Torsten Kuenzlen is CEO of Sundial Growers in Canada. Torsten’s background is the alcohol industry, and he has been very outspoken saying that cannabis is going to outgrow alcohol soon. Learn why and how he thinks this will play out and why the cannabis industry is poised for paradigm shifting expansion.
– Torsten’s background in the alcohol and soft drink industry
– Why Torsten left the alcohol industry
– Bringing best practices from the alcohol industry
– Why measuring your grow in square feet makes no sense
– Why brand matters and how to create a great brand
When cannabis prohibition initially started ending, many people said, one day cannabis could be as big as alcohol. Today that is no longer a conjecture, as tectonic shifts are happening in alcohol and cannabis industry, especially in Canada and soon the rest of the world. Here to tell us about it is Torsten Kuenzlen, a former alcohol executive and CEO of Sundial Growers. Torsten, welcome to CannaInsider.
Torsten: Thank you so much. Glad to be with you today.
Matthew: Give us a sense of geography. Where are you in the world?
Torsten: I'm actually in a small northern Moroccan fishing village called Cabo Negro and I apologize in advance for any audio quality issues that might bring with it.
Matthew: Oh, no problem. No problem. Tell us at a high level, what is Sundial Growers?
Torsten: Sundial Growers is one of the largest cannabis companies in the world actually these days. We're based in Calgary, Canada, and with Tilray having gone public last week, I think we're now the largest private licensed producer in Canada.
Matthew: Okay. Can you tell us a little bit about your background and journey and how you came to get involved with Sundial and what you were doing in the alcohol industry prior?
Torsten: Sure, so I spent 25 years in the fast moving consumer goods industry specifically with Coca-Cola and Molson Coors. I was in senior management roles around the world, worked and lived in North America and Asia and in Africa and now I've come to cannabis here really through alcohol because the distribution system through the provincial boards and actually many of the retailers, it's very, very similar in cannabis as it is to alcohol. So the Molson Coors experience in Canada has been particularly helpful.
Matthew: Okay. And having been both in the alcohol industry and now in the cannabis industry, at a very high level, can you orient us on how you think about where we're at right now in terms of where cannabis is at and where alcohol's at and how the alcohol industry might be reacting or investing or getting involved with the cannabis industry?
Torsten: Yeah, of course. I think in general, I see cannabis and alcohol actually being in a very similar stage in terms of development and if you look at the consumption in many geographies and many segments, consumption of cannabis and alcohol are actually already very similar. The obvious difference is that alcohol is largely legal around the world where cannabis is just beginning that journey. So in many ways, I think the parallels are clearly there and I think what we're going to see here in the next decade or two in cannabis is going to eclipse the pace with which alcohol has developed over the last 80 years, especially since prohibition in North America.
Matthew: Okay. And, as you entered the cannabis industry, you kind of had some best practices in mind. Just the way things were done in the alcohol industry. I mean anybody that's been to a brewery or something knows how automated all is. How do you think about bringing consistency and automation and brand building from the alcohol industry over to cannabis?
Torsten: I think that's ultimately going to be the competitive advantage of the largest brands and companies in the cannabis industry. There's no doubt that cannabis, like alcohol, really like any fast-moving consumer goods industry, is based in a brand promise. And that brand promise starts really with a superior quality product. I think that's something so far from what I see in the industry is being a bit overlooked. I think there's a bit of a danger that many of our competitors are going to go in with a non-advantaged commodity product and we're going to take a different route. At Sundial we strongly believe that the overall brand promise starts with a highly differentiated quality product and that that needs to be paid off in every step that the consumers and the retailers touch our own brand and consistency and quality stand out. One of the reasons why we at Sundial are building what's the largest modular purpose built cannabis facility in the world, we'll be able to produce ultimately over a 100 million grams of highest quality cannabis. And we really think that that sets us apart in being able to formulate and then deliver on very differentiated brand promises to cannabis consumers.
Matthew: Okay. So you think cannabis has an edge over alcohol because it's not a liquid. Can you talk about that a little bit?
Torsten: Yeah. When you think about which choices do you have to consume alcohol, it's liquid, liquid or liquid. And in the fast-moving cannabis industry, it starts with combustibles and that probably here in the first year in Canada will probably be 80, 85% of how consumers can consume it. But then that's gonna rapidly evolve. So in three to five years, we believe it's going to be a third combustible, a third concentrates, and a third edibles and drinkables. So in that sense alone, cannabis has an advantage because it can be consumed in so many different ways. Whereas in alcohol, there's only one form and that's drinking it at this point.
