Ep 335 – Selling Cannabis Above Market Rate? Here’s How…

sam ghods connected cannabis 1

At a time when most cannabis cultivators are competing on price, this company is commanding a premium on their sought-after flower. Here to tell us about it is Sam Ghods of Connected Cannabis.

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

Key Takeaways:

[1:00] An inside look at Connected Cannabis, the largest branded flower company in California

[1:27] Sam’s background in tech and how he got into the cannabis space

[5:01] How Connected Cannabis commands a premium on their flower in a competitive market

[11:26] Differences between the cannabis market in California vs Arizona

[12:07] Connected Cannabis’ unique cultivation team

[15:37] Why most retailers don’t cultivate their own cannabis

[19:29] How California’s notorious black market is changing thanks to developments in the legal market

[21:37] The grow technology Sam finds most useful

[23:53] Where Sam sees cannabis cultivation heading in the next 3-5 years

Click Here to Read Full Transcript

Matthew Kind: Hi. I'm Matthew Kind. Every Monday, I look for a fresh 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.

At a time when most cannabis cultivators are competing on price, this grower's commanding a premium on his sought after flower. Here to us about it is Sam Ghods of Connected Cannabis. Sam, welcome to CannaInsider.

Sam Ghods: Thank you. Thanks for having me. Love the podcast, I'm excited to be on.

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

Sam: In San Francisco, personally. A lot of our operations are based out of Sacramento, California, but as I've been here for some time now. We have a pretty geographically distributed team, but I'm in San Francisco today.

Matt: Okay. What is Connected Cannabis on a high level?

Sam: We focus on growing and selling the world's best cannabis. We're vertically integrated in California and last year, we launched in Arizona as well. We are the largest branded flower company in California, as well as the highest priced as well.

Matt: I want to get into highest priced piece in a minute, but you've got a pretty interesting background here, Sam. Can you tell us about your background, your journey and how you got into the cannabis space?

Sam: Yes, totally. I started out in the tech world. I co-founded a company called Box, specializes in cloud sharing and storage over 14-15 years ago, with three other friends. We grew that from the four of us to 3,000 employees worldwide. We took it public in 2015, led that primarily as head of technology. Right around 2017, 2018, decided to take some time off, look for something new.

I knew I always had a real deep passion for craft and artisan consumer goods and wanted to explore doing that professionally, but I never knew cannabis could be like that, until I met Caleb.

Caleb Counts is the founder of Connected Cannabis. He started the company by opening the first dispensary back in 2009 in Sacramento. It was actually the first unanimously approved dispensary in Sacramento. From there, he started cultivating a year later in 2010, and with really out of a need for a consistent supply of really high-quality product. It was really hard to find great product consistently back then, so he just decided to start doing it himself.

From there, he and his partners have built this empire over the course of a decade. They added indoor grow, outdoor greenhouse, multiple moar dispensaries, distribution sales marketing, and that being fully vertically integrated in California. By the I found out about them in 2018, within the first few minutes of speaking with Caleb, I found out what I like to say is everything I needed to know about the business, which is for years they have been selling out of their product at two to two and a half times what Rio was selling theirs for. That immediately peaked my interest. I was like, "What's going on here with this company and this industry?" I just dove in head first. I really was blown away by what I saw and what they have built.

At the time, I joined on first as an adviser, helping them consolidate the company and get it prepared for fund-raising. They were also looking for a CEO, so in September of 2018, I joined full-time as CEO.

Matt: For listeners outside of California, can you describe how much a pound of cannabis is? What's the market price for a pound of cannabis?

Sam: Usually, we talk about it in terms of the wholesale price per pound is most common. It's been moving to price for eight, but in the price per pound range, for most cannabis for indoor, it's probably in the $2,000 to $3,000 a pound, then with this you double that to get to the retail price. We have been selling, for the past couple of years, an average of around $4,000. Recently, we've been selling for over $4,500 per pound.

Matt: That's the part where most people are like, "How in the hell?" That's what piqued your interest when you talked to the founder, and you were like, "What exactly is going on here?" Sam, how do you command a premium here? You've got something special going on here, but what do your clients say, what are your customers? When you talk to them and they say, "What are you buying this for?" Is it just like, "Hey, this is just next"? Or what's going on here?"

