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Maine cannabis sales are booming after dispensaries were finally given the green light to sell recreational cannabis last fall, but this new market isn’t without its challenges.
Here to tell us about it is Brandon Pollock of Theory Wellness.
Learn more at https://theorywellness.org
[2:14] An inside look at Theory Wellness, a small batch cannabis company with recreational and medical dispensaries in Massachusetts and Maine
[2:57] Brandon’s background in cannabis and how he came to start Theory Wellness
[4:36] Lessons Brandon learned during his time working for Harborside and how they’ve influenced his approach at Theory Wellness
[7:11] The pros and cons of being vertically integrated in the cannabis industry right now
[8:53] Why Maine dispensaries are having a difficult time meeting their supply needs
[10:25] The best selling products in Maine right now
[11:25] Unique aspects of the east coast cannabis market and where Brandon sees it heading over the next few years
[13:53] What it means to be a “small batch” cannabis company and how that sets Theory Wellness apart from other dispensaries
[15:03] How Theory Wellness is expanding into new states despite difficulties scaling a small batch cannabis company
[17:38] The inspiration for Theory Wellness’ successful new product Hi5, a low-dose THC seltzer
[19:02] How Hi5 compares to similar alcoholic seltzers in onset and overall effect
[19:59] Why Brandon believes cannabis beverages like Hi5 will surpass alcohol over the next few years
[22:26] Challenges Theory Wellness has faced in distributing their cannabis drinks
[24:02] How Theory Wellness is helping more entrepreneurs get into the cannabis space through its social equity programs in Maine and Massachusetts
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. Hi, CannaInsiders just a quick note before today's interview gets started, that my colleague Sinead Green will be interviewing today's guest. Sinead is--
Sinead Green: Hey, Matt.
Matt: Oh, my God, you scared me. Sinead, I didn't realize you were in the sound booth.
Sinead: Sorry about that, Matt.
Matt: Sinead, since you popped into the sound booth here. This is a great time to just say hello to all the listeners since I was talking about you.
Sinead: Sounds great, I'd love to. Hey, everybody - I'm Sinead Green and I've actually been working with Matt behind the scenes for a couple of years now. I'm so excited to put on my hosting hat and really get a chance to engage with you and bring you some more great interviews. I just want to say if there's someone you'd like us to bring on the show, please feel free to email me your suggestions at email@example.com. I'd love to hear from you and I really hope you enjoy these upcoming shows.
Matt: Gosh, I want to get a host again, now that you mentioned it, I'm thinking like huge purple velvet hat. What do you think about that?
Sinead: I think that would look great on you, Matt.
Matt: Really important, Sinead. We want you to do a good job but not better than me. Does that sound fair?
Sinead: We'll see about that.
Matt: All right. Everybody, enjoy this episode with the host, Sinead.
Sinead: Nearly four years after voters approved legalization in Maine, retail stores were finally given the green light to sell recreational cannabis last year and the lines have been out the door. Here to tell us about it is Brandon Pollock of Theory Wellness, a vertically integrated cannabis retailer with some of the few licensed recreational stores in Maine and Massachusetts. Welcome to CannaInsider, Brandon.
Brandon Pollock: Thanks for having me. It's great to be here.
Sinead: Give us a sense of geography. Where are you in the world right now?
Brandon: Right now, I am in our office, which is super exciting. We have an office north of Boston where we spend some time when we're not on the road visiting our facilities or looking for new projects to work on.
Sinead: Oh, great. What is Theory Wellness on a high level?
Brandon: On the highest level, Theory Wellness is our cannabis project that we've been working on since 2015 on the east coast. We're a vertically integrated cannabis company where we cultivate different varieties of cannabis produce a wide variety of products and distribute that to our customers. Both adult-use customers and medical patients through our own dispensaries and we're currently located in Massachusetts and Maine.
Sinead: Great. Before I want to jump into everything about Theory Wellness, I wanted to talk a little bit about your background. How did you originally get into the cannabis space and what led you to start Theory Wellness?
Brandon: Sure, that's a great question. I've been entrepreneurial if you will, my entire life. Myself and the other founder of Theory Wellness, my business partner, Nick Friedman. We started our first company together in college, actually. In about 2014 or so, we both became aware of the medical cannabis movement that was happening primarily on the West Coast and it seemed really interesting. We saw that in Massachusetts, where we were working and living at the time, there were some discussions about medical cannabis. It had been officially legalized, but there were no dispensaries opened yet.
We decided to head out to California and do some consulting for some of the operators out there to sort of learn what this industry was all about. I began working for Harborside Health Center out of Oakland, California, which at the time was the largest and one the first dispensaries in the country. It was just a fascinating thing to see. There were so many patients coming through the door every day that we were helping. It was playing a huge role in their life. For us, it seemed clear that this would be something that would benefit people on the East Coast and was going to be part of the future there. That was the genesis for starting Theory.
Sinead: Great. I heard you mentioned you worked at Harborside, we've actually had a few people from Harborside on the show. How did that period of time influence your approach at Theory Wellness? Did you take any lessons from your time there?
Brandon: Yes, absolutely. They were one of the pioneers and we have a ton of respect for what they've done. They were truly on the forefront of bringing cannabis, as they like to say, out of the shadows and into the light. Really what that means is creating a welcoming environment for patients, testing their products for safety and potency, and just generally treating cannabis as a more open and accessible treatment option.
Certainly, it is different than other medications, of course, but just creating that environment where customers can come in, patients come in and become educated, and have a wide variety of safe products was really remarkable. Nowadays, it seems the norm because it is the norm, but back then, that was a much different approach than a lot of the other medical shops were taking.
Sinead: Definitely, and I've read that you have been a longtime advocate for the repeal of cannabis prohibition. What sparked that passion and what does it mean to you to be working at the forefront of that now?
Brandon: For us, for me, I've always been since high school, a cannabis consumer, never had any adverse effects other than eating a little too much food or maybe using a little too much and feeling uncomfortable for an hour or so. The whole discrepancy between alcohol and cannabis just from the highest level makes no sense. We went through alcohol prohibition, it was a tremendous failure.
We repealed that, of course, but then we did the same thing with cannabis. Then you couple that with how prohibition is truly been disproportionately affecting certain communities in our country and the genesis of prohibition, in many ways, had racial undertones. When you look at it with today's lens and historic lenses as well, it's just a failed policy that needs to be repealed. Cannabis should be accessible for any adult without any penalties. We're heading there, which is great, but there's still a lot of work to go.
Sinead: That's great. We'll get into your social equity initiatives that you guys do at Theory Wellness later on in the interview. You mentioned earlier, you guys are vertically integrated in both Maine and Massachusetts. What are the pros and cons of being vertically integrated in the cannabis industry right now?
Brandon: Sure, that's a great question. I would say the benefits of vertical integration, there are several, but essentially, when you're controlling your own supply chain, it allows your customers and your patients to experience exactly the products that you want to produce for yourself and for them. In other words, if you are simply a dispensary, and I say simply not in a [chuckles] simple way because even that is a tough business and I have a lot of respect for who are running dispensaries. If you only are a dispensary, you're at the whims of the wholesale market.
There might be certain strains of flowers you can purchase. There might be certain types of vapes, you can purchase or different dabs. You can't really control your own destiny as much. Being vertically integrated allows you to cultivate exactly the type of cannabis you want. It also allows you to produce new products, innovative products, which we can touch on later, we just introduced a new infuse seltzer water here in Massachusetts which has been super popular. You can really control your own destiny. All that being said, it's a lot more expensive and one of the most critical issues in cannabis right now is how expensive it is to get into the industry and how that creates a lot of barriers for entrepreneurs. It's good to be vertical. We started small and we're fortunate to be able to grow our cultivation into a larger facility, expand our manufacturing, but it certainly is a little harder to get going just trying to find the capital to do so.
Sinead: I've read it's been a bit aggravating for a lot of dispensaries up in Maine right now with their supply chain. Lots of dispensaries are experiencing some big shortages right now. Was that something you guys had anticipated going into the Maine market?
Brandon: Yes, it was an interesting launch where we received one of the first cultivation permits in the state and also opened the first retail store. There was only about a month in between those two things happening. [chuckles] As we know either, you can't cultivate cannabis in only a month. Initially, it was very slim, what we could have on the menus, and it was mainly just edible, and extract products and things like that as the supply chain caught up.
We are really happy to see that on a monthly basis there are more and more new cultivators and product manufacturers getting licensed in Maine. Maine is interesting where there's a very robust Medical program. There's a lot of infrastructures there that's starting to get ported from medical [unintelligible [00:10:02] use, but it's a lot of paperwork for folks. It's a process to learn metric and see the sale tracking systems. It's been a bit of a slow process, but the month of May was the record sales of the program up there and I expect it to keep growing through the summer.
Sinead I saw that. I saw $5 million in sales last month. That's pretty groundbreaking. What would you say in Maine, specifically, has been selling best right now?
Brandon Flower is the king as it is in Massachusetts. I think most markets still though. As we've added more concentrate options on the menu, more edible options on the menu, we've started to see the initial stages of that shift away from flower and more into the different manufactured products, which is typical to what we'd expect to be seeing as customers.
They might come into a recreational dispensary for the first time. They've only smoked flower in their life. That's their only experience with cannabis. That's what they're familiar with, but on their second or third visit, they might be eyeing that chocolate bar and say, "All right I'll try one of those." We're starting to see a little bit of a shift towards more edibles, concentrates at this point.
Sinead Great. I know I've mostly been asking you about Maine. You guys are also have dispensaries across Massachusetts as well. Have there been any surprising trends that seem unique to the East Coast or the New England area you've observed over the years?
Brandon I think it's just unique and fun about the East Coast is it is still very new out here. A lot of just culture and technology in general, it starts on the West Coast out in California and works its way east and cannabis is no different. What's really I find fun and different about the East Coast is on any given day, dozens of your customers will never have been in a dispensery in their entire life.
You get to be that first experience for them and show them what it can be like to purchase legal cannabis, what the different products are. That's something we're really fortunate to have out here where it's just so new still that we can still provide that first-time experience for so many of our guests.
Sinead Great. You guys are kind of also pioneering craft cannabis on the East Coast and that's really a new thing across the country. I've read that you take a lot of inspiration from Sam Adams and its parent company Boston Beer, which are pioneers in the craft beer industry. How would you say you're trying to emulate Sam Adams and bring those same craft standards to cannabis. Why is that important to you?
Brandon Sam Adams and now there are some other breweries in Massachusetts as well that are really impressive. Basically, created a new genre if you will, a whole new category. After alcohol prohibition was lifted, the marketplace really was a consolidated amount of your big beer companies, your Coors your Budweisers, but then Sam Adams came along and created a whole new trend about higher-end craft products that are sure they're more expensive, but they're also, they're higher quality. They taste better. They're packaged in a more aesthetic way.
When we look at cannabis right now, that's where we're trying to position our company to be both through the quality of the products and then the entire experience with educating customers, with packaging, with ensuring the flower inside the packaging is stored properly to preserve the terpenes. We're really trying to differentiate ourselves with that higher-end craft brand, which we believe is going to be a smaller portion of the market, but it's a more interesting part of the market to be in.
Sinead You guys, quality has been a pillar of yours from day one. You pride yourself in being a small batch craft cannabis company. What does that mean and how is that different from most other dispensaries?
Brandon What it means at the highest level is smaller cultivation. Our indoor cultivation facilities are, even though our stores are some of the busiest in the state, are actual indoor flower production, we have some of the smallest facilities in Massachusetts and Maine. What that allows us to do is really put a lot of attention to detail on each harvest cycle, on each plant even within a veggie or bloom run, just to really ensure that they're being cared for properly, they're receiving the right environmentals, the right nutrients. That allows us to cultivate a really nice product. We also are one of the few companies that only hand trim. We don't have any machines ever touching the buds before it gets to our customers. We try to just think of it from really from seed to sale. How can we take the most care possible with our products?