Matthew: Okay. And how long do you think it will take for those three categories you just mentioned to eclipse alcohol in terms of revenue in Canada?
Torsten: In Canada, It'll be interesting. I'm sure it's going to be within the decade. I wouldn't be surprised if it's actually within the next five years. So as we look at the trends and the demographics and how the age profiles are moving and reacting, we think it's gonna be fairly quickly. I think there is the famous example in Aspen in Colorado where within four years, in 2017, cannabis actually outsold total alcohol, so that's beer, wine and spirits combined on a revenue basis. So I'm pretty confident that it's not going to be too long before cannabis is gonna be at least as big as alcohol.
Matthew: Yeah. How do you see the alcohol industry responding to this threat or opportunity?
Torsten: It's interesting. We've obviously seen some of the big alcohol players already respond and many others looking at the opportunity. What is interesting for me coming from the beverage world is not surprisingly beverage companies respond with cannabis as a beverage and I personally think that that's gonna be a bit short-sighted. I think the great versatility of cannabis, of being able to consume it in different formats is something that sets it apart from many other product categories. So, therefore, I think the alcohol companies, or maybe beverage companies in general that only see cannabis as the liquid, are gonna have a hard time building a brand that really is going to spread itself against the different formats. So what I mean by that is, one day the consumer might want to eat a chocolate to consume the cannabis, on another day, they might want to smoke it. On a third day they might want to use oil or an infusion. So I think that versatility, if the beverage companies are not careful that they're at full linear, is something that they might miss out on.
Matthew: Okay. And we talked a little bit about brand, but in the alcohol world and the soft drink world, there's more opportunities to advertise. How do you go about getting in front of prospective clients or customers and building that brand? It seems a little bit more of a challenge compared to the other industries you've been in.
Torsten: For sure it's more challenging, but at the same time it's, of course, a great opportunity as well. So we think that the regulatory environment is gonna start off very tight and that's probably the right thing to do. And the final regulations have actually not fully been released so it's still evolving, but we will clearly look at all opportunities that present themselves. I think the line between education and marketing needs to be carefully considered and that's a big opportunity for the industry as a whole, but also the major players. Because as consumers that might even be new to the category enter the category first time, there's a big need for them to be educated about the differences between different products, how to consume them and to make always sure that all consumption experiences are positive experiences. So we believe that in store, in partnership with our retailers and the provincial boards we'll have a great opportunity to tell the story and to educate the consumers to the difference between the now legal alternatives that they have versus what they might have experienced in the dark and the gray and black market before.
Matthew: Okay. Can you tell us a little bit about your products? Calm, Ease, Flow, Lift and Spark. What's important to know here?
Torsten: What's important I think in general for the industry is that we need to be careful not to get stuck in the past and that we speak a language of THC and CBD and the strain names that are off-putting and non-self-explanatory to consumers. And that we really enter a new realm in the cannabis industry where we're talking about the benefits that consumers could derive from the product and then we have the education so consumers understand which of the cannabis products in which format might be best suited for their specific needs. So our five brands basis are really built around need states and motivations and therefore underneath each of those need states are more detailed granular spaces if you want. So if you take a brand like Calm. Under Calm, they will be subspaces that might be more for consumers that are looking to be less anxious and are looking for a product that might help them in that regard. There might be other consumers that are really looking for help with sleeping better. So I think the five brand spaces as we've defined them today, are really just opening spots to tell stories and educate consumers so they can make educated choices.
Matthew: So even though you're in Morocco right now, you're based in Canada and that's where Sundial Growers is. Constellation brands which many people would probably recognize as being the parent company of Corona beer invested in a Canadian cannabis company, Canopy Growth. And recently they said that investment has already paid off to the tune of $700 million. I am, I think that's on paper. What do you think about Constellation's strategy here? Are investments in cannabis companies enough for these big alcohol conglomerates?
Torsten: I think Constellation was obviously very smart. They were the first large player to go into aggressively. And by buying a large stake of Canopy and being part of the increased share value of the company, they've been able to participate in those gains. I think more importantly though, what they have is they have access to an industry that they didn't understand and through partnerships with cannabis companies, I think alcohol companies and by the way completely other vectors, pharmaceutical companies and a non-alcoholic beverage companies, cosmesceutical companies. I think all of them have an opportunity to buy themselves in or create partnerships in other ways with the leading cannabis companies to understand this new industry and then come up with product and solutions that create whole new markets that expand for them into additional opportunities and leverage the know-how that the cannabis companies are building.
