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Can you mix together compounds like caffeine and THC to create a thriving new market category? Here to help us answer that question is Peter Barsoom of 1906.
Learn more at https://1906newhighs.com
[00:48] An inside look at 1906 and its mission to redefine the edibles category with better-tasting, more effective products
[1:28] Peter’s background and how he came to start 1906
[3:19] How cannabis use changed after the Pure Food and Drugs Act of 1906
[4:12] 1906’s unique “drops” and how they’re formulated to meet different needs
[6:29] 1906 versus other wellness experience brands like LucidMood and Dosist
[11:15] Why Midnight Dark Chocolate for Sleep is the number one product at 1906
Editors note: See our top pick for the best CBN oil for sleep
[13:29] How the products at 1906 provide a quicker onset than competing edibles
[16:48] 1906’s plans to create an extended-release formula of Midnight to help consumers not only fall asleep but stay asleep
[20:55] Where Peter sees the cannabis wellness experience category heading in the next 3-5 years
[24:28] Peter’s plans to expand 1906 beyond Colorado and Oklahoma
[25:57] Where 1906 currently is in the capital-raising process
Related Reading: Another Emerging Cannabis / Hemp Trend, Delta 8 THC
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. Can you mix together compounds like caffeine and THC to create a new market category that consumers will want to adopt? Here to help us answer that question is Peter Barsoom of 1906. Peter, welcome to CannaInsider.
Peter Barsoom: Thank you, Matt. A pleasure to be with you today.
Matthew: Give us a sense of geography. Where in the world are you today?
Peter: I'm in New York. I'm in SoHo in Manhattan.
Matthew: Okay. What is 1906 on a high level?
Peter: 1906 is one of the leading cannabis edibles company. It's the company that I co-founded back in 2015. Our name comes from the year that the Wiley Act was passed, which effectively started the prohibition of cannabis. Our mission is to bring cannabis back to its pre-prohibition status as a mainstream substance that was used in medicine and by individuals, and also to highlight the failed century of the war on drugs.
Matthew: Okay. Can you share a bit about your background and journey and how you got into the cannabis space and started 1906?
Peter: Yes, absolutely. I had a 20-year career in finance here in New York where I was in a number of leading roles at institutions like American Express, Merrill Lynch, Morgan Stanley, and their parent company, the New York Stock Exchange. I left the industry to found Nuka in 2015 because while working in the financial industry, I felt a yearning for a greater human connection and a personal purpose, and a strong pull to help others live a better life.
When I quit and then started to look at potential entrepreneurial opportunities, cannabis at the time had just been legalized by Washington and Colorado. As I started to dig into the history of the plant, I grew obsessed with its beneficial powers and felt certain that building a business around cannabis was my calling. We started on the belief that cannabis is one of the most versatile plant medicines that's known to man and really could play a big role as a potential alternative to alcohol or pharmaceuticals for people as they look to manage the demands of daily life.
In order to discover the plant's true potential as a daily tool for self-care, we'd have to transform much of the way people were experiencing it, and so that's what led me to the mission which is on a mission to revolutionize self-care, utilizing cannabis and other plant medicines in a very functional way.
Matthew: You mentioned you've got the name from prohibition 1906. How are people using cannabis pre-prohibition?
Peter: Pre-prohibition, you could walk into an apothecary and you would find cannabis compounds and cannabis mixed with other plant medicines. It was part of the arsenal of medical professionals back at the time. We can go back to 1906 or we can go back to hundreds of years even before that where cannabis has been one of the most widely used plant medicines. If you look at the history of how it's been used, people have used it for pain, for anxiety, for sex, for energy, so truly, we've had a relationship with cannabis probably since the beginning of human history.
Matthew: Now, you have six categories of tablets you call drops. What do the six different drops do for you?
Peter: Yes. One of the things, Matt, that we looked at as creating the brand 1906 is around understanding what people's needs are in creating products to meet those needs. In other words, it's not about getting high, it's about feeling a particular way. Relief from pain, help with anxiety, getting a good night's sleep, and so we looked at the major use cases that people use cannabis for, and we created a set of products that meet that specific need by utilizing specific cannabinoid ratios, but also by utilizing other plant medicines in order to give that effect.
For instance, we have Midnight which is for sleep, Genius which is for cognitive focus, Love which is for sex and arousal, Bliss which is for mental well-being and happiness, Chill for anxiety and relaxation, and Go which is for energy.
Matthew: When I take something, let's say Bliss, how much does this actually elicit that experience of Bliss, like how much does that get drawn out?
Peter: If you look at the testimonials and the following that we have, so if you take a look at Bliss, for instance, Bliss uses a plant from South Africa called sceletium tortuosum, also known as Kanna. That has a serotonin-boosting aspect to it. Similar to how SSRIs which are widely used as antidepressants give you that overall feeling of happiness because it floods your system with serotonin, sceletium works the same way but in a more natural fashion. We've had thousands of people tell us that they either use it in addition to or in replace of other medications that they've been using as antidepressants.
Matthew: We've had the founders of Lucid Mood and the dosist pen on the show, and they create products also that dial in the mood. This genre is becoming really popular. How would you compare and contrast what you're doing with, let's say, like Lucid Mood or dosist?
Peter: I love what Lucid Mood and dosist are doing because it's a recognition that what consumers and patients are looking for are specific states. I want to feel a particular way, I don't want to just feel a generic high. I would say two big differences between us and Lucid Mood and dosist, one is the category. They've been focused on smokables, whereas we focused on non-smokeables, edibles, and ingestibles because we believe that's especially in light of the vaping crisis and COVID which is a respiratory disease, I don't think we need to negatively impact our lungs anymore.
The second way in which we're different from them is that we utilize other plant medicines in order to deliver the effect. Lucid Mood and dosist focus on the terpene profile. The fact is that the science behind cannabinoids and terpenes is really, really premature to be able to tell us that this combination of terpenes will give you energy. We have some good guesses, but there really is very little science.
We're a science-driven company, and we utilize all of the clinical research on other plant medicines and on supplements that have been done across the world in order to deliver a specific effect. As an example, our Go product is a combination of four stimulants that have been well researched across the globe that would give you a clean boost of energy starting with caffeine, which is one of the best central nervous stimulants, and then we pair that with other plant medicines, L-theanine, theobromine, and alpinia galanga, and all those have been well studied, so we can deliver a very specific experience that is around giving you a boost of energy based upon real science.
Matthew: When you take Go, what kind of activities do you typically like to associate with that to give people a sense of real-world combination?
Peter: Think of it as a replacement for a Monster Energy or a Red Bull, or a 5-hour energy drink, except that first, you don't have all the sugar that's typically associated with those energy drinks. What we've done there is caffeine is the best central nervous stimulant that we have. It is the most popular drug globally, but caffeine also has some negative side effects for it, and so we've paired three other plant medicines with caffeine in order to mitigate those side effects.
One, for instance, is the jitteriness that sometimes you get with caffeine. When paired with L-theanine in a specific ratio, that eliminates that jitteriness. The second issue with caffeine is the crash. You get this boost, but an hour, two hours later, all of a sudden, you feel totally depleted and you're crashing. We utilize alpinia galanga which is a plant that works on your adenosine receptors to keep the caffeine in your system longer so you don't experience that same crash and you have a longer duration of energy.
The third side effect of caffeine is accelerated heart rate and blood pressure. Theobromine is an amazing natural vessel dilator that lowers your blood pressure and increases blood flow to your brain and body. What does all that do? That gives you a boost of sustained energy so that you feel like you can push your mind and your body further. Then, the low dose of THC and CBD allows you to be in a much more relaxed mental state, although you may be stimulated. For instance, we have a strong following with athletes. We've got numerous testimonials from people who will say things like, "I just ran a 6K in 5k time and I feel as great as ever," for instance.
Matthew: Which of the products is the most popular?
Peter: Midnight is the most popular. That is the number one selling sleep aid in Colorado, and it's our number one selling product. The lack of sleep, Matt, it's of major epidemic proportions. 70% of Americans today say that they haven't had at least one night of difficulty sleeping in their most recent history. We also know that the lack of sleep is one of the biggest contributors to poor health outcomes.
If there's one thing you could do to improve health outcomes, it's to give people an extra hour of sleep. That's the situation that most of America is in, that we don't get enough good quality sleep. Then, secondly, many of the products that are out there to help us sleep either don't work or have a lot of negative side effects, whether that be Ambien, melatonin, or chamomile tea.
People are looking for something to help them get that high quality, easy, restful night of sleep and wake up feeling fresh. That's what Midnight does so well, is it gets you to sleep fast in under 20 minutes, it promotes a healthful architecture of sleep, so you actually get REM sleep and all the different stages of sleep, and you wake up feeling really refreshed and able to get on with your day.
Matthew: Do people take it typically like an hour before they go to sleep or what's the time frame?
Peter: Typically 20 to 30 minutes. We always tell people get ready for bed, this is fast-acting, because if you have trouble sleeping, you don't want to wait an hour to fall asleep. It's like I either have chronic insomnia or acute insomnia or whatever it might be. When you want to sleep, you want to sleep now. We've engineered Midnight to deliver on that. Typically, like I said, it's within 20 minutes that you are fast asleep in a beautiful, dreamy place.
Matthew: That's great. That's pretty fast onset. Can you talk a little bit about how you look at onset and how you make that happen quickly?
Peter: When we started the company, Matt, we set about a number of non-negotiables as we looked at particularly the edibles market back in 2015. It's still largely true today. We saw three major problems with the edibles. One is that you have no idea how it's going to make you feel. At best, these products are labeled indica-sativa hybrid, which most of us know those distinctions are not very meaningful or helpful.
Second is that it takes way too much time to feel the effects. I'm a New Yorker. I believe impatience is a virtue, and we shouldn't have to wait 60-90 minutes for anything to kick in. Third is the poor quality ingredients and bad taste that's associated with many edibles, high fructose corn syrup, lots of sugar, or just things that taste bad. 1906, foundationally, is all of our products have to satisfy all three of those demands.
It has to give you a specific effect, it has to be fast-acting, and it has to be as good tasting and as healthy as possible. The fast-acting areas is one of the areas that we have really innovated since our launch. There were no fast-acting edibles on the market back in 2015. I would venture to say that there are still, unfortunately, very few fast-acting edibles on the market today. We have a patented lipid micro-encapsulation process that we utilize in order to allow you to feel the effects in under 20 minutes.
The way that works is it joins the cannabinoids with a medium-chain fatty acid. I think of the medium-chain fatty acid as like a bullet train with the THC and CBD as passengers. When you ingest, it allows it to go through your intestinal system much faster. You get a faster effect and you get higher bioavailability. Our five milligrams typically feels like a seven or eight milligram because it bypasses the gut, gets into your bloodstream and into your brain faster than any other edible in the world.
Matthew: That makes sense, which our liver recognizes that medium-chain triglyceride oil. It allows it to go through. It's like a Trojan horse that lets the cannabinoids in.
Peter: Exactly. It even bypasses much of the liver. It just goes through the intestinal wall. That's part of the problem with other edibles, is that it doesn't get into your bloodstream until it gets processed by the liver. This allows you to bypass the liver, permeate the intestinal wall, like you said, I love the Trojan horse analogy, and you start to feel it quickly.
Matthew: You mentioned that the most popular product is the sleep product and it helps you get to sleep 20, 30 minutes before you want to. You take a tablet. What about staying asleep? I know that's a stubborn problem for a lot of people. What can you tell us there? Is there anything, any hope?
Peter: Yes, that's a really good observation, Matt. There are generally two types of people. There are people who have trouble falling asleep and there are people who have trouble staying asleep. There are some people who have trouble with both. Midnight is superb at solving the first problem of getting you to sleep quickly. We are in development right now with an extended-release version of Midnight that would kick in a few hours after you fall asleep to help you sustain your sleep.
What's amazing is that there are very few products, pharmaceutical, definitely none in cannabis, supplements that actually specifically address this problem of helping you stay asleep through the night. We expect to launch that product in the coming months. We're currently in a trial right now getting feedback from consumers. As soon as we get through that trial period, we'll be launching that market. We think there will be millions of consumers around the US and around the globe who are clamoring for help staying asleep.
Matthew: Gosh, this market is really just by itself, just the sleep market, is going to be enormous. It probably already is. Do you know of any customers that use something like an Oura Ring or any kind of quantified self-technology in conjunction with the sleep product to optimize their sleep?
Peter: We were about to launch a sleep study that would actually be using a Fitbit that would be measuring sleep onset, sleep duration, sleep architecture, and how you feel when you wake up in the morning. This was a blind clinical study that would have recruited participants in Colorado to take Midnight. Their Fitbit was connected to servers that would automatically upload data on sleep performance. Every day, they'd be filling out a questionnaire to see how well they slept for more subjective measures.
We hired one of the leading pharmacologists in the world to design the study, a doctor by the name of Dr. Ethan Russo, ready to go out with the study. Part of what you need to do in any clinical study is go through what's an Institutional Review Board, an IRB. Because of the federal prohibition on cannabis and on the challenges of cannabis research, the IRB didn't approve us to go forward with our study. That's really unfortunate.
We're still fighting it because we believe that's the wrong approach and that we have to open this market up to research. What we have gotten is more anecdotal evidence from folks who will send us their Fitbit or send us their Oura Ring reports that show, in fact, that they're getting more sleep and they're getting higher quality, more efficient sleep on Midnight.
That's our theory. Like I said, we've gotten a lot of anecdotal data, and as soon as we can get an IRB approval, we'll be one of the first companies to do serious clinical research using a widely available cannabis product like Midnight in a scientific way.
Matthew: Where do you think this market is all headed in 3 to 5 years in terms of using cannabis and other natural products to get this specific emotion or outcome dialed in at a predictable way?
Peter: This is what people want. What they really want are low-dose cannabis products that are not damaging to your lungs and that meet the specific needs of what we have. If COVID has shown us anything, it's that, one, there is an incredible amount of increased anxiety in today's world. We've seen that in prescription drugs going up for antidepressants, antianxiety meds, sleep meds.
It's through the charts how much more prescriptions we've seen in the last couple of months due to COVID. People want something to help them manage daily life better. Cannabis could be part of that toolkit, but we have to continue to innovate as an industry to create better and better products for people that deliver on that. The direction is going to be in more microdose, low-dose products that help do that.
Especially as we have more seniors, more women, and others coming into this market, they're not looking to get blasted, they're not looking to get really high or get out of control. They're looking for just a little bit of help.
Matthew: What's the suggested retail price for the drops?
Peter: It's about $25, and that gets you 20 nights worth of sleep. For a little more than a dollar a day, you can have a great night's sleep.
Matthew: You've got a good distribution system set up it seems in a few states at least. What's it been like to having started a new brand and then get distribution? Is that difficult, or can you share a little bit about your journey there and how you made that happen?
Peter: It's been a very humbling, great story. We launched in Oklahoma on September 1st. This is our first new market outside of Colorado. We have a partnership with an amazing company, Stash House Distribution, and 24K Labs in Oklahoma as local operators. They've got a 10-person sales team with a wide distribution across the state. In literally just the last two weeks, we've gotten into 75 dispensaries so far.
We've had a massive uptake from consumers because this is what they're looking for. We've really been very fortunate at how Oklahomans have embraced 1906 in the last couple of weeks. Part of it is having a really good distribution partner. The stars aligned for us and I would say for Oklahoma patients that they now have access to one of the best cannabis products in the market.
