High Spirits

#016 - Why Washington State is a Different Kind of Cannabis Market w/ Dr. Jordan Zager

November 02, 2023 AnnaRae Grabstein and Ben Larson Episode 16
High Spirits
#016 - Why Washington State is a Different Kind of Cannabis Market w/ Dr. Jordan Zager
Show Notes Transcript Chapter Markers

Ever wonder why cannabis delivery and many MSOs are missing from Washington State's cannabis industry, and how none of the operators in the market are carrying an AR balance? Tune-in as AnnaRae Grabstein and Ben Larson embark on an in-depth journey to uncover the fascinating dynamics of Washington's unique cannabis market, with special insights from our esteemed guest, Dr. Jordan Zager, CEO and co-founder of Dewey Scientific.

This episode is a treasure trove of knowledge, from how the 2018 Farm Bill and the Delta 8 craze have not impacted the cannabis market like they have so many others, to the intriguing science behind cannabis genetics. As we spotlight the challenges and opportunities faced by cannabis brands in Washington, from residency requirements to intensive background checks, we reveal the reality of small brands battling for market presence in an otherwise incredibly stable market. Our conversation takes a deep dive into the retail landscape and the restrictions hindering the growth of the industry.

Join us as we stay curious, informed, and keep our spirits high in this exploration of the world of cannabis in Washington State. 

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Remember to always stay curious, stay informed, and most importantly, keep your spirits high.



Speaker 1:

Hey everybody, welcome to High Spirits. I'm Ben Larson and, as always, I'm joined today by my better half, anna Rae Grabstein. We have an exciting show today. Washington State is just this enigma of a state. It's done things a little bit differently. Not a lot of MSOs in space, maybe even just one, I think they're lacking on delivery and just a whole host of brands that are kind of dominating state that aren't necessarily well known in other states. So we're going to kind of dive in with one of the local operators and really get an understanding of what it takes to build a successful brand in the space. But before we get there, anna Rae, happy Halloween A couple days later. Thank you, I love your week.

Speaker 2:

My week has been really good. I'm doing all kinds of fun stuff this week. I guess it kicked off on Sunday with a Halloween party I was a mushroom which was really fun, and yeah, it was great. I have some cool pictures I can share. But then on Monday in San Francisco I went to this really incredible AI summit, totally outside of the cannabis industry, mostly just to learn, open myself up to new information, and it was all about. It was the AI and wisdom summit and it was people talking about developing technology, but also mindfulness and humanity, the way that we're going to interact with this technology. Yeah, it was really wild. I came away more interested in AI than I had been before. I thought of myself as a user before, but now I started to see how the industry is really developing and how complex the business is from a regulatory perspective and how it truly is emerging so much the same way that the cannabis industry has been emerging. So really cool there. Have you been following that? And the way that people are trying to think about regulating AI and creating safety?

Speaker 1:

A little bit. I mean, I'm very interested in it. I only have so much bandwidth. I did just pick up this new book, life 3.0, and it's just really talking about. It's not dystopian, it's not like this rosy outlook, it's just a true look at what life will be like, with AI fully incorporated in the trajectory that we're on. So I'm excited to dive into that and yeah, it's developing so quickly and to hear, as we always hear in the cannabis space, it's in the first inning. And it's so powerful already the way that companies like Canva have completely redone how their business operates and how the services that they offer are largely driven by AI. Now it's happening so quickly.

Speaker 2:

Yeah, and this podcast. We've really been using a lot of AI in order to make it easier for us to manage, so I've been very grateful for the tools. It's allowing us to be here with all of you guys, yeah. And then the next day I went to City College of San Francisco to speak at the business practices class in the horticulture department and got to speak with yeah, it was really fun. It was a night class. A lot of the students have jobs and are going to college at night and just got to talk about my career path and the professor is actually a neighbor of mine from my childhood and it was just really fun to get to reflect back and think about how sometimes career paths that seem very random and nonlinear after 20 years, you look back and all of a sudden it all starts to make sense, how one thing led into the next. So really good. And then today I find myself in Los Angeles and I've been down here doing all different types of work, meeting with cannabis folks and having a great time.

Speaker 1:

Yeah, it's like I passed the travel baton to you. I'm now rooted back at home after being in New York and Charlotte last week and now you're bouncing all around and getting a little bit of cut out. But it's okay. We're going to navigate through that. Glad we're making it work this set time every week, no matter where we're at in the world where we're making it work. But yeah, we have someone else joining us today, so you want to talk about Dr Jordan a little bit.

