#028 - The Complexity of Cannabis Distribution w/ Will Brophy of Nabis

Speaker 1: 0:01

Hey everybody, welcome to episode 28 of High Spirits. I'm Ben Larson and with me, as always, is my co-host in crime, anna Rae Grabstein. It is Thursday, january 25th 2024 and we've got an amazing show for you. Today we're going to be diving into all things distribution. Here in California, we've had a fun journey in distribution, so it's a good example of what other states can expect as these systems build out. Before we get into all of that, I'm going to slow down a minute and take a breath and check in with my co-host, anna Rae how are you doing?

Speaker 2: 0:46

Hey Ben, I am doing good. It has been a challenging week. I won't lie, I've got some sickness in my family, but the real highlights have been that I've been hosting one of my clients here at my place in Sonoma County and we were doing some really in-depth strategy.

Speaker 1: 1:06

That is full service. That's full service clients.

Speaker 2: 1:10

I have this really sweet guest house and I'm highly productive here. I figured why go rent a conference room and a hotel somewhere where I basically can just host in my backyard in beautiful Sonoma County. Not bad right.

Speaker 1: 1:29

That sounds amazing. I'm glad you're healthy. I was actually going through the machinations of how do I intro the show and do a show without Anna Rae here. I'm glad you're healthy because I don't want to fly alone.

Speaker 2: 1:44

I'm sure at some point we will do some solo shows. But for now I am here and committed. You're back from your Mexico trip. How was reintegration back to the mainland?

Speaker 1: 2:01

As with all vacations and returning, it's been overwhelming. I've been working day and night since being back, trying to get caught up and get all the things done. When I left for vacation, I remember thinking, wow, this year really just got started with a ton of intensity. I'm like I just need to reset and come back more centered. I definitely came back more centered, but it was immediately reminded oh yeah, this is just the theme of the year. Everyone's really moving and running. I guess this is what it is for the foreseeable future.

Speaker 2: 2:38

Yeah, we're going to Miami next week, both of us for Kansas City.

Speaker 1: 2:42

Yeah, my first time in Miami. I can't believe it 43 years of life and I will be touching down in Miami for the first time.

Speaker 2: 2:50

Wait what? That's so cold. I am barely going to be there just for two days. I wish that there was more time so we could go out in Miami. Are you going to make time to go have some real Miami experience? Eat some Cuban food?

Speaker 1: 3:06

I hope so. I'm going to try to cram it all in. I get in Wednesday conferences, thursday, friday, and then I have the last flight out on Saturday night. This is as much as I can do.

Speaker 2: 3:19

Yeah, I'm sure we've got some folks that can send you some good recommendations for Miami.

Speaker 1: 3:23

Yeah, bring it, bring it, give me the recs.

Speaker 2: 3:26

Well, let's dive in. I'm really excited about this conversation. Today we're going to be talking with Will Brophy. He's the COO of Nabis. Most people, if you work in cannabis, you've probably heard of Nabis. They are probably the most impactful distribution company in the space right now. As COO, will manages strategic projects planning with a focus on operational innovation. He oversees a tremendous amount of the work at Nabis. That includes the operations, the fulfillment, the distribution, security, customer experience, legal and government relations, ar. There's a ton here.

Speaker 1: 4:11

All the things.

Speaker 2: 4:12

So many things. Distribution is a central part of the California market in particular. It isn't that way in all states. We'll dive into that in the conversation. Let's welcome Will. Thanks for joining us today, Will.

Speaker 3: 4:28

Hi, thanks, thanks for the kind words. I appreciate you guys having me. I'm a big fan of the pod, so it's awesome to be on talking to you guys.

Speaker 2: 4:36

We have fans. That's amazing. We have a fan.

Speaker 3: 4:42

I'll start a club. Maybe I'll circulate a LinkedIn invite for everyone after.

Speaker 1: 4:46

I love it Very good, Very good. I'm super excited to dive in this conversation as a CEO. The COO role is a storied role Often times people refer to as the internal CEO. As Anore was listing, there's just an immense amount under your purview. I'm excited to hear about what those first days were like, coming in under the founders of Navis and helping build out this company that now employs 300 employees or so with over a fleet of over 100 vehicles yeah, pretty wild. It's awesome to see how much you guys have grown.

Speaker 3: 5:29

Thanks. It's come a long way. As folks who work in cannabis probably know, four or five years can be like 20 years. When I think back to those days where I joined, we were in, I think, 20,000 square feet of really suboptimal office space that we'd used as a pseudo warehouse. We were doing our best and doing a good job for our clients where we could, but it feels like a lifetime ago because we've really built out and matured as an operation since then. It's been fun to see their ride. It feels like a very different company every year over the last four or five years. I feel like I'm on my fifth or sixth iteration of Navis at this point, which is a good thing.