Matthew: Okay. Now, this is one thing that I think about a lot in terms of the cannabis companies in Canada. We've talked about brand and the reason I keep on bringing it up is that essentially the LPs, or licensed producers, to protect their profit margin over time will need to have a brand that resonates and otherwise it's just gonna be a race to the bottom on price and people will just be comparing on price and no one wants that if you're the cultivator. So you're looking for something and that's like a loyalty of a Coca-Cola or a Budweiser. I mean, I don't think that exists yet. Is there a brand that people are asking for or it's done through the mail still in Canada, but I mean, where are we on that journey? I mean, how does one even achieve that because you're getting the cannabis through the mail. I know there's dispensaries coming soon, but I just don't see the bridge on how that's going to happen right now. That probably can only happen once the dispensaries open up or if it's word of mouth when people make their decisions online before they order. Tell me what do you think I'm missing there?
Torsten: That's a great question, Matthew. I really think we're just out of the starting blocks of what's going to be a marathon. We literally haven't even passed the 100-meter mark, especially as it comes to brand building. You mentioned examples, Coca-Cola, Budweiser, Absolut, [inaudible 00:13:11]. They are often great brands, and when you close your eyes for one second and then you think forward 10, maybe 20 years, what do consumers really want? They want to have a consistent brand experience and they want to have that not only in every city in the country that they might be in but also in other cities that they go to. That's probably nowhere more true than for cannabis, so I have no doubt that 10, 20 years from now there will be brands, hopefully Sundial being one of them, that will be like the Marlboro and the Budweiser. So as consumers transcend countries and continents, they can always go to the brand that they trust. So how do we build those brands? I really go back to the point of it all has to start with a superior product.
If we end up in a situation where the consumers can tell the difference between a really bad cannabis and really good cannabis, then I think will be a struggle for the industry. But we at Sundial are doing everything we can to make sure from the look, the smell to the consumption experience and the taste and the aftertaste that all of those things are optimized so that the consumers have a great experience. I believe the way that brands are going to be built as the industry really opens up in Canada on October 17th, is that consumers that have consumed will go to a dispensary or they might order online, five, six, seven different brands and they might just order a gram and they're going to compare them all and they're going to try them. They're also going to compare them to what they might have used before. And ultimately I am convinced that consumers are going to be willing to pay a premium for legal over an illegal product and more importantly, for great product over a mediocre or bad product. So I think for the cannabis industry in the next years, it will be absolutely essential to ensure that every consumption experience will be a superior experience and that the consumers can tell the difference between the non brands, the commodities strains, and those brands that are going to be the Coca-Colas and Budweisers of the future.
Matthew: It's a funny thing because I remember the Pepsi Challenge back in the day where consumers were blindfolded and John Scully, who later became CEO of Apple after Steve Jobs started this and he blindfolded people and said, "Hey, you know, take a sip of this drink and this drink and which one do you like better." And most people said Pepsi yet Coke had much more market share and still does. So there's something about the resonance of a brand we're already familiar with. It's like there's a tremendous gravity or inertia to the brand that gets there first and just so cements that product category in the mind. I mean, I know that Pepsi did take some market share from Coke during that Pepsi Challenge. And people blindfolded I think still think it tastes a little bit better. But they just don't want to... They're just so loyal. When you think about that Pepsi Challenge and then you know, think about the cannabis industry, is there any lessons to be learned there?
Torsten: I think that's actually a great comparison Matthew because what happened in the Pepsi Challenge was that two very well established brands really tried to change the tone and to be fair, it worked for Pepsi. Now I will say Pepsi did cheat a bit, so the product that they used for Coke was a bit warmer and a little flatter, whereas the Pepsi was very fresh out of a glass bottle. So I think there was a little bit of tinkering going on to make sure that the results went Pepsi's way.
Torsten: But in a new industry like ours, I think that's why I am so convinced that product is going to be the great differentiator in the beginning that's gonna drive brand loyalty because that brand awareness does not exist.
And we asked consumers across Canada or the world for brands, they can't play back any brands literally, it's a white canvas. So the opportunity for us to clearly define a differentiated brand promise with the delay that you mentioned earlier and then ensuring that the consumers get exactly what it is that they are hoping to get and that that is better than anything that they might be able to get from other brands. I think it's gonna be a tremendous opportunity for us to get a foot up on the competition.
Matthew: Okay. One thing that you kind of challenged people to think about is to stop talking about the size of a grow in terms of square feet and that makes a lot of sense. Maybe, how do you talk about the productive capabilities of a grow if you don't use the square footage?