Speaker 2:

Sure Well, this episode was my idea. I have been an advisor to Dewey Scientific, jordan Zager's company for a while now and it's just been really fun to get to dive in and learn about Washington through the eyes of this young company and of this first time CEO who I've been working with. So I'll queue up the bio for Jordan. He's the CEO and co-founder of Washington based Dewey Scientific. Dewey applies modern and classical breeding techniques and scientific principles to advance cannabis industry. Jordan has degrees in biochemistry, molecular biology and cell biology and a PhD in biological chemistry. The Dewey team develops. He's a very smart guy. His team develops elite plant varieties that require fewer chemical inputs, are pest and disease resistant and lead to high quality consumer experiences. Recently, dewey published a peer reviewed research paper identifying the first powdery mildew resistance gene in cannabis, and in 2020, jordan led the launch of their consumer brand, dewey Cannabis, a brand that uses their unique genetics. It's fun, approachable and is experiencing tons of steady growth in the market, so really excited to have my friend Jordan join us today. Welcome, jordan. Welcome.

Speaker 3:

Hey, thanks, ben and Anna Rae. Pleased to be here Awesome.

Speaker 1:

Good, wow, I mean, the last thing that you mentioned in the bio is really what's like popping out to me. But I really want to talk about this. Powdery mildew resistant genetics, like that sounds really cool. That's getting a little bit into the weeds, pardon the pun. So, jordan, how long have you been in the industry? Like, what kind of led you here and kind of down this path of science, meeting the plant and building a brand around it? I think it's so cool. It's something that we've done at Vertosa is like an opportunity. Yeah, I'm just curious what was your journey as a PhD coming into cannabis?

Speaker 3:

Yeah, my roots in cannabis are deeper than my roots in science. I started using cannabis in high school. Sorry, mom, but that was sort of where my inspiration for cannabis started. I was also very fascinated by biotechnology and plant-derived natural products. So while I was in college, I was working in a plant biochemistry lab. I was working on machines like a GCMS that's for the layman, that's the instruments that we can detect terpenes on. At the same time, I was participating in a medical grow in California and I was growing in a few tents in my house. So it was sort of that combination. And one day it just sort of clicked I love doing this, I love doing that. Why can't I combine them? So I went off to get a PhD, really seeking to just get relevant experience. This was back in 2014. This was not when no state was selling cannabis yet and I was lucky enough to find a lab that researched how terpenes are made in tricombs, just not in cannabis. So I knew enough that I figured this was going to be relevant and as my career progressed as a scientist, I was eventually able to work on cannabis genetics as part of my PhD and really use that to leverage the launch of Dewey Scientific, and that was in 2018.

Speaker 1:

Wow, that's amazing. You have to be one of the first people I've heard of actually before classes were being offered at universities. Like Aniray was just talking about seeking out the opportunity to build the knowledge to bolster the cannabis industry. So like this is really incredible. Now we have like people like Greenflower I think I saw a post recently like Greenflower has courses at 49 universities or something like that around the US. Like what a different world we've achieved in the last nine years.

Speaker 3:

Right, that is incredible. Yeah, just nine years ago, the policy at Washington State University was don't even think about it. If you're getting paid by us, you're not even allowed to think about cannabis. And that transformed just in four years too. Okay, you can think about it and you can work with cannabis data, or you know DNA or RNA or cannabis proteins, and then today you know there's have grown in multiple buildings at Washington State University. So it is. We've come such a far way in such a short time.

Speaker 1:

Real quick. Where else do tricomes exist besides cannabis? I wasn't until I was in the cannabis industry, where I saw all these beautiful macro photos of tricomes.

Speaker 3:

But yeah, so cannabis is great, Exactly Well, first off, terpenes is the largest class of natural products in the world. There's over 30,000 different types of terpenes and they're not specific to plants. You know our bodies produce cholesterol. Cholesterol is a terpene, but you know. Circling back to tricomes, tricomes are found on the surface of about 30% of all land plants. Cannabis is famous for its glandular tricome types. Where you have, you know, you've got the skinny stalk. Sometimes it's really short stalk and then you have a bulbous gland on top. Not all tricomes have those bulbous glands that cannabis is famous for. Some tricomes in certain species are just there to sort of annoy pests is sort of the evolutionary thinking on that. But other crops that we cultivate for their tricome contents would be mint. Mint leaves are covered in tricomes and that's they're filled with, you know, predominantly aromatic monoturpeans like menthol. But you know most of the essential oil plants that we use lavender, eucalyptus, mint, obviously you know have tricomes that produce terpene. Very cool.

Speaker 2:

Awesome and so Dewey. Founded in Washington. Is that because you were at Washington State University?

Speaker 3:

That's right, or is it because you thought the?

Speaker 2:

Washington market was special.

Speaker 3:

You know, when I had moved to Washington to start my PhD. You know I did focus on states where cannabis was legal or basically legal, so Colorado, washington, british Columbia or California. I went to chose Washington because of that the lab focus of terpene and tricomes and really just because I was there. I was ingrained in the market, my wife worked, was a bedtender, and so it was just sort of what we were focused on. And then, as I was nearing graduation, I started to put together a business plan, started to identify different states we could launch in. You know, california was nearing its launch. But it was sort of just right time, right place. We found a cultivation facility that was a previous plant research facility by a big ag company that had a tissue culture lab. It had research grade greenhouses and growth chambers, had additional space that we could eventually grow on or build on. So it was really just the right, right confluence of timing and facilities and investment capital as well.