Sinead Great. With that, you guys have a lot of advantages and I'm sure if one harvest isn't may be up to your standards, you can tweak things and change things as you go. whereas other dispensaries can't. I imagine the small-batch model does make scaling a little bit tricky. What have you done in terms of navigating, scaling the company and how do you think you'll adjust that as you expand into new states?
Brandon That's a really good point. It is difficult because, since day one, we've struggled to keep up with the demand for our products and even today as we have done some modest expansions, we can't produce enough products to keep our customers satisfied. In order to help meet our customer demand at the store, is we've really developed a very good network of other vendors here in Massachusetts and in Maine where they have similar values to us. Where we're happy with the quality of the products that they're producing and are happy to also offer those to our customers. We're starting to look into new markets like New York, New Jersey. It becomes tempting to try to build a really big facility and have a lot more team members there and produce a lot more products. We need to temper ourselves and really just make sure that no matter what we're doing, we're continuing to focus on quality is as a unnecessary part of the business that can't be forgotten.
Sinead Great. You have also not only do you partner, like you said, with local farmers, but you also support farmer's markets in both Maine and Massachusetts to increase supplemental nutrition assistance programs. Tell us a little bit about that. Why is local farming so important to you at Theory Wellness?
Brandon As a wellness company, we truly do believe cannabis makes people's lives better. Whether it's a medical patient or adult-use customer, you're coming to a dispensary to feel better. It really segues well into the wellness aspects of local agriculture, eating healthy, eating local. It's not just good for the environment. It's not just good for the economy, but it's good for you. By supporting farmer's markets, we feel we're helping our mission along in general, which is just to create a happier, healthier community that we operate in.
Sinead Absolutely. That's awesome. I wanted to jump in, you mentioned your new product High Five earlier which is a low dose THC seltzer. Tell us about that and what inspired you to enter the cannabis beverage space?
Brandon This is something we're super excited about. We've been working on High Five for a couple of years now. The vision in essence is that cannabis can be used in a wide variety of ways and increasingly can and should be a substitute for alcohol. Almost every adult in the country is familiar with drinking an alcoholic beverage. It's very acceptable, it's very social, but for cannabis as consumers, we've been relegated to the sidelines a lot of times.
I get it. Not everybody likes smoke, eating a gummy is not social. It's not anti-social, it's just eating a gummy. We really wanted to get into beverages and through the brand High Five, we've created a fast-acting seltzer product that can give a customer a doseable experience that tastes delicious and is a very social way to consume cannabis. It's been very popular so far. We launched it a couple months ago and look forward to continuing to grow that market.
Sinead That's great. I read the story behind the name High Five is that the onset is five minutes, which is just insanely fast. What effect can consumers expect from High Five and how does that compare to alcohol?
Brandon That's a great point. I think that's one of the main advantages of inner integrating technology with cannabis where we are in 2021. We use a nano emulsification process with our cannabis concentrate, which essentially allows the cannabis to absorb in a person's body much quicker than a conventional edible.
Our customers will typically start to feel the effects within five minutes or so and they also dissipate quicker. Within an hour you'll have that effect circular off, which is very similar curve to an alcoholic beverage.
Sinead Very interesting. Where do you see THC seltzers, like High Five heading over the next few years? Do you think they'll really start to rival alcohol?
Brandon: I really do. I would be bold enough, I think, to predict that long-term, they will outpace alcohol because we're moving towards a healthier society, a more health-conscious society, and being able to have a social beverage where you don't have a hangover, you don't consume calories. You're consuming only all natural products is it's an obvious alternative to alcohol. Once it becomes more accessible to every adult. Right now, the main thing that's holding back cannabis beverages is just that beverages are really hard. You need big trucks, you need big facilities, you need to store millions of cans. It's a whole different business model than any other cannabis product. It's challenging to get that going but I think once Theory Wellness and other companies start to really understand the beverage space, I think the impacts are going to be tremendous.
Sinead How did you guys land on the concentration that you use for Hi Five and what is the potency for a Hi Five THC seltzer?
Brandon Hi Five right, now we have what we call a micro version, so Hi Five micro, which is similar maybe to your bud light if you're going to make that stretch of an analogy. That's targeting around a two or 2.5 milligram dose of THC, and then we have the more conventional Hi Five , the standard dose, which is five milligrams. We were looking to create two different options for folks with nano emulsification. The experience tends to be a little stronger, a little quicker, of course than a normal edibles, so five milligrams might feel more like a 10 milligrams, some people. We think it's a really good social dose and especially with the micros heading into the summer, we wanted to create a product that was sessionable that people could enjoy a couple of them out of barbecue and not potentially overdo it. That's where we are now. We're going to probably continue to innovate, introduce some new dosages, some blends with different other cannabinoids. There's really a lot of exciting things that we can do with the brand.
Sinead How have you guys gone about navigating distribution for Hi Five outside your own Theory Wellness dispensary's? Have there been any challenges there?
Brandon: There's been a lot of challenges. Beverages, as we were talking about earlier, the beverages are tough. They're heavy, they're big, they're bulky. We've had to purchase different types of vehicles, box trucks, delivery vans, things like that, just to help distribute these products. Then also we have to be on the road a lot because they take up so much more space when most of our wholesale vendors were building their storage vaults in their dispensary's, they weren't thinking about storing drinks, thinking about storing dummies or pre-rolls, which take up maybe a 10th of the space. Space and weight are really challenging right now for beverages, because unlike a liquor store, unlike a beer company, we can't just buy another truck. We can't just store things in the hallways. We're super regulated. All of our vehicles have to be registered, inspected by the state of Massachusetts storage has to be in very specific areas and people's stores. It's definitely some growing pains that we're navigating right now as we try to expand beverages.
Sinead I want to move onto your sustainability or your social equity initiatives. You touched on that earlier, but I know that's a huge part of what you guys do. I wanted to really dive into that here. Tell us about your program theory cares and why this is important to you. Why do you think this is going to really impact the industry for the better going forward?
Brandon: I do appreciate that. I think from our view, we've done from what we feel is the bare minim and we want to keep doing much more to give back and contribute in meaningful ways. We certainly acknowledged that the war on drugs has been not just a massive failure, but has been really negatively affecting certain communities of color for decades here in the US and Massachusetts is not immune to that pain. What we've done at theory is we've created an in-house social equity program, where we decided that instead of hosting different job fairs or educational seminars, we really wanted to help an entrepreneur get going in cannabis. We did a process where we interviewed dozens of aspiring entrepreneurs. All of them were certified by the state of Massachusetts as economic empowerment applicants, which essentially means their backgrounds are from communities that were disproportionately harmed by the war on drugs.
We're really fortunate to find and start working with the Legal Greens teams. This is a business run by Vanessa and Mark. They've been really awesome to work with. We've helped provide them financing and mentorship. Over the last couple of years, it's really provided them the help they need to open their dispensary, or they can do 99% on their own but that 1% that we can help provide just through already walking down that I think has been helpful for them. We're really proud that they recently opened their first dispensary in Brockton here in Massachusetts. It's been a great success our program. We're going to be opening up to a second round really soon.
Sinead Very cool. One last question, before we jump into some personal development questions. What is one thing going on in the cannabis industry right now that you think will have a big impact, but maybe is a little under appreciated right now?
Brandon: That's a great question. The easy one for us to say is beverages, because it's still such a small part of the market, but I think it's going to be huge. I think even though it's getting a lot of press, I think the real movement we're seeing at the federal level is starting to get or maybe it's not getting the attention that it deserves in the right way, but I think it's going to be really interesting to see how businesses in the next couple of years start to position themselves for federal prohibition. Right now we have a really interesting marketplace in the US where in every state that a company operates and they have their own production facilities, their own distribution, their own dispensary's. There's going to be some day in the near future where cannabis grown in California can be shipped to Massachusetts, then how is that going to start to change all these investments people are making right now or we're contemplating right now. I think continuing to really think about the future is going to be important for everybody in the space to make sure that things are being positioned in a thoughtful way.
Sinead That's a really good point. That wraps up the bulk of the interview. I did want to jump into just a couple of personal development questions though here for you, Brandon. The first one, is there a book that has had a big impact on your life or way of thinking you'd like to share?
Brandon: A book? I'm trying to think if there's been a meaningful. I wouldn't say a book that necessarily jumps to mind off the top of my head.
Sinead This can be anything really, if it's a documentary or anything?
Brandon: I think one of the things that's been really impactful is when I was in college I studied philosophy. Thinking about how great thinkers 100s, if not 1000s of years ago looked at what the problems, and then trying to reconcile their thought process with where we are as a country these days, I think is something we always try to think about. One of my favorite quotes is the more that you learn, the more you realize you don't know anything essentially. [chuckles] We try to weave that into our daily life because it's true. There's so much out there. It's really important especially in cannabis to keep this an open mind and try to keep learning every day because things are changing, there's new technology, there's new information. We're really just scratching the surface. I'd say having a philosophical outlook on life and business has been very helpful over the years.
Sinead Absolutely. Brandon, I've got a real hard hitting question here for you. What is your favorite unhealthy comfort food or guilty pleasure?
Brandon: I'm going to have to go with Chinese food is my classic go-to Montre when once every couple months I'll just get that craving and it can only be satisfied by some big greasy Chinese food. That's just how it goes sometimes.
Sinead I am right there with you. I love some good Chinese food. [chuckles] As we close, how can listeners find you online and connect with you?
Brandon: Our website is theorywellness.org, and we're all over the social media too is Theory Wellness and we'd love to connect with our current guests and new customers alike. Feel free to get in touch.
Sinead Great. All right. Brandon, thank you so much for coming on the show. We really appreciate it and wish you the best of luck with everything going on in the rest of 2021.
Brandon: Yes, thanks so much for having me. It's been great. Great talking to you today.
Matt: 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 awesome guests on CannaInsider, simply send us an email at firstname.lastname@example.org. We'd love to hear from you.
Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. 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 company's entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.
Final disclosure to see if you're still paying attention, this little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:31:55] [END OF AUDIO]
California is the world’s largest cannabis market, and that means navigating everything that’s happening on the legal and regulatory front can be tricky. Here to help us is Khurshid Khoja of Greenbridge Corporate Counsel.
Learn more at http://www.greenbridgelaw.com
[00:54] An inside look at Greenbridge Corporate Counsel, a California business and regulatory law boutique that provides industry-focused legal expertise to cannabis companies
[1:24] Khurshid’s day-to-day interfacing with Sacramento regulators and politicians to help his clients see what’s just around the corner
[3:54] California’s provisional licensing crisis and where Khurshid sees things heading over the next year
[7:53] How Governor Newsom’s potential recall could affect California’s cannabis industry
[9:14] The Budget Trailer Bill and why it’s important
[12:24] Why Khurshid believes California’s regulatory landscape will evolve to become much more streamlined over the next few years
[15:29] The pending legislation around veterinary cannabis products
[17:17] The current regulation and taxation for non-cannabis cannabinoids
[20:08] What Sacramento regulators are saying about delta-8 THC, a hemp-derived cannabinoid that some states are banning due to its close relation to delta-9 THC
[26:30] What California business owners are excited about right now and the big opportunities that lie ahead
Matthew Kind: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider dot com. Now here's your program.
California is the world's largest cannabis market. Navigating and understanding everything that is happening on the legal and regulatory front can be tricky. That's why I've invited on Khurshid Khoja, founder of Greenbridge Law to help us understand the latest in California cannabis from a legal and regulatory level. Khurshid, welcome back to CannaInsider.