Matthew: You're in Colorado and Oklahoma. Any other expansion plans?
Peter: Massachusetts, Maryland are up next, and we'll be continuing to expand it into other markets. Our strategy, unlike many other cannabis brands, is to focus eastward from where we are. A lot of brands are pushing into California or are already in California or started in California. Our focus has been on East Coast markets where our stated goal is to be the number one brand east of the Mississippi.
Matthew: Population density, that's where all the people are.
Peter: Population density and also the lack of available products. If you are in California, you not only have great legal products, but as you know, there is still a lot of illicit usage there. There are some great products. It may not be tested as well, but people feel like they're getting their needs met in the illicit market. In the Northeast, it's a bit of a different situation because we haven't had a legacy of dispensaries or easy accessibility to a lot of products there. I think we can be more successful on the East Coast, and I think there is frankly more demand for the legal market to provide great products here.
Matthew: Where are you in the capital-raising process? Did you raise capital or can you tell us more details there?
Peter: In October last year, we closed on an $18-million round of financing. We've been very fortunate to have an amazing group of investors from institutional investors, family offices, high net worth individuals that have supported 1906 over the years. This is a capital intensive business and we're constantly raising money. We're currently raising another round. We're about halfway through that round of financing right now and it's been very well received by investors. Our hope is that we close that round around the end of September or so.
Matthew: Are most investors in the Tri-state area there?
Peter: I'd say a disproportionate amount is in the Tri-state area. That probably reflects the fact that our focus is eastward reflects my personal networks having been in New York for my adult life, and then, frankly, there's a lot of capital here in the Tri-state area.
Matthew: [inaudible 00:27:15]. Peter, I'd like to ask a few personal development questions to help listeners get a better sense of who you are as a person. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Peter: I recently read a book on the Netflix from-- I don't read many business books, maybe one to two a year, but I came across a Netflix book on culture which really impacted the way I think about things. The gist of the Netflix book on culture was about how to create a culture where people can take risks, that people are performing at their best, and unleashing that inherent talent that you have in your employees. That's helped me evolve my thinking about our culture and our employees in a big way.
Matthew: Besides what you're doing with your brand, what do you think the most interesting thing going on in the cannabis ecosystem is?
Peter: One of the most interesting things is the increased focus on social justice. The protests of the summer and the Black Lives Matter Movement have hopefully continued to raise our awareness about institutional racism, one, and, secondly, how much the drug war was tied into institutional racism as well, that it really was a war not on drugs, it was a war on people, and particularly Brown and Black people and communities of color.
The amount of money and resources that have been wasted on prohibition around this plant and the number of lives that have been destroyed by that unjust war on racism, we still have a long way to go. Unfortunately, recently, as you may have heard, Florida, and this is unbelievable that we're in this area, but the Florida voters overwhelmingly voted a few years ago to allow felons to vote. Florida has one of the worst histories of felony disenfranchisement.
If you're a felon and even if you served your sentence, you are deprived of the right to vote. A couple of years ago, Florida voters voted overwhelmingly to reinstate that. The Republican-led legislature and the governor decided to require that if you want to vote, you have to satisfy all of your back fines and everything else before you actually can get the right to vote. That is another form of poll tax, unfortunately.
The courts did not agree with that interpretation and allowed the Florida legislature's actions to stand. Today, we have 800,000 plus felons who are out of jail, who have satisfied and fulfilled their sentence, but they still can't vote today. Two-thirds of that 800,000 are people of color. In order to continue to get change, we as a community, as voters of people, as society have to stand up and say, "This is wrong."
Matt: Final question. Many are calling for the end of New York City. You mentioned you live in SoHo which is a fun, cool neighborhood. What are your thoughts? Is it going to bounce back? If so, when? How will it look when it does bounce back or if it doesn't? What are your thoughts there?
Peter: How many people have called the demise of New York? Whether it be the end of the great depression or whether it be after 9/11, people have been calling the end of New York since probably the beginning of New York. There is a strong human need that we have for connection, for community, and for diversity. That's what keeps New York alive. New York will change. SoHo artists left SoHo years ago. Maybe this moment in New York will help to do a reset and will bring in artists back and new blood back.
Maybe we need to see rents decreased a little bit to make New York City affordable. I'm a diehard lover of New York. New York will emerge hopefully stronger and better. I was out last night. We've got outdoor dining, so there's no indoor dining allowed in New York. We have outdoor dining. It was a beautiful evening and it felt like I was in a wonderful European city with people sitting outside and having a nice meal. Car traffic wasn't around.
We have a moment in our life right now, and who knows if we'll ever get this moment again in our lifetimes, to ask ourselves, those of us who live in an urban environment, how do we want life to be here in our urban jungle and consciously create that vision?
Matt: Do you feel like your boots on the grounds sense is that the leaders are responding? Are they responding and adapting to try to make this a successful effort or did it seem a little bit behind?
Peter: As with most politicians, they're a little bit behind. It's the power of people and the power of voting and the power of our voices, that's what's going to bring about change.
Matt: Peter, thanks so much for coming on the show and educating us. This is a really interesting thing you're doing here with your 1906 brand. Tell listeners how they can find the brand. Also, for accredited investors that are interested in learning more about investing, how can they do that?
Peter: Thank you, Matt, for the opportunity to share this with your listeners. I encourage you all, you can follow our brand on Instagram. It's at 1906 New Highs, N-E-W H-I-G-H-S. Our website is 1906newhighs.com. If you're interested in learning more and participating on this journey with us and joining our investor team, feel free to email me directly, or if any of our listeners want to email me directly, I'm email@example.com.
Matt: Peter, thanks so much for coming on the show. We really appreciate it. Keep us updated on everything you have going on.
Peter: Thank you, Matt. It's really been a pleasure and an honor to be a part of your show. I'd love to be on again in the future. If there's anything that I can be of help, please let me know.
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Advertising cannabis is banned in most of the US, so how can a cannabis company get the word out? Here to help us find solutions to this problem is Chad Bronstein of Fyllo.
Learn more at https://hellofyllo.com
[00:56] An inside look at Fyllo, the world’s first single-solution regulatory technology for cannabis
[2:25] Chad’s background and how he came to start Fyllo
[3:53] How Fyllo’s data ecosystem helps cannabis companies streamline regulatory tasks and target customers legally
[9:51] What different cannabis companies can expect when using Fyllo
[13:07] Success stories Chad has seen so far and how clients are using Fyllo to advance their companies
[15:04] Chad’s advice on how to determine a good marketing budget for your brand
[16:34] How Fyllo provides direct access to cannabis audience data through the Lotame, the world’s largest marketplace for second- and third-party data
[19:35] Requirements companies must meet before working with Fyllo, including becoming CCPA compliant
[20:25] Chad’s tips on how to build a dynamite marketing team for up-and-coming cannabis brands
[23:55] Where Chad sees customer acquisition and brand awareness evolving in cannabis over the next 3-5 years
Matthew: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at CannaInsider.com. That's C-A-N-N-A Insider dot com. Now, here's your program.
Advertising your cannabis company is banned in most of the US, so how in the world does a cannabis company get the word out? Word-of-mouth is great but can be slow. Here to help us find solutions to problems like this is Chad Bronstein of Fyllo. Chad, welcome to CannaInsider.
Chad: Thank you, Matt, for having me. I'm really excited to be on CannaInsider with you.
Matthew: Give us a sense of geography. Where are you in the world today?
Chad: Today, I'm out in Oak Brook, Illinois, where I reside, so my new home office.
Chad: Chicago. Yes.
Matthew: Cool. What is Fyllo besides a thin, Greek dough? Can you tell us what Fyllo is at a high level?
Chad: Yes, I'll tell you a backstory if you don't mind.
Chad: When I started this company, I brought together a lot of people that I wanted to start the company with and one of our co-founders, his name is Aristotle. He's a Greek guy, obviously, you can get by Aristotle, the name. We were at an off-site when we first started just thinking of names. Fyllo, people think of it as a dough but it actually means friend, family and has a core-root of leaf. We figured it, incorporated everything we want to be which is working with people that we really like to work with, as well as starting off from cannabis, so that's how Fyllo came about.
Matthew: Okay. What is it that Fyllo does? Can you just give us your quick elevator pitch? When you meet somebody, what do you tell them?
Chad: Yes, so Fyllo has a couple of different audiences but what I say is Fyllo, its core is around compliance that evolves into other areas which is advertising. We work with both brands, agencies. Then, on the other side, we work with law firms, as well as GCs and compliance departments, and companies that either use us for our understanding of hyper-regulatory law or if you're a brand, really putting together the right strategy. Like you said in the beginning, word-of-mouth is great but how do you put together a strategy that advertises to the masses and that's what Fyllo does.
Matthew: Yes, those are some sticky problems here and we'll get into more of what Fyllo does but give us a little sense of your background and journey, and how you came to start Fyllo with Aristotle.
Chad: Yes, I founded Fyllo a year and four months ago. Prior to that, I was the CRO of a company called Amobee which is in the marketing technology. I was there for about eight years, started from the ground up and we had a lot of fun, built it to a very sizeable company. I was just at a crossroads at the time as, "Do I want to go be an entrepreneur again or continue in the corporate environment?"
I saw cannabis being a huge opportunity so I started thinking of that idea probably in 2019 and around, call it January timeframe, and then started putting together the actual story and the vision, and went out to Aristotle, Erik Shani, and some other people and said, "Hey, I'm going to start this company and cannabis would love for you to be a part of it." They jumped on blindfolded and we went full-blow at it. Now, here we are at this point a year and a half later, we've got 75 employees and we have a technology, like I said, that encompasses a lot of things, but my backstory really is in brand and marketing before I jumped into this over the past 15 years.
Matthew: Let's get into a specific example here. Let's say I'm a cannabis retailer or a cannabis brand and as we were mentioning before, I wanted to get the word out, word-of-mouth is slow, I know I've got a great product. If you were sitting down with me, having a cup of coffee, say, "Okay, here's what you need to do. Here's how Fyllo can help."
Chad: Yes, but first, you really want to understand the cannabis retailer. Obviously, their footprint in terms of, if you have this 10-mile radius, but let's just say with multiple other stores in different states, just really understand the brand equity and like who knows about them and what the audience thinks of them, right? Then we would really go from there, our team would put together a strategy based off of their footprint and what footprint they're trying to accomplish in terms of scale and we build a very targeted strategy within that 10-mile radius of who their consumers are.
How do we reach those consumers? We can reach them not just in-- Back a year ago, billboards were the only way you can really reach a cannabis consumer. I think that's how most people use it. You go to California, you saw a billboard every two steps you walked. In this scenario, we're really putting together a hyper-targeted strategy to drive consumers into the store but using more of a digital side of it versus a billboard-approach that was cannabis a year ago. Does that make sense?
Matthew: Yes, it makes sense. What do the specifics look like, then? We have that 10-mile radius, it's more than billboards, it's digitals. What else is it like? How does it actually manifest?
Chad: Really, when you're a brand and you have an audience, and obviously, we know that your audience is 21 and up if it's a THC audience. Is it a [unintelligible [00:05:35] audience you're trying to target? Is it the medical audience? What we've done over the past year is, really, we've developed a data ecosystem and that's something you've probably seen lately that we're obviously pushing it quite a bit out nationally, but we've developed a data ecosystem. If you are called Aristotle, which you brought up earlier, you're an entrepreneur, you're doing all these things and you are in the same radius every day because of the Coronavirus.
Now, you're working from home, you're going to the local grassroots dispensary, but what's really important is we've created a data ecosystem that's not just targeting cannabis brands, but really focused on the mainstream brands as well, because if you're a mainstream brand, let's call it McDonald's, and you know that Aristotle smoked weed or bought weed at a local grassroots dispensary. If you dayparted Aristotle, there's a good shot that you could actually target Aristotle with what is in market for a Big Mac, let's call it.
There's a lot of different ways you can use different examples but we're really evolving an industry to target both correlated data from both cannabis and mainstream. Does that make sense?
Chad: What I'm getting at is if you are a dispensary and you have a target list of customers, we can actually use our data as well to generate new customers into your dispensaries and, like I said before, that's using foot traffic studies, data, and inventory, proper advertising inventory sources, which we all have quite a bit of background in, to really bring that whole marketing plan together to drive that return on ad spend that they're looking for which is sales.
Matthew: How do you measure that sale? Is there a conversion marker of some kind? How does that work?
Chad: There's plenty of different methods. It just depends on what system the dispenser is using to actually track it. The good news is it's even easier to track in this day and age because most people go online now and do pre-orders before they actually go to the store, right? For us, it's very easy to track and I think, before Coronavirus happened, everyone was obviously trying to understand how would it impact cannabis but we are fortunate in a sense that it has impacted cannabis across the board in a positive way, which is obviously not for a lot of other vertical [unintelligible [00:08:09] extremely upsetting. From the cannabis perspective, it has helped the vertical across the board.
Matthew: Gosh, this is crazy. You can't really advertise on Facebook, I don't think, or YouTube, but there are third-party sites. Let's say you go to some website to learn about a strain or something like that, and the next thing you know, you see an ad for a local dispensary that just happens to be a couple of miles away from you. That's allowable, right? That's not forbidden [unintelligible [00:08:42].
Chad: Right. Actually, not to name names because, obviously, people get upset but in the sense of publishers, all of your mainstream publishers are getting more. Part of what we set out to do, if you look at my team, I brought on Nicole Cosby who was the head of Publicis for Precision which was working with all Fortune 100 brands on establishing partnerships and standards for billions of dollars worth of advertising.
Then, Jessica Kerwin is on her team, ran the publisher business at Publicis as well, and what we wanted to do when we set off to do this, which is really important from our backstory, was to really go and create more credibility and make it more mainstream and get people to understand the value of a cannabis consumer, and I think we've done that very successfully. We've gotten a lot of mainstream publications to actually accept THC, as well as CBD advertising prior the year, your typical places would be where you would guess which is cannabis inventory, so like a site that's focused on cannabis only and hasn't have any mainstream population. Does that make sense?
Matthew: Yes, yes. Now, what if I'm listening right now and I'm a dabbing brand and I want to get the word out about my brand of oils or shatter wax, whatever it might be, and how would I do that? How can I create an audience that's just of dabbers of let's say 25 to 35-year-old males, is there a way to do that?
Chad: There is a way to do that. It's a great question. Back to what I was referring to earlier, is we developed the data ecosystem, partnering with a lot of the POS e-com retail loyalty providers, where we actually have data, whether you're a dabber, edible, flower, Sativa, Indica, we have a lot of different segmentations that we can build.
What we would do is we'd start building an audience based off of what we think, what our audience, what our data's telling us what dabbers do as well as how do we accentuate that model look like audiences that are also dabbers. We build a whole segmentation around the dabbing audience to target dabbers. Does that make sense? You have a lot of data from that standpoint, so you start off with infused segment around dabbing and then you accentuate it with more scale and infuse it and enrich it so you have a much larger dabbing audience.
Matthew: That makes sense. I would think then when prohibition ends nationally, there'll be a ton of expanded opportunities and probably room for national brands more. We have brands that go state by state and license their name and so forth, but do you see that as really when you can use advertising to create kind of like a Coca Cola of a cannabis brand? Is that kind of the ignition for takeoff then?