Speaker 1:

What's cool, what's no? Go ahead, anne-marie. Oh oh, her screen is gone black. All right, I'll go ahead and ask my question then. Well, what was I going to say about? Like, okay, so you've chosen to kind of be in Washington and basically be there from the ground floor. They legalized in 2014. How has that market evolved? What have been some of the things that you've liked about being in that market? You know, coming at the beginning of the show, I was kind of talking about some of the things that are some of the limiting factors, but maybe those are actually benefits and I would just like to kind of get your perspective as boots on the ground. You know, what have you enjoyed about being in the Washington market?

Speaker 3:

Yeah, I would say, you know, we do have pretty tall walls around the state, if you will. You know the way that the system was set up. There was anybody on a cap table has to be a Washington resident, so that has sort of kept a lot of multi-state operators out, a lot of the publicly traded companies out. And you know, when we entered the market or when we launched our consumer brand in Washington, this was in 2020. So it was a fairly mature market already. You know, around the time we launched, california was facing its first major price compression and at the time we were, you know, having a big sigh of relief that we were in Washington because the market already went through its roller coaster. Prices were pretty stable, of course, you know, through the pandemic, prices moderately increased, but not too much, and so for us it was sort of hey, our business models aren't based on dreams and hopes. These are based this is based on real data that we've been able to capture out of this market for the last six years. So that's, you know that was was a lot easier than you know if we would have launched in a more aggressive state, you know, back in 2018, if we would have launched in California. You know everyone was launching in California. So I think, because we're able to see the market, identify where we could play, it's led to our survival and our brand success.

Speaker 1:

Yeah, it's really interesting and I presume that over time that there's been attempts or pressure to expand the opportunity in the market for some of the bigger players to come in, but it's maintained and so, I guess, has the kind of the framework that that was set in the beginning. That's largely persisted and so, like, do you imagine that that would be changing anytime soon? Has there been, you know, has it gotten close to opening up to to MSOs, or does it look like this is going to be in for the long haul?

Speaker 3:

Well. So I would say you know we're not close to MSOs. There are definitely a handful of MSOs that have started in Washington and expanded. Now they're not the publicly traded monster MSOs that everyone's familiar with, although one of them is has its roots in Washington, in the industry they're. You know, we're part of a very active lobbying group that focuses on state regulation and it's a topic that gets brought up every year. Is, hey, do we want to start lobbying for this? And it's usually a universal resounding no, the folks in the cannabis market in Washington do, I think, for the most part, enjoy that we're able to sort of stiff arm out of state competitors. And that's not to say we're not seeing proliferation of brands from other states. You know, because he's has a footprint in Washington. We have we have brands like Doja, folks like that are entering the market through brand licensing. But you know we have, you know, the influx of massive capital just hasn't really been there. And so much to the point. You know, I was at Benzinga and it was sort of like hey, yeah, we're watching and company is, you know, investors sort of looked at us with like their nose raised, like we, like we smelled, like why are you in Washington. So we know there's not a general, there's not a lot of interest in the market from investors that are looking for high growth opportunities because we are so entrenched. You know, if you look at market data on the state, I think at the top five brands or licenses are doing about 20% of total volume but conversely that has enabled a lot of very small mom and pop or craft cannabis brands not necessarily to explode and flourish but to, you know, have solid businesses. You know, I think there's, let's call it, 500 cultivation licenses. About 400 of those are, you know, producing more than half of the market's revenue. So we do have right big guys up top, but then from there it is pretty widely distributed.

Speaker 1:

Yeah, yeah, very interesting. A topic that we've kind of covered a number of times in past episodes and a question just popped up on LinkedIn what has been the influence of industrial hemp in Washington, you know, over the past year, as we've seen this influx in a number of different states, and where does the state currently standing on that front?

Speaker 3:

Yeah. So when the 2018 Farm Bill rolled out, washington was very quick to adapt its own rules that were based on the Farm Bill provisions. One of those provisions was you know they don't. We don't have a THCA loophole, as I call it. You know, the hemp laws in Washington are Delta 9, thc and THCA, so you're not seeing that gray area loophole being exploited. And then in the summer of 2020, when sort of the Delta 8 craze erupted, our regulators were very quick to respond and all psychoactive hemp sorry, hemp-derived psychoactive cannabinoids are not permitted in the state, not in the licensed system and not even in, like the, you know, the vape shop, tobacco shop environment. So that has, you know, definitely favored us.

Speaker 1:

Yeah, yeah, interesting. And going back to kind of like the science, though, so it sounds like it sounds like the state has done a pretty solid job at, you know, protecting the cannabis market. But the science that you were talking about earlier developing these genetics is do we kind of transferring that knowledge to the hemp market? Is that an opportunity for you that you're looking into?

