline with this kind of saucy terpy residual as well. The combination of both which is quite commonly referred to as “terp sauce” or "rocks and sauce” is a very popular, consumable format that you can really only get by using butane as a solvent.
Matthew Kind: That room you were saying is expensive to build out has to have proper ventilation because butane is volatile, it can cause an explosion. You just have to be extra careful with that versus CO2. That's why it requires a special room. Is that what you're referring to?
Matt Gaboury: Yes, exactly. Butane being a hydrocarbon, the room itself has to be completely explosion-proof. Explosion-proof lights, explosion-proof switches, explosion-proof walls, everything. It's quite a restrictive building, classification code in order to accomplish that. Plus you can't just build it anywhere. Your building has to have certain firewalls and it has to be in a certain zone and all of those types of things as well.
Whereas something like CO2 which is not as combustible doesn't need as much. CO2 typically in most instances, and this is very state by state, but in most instances, it just requires an exhaust system as well as a CO2 monitoring system in case that CO2 closed-loop system has some sort of leak that sensor system detects it and then exhaust that out so that your quantities within that room never reach levels that could be harmful to any sort of operator within there.
Matthew Kind: We talked about some of the clients you help but what if I'm a grower or business owner that has my own lab or experimental garden, for people that kind of do that in-house, do you offer any kind of services for them or they're really just not so much a customer candidate right now?
Matt Gaboury: I definitely think that tissue culture is a no brainer for anyone serious about genetics or breeding. In my opinion, once large scale nurseries can supply your individual market and you can go there and you have a selection to be able to buy, having your own internal breeding and genetics program is really the only reason why you would keep a portion of your grow dedicated to that.
We can pretty clearly show in most instances, even with indoor grows that converting over your mom and your veg and your clone space over to flowering has an increased profit margin, even when you have to buy all of your starts from a nursery.
Matthew Kind: I mentioned at the beginning of the show that you have a deep specialization into other areas, the cannabis industry design. Can you paint a picture of what you think would be the most forward-thinking technology you could put into a grow room right now in terms of systems, nutrient management, sensors, those types of things?
Matt Gaboury: The technology has really been evolving pretty rapidly in the last several years. Having designed a lot of different facilities and having gotten the ability to put in different equipment and see how different things operate, I would say that in the lighting technologies and in the HPAC technologies, we're seeing huge advancements. I'm a really big proponent of sustainable and efficient design and systems, and we've seen an increase in the availability of those types of pieces of equipment, as well as methodologies in order to accomplish that.
The biggest thing being automation and to really computer and automatic learning to really help facilitate that from a methodology standpoint, and then utilizing things like some of the more advanced LEDs that have come out and some of the more advanced recovery units for HPAC in order to really make a system that is as effective and as efficient as possible, because as we all know price points are inevitably going to go down and margins are going to get tighter and efficiency, whether you believe in it from a conscious standpoint or not is going to become the key to the game for longterm success.
From a forward-looking approach, I definitely recommend to be looking into those types of systems even if the investment may be a little bit more upfront, you're going to see an ROI on that and it's going to essentially mean longevity as well.
Matthew Kind: I want to ask a few personal development questions, Matt, to help listeners get a better sense of who you are as a person. You've been on the show before, so I'm going to have to change this up a little bit. What is one skill you use all the time that you think is really important but wasn't taught in school?
Matt Gaboury: I think the importance of physical exercise. I know we all have PE and stuff growing up in school, but it wasn't really that important to me of how much it really affects your life until I was inspired by Richard Branson, the eccentric billionaire out there. I saw an interview with him years and years ago. He talked about how he works out every day because it improves his ability to perform in work and it gives him typically another four or five hours of productivity in his day.
That for me was a huge kind of eye-opener. Now, if I didn't have that output in my life, I don't know if I'd be able to handle the workloads that the cannabis industry throws at you, because anybody who's listening to this who's in the trenches knows that it is a full-time endeavor and it takes up your whole life and you need to have other facets to be able to outlet that energy as well as reinvigorate your own body.
Matthew Kind: I totally agree. I try to work out every morning because otherwise, I talk myself out of it, but unless I do it first thing, but I know end of day is really popular for a lot of people to relieve stress. One thing I read about that is a huge benefit of exercise is that your lymphatic system, just as how we have like a respiratory and circulatory systems, there's the lymphatic system which is kind of like the garbage men of the body.
They take out dead cells and all these things. That system needs movement for it to work. If your body doesn't move, the lymphatic system can't work and gets clogged. I had no idea about that. I thought that was kind of a little interesting factoid I'd throw in there. Have you ever heard of that?