Speaker 1: 6:12

I'm going to keep us here for just a little bit because I work with my COO every day. He's like my right arm. What were those initial conversations like with Vincent June and what was their? How did they frame up the need of the business to you when you first started working with them? Then what's it like working with? It's being helped a lot. I don't even know the dynamic of co CEOs and anyone that doesn't know Vincent June. You know great guys here in the California market. Just watch them grow this company, but they, they, they are co founders and co CEOs. Am I right?

Speaker 3: 6:47

Yeah, that's right. You know, early on I was actually originally helping Vincent June Higher for my role. They both have really strong tech backgrounds and got into the cannabis industry thinking they were gonna build a tech platform and quickly realized that, you know, the underlying Logistical foundation was a really critical piece as well. So you know, I knew them through a friend Day Lim, actually of Sunday school, was a close friend of mine. He's been a client of ours for five plus years five years now and they introduced us and I was helping them hire somebody for for a role similar because I had a background in, you know, traditional supply chain and logistics and distribution strategy and I found myself way more excited about helping them hire the role than I was my day job. And and so we we jumped from the, from New York City, over to the West Coast to do this and from the beginning the conversations were really more oriented around building a mature supply chain that are that our customers could really trust. That's where my focus was.

Speaker 3: 7:48

So building out the infrastructure and in early days, inventory management was really as a struggle for us and we had we had a sort of manual system that we'd piece together that was, you know, worked at a small scale, but every time you scale up to you know 2x what you were before, you have to ask yourself does does the current platform, do the current resources work? Do they, you know, do they serve the needs of our brands? Which is ultimately what's most important. And we really had to overhaul a lot of our inventory systems, but we feel like we've locked in a lot of, a lot of those pieces and, you know, just moved on to the next problem, which has evolved over time. You know, our personal roles have also sort of followed that path, right where, you know, there's a bunch of different life cycles of this business and of the industry and we've tried to evolve what we're focused on to reflect what, what the business needs and orient the business around what the industry needs. So you know when, when I first started, vincent june's focuses were a little bit broader and over time, they've tried to refine what they're focusing on to really make sure that they can Execute on those things as well as we'd all like to.

Speaker 3: 8:59

But working with them is awesome. They're really, really smart people and really willing to look in a mirror and say what's working today and what's not and what's gonna work in the future and we adapt right, and that's that's one of the most important things in cannabis, and Vincent june really champion that and We'd buy example on that front. So, yeah, we have co CEOs and then we have a president named Sean O'Royle who also works on a lot of our big initiatives, especially internally, and it's it's been great, it's really collaborative and, frankly, there's no shortage of work. So, you know, it's an environment where we're there's no sharp elbows and who's working on what? Because you know there's tons to do. So it's, yeah, it's a pleasure. They're really, really fun to work with smart guys.

Speaker 2: 9:43

Let's let's talk a little bit about distribution and setting the stage of why it's so important. Specifically, we'll we'll focus on California for for most of this context, and that that's where Nabas operates, and you know, california created, through through its it's a prop 64 initiative, a distribution tier. That was required. So that means that that every product that moves through the supply chain from a producer, be them a cultivator or a manufacturer, needs to be transported by a distributor and and that distributor owns the transaction, basically between between the distributor and the retailer and the overall the supply chain has shifted a little bit in that for a time when the adult use market launched in California, the taxes were flowing through the distributor, which had its challenges, and that has has moved and changed and shifted over time, and Now the taxes are being collected at the retail level. But, but distribution remains a requirement.

Speaker 2: 10:46

But that doesn't mean that the products are only moving through standalone distributors. You're allowed to stack license. Yeah, so there are Cultivation companies that have a distribution company or a distribution license and that means that they're able to to sell direct to a retailer if they choose. So sort of a choose your own adventure. If you are in the state of, are you gonna do this yourself or are you gonna work with somebody else? And and it's a big state, right? So we've got you can't even huge from from north to south on one on one eight-hour shift.

Speaker 2: 11:23

So, like, logistically, there's a lot of complications in California and when, when adult use launched in 2018, a few, a few distributors really really start to rise to the top, and and nabbitz has been one that has actually been able to sustain and grow, as as some have have grown and failed along the way and and Some people think that the distribution tier should, should be not required anymore. But I think it would be helpful for for the listeners to understand kind of where nabbitz fits in in terms of what you offer as a distributor. There's people talk about full service distribution. They talk about Black Mile fulfillment delivery only and help us understand kind of what it is that you guys actually do and and and and the scale at what you do it at currently in terms of the overall market and what that looks like.

Speaker 3: 12:25

Sure, great tee up there. Everything you're saying is definitely correct, navis. We think of ourselves as a cannabis wholesale solution in one simple platform where we're using modern tech built on proprietary data and trying to create supply chain offering that really helps our brands access the market. As you mentioned, there's this structural components of licensure and access to it, but there is these other big pieces around, just the true need, right Because of the state size and because of the complexity of the cannabis supply chain in California, we've found we're able to offer a suite of services that are really helpful, with distribution underpinning it, but also extending out to things like a marketplace, capital services and analytics.