Khurshid Khoja: Thanks so much, man. It's a pleasure to be back.
Matt: Give us a sense of geography, where are you sitting right now?
Khurshid: I am sitting in my office and warm sunny Sacramento.
Matt: Just a quick reminder for new listeners, what is Greenbridge Law on a high level?
Khurshid: Greenbridge Corporate Counsel is a regulatory and business law firm that's focused on the psychoactive cannabis, hemp, and cannabinoid industries. We represent businesses up and down the supply chain, primarily in California. Our clients includes several large publicly traded multi-state operators as well and smaller mom and pop businesses as well as up and coming social equity businesses.
Matt: Great. Listeners to understand what your day-to-day is, really involved in the California market deeply. As you mentioned, you're in the Sacramento area right now. Can you give just a snapshot of what a typical month looks like, what you do?
Khurshid: Sure. I'd say the last month is fairly typical. I'll give you some of the highlights from the last month. The past month I spent a lot of time advising a publicly traded MSO social equity fund on their investments into social equity businesses in Oakland and Los Angeles, conducted legal due diligence into their licensing and regulatory posture in connection with that. I've advised clients on regulatory disclosures to state and local licensing agencies related to mergers and acquisitions activity, as well as going public transaction. One of our clients went public on the Canadian exchanges.
I've assisted various clients with state local licensing applications and renewals, advised clients on regulations applicable to various consulting and management services agreements. I've advised the pharmaceutical company on state and federal laws applicable to research and development. Using biosynthesized cannabinoids. I've assisted C-level executives at cannabis companies on various matters, including business immigration matters.
Just had something where I had to look deeply into US Customs and Border Protection policies. I've had discussions with the governor's office of Business and Economic Development regarding the upcoming licensing agency consolidation here in Sacramento. I've chaired a meeting of the board of directors of the National Cannabis Industry Association. I serve as their chair currently and participated in multiple discussions on the status of pending and future federal legislation.
I'm currently preparing for something fun, I get to teach a continuing legal education seminar for California NORML, where I'll have an opportunity to dialogue with our current chief of the Bureau of Cannabis Control, Tamara Colson, and also present on a panel discussing the status of federal legalization. That gives you some of the highlights in the last month.
Matt: Wow, that's great. You have good recall, too. If someone asked me what I did this weekend, there'd be a 30-second pause before I could answer, Khurshid.
You got all the bullet points down. Let's just jump right in. There's a crisis right now with provisional licensing. Why is that important and what do we need to know?
Khurshid: Sure. Yes, provisional licensing was an accommodation that was made to businesses in the state who were having trouble getting their local jurisdictions to complete the licensing process. A lot of local jurisdictions have pretty stringent licensing requirements, but they don't necessarily have the funding and the human resources to actually get it all done in a timely manner.
In addition to licensing requirements, there's all sorts of environmental requirements including CEQA, and in order to get a permanent annual state license, you have to have your local license in hand. You have to be able to show, "Hey, I'm right with Jesus at the local level, and I've got everything squared away here." Businesses that were applying for state licenses were not able to show that because local jurisdictions don't have what they need to get all these businesses licensed.
Provisional licensing was implemented essentially to give these businesses something in hand to be able to show investors and other folks who are interested in this status of the business. They couldn't quite operate with a provisional necessarily, but it was something. As soon as they got their local stuff squared away, they would be able to move into the regular annual license.
That program is actually sunsetting or would sunset, but for actions that the governor's office is going to be taking in their trailer bill. That could all be over if this program is not extended, if there aren't further accommodations made to these businesses that are applying for licenses, and if the local jurisdictions don't get some help with clearing the backlog of local licensed applications.
We are going to run out of the solution that we have right now if it's not extended, and local jurisdictions don't seem to be-- Yes, some are doing better than others. There's some really exemplary jurisdictions that I'm a big fan of. I'll say, San Leandro, I really enjoy working with them. I enjoy working with some other regulators as well, but a lot of them are struggling. It's having a downstream waterfall effect on state licensing. That's the quandary that businesses find themselves at right now.
Matt: Wow. What do you think the most likely outcome is going to be? I know you don't have a crystal ball, but what do you think's going to happen?
Khurshid: I think there has to be an extension on provisional licenses. That is, essentially what the governor's office is trying to do is to extend the time through which they can grant provisional licenses. I think they're shooting for at least a six-month extension. It's going to end this coming January. They're trying to stretch that out further, and also loosen up some of the criteria so that you can show progress to the state and get your provisional without having to get everything done at the local level, if the the hiccup is at the local level.
The trailer bill, which I'm sure we'll talk about, as well, has that extension in there. That could help us. It's a band-aid. The real solution is the locals getting their backlogs cleared. Hopefully, that will happen as well with some of the additional funding that's going to go to these jurisdictions to help them through that.
Matt: I've read that Governor Newsome may be recalled. Where is that on a high level and what's your opinion of the most likely outcome there?
Khurshid: Yes. To me, right now, it doesn't seem likely that that is going to succeed. Personally, I sure hope it doesn't as a cannabis industry advocate, because the governor has been a very strong advocate for the industry. He was a big backer of Prop 64. I'd like to see him stay. I'm sure a lot of people in the industry share that desire. Right now, it doesn't seem like there are any serious challenges to the governor. We've got a couple of Republican candidates. We've also got a couple of MAGA type candidates as well that are in it to be disruptive. I don't see that as happening. I'm hoping that come June that-- I'm sorry, come December, that the governor will still be in office and we will go on with business as usual.
Matt: You mentioned the budget trailer bill, what is that, and what do we need to know there?
Khurshid: The budget trailer bill comes out-- Every budget cycle, the governor puts forth a proposal for how we're going to allocate funds among various state agencies and state programs. The reason why this trailer bill, in particular, is so momentous for the industry is that it includes a proposal to consolidate all three of the state licensing agencies. Right now we've got the Bureau of Cannabis Control, we've got the Manufactured Cannabis Safety Branch at the California Department of Public Health, and we've got Cal Cannabis at the California Department of Food and Agriculture.
In addition to that, we've also got CDTFA, which does the tax collection, the California Department of Tax and Fee Administration. We've got other agencies that perform various tasks in the industry as well, but those are the big ones. The three licensing agencies all have their own sets of regulations. They don't always match up. The way that one agency defines who is an owner isn't the same as the way another agency defines it.
It creates a very cumbersome licensing system for the state's industry, especially those companies that are vertically integrated and work up and down the supply chain. They have to get multiple different licenses and they have to apply to these different agencies to get that, and they have to deal with different regulators for each different facility that they have licensed.
The governor's proposal is to create from these three agencies, a department of cannabis control that would replace the three licensing agencies, and then the new licensing agency would essentially pass consolidated regulations as well. There wouldn't be this issue of variance between the regs for each of the licensing agencies and each of the license types. That's really the big headline from the trailer bill.
There are a lot of other great things that the trailer bill does, including creating a director for social equity, Deputy director for social equity, and extending indefinitely funding for support of local jurisdictions that have social equity programs. There are a number of other things that the trailer bill does as well. Obviously, it clears up a lot of the regulatory complexity by wiping out a lot of provisions that have to deal with the different agencies and just vesting all that authority in the department of cannabis control. Those are the big headlines of what the trailer bill does.
Matthew: Wow, that sounds like a lot. If I was a California business operator, this would cause me a lot of anxiety. Do you think if you were to look into the future, a few years, this is going to be a lot more streamlined and less friction?
Khurshid: Yes, I think so. That's certainly the hope. While, yes, it can produce a fair amount of anxiety because we're going to have to go through rulemaking again. That's a pretty arduous process. The rulemaking, that's going to occur in the first instance. The new department is also going to suspend some of the procedural protections that licensees might have in terms of the rulemaking process itself. The new agency won't necessarily have to publish in advance what it's planning to do for emergency regulations, for temporary regulations for the first six months to a year.
They basically built into this trailer bill, "Hey, we're not going to follow this process. We are going to follow the regular rulemaking process once we get past this emergency phase." For now, the agencies are going to attempt to identify where there are conflicts in their existing regulations, clearing those conflicts up, rationalizing the system a bit more, getting rid of some of the requirements that are currently in the regs that cause a lot of friction in terms of getting licensed and also keeping your license.
For example, what I'm reading is that they may do away with fingerprinting, and instead allow the agency to go in and enquire with state, federal, and local law enforcement on criminal background checks. That could really alleviate a lot of stress going forward. You're not having to guess as to what a regulation means because they've had a chance to clarify it. I think that's also going to reduce quite a bit of stress.
Initially, yes, I think people are going to feel very anxious about it, but I think long-term everyone knows that this is a very good thing. It's going to reduce the regulatory burdens and costs on operators. Frankly, I hope it takes a lot of work off my plate. There are a lot of interesting things that I get to do. Having to tangle with licensing agencies on ownership disclosures isn't the most interesting. If we can get rid of some of those tedious requirements, not do away with them, but just rationalize them make them simpler, I think everyone's better off.
Matthew: There's some pending legislation around veterinary CBD. Can you tell us about that?
Khurshid: Sure. The veterinary space is a really interesting one. Not just CBD, but also other pending bills as well that would essentially incorporate veterinary products into the Medicinal and Adult-Use Cannabis Regulation and Safety Act. Right now veterinary products are not contemplated, and these are products that include THC. If you're a veterinarian, you could lose your license potentially for advising a patient's owner on administering cannabis to their pet.
There's a bill AB 384, I believe it is, that would essentially protect veterinarians and allow them to do that. AB 45 is the bill that's on veterinary CBD that would essentially say, "Hey, for non-cannabis products, for CBD derived from industrial hemp, putting these products into veterinarian preparations is not going to "adulterate" those preparations." It's still going to be illegal to sell those. Right now, it's arguably not legal to sell those. Those can be deemed adulterated because CBD is not approved as an ingredient. These bills would essentially make it safer both for veterinarians to advise on THC in cannabis and CBD as well and also to manufacture these products and to regulate them properly as well.
Matthew: Talk a little bit about the regulation and taxation for non-cannabis cannabinoids. I think this means non-psychoactive cannabinoids and what insight to have around this. You talked about that for veterinary CBD or veterinary regulations, but how about just in general?
Khurshid: Yes, so non-cannabis cannabinoids that I consider it to be not just the non-psychoactive cannabinoids, but any cannabinoids not derived from marijuana. Derived from industrial hemp. I'm not aware of any other plants that produce cannabinoids so I think that's what we're really talking about is industrial hemp-derived cannabinoids. Currently, in MAUCRSA, there is no pathway to be able to use cannabinoids derived from anything other than psychoactive cannabis or marijuana.
There have been manufacturers and operators that have wanted to either incorporate hemp CBD or sell hemp CBD and they have not been able to do so because it's not within the ambit of MAUCRSA, it's carved out. The current regulations don't allow licensees to actually incorporate hemp CBD or any other hemp cannabinoids into their supply chain, even though it might be significantly cheaper than extracting them from psychoactive cannabis. There hasn't been a pathway for that.
There are a couple of bills that would create this pathway for hemp-derived cannabinoids, not only to incorporate them into the supply chain for folks who are licensed under MAUCRSA but also generally as well to allow for the incorporation of hemp CBD and hemp-derived cannabinoids into other foods, cosmetics, supplements, veterinarian products that are not sold by a MAUCRSA licensee. Just out in the general market.
AB 1435 is the one that creates a pathway for MAUCRSA licensees to incorporate hemp-derived cannabinoids, and AB 45 is the one that does this more generally. In each of these instances, there's going to be testing of these cannabinoids, may be taxation of these cannabinoids as well. Again, this is an effort to create a pathway for these hemp-derived cannabinoids. It doesn't address any of the biosynthesized cannabinoids, but it does address hemp-derived cannabinoids.