Sam: At the end of the day, it comes down to product. We spend a lot of time and energy developing the product and pushing it to it's absolute limits. There's two big components there. One is the genetics, and one is the cultivation. On the genetic side, a lot of people think that cannabis genetics are like wine bridals, where they're pretty common, pretty shared, there's no too much differentiation between different brands and products and it's really about obtaining different kinds, versus developing. Instead, we see them as something that we develop over the course of years and expresses our taste in world view about where the product is going.

One example is we've actually bread a total of, over the last decade of the company, bread over 10,000 different bridals and strains and we've only brought to commercial reality a small handful. That shows how much time and energy is going into our genetic development and expanding and breeding our line of strains and creating these strains like the biscotti, or gelonade, or baklava across our brands, that you just don't see anything comparable on the market. That's one of the biggest reasons that we end up with this premium is because we only make so much product because of the incredibly high-quality and high exact standards we have and that product because of the genetics in large part is of just a totally different kind of product than what else is on the market.

The way that shows up, it shows up in nerve structure, it shows up in the smell. Really, really unique terpene profiles. The flavors, the way that it smokes, the effect that it ends up having because of the unique combinations of terpenes and cannabinoids, all these things go into a really holistic end-to-end process of a product experience, that's really unlike anything else in the market.

The genetics power a lot, but then on the cultivation side, there's, let's say, 10-15 major steps or factors that goes into an average cannabis indoor harvest, and every single one has to be extremely well-executed every single time. What we found is one step in that process misfired one time, and you can instantly go from a $4,000 pound to a $2,000 pound. That product usually doesn't end up or will never end up in one of our branded packaged products that we sell. We only take the best of the best of what we cultivate and we put it on our brands, which then creates an incredibly powerful brand because customers know that when they come to Connect Cannabis, it's just not gonna be someone else's weed, thrown in a jar with our label on it. It's not just going to be whatever we just happen to grow, it's going to be what we believe is the best of what we represent. That's how we've created these brands that have such power and weight in the industry, it's through all these three things. It's the genetics, the cultivation quality, and the brand that results from that.

Matt: You mentioned when you first got involved, you were seeing the products sell-out. Is there an intentional strategy where you say, "We make just a little bit less than demand to keep the demand high," or are you pumping out as much as you can and then the demand just meets it at that price?

Sam: More of the latter. It's more that we only put out the best of what we can make and at this point, it so happens that demand is far exceeding the supply. We're going to keep trying to bring more and more products to more and more people, make it more accessible and available, but for the time being, we're not going to compromise any of our standards to just sell more volume, which is one of the kind of real key tenets of our company and strategy. At this point, demand is very much outstripping supply.

Matt: Okay. You have three retail stores in California, and how many other retailers do you sell to?

Sam: Right around 250 give or take, at this point.

Matt: You mentioned there's some in Arizona as well as California?

Sam: Yes. Last year, for the first time in the company's history, we opened up a new market. What was really critical for us in going to Arizona or to any other state for that matter, is we are doing our own cultivation with our own genetics. When you get a Connected or Alien Labs products, our two brands in Arizona, you can be confident that it is the same product you're getting in California, which is extremely rare in the cannabis industry because as your listeners likely know, you can't take product across state lines. You have to rebuild basically your entire company, like a mini version of your company in each state you want to go in.

If you see brands that are across many states overnight, the only way to really do that is to leverage other growers, other genetics, other brands and rebrand them as their own and that's a strategy we've very deliberately decided to not pursue.

Matt: Is there any differences in the California and Arizona marketplaces that you noticed right away?

Sam: I think in both markets, we found a really strong group of consumers, who really value a high-end experience. There are definitely nuances and differences. California is a more mature market of a larger size. For us, we found just as much appetite and demand for a higher-end product in Arizona as we do in California.

Matt: You have a really strong cultivation team. You talked about the founder. Can you just talk a little bit more about the cultivation team, how they spend their time and what they do?

Sam: Yes. We have two big components scope for each team. One is a genetics and research and development part of the house, where we're experimenting with new things and working with constantly introducing new external genetics into our pool and creating really cool and neat interesting stuff. We have some stuff coming down the pipeline in the next year too that's, I think, really going to blow people away. We have that whole side of the house. We're building that up now. We're working on hiring full-time genesis and plant breeders to work with the team that we have, that's been doing this for a long time.