Speaker 3: 13:16

We try to have a pretty rounded wholesale offering. The way I would think about us and what's differentiated us from a lot of our competitors, is that we don't have sales reps, right. So when you think of a traditional wholesale distributor, their MO is typically to buy products from brands and they think of them as vendors. They take title to those products and then they use the distribution companies' sales reps to go out and sell those products in at a markup, take their margin and move on. They really think of their role as curating a limited but powerful portfolio of, say, a dozen strong brands and they take on that financial risk all the time but then also really own the sales cycle and the sales process. What differentiates NABIS in addition to those ancillary services that we really think round out are offering that I mentioned earlier in addition to that, one of the things that really differentiates us is that we don't own that sales cycle. So we work with brands who are either excited to do those sales themselves or want to use a third party sales agency like a pedal.

Speaker 3: 14:25

Fast is one of our big ones. What we've found really helps differentiate us is that we can really focus on the logistical component and focus on supporting brands in the key ways that add value to that supply chain. Our goal is to provide access to choice and have a broad portfolio without those principal agent problems, whereas a traditional distributor is a little bit more interested in curation and capture. That platform approach using tech and a more agnostic view we've found has been really helpful, given there are just true supply chain problems in California, as you mentioned, humboldt to Atalanto, which are two major portions of the California supply chain, they're 14 hours apart. The two main cities that underpin the sales in the state. They're six hours apart and you ideally want inventory that can work in both cities. So there's true logistical problems and we try to address those as best as we can, but we do vary from a traditional distributor in some ways, and we think that's actually one of our main strengths.

Speaker 1: 15:30

Some of those logistical issues. How does that work with the relationship with your customer? Are they incentivized to go out and sell a particular region and does that make it easier Because it's easy for you to distribute it from one central location versus them having a dispensary in Sacramento and a dispensary down in San Diego? How does that relationship work?

Speaker 3: 15:56

One of the beauties of NABIS and working with us is that you don't have to worry about that. From our perspective, running a brand is really really hard in California and we want to help folks as much as we possibly can and really help bolster our brand's sales strategies. So we have a statewide footprint. We have, as you mentioned, over 100 vehicles. About 20 to 25% of the market is coming through NABIS trucks. So we've reached those economies of scale that really let us be in almost every region on a daily basis. A vast majority of orders are going to go through on a two-day turn and you're using a platform where you have all of your statewide inventory on it and you can select in order to any retailer with some intelligence around what date you're going there and you even get information like proprietary credit scores for those retailers. But the point for our brand really is that they don't have to worry about those things. There's ways for us to save some money by bundling and we do that where we can.

Speaker 3: 17:03

But really the upside of NABIS is not having to worry about how regional your sales are and being able to cast a wide net across the state. That's logistically very hard to do, so you'll often see these localized sales strategies, but that can really hamper a brand. If they have a tight region that they have to sell into, they're more vulnerable to shocks in that micro market, whereas if you can sell statewide and not worry about where you're sending it whether you want to send it to Mammoth or San Francisco or Los Angeles you have the inventory in your system, you know what you have and you can send it and not worry about it. We've found that's really helpful for our brands, because running a brand in California, as I said, is not easy and they have a million things that they have to focus on already and being able to take one thing off their plate that they don't have to consider we find to be really helpful for them, or at least we hope it is.

Speaker 2: 17:59

Yeah, we know that in California the name of the game is efficiency and so figuring out. Everyone is struggling to be profitable at a minimum and just to not be losing money and stay in the market at this point. So you're right, making things simpler is huge. It occurs to me as a former operator myself and now someone that works with brands, looking at different distribution offerings. In general, distribution services tend to be charged as a percentage of sales, which I think is your guys' business model as well.

Speaker 2: 18:34

Like back to the brand, so the brand is the customer, but then you also are serving the retail customer, so they're your customer as well, while they're also the brand's customer. So there's a sort of triangle of relationships. But you guys have differentiated. It really is worth kind of digging into this decision to not offer sales, because that is kind of how you really are very different from many of the other distributors that charge higher fees but then also offer sales. And I wonder, has that been challenging for brands to stand up their own sales? And we've seen this wave of third-party distributors start to come in to offer additional sale services. Like, do you think that that's the wave of the future? What do you see as the most efficient way for somebody that's producing product to get it in market and get it to scale.

Speaker 3: 19:31

It's a great question. It's sort of the multimillion-dollar question, right. I don't think there is one right way. I think it really depends based on your risk appetite, the capital available to you, your product category. There's just a bunch of different factors that go into it. So a big part of our platform is we think it provides some modularity and some flexibility so that we can adapt and embed ourselves in the supply chain of these brands and work towards increasing sales and work towards building a great relationship with the end customer being their dispensaries.