Matthew: Everybody's familiar with THC which is also called Delta-9 THC, but now there's Delta-8 THC products out there. Some states are banning this. What's the general mood around Delta-8 THC in Sacramento and California at large?
Khurshid: I think amongst operators, there is a concern, because, again, when people talk about Delta-8 THC, they're talking about THC derived from hemp. Again, they're assuming that because the hemp legislation at the federal level calls out Delta-9 in certain places that it doesn't apply, that the prohibition on the volume of THC allowable in industrial hemp, that it doesn't apply to Delta-8 or that somehow Delta-8 THC is not prohibited under federal law, that the hemp bills-- I'm sorry, the hemp legislation at the federal level completely legalizes that.
That does not seem to be what the DEA thinks, however, because when you look at DEA guidance on what they consider to be prohibited and THC is prohibited, they include all variants of THC. Delta-8 would be included in that. There's a publication called the Orange Book that the DEA puts out that goes into a lot of detail about the various different controlled substances that are banned under the CSA. If you look at THC, they include not just Delta-9 but all variants of THC.
The issue at the federal level is, is this really lawful? Is there actually a carve out for Delta-8? A lot of folks would argue, no, there isn't. At the state level in California, again, the concern among operators is, "All right, we have all these folks who're selling THC products essentially outside of the regulated system without a license, without any testing, without any taxation, and this is unfair, and it creates public health issues as well."
Presumably, if some of these non-cannabis cannabinoid bills are passed, that would address some of the issues, some of the concern, and that you could have Delta-8 incorporated into the supply chain and tax it and test it and ensure that a lot of the problems that would otherwise exist without regulation are addressed. I think the hope is that "Hey, no one wants to deprive anybody else the benefits of Delta-8 THC but we also want to ensure that it's safe and that it's not going to undercut the regulated tax they market."
Matthew: Let's talk about tax relief a little bit. Any good news there?
Khurshid: Yes. There is legislation pending currently at the state level that would essentially relieve licensees of penalties in the event that they aren't able to pay cultivation excise taxes on a timely basis, as there are a lot of reasons why that hasn't happened. This bill would essentially eliminate the penalty for licensees while maintaining the penalty for anybody who's operating without a license. The reason why again this is important is that the tax system in California is quite tedious and very inefficient and imposes a lot of regulatory costs on operators.
You've got a cultivation tax that has to be passed from the cultivator to the manufacturer to the distributor and then remitted by the distributor. You've got an excise tax that has to be remitted by the retailer to the distributor. The distributor needs to factor that into sales ahead of time. There's a lot of record-keeping, a lot of back and forth, a lot of places where this could go wrong as well.
We had a lot of instances, for example, of distributors selling to retailers on terms, and then the retailers not paying them. Not only not paying them for the product but also not remitting the tax, the excise tax that is due. Guess who's on the hook for that? It's the distributor who's offered terms to the retailer. They still have to pay and remit excise tax and saying, "Hey, the retailer stiffed me," isn't going to cut it. It doesn't give them the relief that they need. As a result, they get slapped with penalties for that as well even though it's not their fault and they have tried to get payment for goods.
There are various proposals being floated about consolidating the taxes. Beyond this penalty relief bill, there's talk of folding the cultivation tax into the excise tax. There's talk of having-- because the retailers already collect sales tax for example, why not just have them collect the excise tax and remit the excise tax rather than paying it to the distributor when they buy the goods? Pay it in advance essentially. Let them collect it, and record it, and pay it just like they do with sales tax.
Whether or not that is a net positive for the industry I think it depends on whether you're a retailer or a distributor or where you are in the supply chain but I think definitely those proposals I'm hoping to see them advanced. A lot of folks in the industry are because this is one of the key things that we need to get right if this system is going to survive and if we are going to beat the illicit market and outperform it. We need to have a rational tax system that is not going to create as many problems.
Matthew: Khurshid, you talk to a lot of cannabis business owners and operators in California and nationally, but what is one big opportunity they're seeing? Conversely, what's one thing that keeps them at night?
Khurshid: I think the fact that we still have a lot of illicit operators, that's something that obviously keeps folks up at night. We've talked about some of these other supply chains like the hemp-derived cannabinoids not being regulated. That obviously keeps them up at night. I think that this consolidation of the licensing agencies and this pending legislation that we've got is going to certainly rationalize their business structure. It is going to give them a lot of opportunities to grow and scale. I think that's it's not one opportunity, it's what the future holds in terms of the regulatory system. I think it's not, it's weird to think about that as an opportunity but it is an opportunity to get it right.
From a regulatory lawyer's perspective, the big opportunity is this coming rulemaking and ensuring that we have a say. Even though we've got these emergency regs coming up, we've got a say in how things move forward. Even with the emergency regulations in place the agencies and the soon-to-be the single agency they're still listing, they're still very responsive to operators especially when big groups of operators come together and press their case. I think this is a big opportunity coming up to restructure the market and to create a lot of efficiencies here and essentially a lot of gains from that.
Matthew: Khurshid, I'd like to transition to some personal development questions. What is one trend or development you see in the cannabis space that you feel like people aren't fully appreciating how big it's going to be or how disruptive it's going to be or the impact it's going to have?
Khurshid: We've talked about this, you and I talked about this before in terms of the application of blockchain and cryptocurrency to the industry. Folks have been talking about this in terms of a solution to the banking issues that the industry has. What if we all use bitcoin? Previously, because the regulators didn't know a whole lot about bitcoin, didn't know a whole lot about cryptocurrency, they just described ill intent to it. It is true that people have used cryptocurrency for illicit transactions. Without a doubt, yes, that's happened, but that's not the only thing that happens with cryptocurrencies.
I think that that space is going to change our space in a massive way, especially after we finally get descheduling at the federal level. Once we get descheduling at the federal level, things like a cannabis futures market are going to be a reality. When we have interstate commerce, we'll be able to have true futures markets at the national level and then at the international level, as well as rollback prohibition internationally.
Think about the application of NFTs, think about the application of decentralized exchanges, think about the applications of DAO, a decentralized autonomous organization. We're already seeing transformations in corporate law. I think Wyoming just passed a DAO LLC bill, that essentially gives the green light to form DAOs and have some limited liability protection for folks who are invested in that DAO.
I think about how all of these technologies are going to create the market of tomorrow and it's very exciting. It's going to transform regulations. When you don't have owners per se, you don't have C-level executives running a company, it's run by the DAO, that's going to be huge. You already see at this point, like I got to work with a client that was evaluating an investment into a social equity entrepreneur that is doing cannabis NFT's, so-called Digital strains. Very exciting stuff. I'm just enthralled by all that, and I'm very excited about what this is going to mean especially post descheduling.
Matthew: This is really an interesting time especially the mash-up of these things is they come together DAOs, blockchain cryptocurrencies in cannabis. It's just going to be crazy. Everything is accelerating so fast. It's fun, but it's also like Star Trek warp speed a little bit.
Khurshid: Yes, it can be hard to keep up, but that's what keeps it fun too. There's always so much to learn and you can easily spend hours and hours and hours developing your knowledge on that space and thinking about the application in the cannabis industry.
Matthew: Khurshid, last question. What is your favorite unhealthy comfort food or guilty pleasure?
Khurshid: Oh, man, it's hard to choose but I guess, pizza and whiskey if I had to choose. Pizza is definitely one of my favorite things being a Chicagoan, but it's also one of the worst things I think that paying a healthy weight, and whiskey, that kind of speaks for itself. I love bourbon but too much of a good thing is not a good thing.
Matthew: Well said. Everything in moderation, but including moderation once in a while you have to go crazy.
Khurshid: That's right.
Matthew: Khurshid, let listeners know how they can get in touch with you. If you have a cannabis business or who your clients would be that could reach out to you and say, "Hey, I need help in the legal arena." How can I connect with you?
Khurshid: Sure. I'm not a big marketer but I do have a LinkedIn profile where folks can find me pretty easily. Our firm has a website, the Greenbridge Corporate Council website is just greenbridgelaw.com. It's a dot com for now. It's going to be dot crypto in the next year just as a teaser. Right now it's greenbridgelaw.com and that's our website. You can connect with us there and occasionally I'm on Twitter, but not a whole lot.
Matthew: All right. Well, Khurshid, thanks so much for coming on and giving us a brief of what's going on with California and cannabis. Really appreciate it. Man, there is so much going on. We really needed that digest version. Well done, and look forward to the next update.
Khurshid: Thank you very much, Matt.
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.
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[00:35:57] [END OF AUDIO]
A new hemp seed vodka is winning taste tests and garnering devotees across Texas. Here to tell us about it is Ben Williams, founder of Highway Vodka.
Learn more at https://www.highwayvodka.com
[00:45] An inside look at Highway Vodka, the first vodka created from hemp
[1:12] Ben’s background in the restaurant and bar industry and how he came to start Highway Vodka
[2:11] Why hemp produces a smoother vodka than most traditional grains and how Ben figured this out over years of experimentation
[7:08] The permits required to sell hemp-based alcohol
[13:43] Highway vodka’s unique flavor profile and how it compares to other spirits
[18:44] How Highway Vodka contains virtually no congeners, making the drink low-calorie and less likely to cause a hangover
[24:27] Books that have had a big impact on Ben’s life and way of thinking
[28:16] Ben’s thoughts on legalization in Texas and other southern states
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 hear how a new hemp seed vodka is winning taste tests and garnering devotees across Texas. I'm pleased to welcome Ben Williams, founder of Highway Vodka to the show. Ben, welcome to CannaInsider.
Ben Williams: Hey man. Thanks so much for having me, great to be here.
Matthew: Give us a sense of geography, where are you in the world today?
Ben: I'm in Houston, Texas.
Matthew: Good place to dream up your plans for Highway Vodka. Tell us, what is Highway Vodka?
Ben: Highway Vodka basically is the result of about eight years of tinkering and messing around, learning how to distill spirits, basically a hemp-based spirit that's grain to glass using nothing but hemp, corn and water, that's it.
Matthew: Ben, share a little bit about your background and journey and how you got into this space, became a distiller of spirits and started Highway Vodka.
Ben: I owned a couple of bars and restaurants beforehand and just literally got into distilling as a hobby, just curiosity and all that kind of stuff. Just bought a little 13-gallon steel online and I started reading every book I could find, then every YouTube video I could watch, and literally just picked it up as a hobby. Just doing that for a couple of years with a business partner and stumbled across him and changed everything and just went from there with it. Like I said, it was just literally a hobby that turned into a business over the course of about eight years or so. It wasn't an overnight thing at all.
Matthew: Eight years of tinkering getting used to it, how did the idea of hemp come into the picture?
Ben: After being in distilling for about two or three years, started off with just a sugar wash, then just messing with a bunch of different grains, went to California, a friend of mine opened up a dispensary out there and he introduced me to some friends of his that were distilling with marijuana. I knew enough about distilling at the time to notice what was going on in the various stages of the process, what they were doing. I liked a lot of the things I saw, obviously, I couldn't mess with marijuana in Texas so I just started ordering every part of the hemp plant that I could find, trying to see how I could incorporate it because I liked some of the things I saw like viscosity differences and stuff like that.
Just started doing that over literally some years and a bunch of different meshes and runs, stumbled upon the thing that's right in front of you, the hemp seed. Of course, it's always the easiest thing but you don't start there, it can't be that simple. Found that, that actually wasn't simple because then it became about figuring out ratios. I'm not a scientist by any means neither is my partner, but this was literally just a trial and error, just messing around, you stumble upon this and you stumble upon that.
