As the industry churns toward 2018, a year that at the very least will mark the addition of California to the list of adult-use markets, a palpable sense of having breached a threshold is in the air. A million seemingly impossible challenges still face businesses and consumers in the Golden State alone, but everyone knows this state’s step into full-spectrum regulation is a tipping point for the industry. It’s the one market that historically has served all the other markets, which now will need to go legal if they intend to keep their citizens plant-healthy. Either that, or they can lobby for the end of federal prohibition, so they can keep getting California cannabis, legally. The state will gladly pick up the slack in any state so moved to petition to set the country straight.
But along with the tipping point comes a period of relative chaos, with product sectors bursting at the seams with competition and no clear expectation of who will survive the transition period. The most established brands exist on a precipice of doubt, even as they are expanding, as into the breach swarm multitudes of new products, new brands, new companies flush with excitement. Facing off against this unbridled optimism is the equally palpable fear that most of the existing companies in the California space will not exist within a year or two. An “extinction event,” one elder-statesmen from the industry called it last month.
Stalking the floor
With transitional 2018 in mind, I stalked the show floor during November’s MJBiz Conference in Las Vegas to get a sense of prevailing attitudes and talk to a few experienced industry peeps about what they have on their mind during these outrageously exciting and uncertain times. Not surprisingly, the issues of concern involved their own businesses or projects but, in cannabis, everyone’s business touches everyone else in one way or another.
“One of my concerns is around community events and functions, and whether people will be able to give out samples,” said Jessica Cure of the Emerald Exchange. “Will local municipalities allow events with consumption and let people sell in these places? We just got some information [from California’s just-released emergency regulations] that there will be a permit for a state license, but there is so far to go and it’s still very uncertain.”
Cure opined Northern California has a real opportunity to hone in on tourism, offering tasting bars and tours of the farms just like the wineries, and supporting the small communities in the process. “But people also want to go out and enjoy themselves in the cities,” she said, “and not necessarily to have to drink if they know there’s a lounge where they can consume. Even here in Las Vegas, at any of the public spaces where there have been parties, there has been absolutely no consumption. It does change the vibe of the event, because now it’s only alcohol and it’s a cannabis event. It’s very confusing.”
Meeting the regulations
Matt Young, chief executive officer for APOP Media, a digital network providing original video content to dispensary waiting rooms, remains concerned about the ability of many companies to meet the requirements of regulation. “That will be the biggest challenge, in my opinion,” he said. “It would include all of the challenges as meeting building and safety codes and all the other forms of compliance. Most of these are dispensary issues, but product manufacturers also must be fully compliant.
“We deal with companies that have been in the industry for the years,” he added, “and they still tell us that they are a ten-year-old start-up. New buildings; they’ve got to buy land; they’ve got to raise capital to buy new equipment. The industry is changing so fast, and it will probably take a couple of years for it to level out, especially on the dispensary side in Los Angeles. The city has its own challenges regulating everybody, licensing everybody. I sit on the board of directors of GLACA (Greater Los Angeles Cannabis Association) and we deal with the City Council every week. They have their own internal issues. There are only so many people in the Planning Department. They can only license so many shops over a year, and then the next year it’s more shops, and then more the next year. It will probably take three or four years for the Los Angeles market to really settle down.”
But compliance remains the stickler. “There are a lot of regulations people are unaware of, like being ADA compliant,” Young said. “All medicine needs to be stored in a vault. There can only be one day’s worth of inventory on the floor, and it has to be put away every night. There are packaging requirements. Other states that are ahead of us started with compliance from day one, but people here are used to doing things a certain way, and now it’s a new way of doing business.”
Asked if there will be any grace period, he shrugged. “Hopefully, there will be a six-month period during which people will be allowed to stay open and get up to code with their bathrooms, electrical systems, all of that.” He paused. “They’re going to need it.”
I had the opportunity to talk with Nancy Whiteman, chief executive of Wana Brands. The infused-products powerhouse has expanded its reach from Colorado to become a leader in Oregon and Nevada, and is set to take off again in 2018.
“Most on my mind going into 2018 is national and international expansion, she said. “We are in three markets now, are moving into another three in a couple of months, and I would anticipate another five or six by the end of 2018, including states and Canada. We’re in talks with potential partners in a whole bunch of different markets.
“So, what’s on my mind with respect to expansion is two big categories: figuring out the right people to work with, and then successfully onboarding them and having a very robust system in place to ensure brand consistency and quality,” she said. “Those are my building blocks: Find the right person, get them onboarded and support them properly, and then audit them appropriately.”
The challenges are part of the process. “We all love the people we’re talking to initially or we wouldn’t be talking to them,” she said. “It’s finding the right people who have the right capital structure, the right people on their team, and where there is some personal chemistry. I always joke that I operate by the ‘life’s too short’ rule, and if I don’t want to have dinner with somebody, they’re probably not going to be a good partner for me.
“Then, inevitably, when you’re onboarding a new partner there are a lot of things that go wrong and need fixing,” she added. “That’s a real critical juncture in a relationship, to see how people respond to challenges. Are we in this together? Are we going to fix this together? Or is there annoyance and impatience?
“Just to get to the point where you have a signed agreement is a lengthy process that alone can take six to ten months,” she said. “But, I personally like it to take a while, because that’s when you really get to know people.”
Old people, new people
According to Whiteman, the caliber of individuals coming into the industry has strikingly improved. “What I see more of these days is people who have been very successful in other industries coming in, but who know enough to assemble a team who are experienced in cannabis,” she said. “They or the investor group may not directly have deep cannabis experience, but they’re bringing in the right people to help get their cannabis operations set up.”
The company is preparing for rapid growth in the next year and is intent on entering \effective partnerships to make that growth possible. “We’re very involved on the sales and marketing side, and we’re helping partners think through pricing so they can see why we’re the number one brand in Colorado,” she said. “We’re looking for people who value that, to help them with speed-to-market and be able to ramp and scale quickly.
“The story for 2018, for me, is that everything feels like it’s accelerating,” she added. “Over the past several months, I’ve been building out the team to support our anticipated growth in a robust way. We’re looking at adding some new product lines, but we’re doing it consciously, and only if we think we have something that’s truly different and worthy of our brand.”
For a quality brand, quality control must come first, Whiteman noted. “When I’m taking to partners about consistency, I’m not talking about a nice-to-have attribute,” she said. “This is the brand. Screw this up, and we’ve screwed up the whole brand. It’s not the labeling or packaging. The Wana brand is about quality and consistency. It’s why we’ve become so popular.”
Grow the pie
“Something else is on my mind,” Whiteman continued. “Because I’ve been in the business since 2010, I’ve already seen such huge changes in terms of the acceptance, the mainstreaming, of cannabis, but what I think we as an industry need to be focused on right now is not duking it out for market share with the existing market. We need to be growing the pie, and the way you do that is through education, transparency, and helping people feel comfortable and safe trying cannabis in ways that are not overwhelming to them. A lot of our product releases are going to be focused around that, as well as on education and training.
“We’re already seeing this happening,” she added. “The cannabis-user demographic skewed very young and male seven years ago. But now we’re seeing older people and women move into the market, and even though there isn’t yet a lot of in-depth consumer research, there are clear product preferences among these different groups. I like topicals as an entry point for cannabis usage, for example, especially for older people—to normalize cannabis use.
“The third big component of what is going on is innovation,” she concluded. “There is the mainstreaming of cannabis, which is how do we open this up safely and responsibly for new users. And then there are the more sophisticated applications of the plant, and there are huge opportunities there, as well.”