Speaker 3: 20:06

It certainly there's been points in time where it's challenging to not have sales. It adds a lot of logistical challenges for us, to be honest, and that if we had full control of the sales cycle, we could probably push back more logistically than we do, whereas if we're working with external sales folks, we really want to keep them happy and work around the needs of loads of different businesses, loads of different sales orgs, and they structure themselves differently. Some are using a central sales coordinator, some are having every rep enter their orders into our site. So we have to be a bit more adaptable to their needs. But from an external market perspective, we think it's been really helpful and that we don't have to limit ourselves to just a few brands. We have a vape brand that does super well named RawGarden, that most folks in the industry know, and we can do everything we can to support RawGarden. But it doesn't mean that we can't bring another vape onto our platform without compromising our relationship and the sort of structural incentives with a group like RawGarden.

Speaker 3: 21:16

And I think it really depends on the size of the company, our experience there's a lot of brands who were historically working with other distributors who did those sales and marked up those sales, but those brands were still finding that they actually had to do sales anyway.

Speaker 3: 21:35

They had to go out and do those activations and tell their own story and invest in those sales functions even though they were getting charged for them. So for some of those brands one of the main points of NavVis is that we don't do sales, so they can own their own story and tell their own story and control their sort of sales team. There's other folks who still don't want to do the sales and we have third party sales agencies that you can plug right in and they have a lot of the same benefits of NavVis that you don't have to eat those stepwise costs as you grow your sales team. But there's certainly times where it would be simpler if we were just doing a more traditional model, but we do think it provides some extra value in the supply chain to maintain that agnosticism. But ultimately we want to do what's right for our brands and support folks where we can, and what we wanted to avoid doing was taking a super high margin and then not executing on the sales in a way that did our brands right.

Speaker 1: 22:34

I think the interesting opportunity that you have here is presented because of the way that the cannabis industry is structured. We have a super fragmented market. You can't go from one state to the next, and so if you say want to enter Nevada which I'm not forecasting anything, I don't think NavVis, you can tell me later but say you land like Reno, which is just on the other side of Lake Tahoe. It's not like you can drive the trucks from a stop in Lake Tahoe on over into Reno. It's like a completely different ecosystem. And so knowing that focusing on the platform itself makes it easier in a way, because then you're not having to go in and establish all those relationships with all those new retailers in the same way that you would to create the full suite of an offering that a traditional distributor would do.

Speaker 3: 23:28

Yeah, yeah, I think that's right, and even within California it's extremely fragmented, so it's really helpful there. You know, at the end of the day, we do still have to develop these deep relationships with retailers, because we need to deliver effectively and we need to collect from them. So in the end, we end up having to build those relationships, but we can focus our relationships around logistical components and really serving them as well as possible, whereas if you're constantly trying to balance sales and AR, it can be hard to do. Though, at the end of the day, you know, we don't view ourselves as, while we're agnostic between brands on our platform, we're not agnostic to the broader market. We want our brands that are on our platform to win, so we sort of think of ourselves as an embedded version of them. So, at the end of the day, we don't get to sidestep too many of those challenges, because those relationships with retailers are extremely important.

Speaker 3: 24:22

As you guys know, there's really no way to absolve yourself from the fact that this is a relationship based industry and, you know, we maybe thought that we would build something completely scalable and that the relationships wouldn't matter. I think if you'd asked us five years ago, that might be what we would say, but today we've come to terms with the fact that we still have to build those deep relationships because there's, you know, there's a limited number of people controlling this industry and, while it's fragmented, it's not it's not, you know, a massive universe where there's 10,000 people making decisions. There's, there's a few thousand at most.

Speaker 2: 24:59

That's such a good point and and you said it you opened up this conversation about retail relationships and AR and collection, so I'm just going to go there.

Speaker 2: 25:09

You know we've been hearing a lot about how behind retailers are and paying their bills and how that's that's trickling through the supply chain and causing tremendous suffering, honestly all the way back through to the cultivation layer, and hurting the farmers. And just I think yesterday Green Market Report reported that the same thing is starting to happen in the New York market, even though there's less than 60 stores that are open, which was really disappointing to see. You guys, you guys handle accounts receivable and collections as part of your role in the supply chain, and so I want to hear about that. I want to hear about your perspective on on late bills and just to set the stage for people that are listening to understand, understand the scale of of what that looks like. If you could tell us a little bit about how much of every dollar spent in California, like of the overall wholesale market, how much is Nabas distributing, so that we can understand kind of the breadth of this AR that you guys are facing.

Speaker 3: 26:14

I would say 20 to 25% of the market comes off the back of our trucks, though some of that is COD. So there's not really a cash on delivery, so there's not really a, you know, a full collections burden on our total amount. We're moving through our system but quite a lot of it is is going out on terms. So you know we have we move something like 5,000 orders a week. We're going to have to go through and collect on the majority of those. So quite a lot of work on the collection side.