Speaker 3:

Yeah, you know the way we approach the hemp market or you know just let's call it outdoor cannabis, whether it's hemp or, you know, thc-containing cannabis is. We have a ways to go. Especially, you know we've heard a lot of hype this year about F1 hybrids. You know, I haven't personally tested any of these supposed F1s. Are you actually getting a uniform crop? And a really good way to think about this is you know, if you've ever driven by a wheat field, 99.9% of those wheat heads are about the same height, all the kernels are about the same size and this is, you know, the result of decades of breeding. And I think for cannabis to really get to that level where you can really have high mechanization rate for outdoor grown cannabis, whether it's industrial hemp or, you know, thc-containing cannabis, some level of uniformity is there. And so what we've done, you know we're more looking at the traits underpinning what's called the bottom line. You know, traits that can reduce crop loss regardless of the environment, whether it's indoor or outdoor. And, yeah, they are highly transferable from type to type. Really, you know, if you have a genetic marker in your breeding program, you know if you're enabling marker-assisted breeding and you know that, hey, this marker highly associates with this trait, whether it's, you know, mold resistance or even chemical compounds that it produces. You know it makes a lot easier to transfer from type 1 to type 3 cannabis.

Speaker 1:

Yeah, really interesting. There's like a clearly there's like a heavy science component to your business that has a lot of transferability to you know, whether it's B2B, other markets, that kind of stuff. But then you also have this, you know, very well done and successful brand in the state. As a business leader, how are you kind of like thinking about that and how do you, yeah, how do you really kind of separate those two? What gets the most time, you know? And yeah, like, just tell us kind of how you think about it right now and where it might go for you.

Speaker 3:

Yeah, the way that we approach genetics. Well, first right is on that bottom line. You know, as prices are going to continue to compress, as cultivators and as genetics providers you need to ensure that you know whoever it is that is growing your crop, you know aren't going to be faced with some of these failures. And the other way that we approach genetics is genetics are very much part of a brand, so much to the point where individual cultivars or strains are their own brand. You know, two years ago RS11 sort of took California by storm and it was very much its own brand. And of course larger companies and brands were leveraging the branding of that variety. Of course you know this goes back to Blue Dream or cookies or whatever it might be. So that's sort of how we approach it is. We just lean heavily into the cultivar, the cultivars that we put into our brand. And then you know the business component is how can we ensure reduction of crop loss? So you know we're not wasting resources.

Speaker 1:

Right, right. So does that mean we'll get to see dewy cannabis expanding into other states? What's the what's the what's the plan there?

Speaker 3:

Yeah, we're always looking for interesting opportunities. You know, because we do rely so heavily on genetics being a part of our brand, we'd be foolish to just throw a brand licensing package at someone without enabling the genetics there. You know, there's a gray area on how and or if we can do that. But yeah, long way of saying we're looking at different opportunities all the time.

Speaker 1:

Yeah, yeah, very interesting. I just, I just love the. I just love the whole fact that you have this kind of like deep science, Do you do? How is that kind of built into the dewy brand, Like how does that help you kind of differentiate from other brands in the market? So it's kind of like you know what are the kind of key pillars to to dewy. That kind of set you apart.

Speaker 3:

Yeah. So I think you know, over the last call of five years, we've seen, you know, efficiencies in cultivation that are either enabled by environments or economies of scale or genetics themselves. And so the way that we bring bring science into our brand is we do a ton of data monitoring. We have a, you know we have a team of data scientists that are overlooking our grow, our cure rooms. You know we are testing every batch in house for for terfing content and cannabinoid content, and we share that information with our consumers. You know every single dewy cannabis company product has a QR code says scan me, we'll take you to a page dedicated to education, educating the consumer of everything that's in there. You know we test for over 70 different terpenes. We give that whole breakdown on there. And you know the other, the other half, is sure we can use this data to inform ourselves and our consumers, but we also use this data to ensure a high quality product to the point where you know we're we're measuring and monitoring how much water loss do we have every single day out of our drying rooms to ensure a slower dry, a higher quality product that reaches our consumer.

Speaker 1:

Yeah, well, I'm always curious. You know we we've talked about you know, as, as an ingredient company. You know we've talked about, you know, creating QR codes and giving people more visibility into the supply chain. But there's, there's always been this, this curiosity of mine where it's like how many people are actually kind of going through and and looking at, looking at that information, right, and I'm curious, do you do have a good understanding of that? Like, is there something that you do to kind of like encourage them to do it more so than you know? I mean, we see QR codes now on all types of products. Probably you know Coca Cola cans and all that, but I'm not necessarily driven to go check out what that QR code is going to lead me to. But in this particular case, there's a lot of like interesting information in there and, like you know cannabis geeks, maybe they naturally want to dive in and look at it. What's kind of? What are any learnings that that you've had from, from offering? This is on your label.