Chad: I think it depends, like from the data perspective, we think we have initiative to take off because brands can advertise targeting cannabis consumers. They do not have to raise their hand and say, hey, I'm going to run a creative campaign with a person smoking a blunt on a piece of creative. They can run a campaign for a mainstream brand, knowing that-- I think what Fyllo has set out to do is really to make sure that people understand cannabis audiences are also your normal audience of your consumers.
What we're showing is different behaviors that you may not be thinking about and abilities to target a consumer based off of some of the data that we have around a cannabis consumer. Like I said, if I go to the local dispensary, Chad Bronstein and I have a lot of different data that would say I'm maybe not a smoker, there's just a new data set that you learned about me that you didn't know before.
Our core focus is to reach a consumer in a different mindset than you used to reaching them and procreating scale for not just cannabis brands, but for mainstream brands because of the value of these consumers today, and that there's this so much reach for a brand to target in the cannabis space because technically 98.6% of the US has the ability to buy some sort of cannabis, whether it's CBD or THC.
Matthew: You're looking at a lot of data, you're working with a lot of customers. Is there an example without naming names of one that really gets it, that is getting good results that you could talk about?
Chad: I can't name names, but we work with quite a bit of them in the space, both from cannabis and now having brands actually testing the data, but I, unfortunately, can't name names.
Matthew: Can you tell us anything without naming names about how they're [inaudible [00:13:36]?
Chad: Of course, it's all different use cases. If you're a law firm, you'll be using our platform right now to understand licensing, taxation, zoning, et cetera and you'd be using the platform specifically for that perspective and when we launched our raise there were law firms that publicly gave us permission to use them like a Shepherd Mullins or DLA Piper, which use our platform currently. From the other standpoint, if you are a brand, call it a cannabis company, there's a couple of different aspects you can use this from.
If you're a CBD brand, you'd want to be, we've had a lot of success with the brand that we have driven a ton of DTC sales for. Their core focus is driving sales online. They use us to obviously find the proper inventory matched with the proper data, which is in our ecosystem. We've had a successful relationship with this brand for seven months and have been able to drive them incremental growth month over month.
Then we have your dispensaries that are in Michigan or Ohio or Illinois, California, that their core purpose and goal is to drive more sales and incremental sales month over month and like we talked about earlier in this podcast is really focused on that hyper-local strategy and finding the right consumer that's going to purchase, and so driving them down the funnel and driving incremental sales lifts. Suspensory is our core focus for those brands.
Matthew: A lot of brands and retailers, they raise money to start their business and when they're breaking down their budgets, they have a marketing budget. How much should a dispensary or a brand allocate for this type of thing, if that's reasonable? I think a lot of, to say individual cannabis retailers spend, let's say between three and seven K a month on just Leafly alone, to get foot traffic in the door, what should they be allocating for something about like working with Fyllo, just so they can get an idea.
Chad: It's a sliding scale and it depends on the size of the brand. If you look at [unintelligible [00:15:49] and where they're headed to the size of them, they need to be looking at it more like you mentioned earlier is like what it like MillerCoors or a Anheuser Busch spend at full scale of building their sizable brands that they've built. They should be more looking at the future for that for them, but for a local dispensary, it's a sliding scale.
It depends on the size and the sales before I'd give them a recommendation because we've learned very quickly in this space that each group is an anomaly and they have their own different strategies. It'd be hard for me to give an exact amount just because we've learned so quickly that everyone's so much so different in this space compared to my old background.
Matthew: Talk a little bit about Lotame solutions, and is that what you were talking about before with the direct to consumer CBD brands?
Chad: Yes, we announced a partnership with both Lotame and IOTA, where we syndicated a lot of our audiences to multiple different platforms. What that means for us now is that if you're a major demand DSP, we call it, which I come from an MOB and you want to go buy a CBD segment or a THC segment from Fyllo, you can plug into quite a bit of the multitude of different platforms and you would see Fyllo's data available, and then you can purchase that data in real-time.
I want to target Matt, obviously PI limitation is scrubbed with partnerships, so call it one, two, three, because I know he's a consumer of this brand and also he would be a consumer of call it a QSR brand. They would buy that data in their platform and target that data within their advertising campaigns. Does that make sense? Lotame and IOTA allow us to do that.
Matthew: That makes sense. It sounds like extending an existing profile for a prospect to a larger geography or something, a larger digital geography perhaps, is that right?
Chad: It's basically extending it to everybody in the mainstream landscape that buys data on behalf of brands, Fyllo has now made their data accessible to the mainstream marketplace at scale.
Matthew: This is really kind of opaque for people outside of this industry to understand all that's going on. There's all these invisible marketing efforts going on and math and conversions and databases and it makes sense once you have someone explain it to you but it doesn't necessarily make sense before that. It's interesting to hear how this invisible world kind of works and what can be done and how it's measured and so forth.
Chad: I'd say for us, we brought in the right people for the past year and a half and you can imagine we've had quite a bit of challenges but we've executed, I think, seamlessly in this specific area because we knew what we were walking into and like you said, it takes a lot of coming from our backgrounds to really understand how to set this kind of business up, and also educate the marketplace both from the cannabis perspective and the mainstream.
You're educating two different people, you're educating like we said, the cannabis vertical, but also the mainstream vertical on this data and it takes a lot of work. I would agree it's, once you walk through it, it's pretty easy to understand, but at first, you may not understand all the behind the scenes work that we've been doing over the past year and a half.
Matthew: Are there any cannabis companies that you won't work with or any ads that aren't allowed at all?
Chad: Everyone that we work with has to be CCPA compliant, meaning they have to define there's specific privacy policies that you have to work with. If they follow those guidelines, then we'll work with them from a data perspective. From a brand perspective, we work with all brands that want to market, but we have to make sure that if we take on an opportunity that we know we can succeed on it and just managing those brands expectations, because a lot of times we're educating people on something totally new. We want to make sure that we are properly setting them up for success. If we don't feel like we can do that, then obviously we'd walk away from that opportunity.
Matthew: I think there's a lot of people that have been successful in other business domains that come into cannabis, they raise capital, they get licenses, and so forth, but they may not have the skill set of a marketing team that's as deep as what you're talking about. If you and I were just sitting over coffee and I'm starting a brand or a dispensary, and you were just telling me like, "Look, man, this is who you need on your marketing team." Someone with this kind of skill set that can use tools like Fyllo and understands this and this, what would you tell me, who do I need on my team?
Chad: It's a broad, there's a lot of people you need on your team to build it a full marketing approach, but use us as an example. You have our chief commercial officer, Jeff Ragovin, who comes from a long pedigree of successful marketing businesses. He had an exit with this co-funding Buddy Media and he's very great at commercial strategy and leading revenue operations. He's great from building the team from a sales perspective to market properly.
Then, Nicole Cosby, she's very focused on legal and partnerships and standing up the data business for us and just making sure we're properly, if you're a cannabis company with data, you'll need a legal component to it to make sure you're following all the rules and guidelines. Then you need brand marketers if you're building a marketing team. People that understand how to market brands and get it out there. The brand marketers working with then the next step is people that execute from the plan to the execution. Working with the proper technologies to actually execute your brand strategy.
Depending on the size of the brand, you need a decently sized team, but it just depends, it's give or take who we're talking to in the audience.
Matthew: Okay. What questions do you feel like people have the most for you when you're talking with new prospects, either cannabis brands or retailers, and they're like, "Hey, this sounds like an interesting business, Chad how do I get started? How does this help? How can you help me?" What do they ask you?
Chad: I think a lot of people just, when they first hear about us, they just want to understand, like you asked in the earlier part of this podcast was what can you do for me? What does Fyllo do that's going to really help me get to the next level. We hear that a lot. If you're not dealing with the marketer and you're dealing with call it like a real estate background or a banking background, you have to educate them from one on one to how we can actually build this process for them and alk them through how we do that.
The biggest thing we've seen is a lot of brands aren't set up for what we do, so we have to get them set up for it so then they can start building the process and implementation to do what Fyllo technology does.
A lot of the questions we get is like what inventory do you guys have? Where does your data come from? How do you actually drive sales for me? Like you asked earlier, how do we track it from a compliance perspective? Do you have scale in a specific Michigan area or can you track all applications? There's a lot of questions you get because we're a three-prong technology that does three different things. Your audience skews different, but you get quite a bit of questions for each part of it.
Matthew: Okay. How do you think this is all evolving? The customer acquisition, brand awareness, where do you see it going in the next three to five years? How's it going to evolve and change?
Chad: I think that as the market continues to evolve and more people come into play, there's going to be a lot of consolidation and there's going to be players that really understand how to help these brands scale. I think for Fyllo, what's really important is we don't just look at it from a cannabis perspective, we are really heavily focused on bringing mainstream brands into targeting cannabis audiences.
I just think that evolution is going to be fun to watch over the next three to five years, but there's going to be a lot of opportunity to scale with you're going to see a lot of bigger brands continue to grow and the vertical as it gets, like you said, call it federally legalize more so and becoming more open to cannabis as a vertical holistically. I think it's just going to scale tenfold. I think there's a lot of opportunity over the next three to five years and we're seeing the market kind of show that with the recent upticks for the cannabis stock market.
Matthew: Okay. Now we've really focused mostly on advertising, but in marketing, can you just talk a little bit more about the regulatory side of things too for listeners that are interested in that?
Chad: Yes. We purchased a company called Canada Rags about six months ago. We actually recently just built out the version two of the technology. From a regulatory standpoint, I would say that call it 90% of the space uses our platform. It's used mostly from legal and from compliance teams, GCs and law firms, like I mentioned earlier, and each one has a different use case.
If you're an SSO, which we call a single state operator and you really want to understand each local municipality, you'll use our platform to really understand when the meetings are happening, if you should attend that meeting, after the meetings happened, what actually was talked about the meeting, applications that were submitted. You really can understand if you can submit an application or when applications are going to be available to submit for those, taxation.
If you're trying to get a piece of real estate, understanding zoning and regulatory regulations around the real estate. If you're running packaging and labeling, and want to understand the regulatory guidelines on packaging labeling, you would use our platform. Same with advertising limitations that as well as digital creative, you would want to use our platform to make sure you're compliant specifically by that hyper, with that local government.
Most of our regulatory software is used by legal and it's been what we do is we've been able to help a lot of the MSOs and law firms save quite a bit of time with having this aggregated database and our technology that allows them to automate a lot of the work that's being done manually for them within their internal organizations. Does that make sense?
Matthew: Yes, that's the kind of real nitty-gritty stuff that's not sexy, but is super important you know, just foundationally important to get that. You provide that in a kind of easy to digest way that's super valuable.
Chad: Yes. It's been pretty, we've had, we're excited about the new launch of it and it's in October we're launching, so we've built technology on top of that technology, which automates, like I said, packaging labeling. You can upload your packaging and labeling and not your actual digital asset or creative asset. The system will audit it within a second and tell you if it's compliant or not and why it's not compliant. It's doing that both for digital as well as packaging labeling, which we're really excited about and something that as our vision grew as we evolved the technology. Something that you'll see coming soon.
Matthew: Now, you recently finished a big capital raising round. Can you talk about that a little bit?
Chad: Yes. We were lucky enough to close around with some of our current investors, as well as some new investors, but Jason Wilde has been an unbelievable investor for us, let our first round and let our second round with also having other investors like K2, Arcadian, Salvio, Panther, Fido, Fountain, and other funds join us throughout this process.
It was definitely before, we started raising capital right before Coronavirus, literally right before and then Coronavirus hit and definitely stalled out the process because people are just seeing where the market's going ahead and we were lucky enough to great supporters and people that are close to the state close to our business to know the opportunity. They came in for this round. We were able to raise a significant round that's going to help us continue our hyper-growth.
Matthew: Okay, great. How big was that around? That's public, right?
Chad: Yes, it was 10 million.
Matthew: 10 million, great. Okay. Chad, I like to ask some personal development questions to help listeners get a better sense of who you are personally. With that, is there a book that's been particularly meaningful for you in your life that you'd like to share?
Chad: Yes, that's a tough question actually because I've read a lot of books that have been not meaningful to me. I just say really for me, I like to read books that people, even just like Shoe Dog, which is Nike's story. Just really seeing people go through adversity. I like to read a lot of books that more so show me other entrepreneurs and how they became successful and really hearing their true nitty-gritty story. That stuff really gets me excited and teaches me something because I'm learning through trial and error and reading other people's trial and error. I'm a true entrepreneur, that stuff really excites me.
Matthew: Okay. VC, Peter Teal has a famous question, he asks entrepreneurs. It is what do you know to be true that very few people agree with you on?
Chad: What do I know that to be true that very few people agree with me on? You're asking me some tough questions. I don't even know how to answer that one. That's a tough one. Like give me an example.
Matthew: What would you be scared to bring up at a dinner table with people that have diverse backgrounds and different ideas of the way the world works? You say, if I bring this up, this is going to be controversial, but I know that.
Chad: Politics. Easy one, don't bring up politics.
Matthew: You know it's true. Not to bring up politics, but that's not very controversial.
Chad: Yes, that's true. I don't know. It's a tough question. I don't know how to, I really don't. Can you ask me a different one?
Matthew: Well, I'll tell you, I do have a different question for you. Here we go. It's a Chicago question. Which Chicago restaurant are you missing the most since so many restaurants have closed because of COVID-19?
Chad: Another good question. I would say probably because our offices in the West loop and it's going to be a people, foodies, like probably you're going to be like what? Because we go to the same, we go to the same spots over and over again, because it's right by our office but Bavette's.
Matthew: Okay. What kind of food is that? I haven't been there?
Chad: It's all it's like steaks and burgers and stuff like that.
Matthew: Yes. I'm really familiar with the West Loop and not one of my favorite place is actually, favorite coffee shop ever is Sawada Coffee in Green Street.
Chad: Oh wait, ask me a question again because I forgot about Sawada. Sawada is literally lived and breathed Sawada. We went to Sawada every single day. Now that you brought that up, that's been the worst thing for us that shut down.
Matthew: Yes. The military lattes are so good, which is like a latte with matcha powder in them. They're so good. That place is awesome. I'm like I'm bummed. Once a week, I check out on Google maps if they're still closed because I'm just so bummed about it.
Chad: That's hilarious you brought that up. Yes. Sawada that's our favorite spot. Like we literally are friends with the staff and we went every single day, twice a day. That's honestly, that's been the saddest thing for us out of everything. We go to Beatrix now but Sawada was our spot.
Matthew: Yes. I really hope they come back. We'll end there, but Chad, for listeners that want to get ahold of Fyllo and see how they can work together, they're in the cannabis space and they want to know more. How can they reach out and connect with you or with Fyllo at large?
Chad: Yes. They can always go to our site and fill out a specific form for what they need or they can just reach out to me directly at Chad@hellofyllo.com and I would send them down the right path.
Matthew: Great. Well Chad, thanks so much for joining us. We really appreciate it. Good luck with everything you have going on. Great timing with that capital raise. That's very fortuitous for you. We'll be watching and hopefully, come back on in a little bit and tell us how things are progressing.
Chad: Yes, man, this has been great. I really appreciate you having us on and look forward to doing it again with you.
Chad: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guests to you. Learn more at cannainsider.com/iTunes.