Speaker 3: 26:43

And, as you said, there's you know there's definitely retailers struggling to pay their bills. There's, fortunately, some retailers that do a great job of paying their bills and they don't always get the credit they deserve. We have some retail partners that are, you know, truly a pleasure in doing their best to pay us and do right by the brands that they work with. But there's also, you know there's folks who don't pay their bills for whatever reason sometimes expansion, sometimes financial distress. It's a really tough industry and you know access to cash flow is a problem for everyone and I think you know retailers in a traditional industry would have lines of credit that would really buffer a lot of the problems that end up getting passed down the supply chain to the distributors and you know it rolls down the hell.

Speaker 1: 27:31

Is it kind of one of those? Well, feel free not to answer this, but I have an AR call later and you know, as an ingredient company, what we do when we need to get money is well, there's no more orders being shipped. I'm assuming it's kind of a similar dynamic where it's like I mean, these retailers need product to sell If they're behind on their bills, I'm assuming they're not going to get any more product to sell. Is that the general mechanism Generally?

Speaker 3: 28:01

speaking. Yeah, I think where it gets a little more complicated is that you know, if you use, we have over 200 brands, right. So there's also situations where you know we have to lean on on our scale and our collective system to gain leverage and get retailers to pay, and that's helpful. But we also don't want to. We don't want to be too heavy handed with our brands and make choices for them that we're not necessarily equipped to make, and balancing between those two is really important, and what I mean by choices we're not equipped to make. You know, there's really obvious examples of folks that pay their bills in an amazing way and we can, you know, recommend them. There's folks that just truly don't pay their bills and we advise our brands really not to work with them. There's also a big messy middle where they pay some brands, they don't pay other brands, and you know a lot of them are going to pay, but how late they pay is really the question.

Speaker 3: 29:01

So a big part of how we try to approach it is to give information to our brands and help let them make some of their own choices.

Speaker 3: 29:09

So if you're a brand that is in a position where it's, you know, you're not even really super concerned.

Speaker 3: 29:15

If you're going to write off a little bad debt, but you need to grow top line revenue more than anything, you might be comfortable working with a retailer who has a less than perfect you know track record of payment. If you're a brand that's, you know, really just focused on the bottom line and you don't want to put any product out there that you're not going to be certain you can pay for, you're going to make different choices, right. So a big part of what we try to do is to give a proprietary credit score that's anonymized but aggregated across our platform. So when brands are going to place an order to a retailer, they have all of the information and can make those choices themselves, and we go help collect on it. But we also, you know, there's some financial risk that still falls back to the brand. So, from our perspective, giving the information is one of the really key pieces, so that people at these brands can make informed choices about what does or doesn't make sense given their you know sales strategy, financial risk, appetite, all that stuff.

Speaker 1: 30:14

That's super interesting. It was making me think that we should have just a general cannabis credit score across the industry, because collectively we have enough information about everyone that we work with, and now I'm remembering I think I heard that somewhere that that's happening.

Speaker 3: 30:30

Yeah, we've been working.

Speaker 3: 30:32

We helped establish the cannabis industry credit group in partnership with the Credit Management Association, which is a really old credit organization that goes back into the 1800s.

Speaker 3: 30:44

We helped create this and have worked with a lot of the other distributors and some large self distribution players to share anonymized versions of what you're describing to help get everyone on the same page. We started by doing it on our own platform. We've been, you know, developing our algorithm and improving it for years now at this point, and our brands really do appreciate it, seeing what that credit score looks like. And you can look at our historicals and see a lot of the, you know, a lot of the aging AR is going into places that we knew had problems paying. And, yeah, I think there's tons left to be done and we as an industry have to sort of scrap internally and create some of the tools that a typical small business would already have right, the Better Business Bureau and standard credit ratings and things like these that aren't really accessible to us. We have to forge our own path, as is sort of the story in cannabis often.

Speaker 2: 31:39

You have a very chill, relaxed demeanor, which is good for the amount of probably like complex solutions and problems that you're always working to deal with all the time. But I'm curious you're talking about this in a very chill way, and is this a crisis? Is the AR balance in California going to shift? What what the cannabis space is like in terms of how many retailers are left, how many brands are able to still be around in 12 months or 24 months, Like what's going on here?

Speaker 3: 32:14

Yeah, yeah, it's very serious, right, I like what I do, so it's easy for me to not pick it too personally, but I think it is. It is a, you know, a crisis scenario. I think we've seen a few mass extinction events in cannabis and I don't think that every you know, every brand, company, retailer will, you know, will go under. I think that would be too alarmist. But I do think that you know, it's an industry where folks don't have access to all the backstops that you'd see elsewhere, and so these ripples and these shocks to the system are really hard for brands to sustain. And we do have instances now where we have retailers who hold the keys to critical sales and need product, you know, and then, on the flip side, if they're not paying brands effectively, that can really, it can really impact brands in a tough way, and I think I think we will see a shift towards one of two things. In my opinion we're either going to see policy, you know, come in and provide a sort of safeguard for a lot of these. You know, if you look in liquor, for example, if you don't pay your your bills, you get your liquor license revoked, right, it's very simple and you know that's, that's standard protocol in most states that have liquor boards. You know we could see something like that and that would really change the landscape and force folks to pay their bill. There's also a world where that doesn't happen, and we want to be prepared in both scenarios. And I think in the world where it doesn't happen it's you know, brands that are really thinking about AR the right way are going to are going to have a huge structural advantage and even if you have access to capital, obviously that helps in that you can withstand some, some shocks. But you know, if you have a big budget that's not being managed appropriately, you're still going to go out of business.