Speaker 3:

Yeah, you know, if we, on average, you know, say, 10,000 units go out the door, you know we're probably getting it. You know it's. It's not a high hit rate. We're probably getting a one to 2% hit rate on folks actually going and scanning that QR code. But of that one to 2% of consumers that are doing that, we're getting like an 80 90% response on. So it also enables you to leave a review, give feedback on the product itself and then, prior to us launching a new cultivar to market, we sell it under a sub brand called breeder selection and with that, that, that is how we actually inform. You know how we're going to market the product. Whether it's an uplifting and creative strain or whether it's a sleepy, relaxing cultivar, we don't. You know, as an industry, I mean, I think we're all pretty fed up with Indica Sativa hybrid. However, most consumers, you know, still use that very much. It's still very much a marketing tool used at the point of sale. So who am I to say, oh, this is, this is an Indica is going to, you know, make you very creative and euphoric and will be great for hiking or paddleboarding, whatever it is? I'm me, and in our breeding team, you know we don't have that kind of ego. We do want to sort of distribute and democratize. You know how we're going to market this. Yeah, and yeah, of course it generally is. You know the cannabis nerds that are giving us that feedback and I think at the end of the day, they are the ones that are going to be the most critical. So you know, if we can sort of be in alignment with them, I think it's the brand in a better spot.

Speaker 1:

Yeah, even at one to two percent, like that's a pretty high hit rate for that kind of mechanism and you know, with the amount of products that are shipping, you know, probably a good body of knowledge that you get over time Is that giving you a better understanding of what constituents of the plant profiles are driving certain types of consumers or experiences. You know more so than what we might get by going to Leafley and just reading about. You know terpenes and whatnot.

Speaker 3:

Yeah, I think it gives us pretty good insight. You know a good example here. You know we launched a purple variety about 12 months ago. We ended up, you know, marking it as it's called space fuel. It's a deep, deep, dark purple variety. It has a very lemony aroma. It's very unique in that sense and when we sent it out, you know, to get that market feedback, what we saw was welcome back to the internet. But what we saw was overwhelming comments of I expected this put me to sleep and it did the exact opposite. So I do think that you know people will come into something with their inherent bias, but it does take, you know, some level of usage and we've been able to sort of overcome that placebo that might come with. Hey, this is purple. This is going to make me sleepy.

Speaker 1:

Yeah, interesting. If anyone was doubting whether we do these shows live or not. I think this week and last week are perfect examples as to the fact that we are and Ray, welcome back to the show.

Speaker 2:

Thank you so much.

Speaker 1:

We were. We were just diving through just like some of our technical aspects and like how Jordan and the team collect a lot of data on their, on their, on their products, how they Track that and make it offered, offered to the consumers, so the consumers can engage and really provide feedback and all that. I just think that's so cool. We also went through the, the journey of like how genetics can really offer an opportunity to take doing into other markets and work with other Partners and and whatnot.

Speaker 2:

So I think that's the, that's the, the cliff's notes or Whatever people let's talk about some of the stuff that I think is super Interesting and unique about Washington less about Dewey, but one of the things that I've been really surprised since I have been working With you guys as an advisor, is about credit terms and the way that the money is moving through the market, and so, like we all know that in cannabis there is a lot of financial stress that a lot of companies have and, and especially in markets like California, there are companies that have fallen behind on bills and there has been Situations that are leading to extinction events of small companies because of retailers not paying brands the money for their product. So, jordan, talk to me about what your AR looks like and what the AR looks like in the whole state of Washington.

Speaker 3:

Yeah, for the for the most part, ar. Let's say, week over week AR should be zero. The state of Washington does not allow for net terms, with the caveat of you get three days to pay a bill via a CH Like I don't know the exact percentage, but it's think it's about over 75% of all product does move through a single third-party transit company, and so then that's. The other lag on the AR is you know they pick up your product, they bring it to the store and then on their next delivery day or pick up day at your facility, they will drop off a stack of checks. So that's really sort of the AR window is when can the transit company bring those checks back? I you know, as, as we started as a small business and we've we've as we've grown, not having to worry about AR and how that might impact our cash flows has been Incredibly important. It's it's probably allowed a an inexperienced business, like we were when we started to, to survive over the last five years. So it's really been a good thing.

Speaker 2:

Not only that, lots of cannabis companies think of themselves as collection companies and they have whole teams of employees. Like you don't even have to have them. Yeah, ben, you're raising your hand. Yeah, you don't have to have those employees. It's, it's really wild. But so why wouldn't every cannabis company in the US that is hearing about this show up in Washington? Washington, what, what's? What's keeping? What's keeping the biggest players in cannabis out of the market?

Speaker 3:

Yeah. So Washington is unique In that they have a residency requirement for anyone on the cap table. This doesn't mean that you can't take funds from out of state investors, it just has to come to form of debt. The state does, you know, pretty intensive background checks. Any, any bank account associated with a Washington cannabis business is monitored by the state liquor and cannabis board To ensure that you know funny money is not coming in and so that you know that has sort of enabled or disabled, you know, large Multisat operators from coming in. Now there is a publicly traded multi-state operator that sort of has its roots in Washington, being forefront ventures, and but other than that we don't have any of these publicly traded MSOs. There are some very good examples of retail shops that are chains that started in Washington, have expanded their footprint throughout the country, and same with a handful of operators. But from what I've seen these other, when these operators do enter other markets, they, they, you know they don't capture the same type of presence that they have in Washington. I don't know if it's because you know that the competition is this stiffer or if they, you know, didn't have the true first mover advantage that they may have had in Washington. That's generally the trend we see is Washington brands are, or the brands that do well in Washington are Washington based.