What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at feedback at cannoninsider.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice, contact your licensed physician before taking cannabis for using it for medical treatments.
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Lastly, the host or guests on CannaInsider may or may not invest in the companies, entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention, this little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.
[00:35:04] [END OF AUDIO]
Cannabis delivery platforms are evolving quickly as they find better ways to retain customers and reduce churn, and Emjay might just have the best approach yet.
Here to tell us more about it is Chris Vaughn, CEO of Emjay.
Learn more at https://heyemjay.com
[00:51] An inside look at Emjay, a premier cannabis delivery and retail company in Los Angeles, CA
[1:48] Chris’ background in the alcohol industry and how he came to start Emjay
[12:27] Emjay’s hub-and-spoke business model and how the company functions both as a retailer and delivery service
[17:40] How Chris’ experience in the alcohol industry has influenced his approach to cannabis
[23:08] Unplanned versus planned purchases and how this differs between alcohol and cannabis
[26:25] The advantages of owning your own supply chain as a cannabis retailer or delivery service
[38:39] Regulations around the types of vehicles that can be used to deliver cannabis
[40:12] Where Emjay currently is in the capital-raising process
Matthew: Hi, I'm Matthew Kind. Every Monday, look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A-insider.com. Now, here's your program. Cannabis delivery platforms are evolving quickly, looking at ways to be more efficient and keeping a keen eye and retaining customers and reducing churn. Here to help us learn more about cannabis delivery is Chris Vaughn, CEO of Emjay. Chris, welcome to CannaInsider.
Chris: Hey, thank you for having me.
Matthew: Give us a sense of geography. Where are you in the world today?
Chris: I'm at my house in Los Angeles.
Matthew: Okay. I'm in Coeur d'Alene, Idaho. Chris, what is Emjay on a high level, and can you spell Emjay just so people get the right visual in their mind?
Chris: Sure. Emjay spelled phonetically, so E-M-J-A-Y, a play on obviously M and J, marijuana, but Emjay at its core is a shopping platform for customers to come and order cannabis and have it safely and reliably delivered to them. We also have today a retail store in the heart of Los Angeles, but we have a handful of others coming online throughout the back half of this year and into early next year. We'll have a sort of in-person as well as e-commerce experience for people who want to come in store and meet one of our team members or if they want to order online and have it brought to them. Today we operate a store on Fairfax in the center of culture in LA and then have delivery that covers most of greater Los Angeles.
Matthew: Chris, can you share a bit about your background and journey and how you got into the cannabis space and started Emjay?
Chris: I'd say for about the past decade or so, I've predominantly been in the alcohol industry. Built a company from scratch called Saucey along with two terrific, co-founders Andrew Zeck and Daniel Leeb. We have been addressing this highly regulated category that really have been untouched by e-commerce or innovation or capital even in 80, 90 years, and have been on that journey for quite some time. I think right when the recreational regulations started to come down or look like they were starting to come down, I started to spend a lot more time focusing on just what did cannabis look like as an industry from a regulatory perspective? What did it look like from a customer perspective? What it looked like from a-- I think just the history of the legal issues in the space and was fascinated by really two or three things.
I started by sitting in on a couple of local community meetings in LA just sitting in the back and listening and one of the things I'd say from a regulatory perspective, that was very interesting is I heard community members and neighborhoods really come to these things and oppose any sort of dispensaries is being rolled out in their neighborhoods. That was a little bit of deja vu for me because we had heard so much about this in alcohol before. There's so many liquor stores throughout the country. There's more liquor stores than there are gas stations or grocery stores in the US. Communities are actively trying to pull back the number of liquor stores in a lot of these neighborhoods. Particularly I'd say lower economic neighborhoods that literally can have a liquor store on every single street corner.
Hearing those meetings for years where people were sort of, "We don't need this many liquor stores or cigarette stores on every single corner," and then all of a sudden here comes cannabis legalization, and obviously there's great consumer demand. People want it to happen legally. Communities want the tax revenue from it, but they didn't want stores to pop up on every single corner of the way that they did in alcohol. That was very fascinating from a delivery perspective and coming from a delivery background to say, "Okay, there's demand. People want this to happen. They want this to happen legally, but they're very nervous about having shops pop up on every corner." I think the second regulatory thing that really intrigued me was that there wasn't going to be a three-tier system like there is in alcohol where you can only be a brand/manufacturer or a distributor or a retailer.
That cannabis in the US was going to operate a little bit more like alcohol does some other countries like Brazil or China, or to a degree parts of Europe where you could be the brand manufacturer and retailer all in one company. I think your supply chain fundamentally changes how you think about the customer experience, it changes your margin capture, everything else. Then around the same time I was talking to some friends that had started investing in the space fairly early and heard the story of one of my friend's grandmothers that had been going through cancer, it was actually a family down in Texas where cannabis wasn't legal and the doctor honestly recommended just, "Hey, if you guys can get cannabis to her, I didn't say it, but you should try and it'll dramatically improve her quality of life."
They did. It was a game-changer for her treatment plan and how she went through that time as a person. Hearing similar stories like that, seeing some of the effects that obviously we have this huge issue in the country with opioid addiction, well as, PTSD in veterans, and started doing some of the research in those categories. The combination of those things, watching how communities were reacting to this, watching how the regulations were going to shape the way that companies could be formed, watching personal stories from friends and friends of friends that had, I'd say, terrific medicinal effects from this plant. Then lastly, the greater impact that it possibly has on medicine or getting people away from reliance on opioids. The combination of those things was fascinating and thought that our background and expertise could possibly create something pretty special in the space.
Matthew: Okay, you have this background in the alcohol industry, highly regulated industry. You're seeing what's happening on the community level. There's too many alcohol shops. You feel like you have an aha or a moment where you feel like you understand this regulated market. It's similar to alcohol, but you're going to go after it a different way than these traditional retailers who are throwing all this money into a retail footprint. Just talk about what you believe your unique angle is there.
Chris: Sure. Emjay was effectively formed in a partnership with a couple different groups. There were some people in the industry, we had friends that were investors who had been investing heavily in the space and a few local operators and all formed Emjay. Myself and Daniel Leeb have effectively been advisors of the company since it was formed and helping get them set up and running. Then in January of this year we stepped into full-time management of running the company and growing it from there. The unique angle that we bring is if you look at the early days of this, the end of prohibition, if you will, and the green rush and all these companies rising up and in many ways taking a very venture-style approach to growth and building businesses, which has raised tons and tons and tons of capital invested all in high growth.
Burn lots of money in the process, but go after market share. That to me seemed very risky in an industry that's regulated and with this limited access to capital markets. You had a lot of companies come out of recreation, raise huge amounts of money, or go public in Canada via these reverse transactions or these RTOs. You had a ton of retail investors pumping money into this space on the stocks. It was just a race. You saw companies just racing to grab licenses, racing to grab leases on places, racing to grab assets anywhere that could, because for a period of time, your valuation was almost propped up by just what licenses you owned. It doesn't even matter if they were operational or not. That was really interesting to me.
Then seeing, when Jeff Sessions came out with his memo and all capital dried up for a period of a few months in the industry, that was very telling that this isn't the same as if you're building a SAS company, or isn't the same as if you're building something in the pet space. Capital can come and go very, very quickly in this industry. You saw it happen again with all the issues around vaporizers and vapegate. You've had several series of events where capital can flood into the system and then flood out of the system specifically for this industry and that 1.0 wave of cannabis companies. There was a lot of carnage and there still is a lot of carnage today of companies that in January of '19 were doing famously well, then by mid-summer, were really, really struggling and their stocks were down and everything else.
A lot of that comes back to just the underlying fundamentals of any given company. If you think about people who are really pursuing this retail model, and you think about the economics of a dispensary, versus a fashion store or a sunglass store or a pet store, or even a liquor store, there's just a lot more cost that goes into operating one from a security perspective, utilities perspective. Most the landlord's back in this time, if you were a cannabis company, they wouldn't issue you any favorable lease, it was a lease with a hefty premium. The staffing of the locations, all of your costs on a per-location basis could be much higher.
A lot of those, we call them 1.0 companies didn't care. You had people that were buying licenses at exorbitant prices, doing build-outs on stores at exorbitant prices or going over budget, paying exorbitant lease rates, overstaffing stores, plus security, plus the utilities, plus the insurance and then you turn around and the mountain that you've created for yourself that you have to climb up before you can even get to break even, is almost totally insurmountable. The interesting thing that we really looked at is, there's a model in the space that was delivery only. There's obviously some leaders, particularly in LA and in California on the retail side.
The way that I fundamentally look at the hybrid of those two things is that retail can serve as a jump-off point for delivery, but because your cost structure at any given retail license is just much greater than it is in most industries, you have to maximize the coverage of any given location as much as humanly possible and we do that via delivery. The in-store experience is predominantly we find for some people that are curious, if you will, some people that are veterans and experts that really want to come in and get educated on new products that maybe have come out or smell and see the flower that they're going to buy. Then we see a lot of new time customers trying delivery, or the repeat purchases happening via delivery.
From that one single jump-off point on Fairfax today, we're able to cover a lot of greater Los Angeles, while in a retail-only model someone maybe has to do that with four or five, six shops, and that's four or five, six times the cost structures that are set up to cover the same amount of people.
Matthew: You're looking at this a little differently here, you have a hub-and-spoke model where your retail store in Fairfax is your hub. You're thinking right out of the gate, it's not an afterthought, like, "Oh, now I'm going to do delivery," you're thinking, "How can I strategically have this retail presence?" That'd be the hub for a delivery radius in the LA area. Is that right?
Chris: Yes, almost even the opposite, which is how do we cover a city with delivery, and then make sure that we have retail experiences where if people want to come experience a brand or a product or meet people or learn about the industry, they can come talk to people at one of our location. That we're definitely a delivery first company, and then have that retail as well, because we just fundamentally cover so many more households, so many more customers via that delivery infrastructure. I think that California was very thoughtful in how they approached delivery as a shopping part of this industry meaning, one, you had a lot of communities and municipalities that were arguing how they wanted to think about delivery and so you had a ruling came out that said if you have a delivery license you can deliver anywhere in California.
That that was very important and that a lot of people, a lot of the communities view delivery as something scary because it reminds you of a drug dealer. How did you get cannabis before it was legal, guys driving around in cars selling weed, right? In their mind, I think you think of delivery as, "Oh my god, there's weed going around, there's cars. It's dangerous." It's all these things. In reality, I believe that delivery is the solution that they're looking for when it comes to wanting the tax revenue from cannabis but not wanting a dispensary on every single street corner in your city. There's huge customer demand. There is nowhere near the brick and mortar footprint built out to meet that demand and unless you want to put it all in physical retail, the way to unlock that's via delivery.
That was one ruling that was very important. The second is how they structured delivery, which is that a driver as long as they have orders or scheduled orders or places that they can go out and hit throughout the day, they can carry up to $3,000 worth of product in the vehicle. It has to be locked in a separate compartment in the car. It has to be tethered to the car and secured. You have to have trackers in the vehicle so you know exactly where the driver is at all times. That driver can't just go off and go watch a movie or something that route, it has to be en route to an order. There's a lot of very thoughtful regulations around it but that means that from a single jump-off point, a team or a group of drivers can effectively go out and in many ways act like little mobile dispensaries.
When we open up for the day, while we are operating out of that one initial place, we could have 50, 60, 70, 100 little mobile dispensaries all over the city. We run both hub-and-spoke orders from a very broad selection. I believe that we have the greatest selection or the largest selection out of the delivery players in Los Angeles. You can order hub-and-spoke of any of those products that you want, or for a smaller group of orders that are available in drivers' cars, and you can have those delivered much much faster. That's our version of Amazon Prime we call it Emjay Now. In other states, they've really struggled with delivery regulations. You look at this in like Massachusetts, and you can see how the regulations came out.
The way that they did, but you can't just have a single driver going out and doing an order, they have to be accompanied by a second person or security. Some of the states are talking about having body cameras. Every single order has to be hub-and-spoke, only one order at a time. The way that they pass the delivery regulations was literally the exact opposite of everything that you could do to run an efficient and profitable delivery company. They put in place, every single barrier that you shouldn't do to totally mess that up but you get how it happened. It's people, community members and regulators sitting around a table, thinking about how do we do delivery? How do we make this safe for our communities, and people throwing out ideas. Then all those ideas come into something called a bill, and then it gets passed. Then people have to operate with that.
California did a very good job and how they think about unlocking delivery for the state, as well as the model so that you could actually operate it profitably or operate it in a way that makes sense for any given business to try them.
Matthew: There are so many smart people in Massachusetts but they have a unique flair for regulations that just confound. I'm surprised they didn't regulate a helicopter that follows a delivery car with a spotlight on it. It's like, it's really that it's gotten that far but that's one of the reasons that Massachusetts license holders, that's a valuable asset because you're dealing with a nonsensical regulatory body that you have to put up with. I think that's one of the reasons I'm hoping that there's some benefits for them Let's circle back, you talked about the alcohol industry, what would you say your deepest insight from working in that highly regulated industry that you've taken over to now Emjay where you feel like, "Hey, my understanding of the alcohol industry is really helping me with this"?
Chris: That's a tough one. I have to split it into two halves. I think one is definitely from a regulatory perspective, just working with regulators and thinking through regulations and how to do things, not only with utmost compliance but trying to also do things from a perspective that benefits and moves the industry forward. When we first started delivering alcohol, we didn't just go wing it. We sat down, we met with regulators, we talked to them, we communicated our intention, "Tthis is what we would like to do." Then we took it one step further, which is, "How can we also be helpful? How can we help you with issues that you have, whether it's checking for underage drinking or all transactions being credit card transactions, so you eliminate some of this cash under the table business?"
I think bringing that thoughtful approach to cannabis from the onset, it has helped structure in many ways, the way that we operate as a business. There's still a lot of fly by night delivery companies, there's still a lot of fly by night retail operators where people operating on the skirts of what would be deemed helping the industry move forward. Taking that approach and being willing to go through that brain damage and alcohol and then go over it again for better or worse, I think our team's developed a bit of a reputation for being willing to go through very tough things that other people aren't willing to go through or they're just confusing or brutal to navigate through. We've been able to carry that over. On the other side, what's fascinating to me, is the consumer. I'll give you a small example.
In alcohol when we send an e-mail to somebody about new products, it doesn't get a ton of pickup. There's a brand new scotch that just came in or there's this very unusual new rum that just came in. A very small percentage of our customer base cares about that. It's more so, "I like Bulleit bourbon. Just bring me that," or, "I like this wine bring me that." New products just don't fascinate as many people. In cannabis, we send it in an e-mail about, "Here's new products," and people just eat it up like crazy. They just buy it. They just to have it on their shelf at home. I think that the difference is if you went back to prohibition and alcohol and all you've been drinking is moonshine or bootleg whiskey or something and all of a sudden the local store said, "We have a wine from California available," or, "We have a new rum from Jamaica available," you'd be like, "Oh my God, I got to go get it. I got to go get this one. I got go get that one. I got go get this stuff."