One of the big things we stumbled upon that was a game-changer was we were using the hemp seed and stuff like that, we would always rack the liquid off from in-between the oils that were formed during the fermentation period and the grain beneath, and then one day out of just being lazy, we just dumped all that stuff in there because racking is a messy, sticky process. We were like, "Just throw it out there, who cares?" Boom, game changer. That's how, it's interesting. That's really been this trajectory of Highway Vodka, has been a lot of moments like that that have changed everything. We're totally not planning, just like, "Who cares?" Then, "Oh, really? Wow."
Matthew: You and I were chatting earlier and you told me that the key to know if you're making good vodka and in this case, FC Vodka, is people's face, their face doesn't lie. Can you talk a little bit about that?
Ben: During the process, we would go to the bars and restaurants and let regulars taste the little stuff we're making like, "Hey, you want to try something?" In the beginning, oh man, people are just like, "Are you trying to kill me?" All this kind of stuff. As we got better and better and better and then once we introduced the hemp and then once we started distilling on the grain, completing with the oil and everything, that was one of the big things because it's like this is like the only thing I know how to cook. It was really personal to me. Every person that I've put this before, I'm watching your face to see what you think about what I cooked, you know what I'm saying?
Ben: I'll never forget, there is a group of women up at the bar, I knew them and I was just like, "Hey, guys want to try something?" Then everybody wanted to taste it neat in room temperature for some strange reason, nobody drinks vodka that way but that's how they wanted to do it. That actually turned out to be a gift because learning to gear it towards that palette. I gave it to them and watching their face and their face didn't curl up, it went into like, this is nice kind of face. I was just like, "Yes, that's it right there."
Matthew: If their lips and cheek curl up like they just sucked on a lemon then you're like, "Oh, let's go back to drawing board."
Ben: Yes, back to the drawing board. When I saw that I was just like, "Okay. We're really onto something here."
Matthew: That's pretty nice because you figured out a truth detector there because when you ingest something, especially like alcohol that has this level of concentration, you're going to have a facial reaction.
Ben: Oh dude, their face does not lie. I'm sitting there like-- Every time I do a sampling or tasting and meet the maker events in the liquor store, wherever and people come and they get their sample, I'm just studying your face because if your face cracks wrong-- [laughs] Fortunately, it doesn't happen often but I'm watching. Your face is going to tell the truth. Won a way lot more than the loss, so tat's what gave me the confidence to push forward.
Matthew: Do you have to get a special kind of permit for the type of vodka or how does that work?
Ben: Permitting, yes. That was a two-and-a-half-year process on getting those permits through-- You have to start all the way from the federal government, all the way down to your smallest local governing entity to get an actual manufacturing for distilled spirits permit. Yes man, it was a two-and-a-half-year process, mainly because of the hemp because I guess it's just not a thing they deal with often up there. They didn't really know, "Okay, what is this?" I had to go through so many rounds of federal testing by different labs that they okay basically, testing for THC and all that kind of stuff. It was quite a process.
The biggest thing about this too is that before you can even apply which would be one of the largest barriers of entry into the industry if you want to be a manufacturer, you have to already have your facility locked down, lease agreements, whatever the deal is and that has to be approved before you can even submit your application. Imagine in my situation of having to, say, lease a facility for two and a half years not even knowing if you're going to actually get this permit but it worked out for us.
Matthew: Man, that seems really backwards, doesn't it?
Ben: Yes. I don't get it but it is what it is, The beautiful part and other, falling backwards into something moment was my partner. He was big into horses and riding, cutting the horses and stuff like this, he had this big barn and on top of the barn he actually had his construction offices as well. We use the barn, some land that he already owned in the building, he already owned free and clear, as our site.
Matthew: Nice. Good idea.
Ben: We weren't stuck with paying rent and stuff like that, it made it easier for us to stomach the two and a half year process because we have the site. We're just still a hobby and along the way like, "That'd be cool if it happens, whatever." It wasn't anybody's primary dream, we were just trying to see it through. When we finally got the permit, another backwards moment, my partner actually broke his ankle messing with his horses and he was like, "Man, I'm done with horses. I'm finished. I'm over this." Then that was right around the time the permit came. Like, "Hey, the permit came. Let's get rid of them. Let's build the distillery in here," and that's what we did. When I tell you-- When I think about that out loud, when I say that out loud, it is funny. There's so many just weird things like that just fell in place at the right time, you know?
Ben: It's really interesting and same thing with my distribution. It's a similar story to that.
Matthew: I'd always rather be lucky than right.
Ben: Yes, but you know what's interesting, man, is you can be lucky but if you're not prepared for that lucky moment, it's going to go right by you. Like with distribution, same thing. I thought from my relationships in the restaurant industry and stuff that-- I had nurtured these relationships with some of the distributors and they were all like, "Yes, we got you," whatever. Right? Then, when I had to show it with my permit, I'm like, "Okay, I'm ready." You know what I'm saying? "Now, what's the next step?" "We're not going to do anything with it. This company doesn't want anything to do with anything remotely associated with the cannabis industry. They think anything cannabis related is a threat to the spirits industry--"
Matthew: The devil.
Ben: Yes, man. Meanwhile, you're selling spirits like crazy but whatever. That was just one reason for a turn down I got from a very large company that I thought I was in with, but, man, that turned out to be-- I'll never forget this meeting because this really pissed me off. We'd nurtured a relationship, thought I was good to go, called him over to the restaurant, one of my spots for lunch to eat lunch, and he just goes down this rabbit hole of why it's not going to work. Now, mind you, I had to deal with it all positive to this point. He goes down a rabbit hole of why it's not going to work, blah, blah, blah, the cannabis tie-in thing, they don't like that, whatever. Then, he's like, "[unintelligible [00:12:02] to hook you up with a broker and you can get your little pet project into a store or two."
I just got up from the table, and I was like, "Hey, they'll bring you your check. No problem, see you later." I walked out of the place, called a buddy of mine just to rant. He said, "Hey, let me call a buddy of mine and see if he can point you in another direction," or whatever. That guy that he called happened to be Tom Montague who's now the VP of Silver Eagle Distributors which is like a Budweiser house which is the largest beer distributor in the country, right? They're like, "Hey, we're about to look at spirits. Let us take a look at it. We're about to start distributing spirits." Same thing. Had that meeting, did the blind taste test against two other brands, won it unanimously, became their first spirit, and it just rolled on from there.
That's why I'm saying lucky-- How lucky can you get for a friend of yours to call this guy and ask him and then they actually be looking for a spirit. You know what I mean? I'd never even entered in the ballpark. Then, also to have a quality product that I'll put up against anything, I don't care what it is, that they liked. You know what I'm saying? Where the opportunity met preparation or however that goes. You see, that's just the whole-- You see everything that's happened, there was no master plan. It's you plan and you get this far and then you hit a wall and then as you rebound, you fall backwards from running into that wall, you fall into this. You know what I mean?
Ben: [unintelligible [00:13:42].
Matthew: I want listeners really to understand what the flavor profile is here and how it compares to other spirits so they can really understand that. You talked about the finish a little bit. Can you talk a little bit about how you experience it and what people's first adjectives they use when they describe it after taking a shot?
Ben: The first thing they always say is smooth. That's the first thing. No burn. Smooth. The second thing I hear-- I'm just literally just giving you the words that come out of people's mouths when you described it that way, that's perfect. I'm just running it through my head. Smooth. Sweet. Nice. I like that one too. [laughs] I want to get a lot of, "That's good," because what it is, man, is-- The whole thing, it's about-- Again, it comes back to the hemp within that oil, right? What that oil is doing is-- It's not only knocking the burn off, it's making it a little bit more-- making it easier to go down. You know what I'm saying? Giving it a little bit more legs than your standard vodka would have.
Then, also, what oil does in cooking, this whole flavor's on your palate. Then, it's snatching [unintelligible 00:14:53] to the sweetness from the corn in the [unintelligible 00:14:57] and holding that on your palate a little bit more. It gives you more of a sweeter-- but not sweet like sugar, but just a sweet finish and a smooth experience so that you can-- Often, people will say, "Hey, I could just drink this neat or I could drink this just on ice. I wouldn't need anything with this. Most vodkas you have to mix with this or that. I would just drink this smooth because there's character there." You know what I'm saying? That's basically how I would describe it, nice, smooth with a little sweet finish.
Matthew: What about the burn? The burn is-- that's why it's smooth because the burn's muted?
Ben: Yes, no burn. That's what I'm saying about the oil.
Matthew: How does the hemp affect the viscosity?
Ben: Those oils that I was telling you about that form during the fermentation period, a couple of things happen there. The hemp actually acts as nutrient for my yeast, so it makes the yeast live longer and produce more alcohol. My yields per batch got larger when I started using the plant. When you throw all that stuff in the still, that oil floats on top of the still acting as almost like the first layer of filtration with the-- Think like pot pourri, how that functions, right? Those vapors got to come up through that thick layer of oil first before they get to the copper plates in the column, right?
By distilling only six times and by collecting only the hearts of the run which is the purest part and the sweetest part of the run, of the distillate-- which you'll notice is when it comes off, it has-- If you-- Let me see, how can I just explain and make it more visual? You know how you can ring your glass with something and it tangs a little bit? You know what I mean? It just has a little cling to the side of the glass and it-
Ben: -creeps? That's exactly the viscosity change that I speak of that Highway has. That little nuance of body, that little extra body that it-- I like a little extra body. [laughs] That little extra body is what holds those flavors and whatnot just enough to knock that burn out of there and coach your tongue a little bit and make it just a smoother experience so there is no burn. Like I said, that's what yields to the happy face instead of the sad face that-- when people look for it. That's [inaudible [00:17:36].
Matthew: That residue is-- That's the key difference.
Ben: I don't know. Residue? It's not an appealing term. Let's just say, that oil, that light oil that's present that gives it just a little bit more density, not as dense as wine but not as watery, let's just say, as your standard vodka, right? Just a slight, almost really imperceptible-- The only reason I know it is because I look at this stuff so hard but the easiest test, ring your glass with some Highway, ring your glass with some-- whatever else, and you'll just notice the time that it takes, just those couple of half seconds that it takes creeping down the side of your glass, and that's what it's about.
Ben: Okay. There's a little bit of an essence there.
Ben: Yes. Essence. I like that. [laughs]
Ben: It's only 57 calories. I didn't know that until recently.
Matthew: Let's talk about that because White Claw and these seltzers and different things are really eating into the beer market. People are concerned about calories and hangover. Talk a little about calories and hangover if you would.
Ben: It's interesting. It was never designed to be such, right? It wasn't like, "Let's make some kind of low cal--" I wouldn't even know how to do that if you asked me to be honest. Literally, I guess it's just the simplicity of our [unintelligible 00:19:13], just keeping it honest, just the good old hemp, corn, and water and run with it. I don't know, man. I just took it one day and I just said, "We need to test it."
I sent it back to one of those labs that we had to get it tested at for the government or whatever just to get the calorie stuff, and it came back at 57 calories per serving. I was just like, "Okay." I started looking that up and I didn't realize that that actually put us at the lower end of the spectrum as far as calories go, down there where the ones that actually are designed to be low calorie are, not as low as Skinnygirl or one of those other deals but not far from them at all, literally seven, eight calories. You know what I mean? It just made me wonder, "God, what are people putting in this stuff after the fact?" You know what I'm saying?
Matthew: What are they putting in there? I'm curious.