Matt Gaboury: Yes. I definitely have. I would say, no, I'm not a physician by any means, but it makes sense to me and it's something that I definitely agree with as well. I got to say right now during these pandemic times with the gyms not being open and stuff, it's been extra difficult to try to get in that exercise but even more important to do so with the extra stress levels we're all under.
Matthew Kind: If you could not do any of the stuff you're doing right now with the House of Cultivar, you just had to drop it completely, what do you think you would think is the most interesting thing going on in your field that you would pivot to if you were forced to just because you think it's cool?
Matt Gaboury: I think if I wasn't on the production processing side of things, I think there's some really exciting things that are starting to happen with the different consumable devices and how the usability of cannabis is changing. I think one great product example is the personal electronic guard device. We've seen several different manufacturers with Puffco being one of them, it's launched that and really take things to a different level. The conventional way of dabbing the torch and with the courts, while I love it, and I appreciate it, it may not be the most easily digestible for the wider public audience. By creating new ways of using that same product, that same [unintelligible 00:40:29] concentrate, but in something that looks more like an iPhone and has more of a visual aesthetic to it. I think that's really cool. I think that's going to be another way that we open up cannabis to other users and other people and really bring it to the masses.
Matthew Kind: You mean, you don't want to walk around with a huge dab rig and a torch? You don't feel like that sets the right tone?
Matt Gaboury: I do but I think people give me plenty stares sometimes.
My mom definitely likes the Puffco a lot better than the [crosstalk]. I will say it that way.
Matthew Kind: I was going that that's definitely the mom approved approach. Here's a Peter teal question for you. What is one thing that you believe to be true that practically nobody agrees with you on? They're just totally blind you say look at this, look at this and that no one can see it. Do you have anything like that?
Matt Gaboury: I know we spent most of this interview today talking about cannabis genetics. I really feel like cannabis will not be commoditized. All I hear people talking about these days is how there's a race to the bottom, how cannabis is going to be commoditized, how it's going to go for, you name whatever the dirt cheap price per pound it's going to be. I really feel, I could just be drinking my own Kool Aid and doctrinize on it, but I really feel like craft and the focus on genetics and quality is always going to be paramount.
When you look at other industries to have emerged from a commoditized industry to a craft industry, I think that we're just going to jump right past all of that and maintain a pretty strong connoisseur crowd as this thing progresses throughout the United States and throughout the world. I'm keeping my fingers crossed on that.
Matthew Kind: Well, Matt, you've got a lot of interesting things going on here. I really appreciate the interview. Before we close, are you raising any capital or is there accredited investors that you know anything about House of Cultivar what do you have going on there?
Matt Gaboury: Yes, we are constantly in the growth, no pun intended and expansion phases. We are in the process of expanding out to Massachusetts and hopefully Illinois this year, we had put in some applications in the recent round. We're waiting to hear back on that. The Massachusetts project is moving forward and we're always looking for new partners in this nursery model. If anybody listening is interested or has space infrastructure or genetics that they think would be their state or their marketplace would be interested in something like this please feel free to reach out.
I think that this is an exciting model that could be applicable to not only individual states but to the nation in general, once this thing becomes legalized.
Matthew Kind: Say those states one more time that for people that are potential clients or partners, what states are those again?
Matt Gaboury: Yes, absolutely. If you're looking to to to acquire genetics or tissue culture plantlets, we're able to do that currently in Washington State. CBD though, we're able to do on a national level. Then excuse me, in the near future, we will be rolling out THC operations, recreational operations in the state of Massachusetts, as well as hopefully in the state of Illinois. We also are almost complete with our California branch arm as well. We'll be able to provide genetics in those marketplaces hopefully within the next year.
Then in any other state, we're open to different partnership opportunities. Or if you think that this could be a model that would work with your marketplace, please feel free to reach out and let us know. We definitely like to explore those opportunities.
Matthew Kind: How can they reach out and connect?
Matt Gaboury: Absolutely. They can find us a Instagram, it's house.of.cultivar or online houseofcultivar.com. You can also reach me directly, it's the letter G, the letter Z at cultivarfarms.com.
Matthew Kind: Great. Well, Matt, thanks so much for coming on the show and educating us. You got a lot of cool stuff going on and good luck the rest of the year with all this.
Matt Gaboury: Thank you so much. It's always a pleasure and an enjoyment to be on the show. I hope all is well with you as well.
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