Where the customer is in their journey with the product it's so different. I think that's fascinating. I think if you rewind to the medical days where everything was just in prescription bottles or you're buying weed out of a ziplock bag or something, and then you saw some of the first innovations that really hit like the Dosist pen, it was revolutionary. When people saw the Dosist pen come out and that you would use this or held this product and then it'd vibrate tell you what a dose was. That was a game-changer in cannabis. You saw other brands that were trying to mirror some of these high fashion brands or whatever, and seeing just this gorgeous CPG packaging for the first time ever was a game-changer to consumers.
Even in the short period of time since rec legalization, till now, you've seen that change dramatically where people don't necessarily care if you just have some gorgeous packaging. The number of vaporizers with all these interesting ways that you can use the product is plentiful on the shelves. If you're going to be a brand that stands out, you really need to know which customer you're going after and how you address that market. I'd say 60%, 70% of our sales today are flower products despite being in California where we're probably more advanced than a lot of states in the different form factors that we're able to offer. If you want to address the market today, you have to be able to sell really good predominantly flower products to people that consume a lot of cannabis.
If you brand yourself too much for that everyone called it the "Chardonnay mom" and all these meetings way back when-- If you brand too much for that, you're not going to address today's consumer, but if you brand too much for just the cannabis consumer of today and you don't welcome the possible newcomer, then you're never going to get that customer either. You've got this very sort of unusual stage in cannabis where what form factor will be the one that ultimately wins, what form factor will be, how you introduce non-consumers into the category, and what form factor will be the one that aficionados really continued to use and so on and so forth. I think that'll be fascinating and a lot of our experience in how to think about consumption on a per-category basis beer, wine, spirits, mixers, et cetera, et cetera is transferred very well into how we think about that.
Matthew: Alcohol is a unplanned purchase. Maybe that's why there's so many places you can buy it, but here is cannabis on the planned versus unplanned purchase and maybe talk a little bit about alcohol being unplanned and then work how it fits in.
Chris: I think they're very different. Alcohol is an impulse-driven by for sure. That was one of the early hypothesis we had when we started the company. It's proven to be true. I think something like 80% of wine is consumed within hours of being purchased. Even early days when we were raising money, you had some of these venture guys be like, "I don't get it. I have a wine cellar with a hundred bottles of wine why would I use 30-minute alcohol delivery?" I was like, "Okay, well, you are less than a fraction of 1% of the customers out there." To you point, there are so many retail locations where you can buy alcohol that if you are not fast, the person might as well just run out of the store. I maybe even ordered Postmates for dinner or I maybe cooked dinner, whatever it may be. I know that I'm going to have dinner tonight. I don't know if I'm going to feel like having a drink later.
Maybe I have dinner, maybe I'm watching a movie or I'm getting some work done. Then you feel like having a beer or you feel like having a cocktail and you can press a button and have it show up quickly. It has to show up fast otherwise, you're not going to get the repeat purchase. If it shows up closer to an hour, hour and a half, not bad. The person's not complaining. We don't get customers that are like, "That totally sucked," but it wasn't great. It wasn't a phenomenal experience where I'm going to transfer my buying behavior over to it. I think speed is very key in alcohol again, because if you're not fast, I could have just in that hour run out and gotten it myself.
In cannabis, we are not seeing that to be the case. I think people buy cannabis much more like they buy groceries where delivery is about saving you the trip to the store. It's about saving you the trip and the check-in, or the shopping and all that stuff. It's about convenience. We definitely have customers that feel like having a product. They want it right now. That's why we have the Emjay Now offering, which is it's brought to you in 30 to 40 minutes. You can choose from anything that you want. A whole menu, you can have it brought to you in closer to an hour, hour and a half. There was a huge emphasis by some of the delivery companies predominantly eats in the early days of saying, "Fast delivery, fast delivery, fast delivery."
You had other people that were all scheduled, scheduled the next day. I don't think it's either. I don't think every customer needs it fast in this category. I also don't think that you can only operate in a schedule a day or two ahead model. You need to be able to provide both if you want to be a leader in this category. We see customers utilizing both in different purchase occasions. Again, I think that there's a bit more planning. There's a bit more, "I'm going to stock up on products that I like." "I'm going to buy it a little bit more regular cadence." We see that in the retention rates, we see that in the repeat purchase rates, we see that in which category people like to buy from Emjay Now versus the regular order. It definitely is a different type of buying behavior.
Matthew: You mentioned a little bit about this earlier, but a lot of cannabis retailers ran into trouble in cannabis 1.0 as you were saying with the initial costs, the build-out, the capital structure. There was this a firing gun like a sprint, but you took a step back and looked at it and said, "Well, really these are the most important things to do to make a sustainable business." How would you really say you're different in terms of how you went about looking at the metrics that you need to be profitable and sustainable versus these cannabis 1.0 companies that threw money at every problem.
Chris: Some of this is the operators' fault. Some of this can be investors' faults as well where there's just tremendous pressure to go do whatever is seemingly driving growth and to some of these companies that were acquiring licenses. You had businesses that just used all their disposable cash on buying out licenses, getting them attached to leases, and then figuring it out later. When you sit there and you got a whole bunch of locations you're paying super expensive lease rates on all these locations. They got license fees and renewal fees and you don't have any of them built yet or you don't have any parts of your business that are generating real income yet, you can get stuck. In some ways, that was the operators chasing those dreams thinking the cash would be unlimited and plentiful for a while.
In some cases, that can come from the investor pressure of, "You need to get as big as possible. Here's the money go deploy it as quickly as you can." I think that the key difference that we recognized was there's a big opportunity in cannabis where you can own your supply chain and there's a big opportunity where we saw some of these delivery companies that just provide a delivery portal to existing dispensaries and charge them a little fee per month. Some of them have raised big money recently and they're going to go sign up every dispensary in the country. Well, guess what? There's not that many dispensers in the country. Even if you sign up 2,000, 3,000 dispensaries, that's not a lot of people to be collecting fees from unless you're doing big, big revenue for each of them and can increase those fees or get them on annual contracts or multiyear contracts. That you definitely will get some interesting data.
I think on the other model where there were some delivery services, just trying to sit on top of somebody else's license, it put them at odds with all their partners because the brand is making a margin, the distributor's making a margin, that retail or delivery license holder was making a margin. Then if you were going to be a delivery service on top of that, you basically had to squeeze down everybody else's margin to create your own fourth margin and everyone got pissed at you. There was this opportunity to come in own our own licenses, own our own infrastructure, and be able to have a deeper margin capture. Because of that deeper margin capture, we have, I think huge competitive advantages when it comes to customer acquisition, we have huge competitive advantages when it comes to the service that we're able to offer.
If I think about pillars of e-commerce and you look at e-commerce companies that do extremely well, Amazon, obviously being the best. One, they provide a trusted service and they're bringing an offering that you really want. For Amazon, that's where I can get basically anything that I want on this platform. I think Jeff Bezos had this great quote where he goes, "Amazon doesn't make money when we make a sale, we make money when we help somebody make an informed purchase decision." Really what they did with products was help you buy, not just buy, but help you buy and they create a lot of value there. Two, you have to have the trust that it's going to show up and obviously through their infrastructure they've built throughout the country, the faster and faster shipping became a huge advantage for them.
I think very similarly in our space, one, we have more products available than anybody else. We are trying to help people make informed decisions on what products are the right ones for them. Two, we own our delivery infrastructure and our licenses so we're able to control the experience. I think less than 15% of drivers who apply to be on the platform end up making it to be one of our team members. This space is very different than Postmates and Uber and DoorDash and that stuff, where all the drivers by law have to be W2 employees, so we can really focus on training and the experience that they bring to customers. Then the last pillar that I think Amazon got really well, that a lot of other e-commerce platforms don't is price.
When I buy from Amazon, I know that it's either the cheapest or at least a really good deal compared to other places that I may buy. A lot of other e-commerce platforms by the time I get to check out with fees and so on and so forth, you are paying a premium because they are a marketplace sitting on top of other people's infrastructure. I think what's something that is incredibly powerful at Emjay is because we own the licenses and the supply chain and the infrastructure, our price delivered to you is the same, if not cheaper than if you went to a dispensary. We price our products less than the predominant retail train in LA. Our prices are less than the other predominant delivery service in LA and that is the price delivered to you.
If you think about a competitive offering in delivery, whether it's grocery delivery, food delivery, all these other categories, you're almost always paying a premium for the use of that convenience. What we've unlocked at Emjay, which is, I think very similar to what Amazon has unlocked for the greater e-commerce market, is it's the same price as if you went to the store, but it's brought to you and that is an extremely compelling offering for people.
Matthew: That is really compelling. I can see what you're doing there and you really do have to capture that whole vertically integrated system. You got to have the license holder, the infrastructure, the delivery and the W2 employee and then you can offer that and then people start to think like more, maybe even more favorably. They think about the store favorably, but they're really starts to get friendly and familiar with the delivery platform, which it sounds like is what you want. Just to mention again, you said, Emjay now is under an hour and then for a limited menu and then for the total menu, it's an hour, an hour-and-a-half. Is that right?
Chris: Correct. The easiest way to think about it like Amazon Prime versus their regular offering, which is there's a select group of products that are available super-fast if you want it, which is honestly just the top sellers in your area which changes over time or you can choose from anything that you want but it's going to come to you a little bit later, more like an hour-and-a-half.
Matthew: Okay. Do you think that in five or 10 years, we're going to see what you're doing just all over, because maybe Binny's is probably the biggest alcohol retailer I can think of? There's probably a few others, but by and large, it's a lot of mom-and-pop businesses across the US that sell alcohol. Is it going to be these fiefdoms, regionally doing what you're doing with Emjay?
Chris: I think it will fall somewhere in between. Again, if you think about just the costs that go into setting up a cannabis operation, it's not cheap even just from a security perspective, but the way that the regulations are formed, even with some of the social equity programming and trying to give different members of the community, different opportunities in this space, it's expensive, it's heavily taxed. If you want to set-up whether it's a shop or a delivery operation down to security and everything else, it's expensive. It is much less expensive to go open a convenience market or a 7-Eleven or a liquor store and so because of that, I think that in many ways, liquor stores are proliferated because of that. It was a higher margin product than groceries. It was a product that is recession-proof and always in demand.
I remember when we first started working with liquor stores, we'd asked them, "What type of marketing do you do? How do you retain customers?" They looked at me like I was an alien marketing. I just show up at 6:00 AM and open my doors seven days a week and it works. I think in cannabis because you have a very conscientious community now and community being the community groups and neighborhoods and homeowners' associations and all sorts of stuff that all chip into these conversations, you're not going to have the proliferation of dispensaries like you had with liquor stores. There's some people heavily trying to push that. There's some advertising platforms that obviously are trying to push unlimited cannabis licenses because that's more people they can collect revenue from, but I just think it doesn't make sense.
In today's day and age, when you have delivery and delivery can unlock this service and the tax revenue and everything else for entire geographies, you fundamentally need fewer of those retail locations. Dovetailing back into your question of what does that mean? Yes, it's more expensive to set up a cannabis operation than it is alcohol. I think there will be less players. They'll honestly, some of the absolute best stores in Los Angeles are the independent mom-and-pop operators. They care about the product. They know it intimately, they care about their customers and they're not the chains, they're not these public companies there and you can go to them. There's some shops in LA, they're just absolutely fantastic. The staff is fantastic and they do a terrific job. I think on the delivery side, it'll be a little bit harder because honestly, delivery is just brutal.
It is a brutal tough business to run. Knowing and understanding all of the different KPIs and metrics and all the different data points that you have to track in order to make delivery efficient and profitable at scale is an insanely hard job. We joke internally that one of the reasons we started Saucey is because we wanted alcohol delivered to us and in those early days, we were our own careers. We did all the deliveries ourselves and so it was a little backwards. We wanted to be able to order alcohol and we ended up creating a platform where all we did all day long was deliver alcohol to everybody else, but ourselves. Looking at delivery in any category, grocery, food, alcohol, cannabis, a lot of people, big grocers, whoever it is, step into the delivery game.
They start to rack up some big numbers in terms of sales and then they get bigger and bigger and then they turn around and they just can't believe how much money they're losing, because it is very difficult to run an operate. We've even seen some of the big MSLs try delivery, pull back from delivery. It is different than retail. It is different than creating products. It is different than all these other things. It is a very tough game and that's where I think even some of the marketplace plays that just sit on top of all these individual dispensaries, they'll do their own deliveries and so on and so forth. If you just want customers to have a reliable ordering system, you probably need to control more of that infrastructure yourself, similar to the way Amazon does and you may have a bunch of delivery licenses to get issued a bunch of small independent operators that attempt to do it.
Some will make it, some won't just due to the complexities of how hard it is to set up things like route optimization and batching of orders and scheduling and managing labor costs up and down, not weeks in advance, but inside of half-hour increments and all sorts of stuff like that. I think it'll be a hybrid.
Matthew: How do you think about the type of car, truck you have, how making deliveries? Is it just an internal combustion engine, is it hybrid cars? Are you thinking electric cars? How do you think about that? Does it make a big difference on the type of vehicle you have as long as it's somewhat efficient?
Chris: Yes, today most all of the vehicle are our couriers bringing their own cars and then we retrofit them with both a tracker and a locked case. They can go in the vehicle. Obviously it has to be a specific type of vehicle, like it can't be an SUV that's just open access to the trunk. It can't be a Vespa scooter or something like that and there's regulations around what type of vehicles can and cannot be used. We are evaluating and looking into buying some of our own fleets to have a hybrid. People could either bring their own vehicle or drive one of our vehicles. Obviously, in a case where we have our own vehicles, we'll be looking at the most economical or efficient approach, whether that's hybrid or electric cars.
I think we also just for the environment and everything else do have a focus on how we have a small footprint as a company. We're not going to be buying a bunch of diesel pickup trucks As cool as that may be, to do deliveries all over town that obviously wouldn't make sense. Yes, it's something that we're looking into right now as we're looking at purchasing some of our own fleets.
Matthew: Chris, where are you in the capital-raising process?
Chris: I'd say that Emjay raised privately around the capital when it first got started, primarily to start acquiring some of its early licenses. It's one some additional licenses through application processes and it's backed by a terrific group of investors who honestly have deployed a lot of their own money, their own capital into the space for the past couple of years. We haven't disclosed how much money it's raised. I don't know if we intend to or if there's any real benefit to other than it gets you splashy press headlines. I'd say the business is doing very well. We run lean operations that we know how to scale. I would say that the company is in a position today where it does not need to raise capital which is definitely a good position to be in.
As a delivery business, there's been a lot of investors and different groups reaching out, hitting my inbox, and some of our partners' inboxes daily. People recognize I think so how quickly Emjay is growing, how quickly it's taking over L.A. in many ways as a meaningful option for people to be able to purchase. There's interest there but I think for now we have enough on our plate where we're just really focused on executing right now.
Matthew: Chris, I want to go to some personal development questions to help listeners get a better sense of who you are as a person. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Chris: Man, if I can I'd say again I'd probably split it in two. I'd say one book that had a major impact on at least how I view and see a lot of things maybe somewhat cliché but is Ayn Rand's Atlas Shrugged. I read it early in high school, I read it again late in high school, I read it multiple times throughout college. I still read it once every few years today. I think as a fundamental way of thinking about humanity and how people approach problems, it's a very interesting book that many people have read. If you haven't I highly recommend it. I think in many ways it predicts a lot of what we're seeing today in the world with people leaving cities and flocking out of crowded areas. I think that was very impactful in my both personal and professional development early on.