Ben: They're putting sugar in that. Oh, man. This weekend I was in a Total wine store in Austin. I was doing an event there. Before it started I was just walking up and down the aisle. I'm looking at some stuff and I'm seeing floaties and stuff like that. I'm looking at this one bottle and it was just like, "What is that? Is that sugar?" It just made me think there's a lot going on after the fact. There's coloring. You know what I'm saying? There's all kinds of things that are being added but I don't know why or what for because unless it's a flavored product, I don't get it. Maybe it's something that I'm missing I don't know about or whatever.
I have no idea what it could be but there's definitely something going on after the fact because I don't-- I didn't intend for it to be that way. I just make the stuff how I make it. Maybe it's in the cuts that I make by only keeping the hearts versus the tail. I don't know, but it really made me wonder for it not to be designed to be such and it just ends up that way. I wish I knew what it was, that's why I wish I was scientist. I have no real explanation for why, but I do know that there is some funny business going on after the fact. There has to be. As far as what's--
Matthew: You mentioned the hearts and tail thing. I know you mentioned that before but I just want to make sure listeners really understand what you mean when you say that. If you could just go over that one more time.
Ben: In distilling, there's four parts to every run. There's the four sets. The heads, the hearts, and the tail, and they all boil off at specific temperature range. The first two parts that come off are not really drinkable. You've heard moonshine blindness and all that stuff. If you drink that stuff, you're in trouble. Now, the hearts and the tails you can consume and most people that are really trying to get the most out of their batches and stuff like that part-- If you want every drinkable part of alcohol out of a batch, you'll blend those two items together to just squeeze it dry, for lack of a better word. A lot of people do that.
A lot of those continuous still operations where you get really huge and you just can't afford to turn it off, that's what you find. They never turn it on so they don't really have any going on and whatever. You can drink that stuff, but that's where a lot of the headaches and stuff lie and that's where a lot of the funny business that you don't really necessarily prefer to have in your glass. You know what I'm saying? Will you be okay? That's relative because you'll probably have a horrible headache in the morning. You know what I'm saying? If you overdo it. Well, that's with anything you overdo.
That was all just from me reading and stuff like that. Learning about the differences of the cuts and so that's why I just narrowed in on the heart because again, it was just for us and family and friends or whatever so I had no use for tails. It wasn't a business at that point. Then when it came time to scale, I didn't want to learn how to deal with tails because it took me long enough just to get this thing right. I just stayed with it. All hearts, no tails. That's basically what that means. Those temperature ranges vary depending on the climate, depending on what type of equipment you're using, and stuff like that. It's a very key part in making something unique and stuff like that. You want to really pay attention to your cuts.
Matthew: Well, you have a really interesting story how you persisted with the distribution. You worked hard. Opportunities came up and you were able to capitalize on them because you were ready. That's really the story of persistence and grit. I think that aspect of the entrepreneur is sometimes underestimated. Just that grit to keep on going when it's not clear what to do next. Well done there.
Ben: Appreciate it. Thank you.
Matthew: Well, Ben, I'd like to ask a few personal development questions before we wrap up the interview. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Ben: Yes. I would say there's two books actually. I was just thinking of one that's directly related to the business that I'm in. That's just The Home Distilling and Infusing Handbook. [laughs] It's like a little handbook literally. I actually talked to the guy. I reached out to him way back many years ago because he was doing little consulting classes and he was teaching people how to do it. I tried but he had since retired. I didn't realize how long the book had been in print at that point but I actually didn't touch on it, it was cool.
Anyway, that book just made me-- just opened the door as far as what, in the most layman's terms as possible, what distilling is and how you can do it because subsequently after that I read so many other books and some of them read like chemistry books. They're just too much. You know what I'm saying? That book, The Home Distilling and Infusing Handbook, was just a nice easier thing to get into or whatever. I'm sorry. It's called The Home Distiller's Workbook. That's my fault. Home Distiller's Workbook. Anyway, that was a great one.
Then the next one that led to what you were talking about at the end as far as the entrepreneurial aspect of this business would be The Alchemist. I have a ton of books. I read books all the time, but I just read this one lately and this has been really on my mind a lot. It speaks directly to what you were just saying about how as you come up to these roadblocks, how do you navigate them? Do you stop there or what? The Alchemist is the story of that guy who's just full of moments where he could have turned back but he always found a reason why and he was always propelled forward by the people that he met along the way. One person he met, the guy was more--
They have this idea of going to Mecca. A guy that he met and was working with was like, "I'm just more cool. I'm actually going to Mecca. I'm just cool with just the thought of going." I saw how that could happen. You know what I mean? Because you get these ideas and they're cool to think about. You know what I'm saying? You can just spend so much time just zoning in your own thoughts of what it could be instead of actually trying to make it happen because it's daunting. It's heavy to get out there and try to do whatever. I understood how he was-- and I find that even today. I fanciful think about, "Oh, worldwide distribution would be so great." Then I'm just like, "Well, that's going to be so hard."
It's not my thing. I still forge along towards it at my own pace or whatever. I love that because the biggest thing about being an entrepreneur, especially when you don't play with other people's money and it's your own money invested, you have no choice but to figure it out because it's easy to walk away from some investors like, "It didn't work out, guys. I'm sorry," whatever. Versus when this it's your own money and you're just like, "Oh no, no. I'm not losing this." You know what I'm saying? "I got to figure this out." That's a big difference.
Matthew: What's the most interesting thing going on in your field besides what you're doing?
Ben: You mean in spirits as a whole?
Matthew: Sure. Spirits, hemp, anything in that area.
Ben: Gosh. Well, I think the most interesting thing-- [laughs] I have one. In Texas, obviously, it's not legal but it's really interesting to watch the fine line that's being danced between CBD shops and so forth. I find that really interesting how it's just a precursor for legalization that I think is really interesting to watch. It reminds me of the game room thing. I don't know if you're familiar but where gambling isn't legal, they'll have these game rooms that run right on the line. You know what I'm saying? They're able to operate some kind of way. They operate and they do what they do. It's just a precursor for legalization.
I find that just really interesting and fascinating to watch because you got to have a lot of courage to dance on that line, number one. Number two, my God though, you're right on the forefront, so when it does break you're there. You know what I mean? I give kudos to those folks that do that but as far as spirits go, I don't know, man. I'm just learning every single day as far as this thing goes and I just find that exciting, period, because I just love to learn new stuff and see what's going on and see how I can get into it, and then learning how to mitigate your own growth, which is really a thing that I've been trying to wrap my own mind around and not ride out further than you can, even though you can technically, but really, can you? You know what I mean? I can definitely go national, but can you support and really work those markets?
Now, we're in Texas, Georgia, Southern California and Florida in brick and mortar, and then obviously, through ReserveBar.com, we're available by delivery pretty much all across the country. As far as activating new territories on the ground, you don't want to just run out there and do that. I hear people all the time, they're saying like, "Oh, we're in 20 states," and I'm just like, "Actually, you have a case in 20 states, but what does reorders look like?" That's what I want to know and stuff like that.
It's just an interesting process just trying to learn the business and trying to learn how to grow a company beyond your own city's boundaries. It's just something that's fascinating to me. I don't know if that's answered your question as far as experience goes, but as far as my perspective of experience, that's what I'm into.
Matthew: All right. Ben, final question. What is your favorite unhealthy comfort food or guilty pleasure?
Ben: Dude, that's a whole another show right there. I don't know. You can start with pizza or cheeseburgers. I love anything that's, like they say, "You should not eat that." I love it. I love it. I love it. I was talking to my brother about that the other day. I was like, "Dude." I was saying, "I really think there's something that they put in the pizza sauce or ketchup and stuff like that because it activates-- When it hits my mouth, I feel happiness." He's like, "No, dude. That's just your drug."
It does. I love all that shit. That'd be messed up. That stuff is great, dude. A good cheeseburger with bacon, fries and a coke, let's do it. I know you can't and I try not to do it often, but man, when I do it, I'm in heaven.
Matthew: Good. You mentioned again where Highway Vodka is available and also the online store and how people could connect and find you online.
Ben: On the social stuff, it's just Highway Vodka on everything. Around Texas, Total Wine, Specs and all the normal stores. Georgia, the same. I can't remember all the stores out there, but pretty much through brick and mortar stores in Georgia. I wish I could remember the names of these places, but I just can't. Southern California, Southern Florida, brick and mortar. Mainly, if you walk in any of those places, you don't just see it, or you live outside of those areas, then ReserveBar.com, or you can just go to HighwayVodka.com, click the link there to ReserveBar and then you could order it right to your door right there. That's really nice and easy.
Matthew: All right. Any restaurants, bars, or alcohol distributors listening, if they want to learn more about that, is there a way?
Ben: Yes, they could go to the website, too. HighwayVodka.com. Right there, there's a button to push for those inquiries and stuff. We could get them linked up for sure with distributors in their area. If we're not in your state yet, we'll be coming soon. Maybe you'll be the jump off for that state, so that's always cool.
Matthew: Well, Ben, thanks so much for coming on. What an interesting journey you've had. Again, I really admire your grit and determination. Good luck with everything in the rest of 2021.
Ben: Thank you so much for everything. I appreciate it. Thanks for the opportunity to be on.
Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends.
Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at firstname.lastname@example.org. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Emotional consideration may be provided by select guests, advertisers or companies featured in CannaInsider.
Lastly, the Matthew or guests on CannaInsider may or may not invest in the company's entrepreneur's profile on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:35:42] [END OF AUDIO]
Some investors are seeing big opportunities in post-seed stage investing. Here to tell us about it is Patrick Rea of the Poseidon Garden Fund.
Learn more at https://www.poseidonassetmanagement.com
[00:44] An inside look at the Poseidon Garden Fund, a $50 million fund supporting post-seed stage cannabis businesses
[1:39] Patrick’s background in cannabis, including his popular business-accelerator and venture capital fund, CanopyBoulder
[2:49] The current cannabis investing landscape and Patrick’s advice to investors looking to enter the space
[7:02] The benefits of post-seed stage investing versus earlier stages
[10:08] How the Poseidon Garden Fund helps springboard companies through its mastermind groups and large network of industry leaders
[13:53] The Garden Fund’s process for follow-on investments
[15:08] Parallels between the cannabis and supplements industries, including a new trend in product technology
[16:40] The Garden Fund investments Patrick is most excited about right now
[21:19] Patrick’s advice to entrepreneurs on the dos and don’ts of pitching your company
Editor’s Note: What Is The Big Deal About Delta 8 THC?
Matthew: Hi, I'm Matthew Kind. Every Monday look for a fresh new episode where I'll take you behind the scenes and interview 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.
Some investors are seeing opportunity in post-seed stage investing, here to tell us about it as Patrick Rea, Managing Director at Poseidon Garden Fund. Patrick, welcome back to Canna Insider.
Patrick: Thanks, Matt. Happy to be here.
Matthew: Give us a sense of geography. Where are you in the world today?
Patrick: I am in beautiful Boulder, Colorado today.
Matthew: Good and I'm in Lisbon, Portugal. Patrick, tell us what is the Poseidon Garden Fund?
Patrick: The Poseidon Garden Fund is a very traditional VC fund, but focused on the post-seed stage in the cannabis industry. We're focusing our investment strategies right at that stage of company that is getting staged up for their series A but not quite there, and it's where we see a lot of opportunity. Invest in companies all over the cannabis industry businesses that touch the plant single state operators as well as technology companies.
The Garden Fund is a collaboration between myself and Emily and Morgan Paxhia of Poseidon Garden Fund and the team they're up beside. We've known each other since January of 2014 and we've always talked about working together and here were.
Matthew: Listeners now may remember you from earlier interviews as the founder of CanopyBoulder, can you talk about that?