On the other side of the house on the cultivation side, we have some of the most talented growers in the world when it comes to cannabis. People who've been doing it for years and years. Combined with newer hire that we've brought on, such as our head of cultivation, a gentleman named Ian Justice, actually came over from Driscolls, which is the largest berry grower in the world, measured in the billions of dollars of annual revenue, who is colloquially in the company known as our plant whisperer, who is really helping us push the limits and discover entirely new depths of where we can take this plant.

It's really hard not just for any cultivation team, but for any company to seed in cannabis without what I think of as both sides of the equation. The one side is the cannabis experience. There's not a lot of experience out in the world with this plant. Stemming all the way back to the prohibition, the complete and total prohibition in the early 1900s from federal level, there's been very little research, there's very little understanding. We understand this plant less than just about any other plant in the world, especially the ones that are developed commercially like, let's say, berries or corn or soybeans or anything like that.

Experience with the plant is extremely valuable. You have people like Caleb. We have a number of GMs in our company, who've been doing this a long time. You also want to combine it with the absolute latest cutting-edge plant science, from other plants that can be applied and unique and specialized as cannabis. If you don't have both sides and a lot of companies, in fact, I'd say just about every other cannabis company I see, ends up biasing heavily towards either just being purely a cannabis company without the business or growth or traditional parts, or you see a lot of business-oriented companies, where there's virtually no cannabis experience in the leadership level or cannabis product or anything like that.

What we've really created in the cultivation team and then beyond in the company more broadly, is a company that integrates both sides of that equation in a way that ends up being really really powerful, in terms of delivering scale along with a great product.

Matt: I'm just trying to understand why retailers don't do a better job with their own in-house brands. Do you have to have an absolute obsessive need to be creating the best possible plants and also a sense where the culture is going, then a vision and just a lot of retailers don't have that trifecta? Why do you think they just don't go where you've gone with Connected?

Sam: It's really, really hard. Creating great cannabis consistently is probably the most ironically underrated thing in this industry right now, especially when it comes to the mainstream conversations around MSOs or national cannabis markets or the development of those. The bigger companies that exist in cannabis right now, generally got there by being more portfolios of assets, than a focused company delivering on a specific mission.

Cannabis, it is one of the most complicated plants that's being grown today. It's one of the most counter-intuitive and the way it responds to different stimuli and environments. It's really easy, again, to go from an extremely well-crafted cultivated product with exotic and advanced genetics, to something that's just run-of-the-mill. That's what anybody can do. It's like a high-wire act effectively. I see it in every single harvest that we produce.

We're measuring things down to not just the nutrients or the frequency or how we water, even the temperature of the water of the way the nutrients are delivered, needs to be consistent. The amount of detail that exists is just really underappreciated, I think. You ask why a retailer or another cannabis brand or these MSOs can't get it right, well, it's really hard. We make sacrifices all the time, in terms of where our dollars go, where our focus goes. We're hiring a team just exclusively focused on post-harvest development, not even on the cultivation part, but just what happens after cultivation.

Matt: Talk about that a little bit, like curing and so forth.

Sam: Curing, trimming, packaging, storage, the way the product is stored after harvest, can dramatically affect the final product. That can eliminate or enhance all the hard work that came before it. Just the storage piece alone, for example, not to mention curing and trimming and those other pieces. There's whole dimensions to this. We don't even understand yet, but we believe we are on the cutting edge of and it's not your day job. It's like a full-time job to figure this out and push the boundaries, there's barely even hope to even create a premium product in the first place. It's really hard.

Even if you do crack the code and you can create a premium product, it's one thing to do it out of one facility or one team or with what certain limit to the amount of scale or even in one state, but to do it again and again in larger and larger facilities and more and more markets, that's a herculean task. From what we can tell, we're one of the only companies pulling it off right now.

Matt: California is notorious for having this huge black market. How is the legal market changing that dynamic, if at all?