I'd say more recently a couple of books that I've read that I really enjoyed that I've recommended to our team to read and they're impactful to different parts of your life. One was What It Takes by Stephen Schwarzman, the founder, and CEO of Blackstone. Incredible life journey from even his early years and to how he [chuckles] got into college, what he did after college. Just always pushing, pushing through to the next level. Fascinating stories in there and setting up obviously one of the most successful firms ever in history. Obviously, how he approaches problems and thinks about the world, I think a fascinating book for anybody who is starting from any point your life humble beginnings or privileged beginnings but are thinking about where you want to go. Unbelievable story.
Extreme Ownership by Jocko Willink and Leif Babin, two former Navy SEALs. Incredible book just about leadership, taking ownership over not only successes but really failures, being willing to go through it when you need to. Unbelievable book for anybody in your company, in your team but particularly your managers and directors and VPs and people like that. Extreme Ownership I think really should instill a lot of characteristics as to how people should be thinking about their people, their team members, and how to uplift people. The last one that I thought was really good that I read earlier this year was Can't Hurt Me by David Goggins. David Goggins, extreme distance athlete as well as former Navy SEAL probably known as "The baddest man on the planet." [chuckles]
Unbelievable life story of overcoming adversity, overcoming every challenge you could think of. Being like a 350-pound-plus guy who I think was working at an exterminator company into being one of the preeminent Navy SEALs out there, completing multiple other military schools and then today he does all the ultra marathons and bad water races. Holds the world record for number of pull-ups in a day. In terms of I think sharpening your mental toughness, fascinating book for either your personal life or professional life.
Matthew: Oh, great, I hadn't heard of that one. Those are some great recommendations there and it does seem like Atlas Shrugs happening in real-time here especially when I see Elon Musk saying, "I'm leaving California." Then he's setting up more operations in Nevada and Texas like, "Hey, the people that are pulling the wagon it's getting too heavy for all the people in the wagon and they're just going to stop creating the things that they are creating for you and just leave if you treat them poorly." It's happening not just in the US but all over the world at once, and it's pretty interesting to see what's going to happen. There might be civilization that move out to sea. Like some venture capitalists are financing where they'll be independent sovereign countries out at sea that will say, "I'm sick of all this regulation and tax and we want to do our own thing and just be free." It's an interesting time and it seems like these trends are accelerating. Any thoughts around that?
Chris: Yes, I would encourage people to read the book. I think it's again an interesting commentary on human nature and how people think, and then obviously that permeates well out into society and in many ways I think has predated a lot of things that are unfolding now. Yes, the societies at sea and things like that, I think that that's a little idealistic.[chuckles] I've seen some of that stuff being backed who knows maybe I'm the fool at the end that's not laughing anymore.
Matthew: Water world. It's [crosstalk] water world, yes.
Matthew: [chuckles] Yes, maybe I'm not on-- Was it Kevin Costner. [chuckles] Who knows. Maybe I'm not on his ship at the end of the day but fascinating book on just a commentary against societies and how people think and interact with one another. You're definitely seeing to your point of a very large exodus from California right now, a very large exodus from Manhattan in New York right now. I was born and raised in Santa Monica, California. I love it here. I absolutely love Los Angeles as a city, the history, the culture, the people. It's tough for me to see some of the decisions that have been made in the state taking the world's fifth-largest economy into a place where we do not have the best schools. We do not have a lot of the best programs and there's really no excuse as to why we shouldn't. It's very very frustrating and heartbreaking but [chuckles] we'll see how the world continues to turn.
Matthew: I think California eventually is going to come back and come back in a big way. It's just there has to be an acknowledgment of what's being done is not working. There's a Stanford professor that says, "California is the United States first third-world area." He said that-- He has like 10 points-- I think I can put this in the show notes, he has 10 points on what makes a third world country. We're an economic disaster country. The first one is; no acknowledgment of what is being done is not working. You could say at the top-level leadership there's no acknowledgment there. There's zero culpability, and until that changes I don't think it'll turn around but when that does change, I think that will be a harbinger of like, "Hey, things still look really bad."
The first step is there, like the keystone, and positive changes are going to come because California's pioneering spirit, the geography of where it is, the weather. How many people would like to return there if it was functioning better is enormous. There's huge demand, it's just not a supply of sensible leadership at the moment so I'll be watching that closely.
Chris: I totally agree. California is one of the leaders obviously of innovation and technology but it's also a leader in entertainment. It's a leader in manufacturing, it's a leader in agriculture in many ways. It's an incredible place with a lot of industries and businesses that could do tremendously well. Yes, I think acknowledgment is a big issue that certain things don't work, they just keep chugging along the same path. If you have not visited San Francisco in the past two or three years, it's in my opinion a very solid example of somewhat of a failed state. You have unbelievable wealth. If you just go out to dinner and, talk to whether you're in the VC communities or whatever, the problems that people are working on are fascinating. The companies that are being built are fascinating, and then you can go outside and you have unreal amounts of poverty that is not being addressed. Obviously, some people like Marc Benioff and some of these others are all trying to personally address that and figure out how they can turn the city around in a big way and huge props, some of the individuals taking that on, but it's brutal.
It is a brutal example of what happens when you don't take the ownership in the first place. I think our leaders could probably do with reading the book, Extreme Ownership Jocko and Leif Babin.
Matthew: I was just going to say that.
Chris: I agree there's definitely a world in which California could be a tremendous place again, and it's heartbreaking to see-- I've three young kids so even when you think about education and stuff like that, it's just tough. If you want to build a family and you're in California, and you just look at school rankings for basics math, science reading, we suck. When you think about wanting to raise children outside of just yourself as an adult, there's a whole list of additional questions that you have to be thinking about. It's tough.
Matthew: I think all the rules are being rewritten now is the good news. I think about where I grew up in Chicago, they spend about average $15,000 per pupil, but very little of that money actually goes to people's education. There's all kinds of-
Chris: Of course.
Matthew: -the structure and bureaucracy and stuff and I just think, "Hey, if a parent could-- and Vaughn, you're paying, a lot of parents are paying a ton of money in property taxes, and they're getting just a terrible option. If you could just get on a card that said education card with a visa logo on there or something, spend it where you want for your kid, I just feel like that choice would unlock just a myriad of options of what's available, but we're caught in this cartel of education, that's now really breaking apart. I think it's going to be scary, but it's going to be great in the medium and long term.
Matthew: One final question here, Chris, it's a Peter Thiel question. What is one thought you have and that you believe to be true that very few people agree with you on?
Chris: Specific to the industry or about anything?
Chris: Man, I probably have a few controversial ones.
Matthew: That's what we want, give it to us don't sugarcoat it, we can handle it.
Chris: I would say that I think that most people veer one of two ways throughout their life and it can be impacted by the events that take place, their upbringing, socioeconomic status, what they're told they can and can't do all sorts of things, but I believe, people end up either in some ways, being, the wolves, they're the strong, or they end up being the sheep and they don't believe in themselves. I don't mean that in terms of predator and prey. I don't mean that in terms of violence, I don't mean that in terms of one attacking the other, but I mean that in terms of there are people, and it usually is through life circumstances, it's through events that can take place. It's through your upbringing, or parenting or whatever but there's usually some event or a series of events that can happen to somebody that either turns them into somebody who believes in themselves and they believe that they could make it through anything and because of that, it permeates into all other elements of their life.
Their ability to take responsibility for things, their ability to take ownership over themselves or their body or their mind, and try and push things forward or there's people that for one reason or another, don't get that power and don't believe in themselves. Again, I think that permeates into all sorts of things where they don't take responsibility for themselves, or don't take responsibility for the world around them or their bodies or their minds or anything else. I think that you see those fall very clearly into two buckets as to how people end up living their lives, blaming others for things or taking ownership of things. Maybe it's not that controversial, maybe a lot of people already know that but I've also seen and witnessed firsthand people turn it around for being somewhat sheepish and not feeling empowered to do anything. I think with a little bit of resistance training and direction, anybody can feel empowered to really become an impactful person who takes ownership.
Again, sometimes it takes really hard life events to get there. It can take, going through tough times at work or tough times personally or with family. People respond to those tough times in different ways but they usually fall into one of those buckets and then it starts to permeate into other elements of their life. I think you can identify in people pretty quickly when you meet them.
Matthew: That's great. Empowering too. This is a good place to end Chris. Where can people find out more about Emjay, we've got a lot of listeners in Southern California so let them know how they can connect. Find your retail store, scheduled delivery and all that good stuff.
Chris: Sure, you can check us out heyemjay.com. H-E-Y-E-M-J-A-Y.com shop, browse, see our coverage areas all sorts of things like that. You can see us on social as well on Twitter and some of the other channels, but probably best place for Emjay is heyemjay.com
Matthew: Great, Chris, thanks so much for coming on the show and educating us. You're a really smart guy and I believe great things are coming for you, they're already there. Good luck with everything going on and keep us updated as your story progresses.
Chris: I appreciate the very generous and kind words we got a long ways to go. Thank you so much for having me on today. I really appreciate it and looking forward to the next couple years in this industry for sure it's going to be wild.
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 cannansider.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 e-mail at feedback at cannainsider.com, we'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers or companies featured in CannaInsider.
Lastly, the host or guests on CannnaInsider may or may not invest in the companies entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention, this little whistle jingo 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.
[00:57:59] [END OF AUDIO]
While hemp is a huge and growing part of the cannabis legalization story, it’s often overlooked.
Here to tell us why we should be paying closer attention to hemp is John Manlove, CEO of Bushel44.
Learn more at https://www.bushel44.com
[00:53] An inside look at Bushel44, a wholesale hemp software platform designed for businesses across the hemp supply chain
[1:51] John’s background and how he got into the hemp space
[4:16] How the hemp industry has evolved over the last few years and where it is right now
[5:53] How different types of businesses from farmers to retailers use Bushel44
[10:35] Key differences between Bushel44 and Leaflink
[14:23] Ways in which the hemp space is developing the same way cannabis did
[21:19] What buyers are looking for when purchasing hemp
[25:23] How Bushel44 is advancing the hemp industry by holding companies to higher standards
[28:10] Why smokable hemp is trending and where John sees it heading
[33:01] Success stories John has seen at Bushel44 and his advice on how hemp companies can maximize the platform
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.
Hemp is a huge and growing part of the cannabis legalization story but often overlooked. Today's guest is here to tell us that hemp has arrived, and he is seeing active trade on his hemp platform. I'm pleased to welcome John Manlove, CEO of Bushel44 to the show. John, welcome to CannaInsider.
John Manlove: Matt, pleasure to be here. Thanks for having me.
Matthew: Give us a sense of geography. Where are you in the world today?
John: I'm in Portland, Oregon. I'm out in the Great Pacific Northwest.
Matthew: Okay, and I'm in Park City, Utah. What is Bushel44 on a high level?
John: Bushel44 is the enterprise-level business management platform specifically designed to address the needs of the wholesale hemp supply chain. We provide everyone within the supply chain from seed to shelf-ready products with a comprehensive platform that essentially allows them to manage every aspect of wholesale from inventory orders, sales, and much more.
Matthew: Whether you're selling or buying anything hemp-related, you can just manage your entire universe on Bushel44. Is that fair?
John: Yes, exactly. We wanted to provide-- Essentially, there's a lot of players in the space, they're creating marketplaces and things, but we really want to provide these businesses with the tools they need, not only to really drive efficiency and streamline operations but even more so connect with buyers in a very meaningful way to essentially just manage every aspect of that side of the business.
Matthew: John, can you give us a bit about your background and journey and how you came to start Bushel44 and what you were doing before?
John: Yes, of course. It's been a pretty wild road. That's probably true for anyone that's been in the spaces as long as I have. At first, I've been a real champion of the cannabis and hemp plant since I was introduced to it in my late teenage years. I've always been interested and intrigued with the space, and of course, as it came legal, even more so.
In 2014, I helped start one of the very first online cannabis marketplaces, wholesale marketplaces called Tradiv. Two college friends had reached out to me and said, "Hey, John, we're going to create the Amazon a cannabis. Come and help us." I left the world of environmental consulting, and I jumped in to help essentially start Tradiv. We were, again, the first online marketplace for wholesale cannabis in the space, then we start in Colorado. I helped launch a distribution company with that company as well in California.
In late 2017, Tradiv fell upon some pretty rough times and self-inflicted hard times that ultimately led to the board of Tradiv decided to shut down the company, which created an opportunity for me and my two cofounders to both the Apex Trading and Bushel44, Rob Fess and Willy Wheeler to offer the industry a new solution. In early 2018, we raised a little bit of initial capital from Vincent family, brought on a small development team in house, and we started building Apex Trading. The vision of Apex Trading was to essentially offer the alternative to the marketplaces. We really wanted to carve out a niche and really offer something unique to the space that was more brand-focused and relationship-focused rather than the marketplaces.
We launched Apex Trading in 2018. Today, we have over 2,400 clients across 11 state markets. For the last year, we had been building Bushel44, a custom-designed hemp platform. For these spaces, it really emerged from the passing of the farm bill. We launched Bushel about two months ago. Now we have both platforms going but the Apex Trading on the cannabis space and the Bushel44 in the hemp industry.
Matthew: Everybody's been hearing that hemp is a big thing and it's coming; it's coming. Where are we right now with hemp in contrast to the last few years?
John: Gosh. Although we're seeing this move and this gradual maturation within hemp, I really think it's still so much in its infancy. The farm bill passed in 2018, but a lot of states-- Strict, even more the federal government, they're still figuring out what the rules and regulations are in this place. We're seeing hemp emerged the forefront of a new industry within agricultural space, and there's a lot of excitement about it. There's still a lot of growing that the space is going to go through.
The last few years, especially since 2018, we've seen massive overproduction and depreciation of pricing. We've seen the lack of standards and regulations, which is making it hard for operators to be able to really function and know what the future of their business might look like. We're seeing a lot of difficulty in connecting this global supply chain. Unlike cannabis, which is this intrastate highly regulated industry, hemp is still this wild west. We're seeing it being traded globally, as well as domestically.
Businesses are still trying to figure out where their niches in the space and how they really scale up their company, whether that's through B2C sales or B2B sales. While this space, there's a lot of excitement about it. It's currently going through some really substantial growing pains, but I still feel like the future is very bright.
Matthew: Just give us an idea of who the participants are in the ecosystem and on the platform and what they're doing day-to-day. What are their business models and their care about?
John: We really tried to take a holistic approach when we developed Bushel44. We really wanted to address every business within the wholesale supply chain. This always starts with the farmers. This starts with the people producing the seeds or the clones or the starts. We're providing those nurseries, the ability to come on and manage their nursery inventory, and then have the sell-through features to the farmers that are purchasing those and then putting those seeds or plants into the ground.
From there, we support the farmer by giving them the tools to allow them to either sell smokeable flower or pre-rolls or manufactured goods that they're producing off of their harvest downstream to retail or distribution, as well as the ability for them to sell that biomass to the processors that they're going to create the oil that goes into these manufactured goods, then it goes to the processor.
We're providing this processor, the ability to both source biomass but then be able to sell downstream the oils or the products that they're producing to the retail. Of course, that product manufacturer, the same thing, be able to buy the bulk oils and turn around and distribute those down to the box. We've really tried to comprehensively build this platform that addresses the entire wholesale supply chain. We're even more excited about the emergence of industrial hemp and being able to provide applications or features to support that really interesting spaces. It really starts to develop as well.