Speaker 1:

I Do want to go back and double click on the on the whole AR thing, because I am one of those folks that I feel like I'm running a collections agency. It's I, I. I mean that would be such an immense amount of like just peace of mind to know that that's not like a worry has. Has the, that structure been threatened like? Is there, is there a downside to they're not being like a like returns allowed? Like are people fighting to create terms? How do we get this situation in other states? I'm just like kind of freaking out because I like every call every day. I mean like I feel like I'm talking about AR with the team and we're trying to really hold people to their terms and it's just a really Challenging market right now.

Speaker 3:

Yeah, so you know not, not only is it, is it, you know, part of the, the regulations, but it is actually part of Washington laws that relates to cannabis. Legislators from day one just sort of knocked us out. I think the fear initially was that We'd be getting, you know, funds from organized crime and I'm not saying organized crime. Money hasn't gone into auction cannabis and almost surely has, but I think it's, it's reduced it. But I think, because we were the, you know, the first date with Colorado to legalize cannabis or adult use cannabis, there there was that fear of oh man, it's all gonna be dirty money and dirty operators. We have to do everything we can to stop that. I don't know why. You know net terms was sort of the way they Made shows to read those types of operators out and I don't know if it's been successful with that intent. But I do know that it has allowed for small companies to thrive Despite, you know, having some, some major major players in the market who could afford, you know, having net terms of 30 or 60 days on their AR.

Speaker 1:

Yeah, I mean it's, it's probably it puts the bird. I mean, the biggest burden probably hits the, the retailer, right where they they need to stock their shelves. Can you do consignment is, is that? Is that a way to kind of get a retailer off the ground?

Speaker 3:

As far as I know, that's consignment's not allowed either. You don't see a whole lot of new retail shops popping up. You do. We have seen over the last 24 months a lot of consolidation. You know what was a three store chain? All of a sudden there are 13 store chain, and I think it's you know they. They either had prime location or they have a really really good operators who you know can, can identify when one of the competitors might be struggling and go and acquire them.

Speaker 2:

Well and so, interestingly, you're talking about the, the landscape of businesses and the ability for small businesses to exist because of Getting paid, which is amazing. To prepare for this podcast, we reached out to headset to get some Insights from their Washington data and they were very generous. So thank you, headset set, to sharing that data. But we we looked over that the top 200 brands in the market in Washington and and there really are a lot of brands that are in market. But I will say that the top 10 brands Bring in about 20 million dollars a month in a market that does about a hundred million dollars a month. So the top 10 brands are still 20% of the market and of those top 10, three of them are owned by fat panda, one company, and then the rest of the 80% of the brands are a whole bunch of small brands, and so it seems like, like those small brands that are all fighting in that, in that, in that group, like what is it that people aren't investing in brands? It seems like the brands are a little bit undifferentiated in the market there. Like, what is? What is your feedback about the difference between the top 10 and and the rest of the brands Top 10 and and the rest of the 190.

Speaker 3:

Yeah, I think one of the big Problems or issues with with Washington cannabis brands is that so many operators Think that a brand is as simple as throwing a label on a jar and getting some screen printed t-shirts. A brand is so much more than that. A brand, ultimately, is a promise to its customers. I, you know, what you're gonna get from us is either you know I'm gonna be repeatable or you know you can trust that we're gonna put something out that's going to be good. And so, just you know, folks aren't building communities around their brands. They aren't ensuring that their you know their product is gonna be consistent from time to time. You know, maybe that is a function of these are just smaller companies. They don't have the resources to invest into marketing and branding or, you know, being able to invest in the technology to ensure that they are getting consistent products from harvest to harvest or, you know, batch to batch. Beyond that, I mean, I think you also see a lot of Retail churn. So, if you know, if you look at the top 10 brands in Washington, first and foremost, over the last year, only one new company has entered the top 10, and Last year they were top 12. So you're not seeing a lot of Movement at the top of the market. And what you do see, you know you'd mentioned you know the call the fat panda family of brands. You know they have three at the top 10. If you add in their Dabstract partnership, you know, I think they have they've, you know, before the top 15. Well, they were first mover advantages. You know, when I moved to Washington, it wasn't 2014, it was shortly before the launch of recreational cannabis there, and my recollection was fat panda was the first brand that had glass jars. You know, something as simple as that. They just weren't in mylar. They had a better, you know, consumer experience for folks that were looking for, you know, good quality cannabis. And then you know I do think it does relate back to this you know there aren't a lot of out of state folks making investments in the cannabis or moving into Washington cannabis, and so there's just been a lot of, you know, business as usual. There's not a lot of innovation. I think for a lot of companies that you know they're, they're a okay with doing a million dollars a year in sales because you know it's, it's a, it's a farmer operator and they have a small trim team and you know they do most of their distribution through third-party transit. So I think it's a healthy mix of the guys at the top really know how to market and build brands and the folks at the bottom are, you know they're. They operate an environment where there's not pressure to you know Scale super large or or really push products. They just know that they have a small customer base that will keep keep buying their products.