Speaker 3: 34:06

So I think it's going to put a a premium on people that are thinking about AR intelligently and focusing on it, and we're already seeing that. You know a lot of our brands have. They have an AR manager, but no IT person or they have. You know they're just prioritizing collections and AR from a headcount and an executive focus. You know, to an extent that you're not going to see in other industries and I think that's going to be increasingly important that, like you, might have great branding and even an awesome sales team, but if your, your AR strategy is not dialed in. You're very exposed and I think that's it's forcing brands to think about credit risk in a in a more mature way compared to, maybe, what their revenue would reflect.

Speaker 3: 34:55

So it's, it's going to force, there's going to be a forcing function one way or the other. Either, you know, brands and distributors are going to get more savvy and start making better choices and and really force the hand of retailers to pay their bills well, or we'll have policy do that. But part of it is, you know, part of it is just that retailers are struggling with with the tax burden we have today. So in some ways, I also believe if the tax burden or alleviated a bit, retailers would pay their bills a bit more. Because, while there are bad actors, I would say the majority of the situations where we have AR problems is just a cash flow problem that's getting passed along Well. So, speaking of shocks to the system, we mentioned on the on the show, a couple times in previous episodes about one of your former competitors folding in the space. So herbal was a massive distributor in in California and when we talk about distributors in California.

Speaker 1: 35:34

The list isn't long. I mean, there's the navits and all of those are just one thing and then the list gets shorter and shorter from there. So that sent ripples through. The California system was a huge warning. And there was talks about AR. But as well as like the tax burden at the same time, yeah, what was that like in the small world of distribution? I mean, like that's like taking out you know the tax burden at the same time. What was that like for you Mixed back? Truthfully, I don't have a ton of the internal details from herbal so can't speak to any of their internal stuff. I would say it was a two headed piece. At the end of the day, we want to see our industry.

Speaker 3: 36:19

So there was a ton of brands first of all, good people at that company and then brands that were negatively impacted by that. So, by and large, you know they were very much in the business of the company. So I think that's a good thing. So we want folks to succeed and you know, herbal and navits combined still are way less than 50% market share at that time. So it wasn't, like you know, not a big deal. It wasn't a day for celebration for us internally, necessarily, because we have tons of respect for the brands that worked with them and it's a really small industry. So we want want folks to succeed and you know, herbal and navits combined still are way less than 50% market share at that time. So it wasn't, like you know, necessarily like an Uber lift scenario where it's this awesome payday. It was, you know, bad for the industry in many ways and there was definitely opportunity for us and that brands needed a new home once herbal notified them and that had that had a positive boon for us and we have some brands now that we're working with that we weren't working with before, that are awesome and we love working with. But there was also, you know, transparently, another piece where you know it's important for the industry to trust distributors and there hasn't always been, you know, an amazing amount of respect and trust for distributors in the industry Not not herbal necessarily, but there's been bad actors in the space before and, and I think, folks worrying about the financial risk of oh wait, what happens if your distributor does go out of business, and folks.

Speaker 3: 37:55

You know we certainly had an uptick as we were going out and doing our biz dev calls. Thereafter Brands were asking a whole lot more about our financial position, which we were comfortable with, so happy to disclose to folks. But we saw the tone shift and I think you know when I started in the industry four and a half years ago, it was almost a foregone conclusion that distributors were going to take over the entire market and that it was just about who is going to win out, in what ways and transparently. Over the last year or two we've had to prove a little bit more that there is a place for a distributor in this market and that we're trustworthy as a company, even if there have been struggles in the tier historically. So it had some good, some bad, you know.

Speaker 3: 38:40

As you guys know, in California cannabis Sometimes it's about surviving, not just thriving, and so, yeah, it's been a complicated year with or two years really when it comes to AR exposure and we were a little bit more protected than others because we're not taking title to products. But yeah, I mean, at the end of the day, there are people that we respect and working with brands that we care about. So probably not something we were necessarily excited about, but you know, onward and upward and we just kept marching on.

Speaker 2: 39:17

It makes so much sense that that brands kind of woke up to the oh my gosh, what if my distributor fails? Question, because it became very real for a lot of folks. And I wonder if policymakers also woke up to that fact. And I'm wondering if you guys got reached out to and I know that people on your team are really active with with the state policymakers, the regulators, the electeds and things but did they they call and say how you guys doing you're not going to fail to? I mean, there's this, there's this sort of like too big to fail thing that we've seen in other industries. But but I wonder if the state was having a moment of like holy crap, are we going to have to bail out distributors If all the retailers start not paying their bills and then all of the brands don't have any money and then the entire supply chain collapses? So I'm wondering Do they care?