Matthew: It sounds like at the base of the pyramid, you have what you're calling biomass, which is the hemp itself. As you move up, you're starting to see some value-added products, extracted oils. Then what about finish branded products? Are they on there yet, or is that not the appropriate venue for it?
John: No, absolutely not. We are supporting those finished branded products. Everything from health and wellness, topicals, and tinctures, even pet products, the dog treats, and things of that nature; down to even consumable products like pre-rolls or edibles or drinks and things like that. We're also offering the solution for those shelf-ready products, as we like to call them.
The one thing that we're not doing at the current moment though is providing the B2C elements for those shelf-ready products. Unlike in cannabis, where if you're producing a shelf-ready product, say, a sap or a topical of any sort or any finished good, where you have to sell into the retail, and then the retail, then [sound cut] sells to consumer in hemp. These brands can go direct to the consumer. We're not necessarily offering that solution today. We do assume that we will later down the road, but it really is within about B2B space. When it comes to the shelf-ready products, we're really focusing on helping those individuals sell their products into convenience stores, smoke shops, head shops, liquor stores. Wherever that opportunity might lie, we provide them the solution to be able to do those B2B sales.
Matthew: You mentioned you're in eight states right now, and how many different businesses are on the platform?
John: We're pretty excited that we have all products. Everything from the seed all the way to the shelf-ready products and everything in between. Having that we've only launched a few months ago, we have about 30 different sellers on the platform now, and of course, they have all of their buyers they're selling through to. These clients are located across the country in states like Oregon, Washington, California, Texas, New York, Florida; from the east coast all the way to the west coast.
We've even had purchases and sales made into India, Columbia, and we just met with a group out of the Grenadine Islands as well. That's one of these unique opportunities in hemp that it is this global supply chain. While there are limitations and issues with trying to move product into the EU or into certain countries, there's still that opportunity, and that's what's exciting about hemp, and it's specifically Bushel44, it's the ability for us to start connecting the global supply chain and creating those standards and creating market transparency, as a product that's emerging; that's never really been traded on that level before. People are really building the plane as they're flying it, and we're here every step of the way to innovate our product to support their business as they grow.
Matthew: I really want to distinguish between what you're doing here at Bushel44 and something like LeafLink, which is an online cannabis platform. They're more like a marketplace. It's marketplace, but you have more services you offer. I'm thinking of it as a combination of Salesforce, a marketplace, and a workflow all in one. Is that how you would describe it?
John: Yes, absolutely. LeafLink's been around a long time, and they're a successful company. When we looked at that, and we looked at a lot of marketplaces, both within cannabis and within hemp, what we really felt was that the industry was needing something different. You need an alternative to a marketplace. Not every business wants to be on Amazon, some really are craft or want to own that brand experience in that relationship with their buyers rather than potentially sending them to an open marketplace, where they then are exposed to competing products or competing brands, and ultimately, those buyers eyes tend to stray elsewhere, specifically in cannabis and in hemp as well.
A lot of purchasing decisions, they're dictated by potency and price. As a craft producer, as someone that has maybe a higher-priced product, it's hard for them to stand out. What we really wanted to do both with Bushel44 and Apex Trading was offer that alternative to just the marketplace contract. On the back end, we're providing our clients with a ton of Salesforce type tools to allow them to really automate and drive efficiency and streamline their operations. Those are things like, obviously, inventory management that's integrated state tracking systems.
Your order and invoicing system that's tied in with QuickBooks. We have a CRM, we have a marketing tool, we have workflow, and task management. It's a comprehensive business management platform on the back end. When it comes to the actual sales of the product, we wanted to allow our clients to essentially own the buyer experience, that relationship. Their relationship is so key to these businesses, and that's what's really positioned them for success is that piece. What we want to do is put the relationship as to the forefront of what we're trying to offer.
Instead of having to send your buyers to a marketplace, we allow all of our clients build their own custom branded storefronts down to the color palette, the design et cetera, that then they can tailor to each individual buyer down to terms and payments and pricing and discounts because we know it's a very nuanced-type sales model. There's a lot of things that go on and negotiations that have to be accounted for.
Then from there, once you have it set up, you're able to market or send your buyers their custom storefront for them to be ordered through. That keeps the direct model, where they're just clicking in, and they're only experiencing your products and your brand alone. They don't then have the opportunity to come in and start finding other brands and products and compare you two before they purchase from you. We really just want to offer that Shopify to Amazon model in the space. What we found is that, in emerging markets, brand new markets, marketplaces tend to be very attractive because you're just fighting for as many eyes and attention as you can; you want to be in as many areas as possible to try and sell your product.
What we've found now is in these more established markets that are a little bit more mature. Brands, they've really supplanted themselves in the market. People know who they are, they have the buyer base, they have the relationships, they have the sales team that's selling through their product. What they need is a solution that's going to support and drive efficiency amongst the team to really drive ROI internally, and then again, connect with those buyers in that relationship-driven manner because that's more maybe what they're looking for.
Matthew: You mentioned you have a background in the cannabis industry and platforms and marketplaces, what similarities do you see that you're saying, "Oh, this is déjà vu. We're seeing this all over again." That you saw in cannabis, and what did you see that's different? You mentioned that hemp is not fragmented like cannabis is, just locked into a state geography. You can do a lot more globally in different states and even within North America, but what are you seeing again like, "Oh, I've seen this movie before and I know how to take advantage of it and to capitalize on it as an opportunity in the hemp space."
John: I've been fortunate to be in the cannabis space since 2014 with the first adult-use legislation that was passed in Colorado, and I've got to be and support of the industry every step of the way through the growing pains, the good, the bad, and the ugly. The first is in terms of supply and demand, hemp reminds me of the growing pains cannabis went through in the 2014 to 2016, maybe early 2017 in states like Colorado and Oregon, very well-publicized when it came to oversupply.
Just like what we're seeing in hemp today, there was a large influx of producers into those state markets that exceeded the demand at the time and really drove prices down to historical lows, yet now, as we go into late 2020, those markets, supply and demand has leveled out, there's a balance, and we're starting to see those prices remain either in a good price point but also going up. We're not seeing that depreciation of prices. We're seeing the same thing in hemp right now.
With the passing of the Farm Bill, most farmers that have been struggling for so long saw hemp as an opportunity as a cash crop; a way to increase their revenue per acre. There was a large influx of farm, people cultivating hemp. That obviously has driven prices significantly down over the last several years. There's still product in the market from 2018, biomass market from 2018. We're gonna see hemp; that we're going to see some people end up being flushed out of the market just due to you not being able to sustain under the model. We're going to see some growing pains, but it's those businesses that can innovate and stay alive that are going to come out the other side prospering, just like we did-- what we're seeing in cannabis in those states like Colorado and Oregon.
In terms of price and services, the hemp industry still has a lot of catching up to do, but we're already seeing the emergence of new harvest and drying and extraction technologies. We're really seeing a big move in that; we're seeing money come into it. We're seeing those technology themselves when it comes to the production of products really move forward. In terms of platforms like ours, it really reminds me of the early days when we're selling our cannabis platform. These are people that are a little more tech adverse, they're a little more skeptical of what the solution is and what it can provide, and they're going through some internal business struggles.
Taking on something new, like a platform like Bushel44 can sometimes be daunting or intimidating, that's another piece where we're seeing that technology while the hemp industry is investing in and taking advantage of new equipment, extraction, or harvest equipment, things of that nature. There's still a little skeptical around the technology side, and there's still a lot of maturation that needs to happen in that space.
You did mention too that, when you look at cannabis, this is another big difference is that, if you're a producer in a state, you can go and you know exactly what your potential buyer base is. You have a list of all the retail locations in the state, and you can typically mind that information very easily and then start going through a sales and marketing path to close business. You have a very hyper-focused buyer base.
Hemp, it's endless. What we're finding is that the hemp companies themselves, they're still trying to figure out, where is our market niche? Where are our buyers? What is our ideal buyer? There's still a lot of understanding in the supply thing within those businesses themselves to start to get a sense of where their greatest opportunity lies. That's something that these businesses are all working towards and figuring out, as they develop their business models, as they develop their brands and their product lines, and then they start to see is B2C the best move for us, or is B2B the best move for us?
Instead of being a farmer that's trying to do all these different product lines, maybe we just want to cultivate the best biomass of smokeable flour possible. It really reminds me of the early cannabis days where people are doing a lot of things at the wall and trying to figure out what sticks. It's those that have enough maybe financial backing or maybe have established certain sales channels that are going to be able to remain in existence. Some of the other ones are really going to struggle, just like we saw in the early days of cannabis.
Matthew: What's the cost of hemp right now or hemp biomass right now per pound?
John: This question probably isn't as easy as one would think. The first thing to recognize is that there are a lot of factors that go into determining the price of hemp biomass. Obviously, the percent CBD in the product is obviously a huge factor in determining price. Outside of that, it goes down to how it's harvested. What's the state of the material? How was it stored? Maybe it has integrated. When would that harvest day? There's so many factors that go into it. These are things that we capture internally on every product, then you can convey downstream to a buyer.
On a real high level on average, we're seeing hemp biomass for extraction go between 20 cents and $2 per percent of CBD per pound. That's anywhere from $5 to $40 a pound for biomass for extraction. We've even heard of farms that are getting ready to harvest this year that are sitting on thousands of pounds of biomass from last year. They're essentially giving it away. "Just take my biomass so that I have room to store this next year's harvest." Biomass is one of those that has fallen substantially between maybe 50% and 80% from where it was early last year.
Matthew: Is that a difficult thing to acknowledge how the hemp was grown, how it was harvested, the condition of storage? What are most people looking for? Are they looking to buy within the first couple of months of harvest, and they want to see this cured to a certain level? What level of detail are buyers looking for here in general?
John: There's a lot that dictates that. Number one is the buyers of the biomass have to understand the demand, that upstream and downstream demand from their buyers so that they can forecast out production. It's key that if someone's purchasing biomass, they also have to understand what that demand is going to look like downstream so that they can really create the right buy and sell agreements. What we found is that a lot of farmers assumed that when they harvested, the product would sell. The ones that took the opposite approach of going out and finding contracts for their products before it was even harvested are the ones that have been successful.
The key thing, number one, for a farmer to understand is that you should be-- If you are planting product in the ground right now and you don't have buy agreements for that, you should be going out and hustling right now. We provide the tools in Bushel44 to do that. You need to be setting contracts against your product, and really, for future harvests, you need to try and have that contracted so that when the moment you harvest, that product's going to be, obviously, purchased and extracted.
From an extraction standpoint, they always want a fresher product. It's really important for them because hemp, it degrades over time; the CBD percent will fall over time. There's issues and elements with the environment can impact that product quality over time. It's important also for those processors, on the same side, they go out and find the farmers that are producing maybe that cultivar, the genetic that they really need to produce a certain product or that farm that has standards in place, has the lab testing in place, et cetera so that they can really rely on that farmer and a relationship to prosper.
One of the key elements that we're finding in hemp to address some of the issues [unintelligible [00:23:47] today is setting those contracts and understanding, "If I plant X amount of acres, can I actually bring that to market? Is there demand for my product?" Instead of, "Oh, I just planted 100 acres, and I should've done five because now I'm sitting on 95 acres of harvest material that I can't find buyers for." It's very important that both sides of that market understand from the extraction side, "What do my buyers need? How much volume of extracted material of this delay or isolate? Do I need to produce to meet the demand of my buyers today? Where do I feel like the market growth is?" So that you can make the right purchasing of volume.
Not only is the farmer today experienced a lot of downward price tension; the same thing's happening for the labs. We're seeing labs that last year did a lot of splits. Meaning like, "Hey, if you send me a thousand pounds of biomass, I'm going to turn it into these many liters of oil, and then I'll give you half of that back, and I'll take a portion of it as well." So many of them did these agreements, which is attractive to the farm because then they have a product that they can then go out and sell. Then the labs figured out, "Oh my gosh, now we're stockpiling oil, and we don't have the downstream sales for that." Now it's put the labs in a just as tough situation as the farms are in.
Again, there's a lot of maturation in the space to go on that needs to happen. It's tools like ours, system like ours, and some of our partners that we're working with to really try and establish more transparency in the market and give people the solutions they need to be able to make these purchase agreements and be able to, obviously, grow their business appropriately.
Matthew: You mentioned transparency. That's one of the key things that helps buyers buy with confidence sooner rather than later. Are you doing anything to help, specifically, bring that transparency in terms of the barcode scanning, understanding where the product came from, et cetera?
John: Yes, absolutely. Right now, our platform is fully integrated with the Metrc system. Our Apex Trading platform is integrated with it, so it's an easy transition for us to plug that in. In certain states like Oregon, Colorado, other ones, they're starting to see a little bit of a move potentially from hemp companies going on to the Metrc cannabis tracking system to be able to sell through those products into retail or into the cannabis market. That's a first move. If there's a hemp producer that is in a cannabis market or with that state allowing them to open up that piece of the market and sell into the cannabis licenses, we have that solution today with Metrc, which we have all that market transparency or tracking, tracing, scanning, et cetera.
Today, outside of Metrc, we have a very robust inventory management system that allows for a batch lot and fact tracking with CoAs and certifications attached to every product. That helps with some of that. We are internally going to be building our own QR code and barcode system that allows the business to not only a consumer to scan a product to learn and look back at where it originated from all the way back to the farm where the seed was planted and offer that transparency. Internally, we're going to be building a production and processing feature that's going to allow a business, say, an extraction lab, to bring in biomass, invite that farm to the deal. "Hey, I'm going to be turning your biomass into T3 diesel, [unintelligible [00:27:11]."
Right now the farm is just trusting the lab, whether that's an Excel sheet or just getting an e-mail update about where the progress of the order is and what yields are. Our system, what we're going to allow that processor do is actually invite that farmer to the job. They're going to be able to see yields and inputs and outputs. They're going to see where the stage their product is in the extraction. Then they're going to see the final resolution of that product with new testing associated with it. It's going to give ease and peace of mind to the farmer to know that they can trust their lab. It's going to get that lab that ability to really offer their farmers that transparency that they so much long for.
Then from there, as we go through that production, as we go through those processing, and we track that product through when it comes to the end product, we're going to know what oil it originated from, what biomass that came from, and what seed was planted in the ground that produced that biomass. It's something that the industry is longing for, and it's something that we're currently under developing.
Matthew: Let's talk about smokable hemp a little bit. There's this kind of a new and interesting twist in the market place because people are like, "Wait, I want to smoke hemp? Why would I want to do that?" Can you talk about that a little bit?
John: Yes. Pre-cannabis states are like, "Oh, you can't smoke hemp, it will get you sick." I've heard this; seen little memes about it and things. It's not true. Smokable hemp is one of those things that really is emerging to the forefront of this space, and it's interesting. First is the smokable hemp is a form of hemp biomass eggplant that is grown in the ground from a female plant. This is, again, just like your cannabis plant that anyone is buying flower at a retail store. This is a female hemp plant that is producing buds that look like what any of us would see in the photos of a cannabis grow. That's first and foremost.