Speaker 2:

Yeah, it sounds like the ownership restrictions have actually Supported this small business environment because it's made it so that the the operators in the market haven't needed to mature and be quite as competitive as some of the more cpg forward markets that we're seeing that are more consolidated and more vertical. And the other thing along those lines that that you mentioned when you were talking about transport but just alluded to, there is no vertical integration in Washington either. So they're all of the brands that are in market are producers themselves, they are not owned by retailers, they do their own sales and there is no distribution tier. So it's it's also unique in that way as well.

Speaker 1:

Well, there's also there's no I just learned this there's also no delivery right and and that must also Kind of like really just drive like this uniqueness of of the market where it's like maybe Maybe that's why that there's not like a, a huge movement in the rankings of products, because there's not like a lot of new consumer discovery. I don't know, I assume how do operators in space generally perceive, like the, the retail environment and like the, the accessibility to new consumers and all that Like, because I know we talk about a lot in california, right, it's like the new consumers, they want delivery, they get it. You know they aren't going into the dispensaries. Is that also the same in in washington like, or or our dispensaries more Um, more prevalent, I guess.

Speaker 3:

Yeah, we, we don't have that many dispensaries, you know, or our state has a population of a little over 5 million people. There's 430 active dispensaries in the state um. You know, I think if you talk to any operator, they're going to say we need more stores. I think if you talk to any retailers and say, no, we need, we need less stores, um, you know, I think it's the nature of competition, um, and yeah, because we're not vertically integrated, you know you very rarely do you see? Uh, you know you don't walk into a store and it's like, oh man, but all they have is this brand with a corner of seven other brands, um, overwhelming, I would say. You know, you sort of get analysis paralysis when you walk into a walking cannabis dispensary because there's so many options, um, and then, yeah, you know, we, we don't have, uh, delivery, um, and so I I do think that that that nature, I think, you know, I would think that the folks, if let's you know, assume we did have delivery, um, okay, well, the, the folks that are paying iHeartJane or duchy or whoever's hosting the online menu, uh, the most Will have the most sales. Okay, great, that's going to be the same top, top of the market folks that are doing well already, um, and so I, I do think that the, the dispensary or the retail experience in washington Is another factor that enables all of these smaller brands to exist, um, just because they do have that shelf space, you know you might walk in and you know you're, you're fairly certain You're going to pick something up from fat panda and then, right next door, you know there's a, there's an eighth of a new brand that maybe it's just something caught your eye. They've got particularly good-looking weed, um, and so you make that purchase next time you go, and though you're buying fat panda, for example, um, so yeah, the, the retail experience, uh, sort of serves both the top and, you know, enables the wide mix that you see at the bottom.

Speaker 1:

Do you think? Do you think we'll get delivery in in the near future or anytime? Is there is there? Is there a push for it?

Speaker 3:

um.

Speaker 1:

You know it's, or only when amazon's allowed to do it.

Speaker 3:

Yeah, you know, um, I I don't know how much amazon has to say in in our cannabis laws, like most washington laws, they they're probably pretty heavily influencing policy. Um, it's not something that's widely talked about in, at least in the circles of the industry that I'm a part of, um, I think it's almost a A a forgotten aspect. Um, and honestly, you know, until we were prepping for this podcast, you know I it was it. It's not something that's unique to washington to me, because it just it was never a thing.

Speaker 2:

Um, One of the things we talk about on this podcast a lot is hemp drive cannabinoids and also the illicit market, and I'm curious of these non-legal cannabis impacts that you see in the Washington market so like is there an impact from hemp-derived cannabinoids that are competing with your products or, similarly, are you feeling like there's a lot of competition from non-licensed cannabis producers?

Speaker 3:

Yeah, on the hemp-derived cannabinoids, so psychoactives are not allowed in the state. The state was very active with, upon the passing of the 2018 Farm Bill, putting their own program in place that sort of enabled some of these loopholes and in the summer of 2021, when Delta 8 was becoming very prevalent, the state acted very quickly in allowing not only Delta 8 in the recreational market, but statewide along those lines of the hemp rules. So it's not something that we just don't see it. We just don't see it exactly. Okay, that's great yeah.

Speaker 2:

What about the illicit market?

Speaker 3:

Yeah, the illicit market. In the industry circles I'm a part of, there's more worry about the illicit product coming in through the back doors or the side doors, not necessarily a product coming out of the legal market, and I live in rural Eastern Washington. There is not a thriving black market where I am, or at least I'm aware of. There might be a different story in Seattle or Tacoma, but I do think that for the most part the state has enabled the system that retail tested adult use cannabis is at a fairly good price and I don't know how much black market would enable to compete. Of course they can, but it's not something that's necessarily top of mind, at least in my industry circles.