Speaker 1: 40:15

you know it's like we think that so many times like that we're struggling. Do they see it? Like did they see it? Do they understand?

Speaker 3: 40:23

some do, some don't right. I think, as you guys know, you know the the regulatory and and executive and you know the policy bodies in California are big and complicated and you know there's definitely individuals who care. We have some folks on our side who have been really supportive all along the way and have listened to us and you know, I think, a Fiona Ma as an example, she's been an awesome friend to Navas and is really listened in key areas when we feel like there's problems. And you know, when we, when we were talking with regulators and folks up in the capital to try to get excise tax moved from the distribution tier to the retail tier because it was becoming very, very difficult to collect, I think they they definitely hurt us there. Do I think there's been this sort of ubiquitous response that one would have hoped for? No, probably not. I think there's.

Speaker 3: 41:21

I do think there's some people that really care about the industry and see what we're describing, but I think that they're. They have to swim upstream in the sort of bureaucratic organization. So we didn't. There weren't folks knocking down our door saying how do we help, how do we support? We've still had to really go out and build those, those relationships.

Speaker 3: 41:40

I do think one area that was positive, that sort of led to that indirectly, is, you know, I think historically some brands and distributors that were a little bit cagey and wanted to keep their information proprietary got increasingly more comfortable sharing information about AR, which allowed us to set up some of these industry wide you know, like the cannabis industry credit group for example. I think it woke us up internally enough to go out and organize and and and you know, figure out the hard parts of sharing information with folks that are competitors and I think that that industry wide sort of locking arms, especially at the distribution tier, I think that woke up some people in in the capital. But we've got more work to do to pass credit laws that really make sense. I wouldn't say that we we've solved it yet.

Speaker 1: 42:34

Unfortunately, thinking about this on on a broader scale and the opportunity Navas is still primarily focused on California, is that? Is that right, yeah?

Speaker 3: 42:44

yeah, we've looked at other markets and are excited about other markets, but the you know our footprint is and sort of revenue and focus is overwhelmingly California, still right now.

Speaker 1: 42:54

What are, like I know very little about like the actual distribution game and like the levers that can be pulled. But I have to imagine that there's like some pretty significant considerations around, obviously state laws and regulations and requirements. But what about like population, like population density? Like you know, like when we, when we look at California, it's a lot of land, a lot of driving, but there's really, like you know, maybe like three or four, like really significant you know population centers. But then I go to other states and it might be even more amplified, you know, looking at like Ohio or something like that.

Speaker 3: 43:34

Yeah, 100%, geography is critical, right, and demographics are critical. We offer a wide array of services and, you know, eventually we want to be in every state, but what distribution looks like in every state may be very different. You know there's states where, like Rhode Island, someday, I think there's ways that we can absolutely provide support. You know, every state's gonna need a strong logistics platform, every state's gonna need capital services, every state's gonna need analytics, but the sort of physical Atalanto to Humboldt problem we've described is not gonna be hyper relevant in Rhode Island, and this is obviously putting aside regulation that might create tears, you know, by force. But demographics are a huge piece of it and really, if we're gonna provide value on the distribution side, a big part of it is there has to be distribution problems for us to solve.

Speaker 3: 44:27

California is really the perfect place to have started because there's you know there's a tremendous number of challenges and you know I think of it in really three main buckets are critical when it comes to demographics and geography. So the first is just pure population size how many people are we gonna be able to serve in this market? The second I think about is how many relative high density cities are there, right, is it one or two, like most states, or is there a ton? And how far apart are those high density states? So California, for example, has over 25 cities, over a hundred thousand people. Right, most states have one or two, some have five, and so when we look at California, for example, folks often think of LA and San Francisco, and those are the biggest regions. But when you start to go down the line, there's, you know, san Diego, fresno, san Jose. There's tons and tons of cities that are way bigger than people realize. I mean, the Central Valley alone has more people in it than North and South Dakota combined.

Speaker 3: 45:37

Right, and people think of it as an afterthought of a place, but it's not. It's a huge place, really important to the market, important to the city, frankly, important to the country and, in many, many ways, agriculturally, outside of cannabis, as well. So we look at those challenges to really understand where are things gonna be difficult. And when we look at other markets you know we use that to color it right Is it a state where you can put your manufacturing facility dead center in the middle of the state and every retailer will be in a 90-minute drive to you? If so, there's gonna be less demand for distribution.

Speaker 3: 46:15

A state like Texas, for example, that has, you know, dozens of cities that are big and far apart, they're gonna need a meaningful cannabis solution. I think you know Florida, new York, ohio, these places with a bunch of cities you know that are gonna need access and that aren't necessarily super close together, are really the places where we think it's ripest for the physical infrastructure approach we've taken in California. But California is, you know, california is pretty massive with a ton of people that are quite well distributed. So you know we want to have an impact in every state. But I think you know it's really important for us to take a sober look at you know what the demographics and geography are and tailor our distribution solutions to the actual problems of the state. Because if we come in and try to just impose our California model in Delaware, we're not gonna add meaningful value to the supply chain and you know we think that will trickle into. You know whether we're successful there or not.