If you walk into a hemp field that was in full flower and was grown appropriately, you wouldn't know that it's cannabis or hemp. The first is it's going to look the same in a lot of ways. The other thing is, the smokable part of hemp typically comes from the top of the plant. We're not pulling down the bottom parts of the plant that are smaller buds and things. That typically go into extraction. These are the bigger buds, bigger [unintelligible [00:29:27] at the top of the plant. That's where this smokables really emerge. It's an interesting space. What we find with smokable hemp is that it then can be put into your pre-rolls and packaged flower and a lot of other forms that's attractive to people.
We're definitely seeing smokable hemp start to emerge as a focus for a lot of these farmers to maybe diversify their product line a little bit and maybe capitalize at a little bit higher price point also.
Matthew: Interesting. Can farmers create more profit for themselves by selling the smokable hemp? Is that something like if you were a farmer, you'd be like, "Hey, I want to build my specialization around the smokable hemp versus something else I might do?"
John: Yes. Strictly as a sales that looking at a price per pound, the opportunity is greater with smokeable hemp compared to that of biomass. They are getting a higher price, say, between maybe $115, $300 a pound where the biomass was between $5 and $40 a pound. It's important to understand that, yes, there is an opportunity maybe to increase profits when you're selling smokable hemp or you decide to produce smokable hemp. However, the farmer, number one, must secure quality genetics. It all starts with the genetic. You really need to ensure that you're sourcing the right genetics that are going to produce a good quality smokeable hemp.
The other thing is, they have to be very vigilant in their fields. You can't allow a male to just slip by because it's going to seed out all of your smokeable hemp. It's going to have a huge issue there, and you're going to have to then do that in biomass. You can't be selling seeded flowers as smokeable, it just doesn't work. It's very important, number one, that the farmer needs to source quality genetics. They need to know who they're buying from. They need to make sure that they can really trust that nursery. They need to be extremely vigilant. They have to really make sure that they're walking the field and pulling nails as they come up.
The other piece is there is such a higher attention to detail in postproduction. You're not running through and with a combine and harvesting your smokeable hemp. You're going through as your employees, your field staff, and they're coming through in their hand harvesting, and then you're hanging that product. Then you're either running that through a machine and a hand finish or your hand trimming that product. It's postproduction, it's more expensive, and it's more labor-intensive as well.
There is a risk to the farmer if they don't really understand those pieces of exposition sales per success and ensure that they have the infrastructure to properly grow and produce that smokable hemp downstream to sell that product to that consumer. Then there's also some risk; in that states are still banning smokeable hemp. There are still states that are coming out and saying, "We're not going to allow you to have smokeable hemp in our state, and you have to make sure that you're harvesting in times so that your product does not go over that 0.3% threshold."
While there's a great opportunity in smokable hemp, there are risks within production there that the farmer needs to be very cognizant of, and ensure that they, number one, have the process, the infrastructure, and the procedures in place to be able to successfully have that smokable hemp and bring it to market.
Matthew: You've bashed the businesses on your platform, some do things better than others, just like any business or individual, what can you say about the businesses that are more effective on Bushel44 than the ones that are maybe less or so? You could borrow from your cannabis side too. What are some of the best practices you see were like, "Oh, this business gets it. They know how to run a profitable business, and this is how they're engaging on the platform versus one that's not doing it as efficiently or the right way?"
John: Even this sounds simple and it's like, "Oh, duh." For any company to receive the full value of what a company-- what a platform like Apex Trading or Bushel44 provides us, the entire organization needs to be willing to adapt, so they can adopt and get the value out of it. Change comes hard, especially in a space like cannabis or hemp where were these pioneers. We've always gotten the short end of the stick. We tend to put a lot of things on our own shoulders. If it ain't broke, don't fix it. I feel like you got to fix it term.
When I look at is this, not only does this mean working with our team through the onboarding and training process and really ensuring that you understand these features and how they can be leveraged for your company to receive the most value but also means working the sellers themselves, working with their clients or their buyers so that those buyers are comfortable transitioning to online ordering. So much has been done in person up to date. COVID is helping shift that paradigm a little bit as well, but that ability of a retailer or a purchaser to be comfortable purchasing online is new in this space, and it's ever evolving.
Every single client that adopted our platform fully has received tenfold what the cost of the subscription is. We've had many clients credit us for either saving their business or allowing them to expand their market footprint. I was just talking to a farmer down in southern Oregon. This individual, we speak with him about his upcoming harvest in the summer season and how things are going, and he really expanded his canopy. He told us, and this was an antidote that I just love because guys, I've sold two and a $2.5 million to your platform. I don't even have a sales team.
I bought in, I listened to you, I adopted the tools, I worked with my buyers to understand how I wanted to do a decision, how this is going to benefit my business, as well as benefit them. They bought into it because the system is so easy to use that he's like like, "Now I've expanded my grow based on demand, and I still don't have to have that sales team or that sales staff." While I am a champion of as many staff and employment in cannabis as possible, I also understand that profitability for a company is obviously the key important factor there. If we can allow a business to come in and streamline their operations and cut internal staffing costs or allow those staff members to go out and build greater market share or more relationships with buyers, that's what it's all about.
For us, it's really important that we understand change comes hard. We're here every step of the way to support our clients, but they have to be willing to adapt their business. They have to be willing to buy into that change to receive the utmost value of what we offer. We have a lot of clients that still love the platform and they use it, but they don't necessarily utilize it fully within their business. They haven't necessarily used all the tools, and they're doing still manual processes that ultimately, they're still receiving the value, and they're happy with the service we provide, but we still feel there's a lot of opportunity within those businesses to cut costs and improve efficiency. We have the tools to do that. We're constantly working with our clients to move that ball forward.
Matthew: Let's talk about the way that Bushel44 makes money. Your software as a service, can you talk about the subscription model, and how much that costs, and what to expect there?
John: Yes, absolutely. We have three pricing models currently for Bushel44. Our first model is called Pay-as-you-grow. I created pay-as-you-grow as really the farm-friendly pricing model. We've talked about in this podcast already about how these farmers are struggling. They're sitting on a lot of product from last year. They need to find more buyers, and they're just trying to stay alive. That's a common theme when I talk to this, so I'm just trying to stay alive.
When I looked at that as being a plant first very champion of the plant and what the benefits can be, and really, the individuals who have really pioneered this space, I wanted to create a model that was supportive of the farmer that was struggling. Our pay-as-you-grow model is a result-based model. These clients come on, they pay a small activation fee, onboarding fee to get set up. From there, they don't pay monthly subscriptions. They pay 2% on transaction sales, and they pay $25 for every lead that they get through our platform. It's a result-based model, say, "Hey, if you don't have buyers, if you need help, come join our platform. We'll do everything we can to try and thrive your value. Don't just pay us based on results that you receive."
Now, outside of that, if you're a business that says, "Hey, I really need the CRM. I really need these tools. I have sales channels established, but I need the platform to really help sustain and manage like this." We have a small business package which is $249 a month, and then we have an enterprise package which is $499 a month. Those are determined based on the number of locations or production or farms that that business has, the amount of users that they have, and then the amount of brands that they have. Really, it's just a fairly affordable monthly subscription model to really address both the person who doesn't have sales who needs help, the individuals that have small business growing, and then, of course, those enterprise businesses that are maybe in multiple states or in multiple countries.
Matthew: You mentioned a little bit about where you raised money from friends and family, but where are you in the capital-raising process now?
John: To date, we've closed our friends and family and initial seed round of funding. We raised about $2.8 million in October of last year. That's allowed us to achieve some product-market fit and scale our business and build a great team around the platform and to support our community of clients. We are though gearing up for our series a capital raise, the end of this year or early next year. This raise will be almost entirely growth capital. Now that we've really built the tech out, we've established product-market fit. We really have an understanding of where we need to take the platform. This new raise is really going to be used for investing in sales and marketing the infrastructure to grow both domestically within both hemp and cannabis but then internationally as well.
Matthew: For accredited investors that are listening, can they reach out to you if they want to participate in the [unintelligible [00:40:14]?
John: Absolutely, via e-mail or phone, and I'm sure we can provide that.
Matthew: We can get that at the end. No problem. You went through the capital or the CanopyBoulder Accelerator Program. Can you talk about that a little bit?
John: Yes, I actually went through the Accelerator Program with Tradiv. In 2014, we were part of the CanopyBoulder Accelerator Program. We were their initial class. The very first class that went through the accelerator, and it's a great experience. I still work very closely with both-- [unintelligible [00:40:48] is one of the original founders there and then Patrick Rea, who currently; obviously runs Canopy. Patrick, the CanopyBoulder, they have invested in Apex Trading. While we didn't go through the accelerator, they did invest in us, and Patrick is on my advisory committee as well.
When I look at the CanopyBoulder experience, it's been great. Not only from a mentorship standpoint of someone who's wanting to jump into cannabis or hemp, they obviously have been in the space a long time. They've invested in a lot of companies. They understand the market really well, and they surrounded themselves with really great advisors and mentors. If you're a business looking to potentially jump into cannabis or happen to have a great idea, and you're looking for that mentorship, then CanopyBoulder is definitely something to consider. Post the accelerator, both Mike and Patrick have been very supportive of me both personally and professionally. I have a great relationship with them and have nothing but great things to say.
Matthew: Let's go to some personal development questions here, John, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
John: Oh my gosh. I don't get to read as much as I used to, but there's several books that I've read recently. Jimmy Carter's autobiography, I thought was great. When we look at what's going on today with some of these social movements and things that are much needed, I've really I thought his autobiography was great. It has some real-world lessons that all of us could learn from.
When you think about a novel; I love novels. Sometimes I really want to get out of the space of get into fictional a little bit. I love the book Shantaram. If you haven't read the book Shantaram, it's a great story. The writing is just absolutely just mesmerizing and paints a beautiful picture. If you've ever been to India or you want to go to India, it's just an amazing book. It really addresses everything that people go through in life. There's a lot of lessons that could be learned from that from a lot of different viewpoints. I love Shantaram.
Then from a business standpoint, one of the books I'm reading right now is The Customer Centricity Playbook. This is really talking about customer lifetime value. It's really analyzing where your greatest opportunities lie and really knowing how to analyze your cohort or your clients to really understand, number one, how you can better service them, but then how do identify those gems within the prospects and remain in focus. From an autobiography, you got that from that novel and then, of course, from business. I always tell the team like, "Let's be a sponge." I always love being introduced to new books and obviously diving into those when time permits.
Matthew: Is there a tool that you or your team used that you consider really valuable to your productivity?
John: Yes, we could talk about a lot of things. Oh gosh, we use HubSpot to CRM. We use Slack as a communication tool. There's all of these pieces of software that are vital to our business, but when I think about this, and especially, in the day and age we're in today, it sounds dumb. Communication, I cannot stress enough when we think about how routine meetings are vital, especially in what's going on, and there's so many stresses going on, but what we've really pivoted to you are informal meetings as a team. Our entire team has a monthly virtual happy hour where each of us will grab our favorite drink or maybe your favorite smoke or whatever it might be and we get to know each other personally.
We talk about what's going on in the world, maybe outside of just business, where we're all we live so much day-to-day, and we get to know each other on that personal level. Start-ups are hard. Life is hard. Being able to have these types of meetings and take the business hat off a little bit and get to know each other on another level allows my team to know that I'm here for them, whether that's a professional and in business or in personal life and that they know that each one of them is here for each other. That's core to our ethos as a company.
Ultimately, it leads to a high degree of accountability, productivity, and buy-in from the team and that, of course, then flows downstream to our clients. What we like to say is we're building our family. This is our Apex Trading family. This is our Bushel44 family. That's the way you look at it. Not just us, our team, but our clients as well. In this day and age where there's so many different tools that people are using and things, sometimes coming back to the basics of really good effective communication in meetings and knowing that we're here for each other, it's been so vital for us. It's allowed us to really deal with the ebbs and flows of what's currently going on in society and everything else and politically to remain focused, but then also, know that we're here to support each other.
Matthew: What do you think is going to happen here with these Portland uprisings and riots and so forth? I can see why people need a few drinks or they need their favorite cannabis product, just to chill out a little bit being there in Portland. Does it seem like it's calming down a little bit, or is it still quite a serious situation?
John: Yes, when you look at Portland, Oregon, it's always been a city that champions a voice. We're always some of the first to go out and protest or do things. That's part of the culture here. I do think that the news portrays the city as it's on fire, which is not true. It's really isolated. A lot of what's happening is isolated to specific areas of the city. It's maybe not as it's portrayed sometimes on the mass media. I do feel that the city itself needs to look itself in the mirror as far as leadership, and they need to take appropriate action.
The public is going to hold them accountable, and there will be some referendums on decisions that they've made or an action that they've taken. That's not only going to be happening in cities or states like Portland, Oregon, but also hopefully, other states can add a federal level as well. The city has calmed down a little, but rightfully, so there's still people out there that need to have their voices heard. The government and the local organizations, they need to listen to these people, they need to respect their right for peaceful protest.
I don't think there's any room for violence and/nor do I think that that's beneficial to the cause? I do feel like the city is starting to listen. I hope that then we're going to see actual change happen. Oregon itself has some deep-rooted history that I don't think people are necessarily proud of. Culturally, a large portion of states looking to make changes for the better and that ultimately, our governments need to take the appropriate action and listen to the people that are out on the streets because they have valid concerns, and these things need to be addressed.
Matthew: Here's a Peter teal question here before we close. What's one thought that you have, that you believed to be true that most people disagree with you on?
John: Gosh, I don't know if most people would disagree with me on this, but in such a polarized political world where tend to point the finger at a president or a leader about what's happening, especially now in COVID. No, I'm not going to get into it, but I feel like your individual success, it's not dependent upon who the president is or the leader in your state, and while conditions you're born into can have some influence and that obviously, there's a lot of social things that need to be addressed to really make it a fair playing field for people.
I believe that each one of us has the ability to create our own destiny. If you want it bad enough, and you're willing to work for it hard enough, you can achieve it. I don't like pointing fingers. I don't like passing the blame or shifting the blame to other people. I like to own it. I believe that if each one of us may be looked ourselves in the mirror like that, we would know that there's things that we can change for the better that ultimately would lead to greater success. That would be my piece there. Some would agree and some might disagree.
Matthew: John as we close, how can businesses that are interested in getting on your platform learn more, whether they're selling or buying hemp products, and also, how could the accredited investors that are interested in your next round connect with you?
John: If you're interested in learning more about our [unintelligible [00:50:17] platform, you can go to bushel44.com; there's a lot of information there. There's contact information there as well. Either you can go that route, or it's same with investors. Feel free to reach out to me @john. J-O-H-N@bushel44.com, and of course, my phone number is 971-4076-898. Encourage anyone with questions as well to feel free to reach out to me via my personal number.
Matthew: Can they just text you emojis if they want to?
John: I encourage emojis, absolutely. Let's keep it real. Let's keep it fresh. We're in this new digital age, and we want to hop on, and I'll even FaceTime with them if they want. Yes, of course, anyway that anyone would like to reach me and keep it unique, keep it fresh; put a smile on my face, and I'll try and do the same.
Matthew: All right. John, thanks so much for coming on the show. All the best to you with Apex Trading and Bushel44, you're a busy guy, and I appreciate you coming on. Hopefully, you can come back on in a little while, and tell us how things are going in the hemp world.
John: Matt, thank you so much for having me. It was a pleasure and stay well.
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