Speaker 1:

When you say come in, you're not worried about the product coming in, but there is a kind of an illicit market avenue to get into the regulated retail shops. Is that what you were saying?

Speaker 3:

So, yeah, the fears in the lobbying group we're part of is that there are bad actors who have a licensed cannabis entity that is importing cannabis or distillate or extract from other states, possibly other countries. So I know there's a rumor definitely big asterisk here. This is a rumor, rumor, rumor. One of the top fake brands just shut down all their labs. They're not actually extracting anymore, they're just bringing in out of state distillate, making their formulation, filling carts and they're being distributed. Maybe that's industry hearsay, maybe that's true, but I do know there are enough folks worried about I can't remember the exact term that they like to use it's not black market, it's not legacy or anything like that. I want to say they say the side door, the folks using the side door. I don't necessarily know how it's enabled. I think a part of it is. I don't want to say we operate on an honor system with our compliance software, but it's close to that. We basically submit spreadsheets to the state and, oh man, hey, this harvest we had re-exy yields that we usually had, for example. There are ways that it can be done.

Speaker 1:

So I was just going to say so you're not on a metric or biotrack. It's a different type of tracking system.

Speaker 3:

Yeah, I think because we were in an early state. It felt like in the early days they were trying out a different product every 18 to 24 months. I know biotrack was there at some point. I think GreenBits was there for a bit, there was an MJ product for a while and then in 2022, the state threw their hands up and said we're sick of the complaints. Here's our own system it's called the Central Cannabis Reporting System, or CCRS that the state enabled. I do believe that a lot of issues that we had from third-party traceability softwares have been resolved, but I do think there is this little bit of buffer room for folks to take advantage of what is widely used as an honor system.

Speaker 1:

Wild. Just another tick box on how the state's feeling very different than at least our home state of California. Yeah, what do you think, anare?

Speaker 2:

I think that Washington is one of those places that, because it's mature and it's been around for a while, people don't pay it a lot of attention, but I think that something that's unique about it too that I noticed in the headset data is that it's fairly stable as well. I see the sales being predictable over and over, and I think that there's something to be said in an emerging, complex operational business like cannabis for predictability and I like that about what I see happening in Washington. I think that even if the prices aren't as high as they are in some of the emerging markets, at least you know what you're dealing with and if you can operate to a level that's profitable within those margins and those prices, then you can feel confident that you can make it work. So I like Washington. I think that it's different and unique up there in the Northwest corner and that deserves a little bit more attention.

Speaker 1:

All right. Well, yeah, jordan, this has been really enlightening. I'm just flabbergasted at a lot of it and I appreciate you being so open. I know if Anare asked me on a podcast what my AR was, I would start sweating bullets and probably like dance around the answer. But we are reaching the end of the show. I want to make sure that we have an opportunity to jump into our last call. Last call is the time for you, jordan, to basically plug anything that you want, be it cannabis related or not. So what do the people need to hear? Where do they find you? How do they help support what you're doing at Dewey? Let us know.

Speaker 3:

Yeah, for my last call. I just want to if there are any listeners out there that are operators, I think and especially in nascent states where it seems like the sky is the limit don't compromise on quality. There are ways to impact your bottom line that doesn't have to impact your product quality. We're not going to be in any better spot in five or 10 years if we're treating this as such a cutthroat business that corners are cut, quality drops and the unregulated or legacy market isn't allowed to thrive in the way that it is in so many nascent states right now. Then, yeah, you can find me on LinkedIn. You can find DeweyCannabis at DeweyCannabiscom. You can follow Dewey Scientific on LinkedIn. We have a very active and robust Instagram presence with Dewey Cannabis. It's purely educational. Beyond that, yeah, it was a pleasure to be here today. Thanks for thinking of Washington when so many people are not.

Speaker 1:

Absolutely Well. Thank you so much. It's been an incredible conversation. There's so much uniqueness to the Washington market, whether it's the ownership requirements, the lack of AR no terms that is just insane. The lack of delivery, which is just accepted. Yeah, it's such an interesting market. I really enjoy this conversation. I want to make sure that we bring other operators in from other markets. If you have an idea, let us know. Also, appreciate the audience being patient with our technical difficulties that we were having today. We're not going to try to make this a habit, but you never know. We're always out and about. We're dedicated to making this happen, no matter where we are in the cannabis world. As we wrap up, I just want to remember or I want you to remember, I remember that the dialogue doesn't have to end here, that we can keep this conversation going. Drop some comments into our LinkedIn feed, but really, now that we got the podcast up and running, anything you can do to help us spread the word More subscribers. Share it with your friends, family, coworkers. We love having these conversations and showing everyone that there's still a lot happening in the cannabis industry. Don't forget about us. All right, folks. That's it. I'm going to wrap up. I'm just going to remind you, as always, stay curious, stay informed and keep your spirits high Until next time. That's the show.

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Washington's Cannabis Market Regulations and Lobbying
Washington Cannabis Brands
Restrictions and Retail in Washington Cannabis
Cannabis Industry Dialogue and Awareness