Sam: It's definitely helping, overall. I think the state of cannabis is making it more accessible, safer. The testing standards California's put in place, some of them are a bit extreme, but at the end of the day, it's creating a much more regulated and safe environment for consumers, which is a really big win for consumers. One of the reasons the black market and gray markets continue to exist is because the barrier to entry is incredibly high. The amount of time and capital you need and the regulatory landscape that one has to navigate to be able to succeed in the

legal markets is a lot. It's really hard. It's really, really hard and it's a big struggle for us. The problem is if it's a big struggle for us, we can only imagine how hard it is for someone just getting started.

I think that's putting an artificial limit on the amount of growth and innovation that could exist in California and in many other states. In some ways, it really helps with a lot of the safety and quality and accessibility to bring cannabis and help it mature as an industry. Obviously, the tax revenue that we're providing is a huge boom to the state as well, but it's still too hard. It's largely from what we can tell because a lot of the programs are just under-resourced.

You have these agencies that are struggling to do a good job, but they're not given the resources of the frameworks that make sense to keep up with the scale of the industry.

Matt: Okay. Given your background with Box and technology companies, are you putting in some high-tech solutions in your gross to help sense and organize and do a bunch of different things and maintain them? Can you talk about that at all?

Sam: Yes. Ian, our head of cultivation likes to say, "This isn't just about putting processes and procedures in place that every time guarantee just manufacturing the same product. It's more of an ongoing relationship that we have with the plant, that we learn what the plant likes and how it reacts." A lot of technology we're focused on now, it's about monitoring, not just environmental monitoring of temperature, humidity or things like that, but monitoring what the plant is experiencing, the pH levels of the soil itself or the moisture levels or integrating how the airflow is going throughout the room, the CO2 levels in different parts of the room and what the plant's measuring. The light levels that the plant sees at different parts of the plant, all these things is data we're beginning to gather in a really high scale way, that enables us to really understand what the plant is experiencing through a typical cycle.

Every cycle has small differences and nuances that we have to react to in real-time. Every strain can react differently to different environments. We pay attention to that and try and optimize the environment for the different strain mixes that we have in the trip. I think we're at the very, very, very beginning. Unfortunately, the technology landscape for cannabis is not very flushed out yet. There's not a lot of options, but we are looking at more traditional [unintelligible [00:23:43] systems, the ones that are top of the line for monitoring indoor agriculture and applying many of those throughout the stack.

Matt: Okay. If you were to close your eyes, pull out your crystal ball and look three to five years out, what do you think cannabis cultivation is going to be like then? How will it have evolved?

Sam: As there are more companies who are able to focus their time and resources on cannabis cultivation, it's going to be pushed to heights that we can't even conceive of right now. You could say a theoretical ceiling on this plant, is incredibly high and none of us know where it is. You'll see $200, $300, $500 hits on the market. You'll see a tearing in a quality level that is based more on the intrinsic quality on the product, versus the brand, than any other consumer that we know of including wine, including spirits, including anything like that. We're going to see a higher ceiling and more potential of this plant to have differentiation in the product itself, than any other mass-produced consumer good we know of today.

That's what's most exciting for me about this company, this space, this industry is that I think we're on the very, very, very beginning of exploring and it's not going to go in the direction of [unintelligible [00:25:24]. It's going to go in the direction of the highest and most artisan and craft consumer goods we know of.

Matt: Now, obviously, you've got a big presence in California. California has had some challenges lately. Do you think they're going to turn it around or do you think it's going to hit bottom first, before, maybe, some of the government officials get a sense that they need to adapt or respond in a different way like some of these hungrier states like Nevada or Florida or Texas?

Sam: I'm not sure. I definitely hope it gets better before it gets worse. I don't know. I think that's a really good question and I really hope that some change comes to help push this industry along its growth trajectory because you still have a very small percentage of Californians that have easy access to legal cannabis. It just doesn't make sense. It's such a high-potential industry. It's such a great product that has so many benefits holistically. It's such a better alternative than other recreation methods. I really hope it does get better.

Matt: Sam, I want to ask a few personal development questions to give listeners a better sense of who you are. Is there a book that's had a big impact on your life or way of thinking you'd like to share?