Patrick: Absolutely. CanopyBoulder is the leading business accelerator in the cannabis industry. We founded that back in 2013, and follow the model defined by TechStars: Have a very actively engaged business accelerator. We make investments, run companies through a 13 to 16-week in-person accelerator program, take equity positions and help them raise capital and grow their businesses. Over the period of time that I was running it we invested in 115 companies, including firms that you might have heard of like Front Range Biosciences or Work the payroll processing firm, or BDS analytics.
Matthew: Great, and who's running it now.
Patrick: We're actually actively hiring for the person to lead the next accelerators. If you're interested, please do reach out to me on LinkedIn, and we'd love to talk.
Matthew: We could get more of that information at the close of the interview, how to contact you. We have a lot of people listening to the show that are investors or want to be investors but don't really have the lay of the land of what the cannabis industry is, how would you frame the investment landscape for them in a way that's digestible and highlights the most important things?
Patrick: Well, that's a big one. There are so many opportunities to invest in the cannabis industry. From public equities, retail investing in some of the largest companies in the industry, multi-state operators, like Ascend Wellness and Cresco Labs and Green Thumb industries, to crowdfunding of cannabis startups, through platforms like SeedInvest, or micro ventures. In between, there's early-stage funds, there's late-stage investment funds all from accredited investors. Then there's real estate, there's business technology, there's product technology, there's hemp, there's CBD, and then there's the businesses that have to get state licenses to grow, process, and sell THC.
I've probably missed something there, but the landscape is as big and growing as are the companies and the industry at large.
Matthew: You mentioned SeedInvest there and I know, I don't know personally but I know the gentlemen, Jeremy Allaire, who runs Circle, the largest stablecoin company. They bought SeedInvest. Do you hear anything about stable coins or blockchains or different crypto assets being used to raise capital or is it still too early for that?
Patrick: Here and there we've heard of companies utilizing cryptocurrencies and coins to raise capital. It's certainly not the norm. It's more of an anomaly that we hear about but it has happened as, these cryptocurrencies and coins have generated a lot of value over the years and and some entrepreneurs will accept them as investment.
Matthew: With the Garden Fund, it sounds like you're taking elements of CanopyBoulder, your background there, integrating them into the investment world and startups, can you talk a little bit about the dovetailing there?
Patrick: I think as people evolve in their careers they take lessons and learnings from past experiences and parlay them into new opportunities, CanopyBoulder is a very defined and established model of the business accelerator. It real required in-person presence, for the companies to get investment from CanopyBoulder and go through our program. I, through that process, learned a lot. As the companies learn, I think we learned as well.
When the opportunity came up to partner up with Emily and Morgan and the Poseidon team on a new Fund, the timing was right. Their interest and my interest on a strategy focused on the post-seed stage companies right, again, before the series A aligned, and we decided to join forces.
I'll tell you what? It's so fun to be learning, constantly learning, and I feel like with Poseidon, being challenged and learning so much more than I ever did, from Emily Morgan and the team there that have so much incredible experience running two venture funds in the cannabis industry since we all started back in 2013, 14, it's really inspiring. I wake up every day really excited to find the next company that's going to become the Ascend Wellness or the GTI or the BDS analytics in the cannabis industry.
Matthew: This is a sweet spot you found, initially, what happens if you have angel investors come in, they do is it typically a convertible note where they'll say, "Hey, I'll give you this money. Eventually, when a venture capitalist comes along and values your company, will look at how much money I gave you and I'll be part of that valuation." You're coming in, usually, after those angel investors and the business has a little bit more, just a little bit more traction. It's less of an idea, and more like, okay, we're doing something now and something's happening.
Patrick: Absolutely. Typically, startups in the cannabis industry begin with an idea, a couple of founders. Maybe they divert some of their resources towards starting the business, raise some money from their families and friends, perhaps go to an accelerator, like CanopyBoulder or elsewhere. Angel groups to get some seed capital. That's to create the MVP, the minimum viable product, develop their product or service, test it in the market, find out if they can generate some response and positive response or some traction.
It's at that point that we're very interested at the Garden Fund in engaging with these companies and potentially making an investment, that initial traction I would say they've cranked the wheel a couple of times and of this engine of a business and it's starting to hum and sputter and there's something there. Then the founders are looking for partners, with capital to come in who have experience and have been around the block in the cannabis industry to help them scale, grow, build their teams, define their culture, and really set themselves up for success down the road.
With CanopyBoulder, we were investing when people had ideas, or they just raised some family and friends capital, they were just about get their MVP out, because it wasn't that seed stage. It's the post-seed stage where you don't see some traction, you see some success, it's more clear whether or not, at least to us whether or not these teams are going to be successful and that's when we want to get in.
The other thing about that post-seed stage is the valuations are still reasonable. We have a chart in our deck from the data that Poseidon's collected over the years, that indicates valuations, jumping five to six times between this post-seed stage in series A. That's primarily been driven by a number of venture capital from funds that all were found in last four or five years that were focused on that series A stage.
In essence, they priced up the value of the companies. It's created this gap in the post-seed investment stage which we intend to fill with the Garden Fund. So far so good, we've been very active and making our first investments and we're very excited about this.
Matthew: You're not just a "write a check and walk away," it seems like there's more engagement here. I know that warm introductions make a big impact on a new business. You've made warm introductions for me that have been very helpful. Can you just talk about what that process is and how that just helps springboard a new business?
Patrick: Absolutely. It really does take a village for any business to get off the ground. That support structure and people willingly helping you and sometimes willing you into good situations to warrant direct introductions. All of our portfolio company CEOs that we invest in through the Garden Fund join a mastermind group. This isn't an accelerator, it's not an incubator, it's not that large commitment of time and energy that can sometimes be disruptive, but a lighter touch meeting of the minds, a peer-to-peer, founder-to-founder support group.
We created it to drive that confidential collaboration, that support that I talked about, growth and scaling strategies, but also warm industry instructions. Our team at Poseidon has, together, we've invested in almost 200 companies. That's a lot of exposure. Our team has the big network, and our team was assembled to actively help founders. We're not just writing checks and going to play golf. I don't even play golf.
We got to fill the time with something else. We love working with entrepreneurs. It's been a core tenet of our investment strategies, mine, CanopyBoulder, and Poseidon, when they started their first fund in 2013. It just carries on and it's part of our investing DNA, and, like you said, Matt, never hold back in helping people connect with one another in the cannabis industry, no matter who they are.
That's really rewarding for us. We know that it impacts our investments, the companies, and, ultimately, the exit evaluations, which are very important for us, because they're important to our investors who give us the capital that we need to do what we want to do and the impact we want to have on the cannabis industry.
Matthew: You mentioned you have some investors that just want to write a check and say, "Patrick seems like a smart guy, let him handle this," and then other ones are like, "I want to be more engaged on what investments are happening." How do you address those different kinds of investors?
Patrick: It's a great question. We're very open. Wording, a part of our thesis for investing and finding success investing in the cannabis industry is connecting good people with our founders. We do have a significant percentage of our investors who are-- They have interest, but they know the industry is more complex than they have time to understand. They hire us as managers to be good shepherds of their capital. That's the venture capital model, primarily.
We do have opportunities for investors to engage with our companies. We're not just writing checks and sitting back, we're engaged. If they do have skills or specific expertise that will add value to the teams, absolutely we engage them with our companies. It would be wrong not to, frankly. It's a delicate thing. It's often more time than many people, a lot of investors, expect. We want to make sure that they're cognizant of that commitment and they're ready to go and help out these companies. We do that a lot.
Matthew: Let's say you make an investment in a startup, do you then earmark some funds for follow-up investments for the ones that are really getting traction? How does that work?
Patrick: Absolutely. We are earmarking half of the fund for our initial investments and then half of the fund for follow-on rounds. We'll make 20 investments, maybe half a million to a million each in the companies that we're going to get behind, and then see how they develop. For those who are the top performers, we have more capital to invest in that series A and B and beyond.
In addition, our investors in our fund, the LPs, they've proven to be active and very interested in follow-on opportunities that we will set up SPVs, special purpose vehicles, to invest in the companies in the later rounds. We have the capital for that post-seed, series A, maybe a little B. If they go longer, we can help bring in more larger investors into the companies to continue funding their growth all the way to exit.
Matthew: Patrick, you have a background in the nutrition and supplement space, what trends do you see now deja vu all over again where you're saying, "Hey, I saw this with the supplement space, and it seems to be happening in the cannabis hemp space now," anything that you can focus on for us?
Patrick: Absolutely, yes. It's so clear to me, but I don't see a lot of chatter online or investment activity around product technology. Product technology is an area where we haven't seen a lot of investment, but we believe it's going to fuel the next stage of the cannabis, cannabinoid industries' innovation cycle. I saw this happen in the nutrition and dietary supplements industries in the late '90s, early 2000s.
Frankly, consumers continually want a better, more consistent, more reliable product and experience. It's like a product promise that we make in our marketing and our vision. Sometimes, it doesn't always connect. The products don't work as well or they're inconsistent. A great cannabis product is not a destination. It's a journey on a continuum that's rooted in continual investment in R&D and innovation. There's a lot of opportunity there to make things, again, more bioavailable, more efficacious, more consistent and reliable. I think that's what we're going to see driving the next stage of growth.
Matthew: Is there a particular investment that you've made with the Garden Fund that you want to highlight, to give us a flavor of what's going on?
Patrick: Yes. Probably by the time of this podcast airing, we will have announced our first investments in a business technology platform that serves the multi-state operators, order head, and point-of-sale system that's just a better alternative to the existing offering out there. The second investment is into a single state operator, in a limited license state, that has incredible assets, great locations for the dispensaries, and a very large license, the top license, the largest license one can get in that state for cultivation.
It's not only that these are great solutions or products or companies, but we're able to target them for investment at the right stage, right before the dispensaries opened, right before the first shovels in the ground with the cultivation, just as this business technology company is starting to close other multi-state operators and expand to other states. These investments opportunities are often coming to us from referrals in our network.
We've invested our time and energy running around the country and the world making investments and getting to know people and built great relationships. When these people that we've invested in and we've worked with over the years find good companies that fit our profile, they pick up the phone. We're very lucky to have an incredible network effect to help drive our deal flow in the cannabis industry. With the Garden Fund, we are aggressively taking advantage of that network so that we can capitalize on it for the benefit of our fund investors.
Matthew: Now, for seasoned cannabis investors, they probably heard you say "limited licenses," they know exactly what you're talking about. For the benefit of new investors and listeners, can you talk about why that's important?
Patrick: Absolutely. There are states where it's wide open. Most anybody, the hurdle for getting a license for a dispensary or a manufacturing facility or a cultivation is very low. Colorado is a good example of that, where there's not a lot of limits put on the number of licenses that the state is going to hand out. As a result, the valuation, it's like supply and demand. There's a larger supply of companies out there, so the demand when there's an acquisition is lower.
That means the valuation multiples for companies at exit in, say, Colorado are going to be lower, because it's a wide open, adult use state. Now, a state like Massachusetts, where it's a limited license state, they've only issued so many licenses for cultivation, only so many for dispensaries, only so many for processing and delivery. If you're able to win a license in that limited license state, the supply of licenses from the state is lower, so the value of them is higher on the market, because there's more demand for those assets from the multi-state operators or investors.
It's not a new strategy, but the strategy makes much more sense now for investors to go into the single-state operators in limited license states, because, there's a lot of institutional capital flowing into the multi-state operators and later stage businesses in the cannabis industry. That's not just money to park in the bank for a rainy day, this is money that is coming in, from the institutions into these larger companies that going to use for, to fund and fuel acquisition and consolidation strategies.
Our strategy at the Garden Fund is very clear, we're investing in the post-seed stage where we can get the greatest value in companies that are going to disrupt and be valuable assets in the industry and become acquisition targets and in the short term. We're trying to take all the lessons we've learned from seven to eight years investing in the industry and seeing so much happen in the cycles happen, and raise a fund that is timed right for not only investment, but exit in the cannabis industry.