Torsten: No, I think the only thing that really matters is the yield, the amount of product that you can produce and if you are able to produce more product on a smaller square foot basis, then obviously you know the yield is the important metric. There are obviously new growth trends developing, vertical grow, multiple tier grow, so maybe the square foot is going to be replaced by the cubic foot. But I think in addition to quantity, when you really want to understand the potential of different licensed producers in cannabis companies around the world, you would be amiss to not mention quality. It's easy to produce a lot of bad cannabis, it's somewhat harder to produce a little bit of really good cannabis. It's really hard to produce a large quantity of highest quality cannabis. So what we are attempting to do at Sundial is really have the most premium cannabis and have better at scale and I think that will set us apart from many of the other cannabis companies that exist today.
Matthew: What do you think the optimal growing environment does look like? I mean, you mentioned cubic that talks about going vertically. Are you considering modular grows, purpose-built grows? What's your kind of vision for how it will look for you?
Torsten: We are experiencing clearly with not just the provincial boards, but also the retailers and the consumers, that they are beginning to differentiate the licensed producers, the cannabis companies, depending on how they grow. We do know that that a modular purpose-built facility, fully indoor, no exposure to light, it's going to produce the highest quality cannabis and then comes to details like the quality of the irrigation system, the nutrient mixes, how good your recipes is, the quality of your growers to really curate those different strains that you either have or develop over time as we continue to breed better strains. It's a combination of those things that I think are going to make the biggest difference and deliver those superior products.
Matthew: Okay, and then as a CEO, how do you balance short term, medium term, and long-term goals to ensure you're not wasting your time, but you're also not being short-sighted and focusing on the things that really matter?
Torsten: Matt, that's another fantastic question. Of course, in the short term, all of us in Canada are focused, fixated on October the 17th, which is the day that it's gonna become legal for adult use cannabis in Canada. At that point, as many of us as possible want to get as much product out there as possible, but we all want to be 100% sure at Sundial that that first product delivers against the brand promise that we're going to make. So we are keeping an eye on the near term. Obviously also for financial purposes as we have a burn rate until we get to revenue and profit, but we're going to be really cautious in putting our brand name on product until we're 100% sure that's gonna deliver against the promise. Ultimately, the Coca-Colas and maybe the Budweisers and the Absolut Vodkas, they never took the shortcut on quality and neither will we, so it will be a long-term game. I think the biggest LPs almost over the hump here with three months away from being revenue and profit generating and then I know that Sundial will take the long-term view, always do the right thing for the brand, never compromise and therefore ensure that we consistently deliver a superior cannabis experience.
Matthew: Torsten, I like to ask some personal development questions to help listeners get a better sense of who you are. With that, is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Torsten: One book that I keep rereading every time I take on a new challenge, it's called "The First 90 Days." And "The First 90 Days" is really set up as you change roles or change companies or maybe both that you reground yourself and really stay open to learning a new industry. And it's been quite humbling for me to enter the cannabis industry that I literally knew nothing about when I started working here in the first quarter. So I've been patient with myself and I encourage everyone that makes the transition into cannabis or really from any industry in any other industry or a big change in responsibilities to read that book and just follow some of the guidelines and be conscious with what we do because nowhere more than in a new industry I think is it dangerous to come in and think we know because we've been in Fortune 500 companies, we've seen similar issues around the world. It was really important for me to get grounded and to speak to our growers and to speak to industry experts and to listen to the provincial boards and the retailers and the competitors in the way that they were framing it up to then take my time in the first 90 days to figure out what of what exists will be helpful and I should embrace and at the same time what might be the areas to challenge so that we at Sundial have an opportunity to take cannabis to a new level and differentiate us from our competitors.
Matthew: And what kind of fish are you going after there in Morocco?
Torsten: Unfortunately very small ones so far. So this morning I was out with my son, it's his 15th birthday today, and the biggest one we call it wouldn't make it even into an appetizer, so we're still gonna go back out and try and catch that big one. But the change is the challenge of course.
Matthew: Yeah. Well, at least in Canada there's some big fish to be caught when you get back.
Torsten: We will try and put our best fisherman on it and get the boats out there and we're sure we're going to pull some big ones onto our boats.
Matthew: Well, Torsten, thanks for coming on the show with us. Tell our listeners how they can find Sundial Growers and find your product and connect with you online.
Torsten: You can find us at sundialgrowers.com. Go to our website and then if you have any questions, there's multiple opportunities and contacts there to get in touch with us. We'd love to hear from you. Always open to ideas. Your listeners are a very educated audience, so all feedback is always welcome now and in the future as you'll be able to enjoy our products when they come to market.
Matthew: Well thanks Torsten. Good luck fishing and good luck with adult use or recreational use in Canada and we look forward to hearing from you in the future.
Torsten: Thank you very much, Matt. All the best to you and your listeners.
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