Sam: Yes, for me, one of the things that I've spent a lot of time on is how to build culture inside of companies. Even though, at Box, my main role was to focus on technology and specifically, computer science or computer engineering and then coming over to a cannabis company has been a shift in a lot of ways, in terms of what's done day to day in terms of the actual product. The thing that has carried over the most, has been building a culture for a company that's experiencing a tremendous amount of growth developing and producing a great product. A lot of things that come with the culture is how people interact with each other when there's conflict, when there's disagreement, when there's really hard problems to solve.

For me, one of the most helpful guides along that path has been a book that I frequently say called Crucial Conversations. I really love that book. It's a step-by-step guide on how to have conversations where the stakes are high, whether it's a conversation between you and your boss or you and your partner, where there's a lot of either context or history or emotion involved and it's like a tricky spot to be in and how to navigate that. It's been a really helpful tool for me to develop on that front. Crucial Conversations, I'll recommend really frequently, especially for people struggling to have a bigger impact in the organization or to be more persuasive or influential in the work they do.

Matt: When you look out of the cannabis landscape, apart from what you're doing at Connected, what do you think is just super interesting in the cannabis space?

Sam: One of the things I'm really excited about is the research that's beginning to happen. As the federal laws around cannabis will, hopefully, continue to get more lax and permissive, there's some opportunities for research opening up, more traditional university back research. There was a paper published recently around light levels and cannabis, how cannabis reacts. I think one of the things they found was they weren't even able to find the limits. Even at their highest levels, they were finding there were still gains in the production of the plant as related to a light level.

There's so much more to learn about this plant. I think traditional research and science getting involved has a lot of potential benefits, not just the quality, but also the benefits, the health benefits and other benefits to the human body and the endocannabinoid system that we're yet to discover.

Matt: What's one thought that you have that most people would disagree with you on?

Sam: I think I would come back to just the importance of having both sides in a company. Most people get fed up really quickly when they're trying to integrate the cannabis world in the business world, and they would see it not as a valuable partnership, but one that drives a lot of conflict and it isn't worth it. I think the people who have been really experienced and historically are knowledgeable in the cannabis place look at the business people and say, "They don't know what they're doing. They're never going to understand it. They're never going to appreciate what we're doing or create something that's really high quality and amazing."

People in the business world look at the cannabis people and say, "They don't really understand business. They don't traditionally train. They don't have what it takes to scale companies and make it bigger." That attitude, it was also in a lot of the companies that you see. Whether either they're growing and scaling, but they don't have any products that nobody cares about or they're product-oriented companies that have a really hard time scaling. Neither of those make a recipe for pushing the boundaries and limits of what this plant can do.

At the end of the day, the only reason our products is priced how it is and our company is grown the way it is is because it allows us to invest more, and more, and more dollars back into the plant, back into the product. Like Apple or Tesla, driving profitability in their companies, allows drive all that profit and revenue back into their R&D to create even more incredible consumer products. I think that's something that's really not appreciated in this space is that blend and the hard work that takes to make a culture where both sides are really appreciating what the other side brings to the table. I think it's really underrated right now in the space.

Matt: Sam, as we come to a close, can you tell listeners how they can find Connected Cannabis if they're in California or Arizona and maybe, you even suggest a strain for someone that's trying it for the first time.

Sam: Yes, totally. We have our three retail stores in California, which are great spots to grab our product. San Francisco, Sacramento, and Stockton, those are three locations we have stores. Also, you can find our product at many, many partners, hundreds of partners and countries around the state. Weedmaps is a really good way, as well as [unintelligible [00:32:41], are both great ways to find the product and where we're carried.

In terms of strains, on the Connected side, Gelonade is one of our more newest strains that is a little bit more [unintelligible [00:32:58] leaning, a little more energy. If you just want the traditional, old school, a lot of the brand of was built off as biscotti. That's on the Connect side. The Alien side, we have a new strain that recently launched, biscotti, that's getting crazy, rave reviews. Keep an eye out for that one. It's pretty limited right now, but if you can get a hold of that, it's pretty magical.

Matt: Sam, thanks so much for coming on. You really educated us. Sounds like you have a great business. Well done. Congratulations and come back on once you have this curing and drying everything worked out with that team because that's really interesting stuff.

Sam: Absolutely. Thank you so much for having me. I'm really happy chat with you today and look forward to chatting with you again soon.

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