Matthew: Now, Patrick, you've heard so many pitches, I can't imagine how many. If you were sitting down with a founder that was prepping his or her first pitch deck, and they were about to go out and say, "Hey, I need some pointers here Patrick, what would you say, one do, and one don't?
Patrick: That's a good question. I think the do, is to make sure that your pitch and narrative is cohesive with your financial model and your planning. A beautiful pitch is not going to do it, you really do have to have a full data room of that is cohesive and logical, and the narrative is consistent. If you're saying, you're going to grow and double in size in three years, in the financial model, I want to see investments in marketing and sales in year two, that will pay pay dividends to the company in year three. That's definitely one thing that I'd say you absolutely have to do.
One thing that I would say you absolutely don't want to do, is be apologetic. This is an opportunity come in there with confidence, you're presenting a great opportunity for the investors, if you've done your work. I think there needs to be more confidence displayed by entrepreneurs in the cannabis industry, not arrogance. There's this comfortable confidence that we'd like to see in our founders. They're ready for the challenge, their eyes are wide open, and they're not apologizing for digging in, and going for it.
It becomes very apparent when you have a meek founder that comes in and they don't feel completely comfortable. There's no reason to continue the meeting, come back when you can fell more comfortable, maybe you've done some more work, you engaged with the industry a bit more, you learn more, and we'd like to see that.
Matthew: Now, there's some founders that think they have to have all the answers right now, and you can see a panic go on when they're like, "Oh my gosh, I have to come up with an answer, even though I don't know what it is." It's perfectly acceptable to say, "I don't know, I'll find out and get back to you."
Patrick: Yes. Yeah. It's that confidence and self-awareness to say that, exactly that. Matt, very often, I don't have the answer, and I like to see that in our founders that humility, with the confidence to admit it. That goes a long way. If the future was so clear in the cannabis industry, everybody would be diving in and launching businesses.
One of the challenges is that, it's not always that clear and you need to be very in- tune with the industry and have your radar on, because you will have to pivot, you will have to zig and zag every once in awhile and overcome those moments that every founder has, every team has, where you're faced with adversity and power through it. Those that are aware of that, and have the confidence, then, understanding that's going to be part of the journey, they definitely have more success.
Matthew: Is there anything that a founder typically does that you think is not important, but they seem to think it is? Like the color motif of their pitch deck or something. They're straining over that one detail and you're like, "You can bleed black and white. It doesn't matter." Is there anything you see like that over and over?
Patrick: You know, every pitch is different, every pitch person approaches it differently. I would say that, the one thing that I like when I hear a pitch, and really catches my attention is when the founder or the founding team has done a listening tour for their target customers.
If they're developing a point-of-sale software-- Kyle Sherman, of Flowhub, is a great case study here. Before he started Flowhub, he went and worked as a budtender at that dispensary. He got to know what it's like to be a budtender, and what tools they use, and where the shortcomings are. That really informed his decision to launch Flowhub and joined the industry in earnest.
We had another founder, Henry Finkelstein, of Cannabis Big Data at CanopyBoulder who'd do that. He went on a listening tour for months, and just sat down and listened to the problems that operators in the cannabis industry had, and that informs his strategy. I guess, what I don't like, is when a founder comes in and has what seems like a great idea, but they haven't really gone out and talked to the market to confirm that.
There are a lot of great ideas, ideas that sound great, but either the timing is right or the market won't pay for them, and they just don't know that. It's a shame, because it just takes a little bit of effort and connection. When we see that, that a founder has done that, that's a big plus.
Matthew: Yes. It's bridging that gap between what you believe to be true, and what's actually true. They're saying exactly what their pin-points are, opportunities are, versus what you thought they are, so you get validation and say, "Oh, I heard this over and over again, I can almost finish their sentences because the last three dispensary owners said this."
Patrick: Yes, and that they'll pay for it. It's an acute problem, they're aware of it, they want to solve it, and they will pay someone to help or a company to help solve their problem. There's a lot of problems that you just let go and you don't deal with. Mason Levy who one of our founders at CanopyBoulder, now runs a business called Swvl, it's a chatbot business, very high-tech stuff. He's always said, "Some fires, you just got to let burn." We see that in the cannabis industry.
There's a lot of challenges, this isn't easy, right to run a dispensary or to run a grow or run a single state operation, you're not able to solve every problem that comes up right away, you got to let some of those fires burn. As that type of awareness getting to the, "Yes, it's a problem, and these people will pay for it." That makes a big difference.
Matthew: Okay. For a listener that's comfortable with their Schwab account or Fidelity account, their Vanguard account, they log in, they see the balance, they're happy, they're like, "What is putting money into a cannabis fund going to do for my portfolio? How should I think about it and position sizing and that type of thing?"
Patrick: Well, you know, when I think about that all venture capital in the cannabis industry, what I think about is, the potential, it's high risk, but it could also be high returns. You're investing in privately held companies, they're not liquid, they're at a stage perhaps where they could succeed or fail with or without the right help and support. There's definitely risk there, but the reward is the 10X returns, that I think a lot of investors like looking at the cannabis industry, they assume that they will get.
As the industry grows and you have these larger multi-state operators, they're great, they've earned the right to have these billion-dollar evaluations, they've done it, they've put together the assets across multiple states, they're operating, we're seeing incredible growth, but they're at that stage where they already public on investment. You may not get a 10X in a company that's publicly traded multi-state operator, you might get a 2X, or a 3X.
I think a lot of investors who joined the cannabis industry, they think about the cannabis industry in the way that we do, and they want the bigger returns. Investing in venture gives you that opportunity where you can get a 10X with the investments. Whereas in some areas in the later stages, the math doesn't work out, they're not going to grow by 10X in a couple of years, but in venture, you can still achieve those rates of return.
Matthew: There's something fun too, about being part of the germination process and just witnessing things happen and watching founders struggle, struggle, struggle, and then, succeed, and then, watch things happen. It's like a Shakespearian play in many ways because it's not easy, it's this drama that unfolds, and then, there's this breakthrough and things happen, but when you look back, it was like, "Wow, that was quite a story."
Matthew: quite a journey, you can take five to 10 years too for sometimes these things unfold. Also, it seems like having it be illiquid in some ways is less, causes less anxiety than looking at a ticker every minute on your screen. What do you think about that?
Patrick: Investing in a venture capital fund like the one that we have, we're very open and transparent with our investors. They always say, in the cannabis industry, you can be in the stands or you can be on the sidelines or you can be on the field. When you were a venture investor in a fund like the Garden Fund, you're on the sidelines and we're on the field with the founders.
It's a big difference, you're a lot closer to the action. Like you said, yes, there's a lot of growth and development and evolution and innovation in this post-seed and Series A companies, it's really exciting. It's challenging, you get to see the challenges that you maybe don't see when you're investing in just a publicly-traded company with a very curated and crafted narrative from the CFO and the PR firm, it's very different.
For me, that's not for everyone, I really enjoy that journey that the founders go on. I think all of us in the Poseidon Garden Fund feel like we can contribute to the success of the companies. Just an introduction, an introduction that would take a founder a month to get, we can do in a week. The access that we could provide them in a day that might've taken them a week, it all makes things way more efficient for them. That's a big part of what we're trying to do here and be active with our investments.
Matthew: Patrick, you've been on the show a few times over the years, so I have to come up with some new personal development questions for you. You live in a special place in Boulder, what is one thing you most love about living in Boulder and one thing you miss about when it was smaller?
Patrick: [laughs] One of the things that I love about Boulder is the easy access to outdoor activities and recreation. That's a thing for me. I get up almost every morning, the crack of dawn, and get out on my bike or take the dog on a trail run. That really energizes me and helps set the tone for the day. I love that the foothills are just a few blocks away here in Boulder.
That would be my answer to the first part of the question. My answer to the second part of the question, Boulder has gone through a high growth period. A lot of people, they like to complain about how that growth and it bugs them. It really doesn't bother me. I don't really mind the traffic, but then again, I used to live in Chicago and you have to deal with the traffic there. In San Diego, I have to deal with the traffic there. There's not a lot that bothers me about Boulder, I really do enjoy it.
Matthew: Oh, that's good. The bike paths were my favorite thing when I was there. I really enjoyed the bike paths everywhere.
Patrick: Yes, you can really tune out and just cruise for hours. That other thing, there's just a lot of ways to enjoy the outdoors here in Boulder.
Matthew: What's one trend you see in the cannabis industry that you think the market is not appreciating enough?
Patrick: One trend in the cannabis industry that the market is not appreciating enough. I don't know, that's a good question. We used to scratch our heads on why there was so much capital going into the Canadian market. That fixed itself. There's way more attention on the US market and the multi-state operators, and it's like that's been refocused. One thing that I think perhaps the market is not appreciating right now is the fact that there's so much more that's been figured out in the cannabis industry on how to run these licensed operators.
Back in 2013, '14, when we started our efforts investing in the cannabis industry, me at CanopyBoulder, and that scene here at Poseidon was the operators really didn't know what they needed. They were just trying to figure out how to stay in business and supply the market and serve the market. There wasn't a whole lot of refined awareness of what business technology and services they need.
That has changed completely. Flashing forward to today. it's much more clear what's needed. If we're very clear that IRS Code 280E, it impacts the decisions on almost all expenses including business products and services and technologies. Perhaps, to narrow it for you, we see much more interest from the licensed operating companies, the dispensaries, the manufacturers, the growers, in technologies and services where you can tie the expend on that service and technology to the generation of a new dollar in revenue.
Ideally, 16 to 30 new dollars in revenue. If you're buying your licensing or becoming a customer of a business like Happy Cabbage, they're a data and analytics firm based in the Bay Area. When a company brings them on and pays them a dollar, they can directly tie that $1 spend into 16 new dollars in revenue for that company. Because you can't deduct the expense of that $1 you spend on Happy Cabbage from what you're going to use to calculate your taxes, you got to make sure these expenses on technology are really driving the business forward. We've seen that awareness develop in the last two years and has become the norm now. I think that's underappreciated.
Matthew: What is your favorite unhealthy comfort food or guilty pleasure?
Patrick: Oh, very easy. Chocolate chip cookies. During COVID, I've been making chocolate chip cookies probably every week and a half, giving them to our neighbors, giving to friends. I don't know how it happened, I think it just became a thing. I've been baking batches of delicious chocolate chip cookies. They're pretty good. I'm confident they're pretty good. Whenever you come back into town, I will make sure that you get to try them as well.
Matthew: Thank you. My mouth's watered a little bit.
Matthew: Patrick, please spell your last name for anybody so that they don't misspell it, and tell us how they can connect with you, learn more about the Garden Fund, and all that good stuff.
Patrick: Yes. Yes, no, thanks, Matt. My last name's Rea, and it is spelled R-E-A. I would say the best way to get in touch with me would be through LinkedIn. Just look me up Patrick Rea, R-E-A on LinkedIn, and you'll find me very easily. That's a great way to get in touch about anything in the cannabis industry. This is the life that we've chosen. We've got a lot of great experiences and a lot of opportunities for everybody who wants to come in and join.
Whether you're looking to join a team, you want to make investments, you want to have some better awareness of how to do that or you're an entrepreneur who's got a little bit of a tiger by its tail and is looking to figure out what's next, that can definitely, and we can help with that.
Matthew: Patrick, thanks so much for coming on and educating us about the investment landscape. Good luck with your next batch of cookies.
Patrick: [laughs] Thanks a lot, Matt. I really appreciate everything you do and can't wait to get you back in the Boulder one of these days. It's been in a while.
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