Speaker 1: 47:16

It's funny. I'm thinking like what a geeky problem would be to try to like evaluate going into Mexico City, like a city that has like 9 million people, and like how you would kind of approach that, because we just don't see that kind of scale here in the US.

Speaker 3: 47:35

I think Mexico City has like 30 million people. Oh, is that right? It's huge.

Speaker 3: 47:39

Yeah yeah, yeah, it would be really interesting. You know cities are challenging but ripe for opportunity in that you know you have a high density of product in one area. Where it's really most most effective in some ways is where you have multiple cities that are hard to access simultaneously, so we can provide inventory that's accessible across both of them. Take New York, for an example. The two largest cities in New York are New York City and Buffalo, right, and they're six hours, seven hours apart if you drive through Pennsylvania and New Jersey. If you don't which we can't it's more like nine hours, right?

Speaker 3: 48:18

So are you going to split your inventory between Western New York and New York City and have your sales reps pulling from separate pools and rebalance, or do you want to work with a company like Nabis, where you can sell in, say, Albany, Buffalo, New York City from the same pool and not have to worry about it? So it's both the huge cities, but it's also multiple huge cities. So when I think of, you know, when I think of areas really ripe for opportunity, the Texas model, where you have Dallas, San Antonio, Austin, Houston, major cities, but not just one of a multiple of them that's where it gets really powerful. I think we could provide value in lots of places, but we just have to tailor the service accordingly.

Speaker 1: 49:00

And on the back end you're doing kind of like the factoring of inventory based on kind of how sales are progressing in those areas for those brands.

Speaker 3: 49:09

Yeah, our factoring is based on that proprietary credit score I described to you. So we will factor any invoice and essentially make any order COD. So the moment you deliver it we'll pay it out for you and then we'll collect on the back end and assume all risk of that, and we'll do it anywhere.

Speaker 2: 49:30

But the interest rate you're going to pay on it scales from extremely affordable to more expensive based on the credit score of that retailer, and you know, ergo, our risk, yeah, and so you talked about the strategy of expansion by looking at demographics and density and things like that, but I can't ignore that also the regulations and the laws also play into it.

Speaker 2: 49:55

Like you mentioned, florida, but Florida is a fully vertical place, so so there's 21 or 28 license licensees there and they all grow and sell all their own product and they don't they don't transact between each other, so it doesn't seem like a plate for today, as it is distribution as is as needed, whereas that's right. I'm seeing this really kind of vibrant ecosystem of small companies come up in places like New Jersey and New York, and a lot of that really is because of the way that the laws were written to maybe put taps on the amount of stores or square feet or whatever, or maybe no caps on the amount of licenses overall, so lots of people choose to come into the market. I'd assume that that you guys are are looking at places that have a lot more small businesses and independent brands, as opposed to these like large, vertical markets right, perfectly said.

Speaker 3: 50:57

Yeah, I think you know you can't ignore regulation, and while we like to see a fragmented market in some ways that's helpful to us, A lot of it is just, you know, the writing is in the tea leaves on on the regulation and you can see if it's a state that's trying to structurally support the long tail of businesses and make it viable to be a small business.

Speaker 3: 51:20

There's also states where it's really obvious that they want to create multiple tiers, like in New York, for example. There can be absolutely no overlap between retail and any of the other license types at all. We can't even have, you know, investors that are above a threshold that invest in both. So there's, you know, there's this sort of like structural portions. And then there's also states that just make it really hard on distributors. So in Massachusetts, for example, there's two drivers mandated in every vehicle, which would hurt our economics. So yeah, we can't ignore regulations at all and there's a bunch of different layers of what makes it, you know, what makes our value add meaningful in a state and then what makes it viable for us to operate there, and those are just as important as the demographics to. That's why we keep our team quite busy.

Speaker 2: 52:10

That makes so much sense. I have one last question before we wrap, and it's a little bit of a divergence from the other topics, but you did talk about that. Nabath has 300 employees. And you guys have grown a lot since the time that you're here and I'm just wondering, as the COO overseeing all of these different places, what has that meant for you as a leader, as the company has grown and what's been hard Were you excited about? Like, I want to hear a little bit about the team and your own leadership journey.

Speaker 3: 52:44

Wow, that's a really good question. It's certainly been a learning experience for me, right, managing a team this large Our team is really everything. They're the lifeblood of what we're doing, and so over time, as we've grown, it was probably only 70 people or so when I started, and when I started, I could really have a stranglehold over all of the process, over all of the architecture and organization, and know every person at the company by their name and know lots about them, and in some ways, it's easier. Then, right, you focus on the problems and show your team that you're trying to lead from the front and worried about their problems, and that's really important to people. And as we've grown over time, I've needed to delegate more of that.

Speaker 3: 53:27

Unfortunately, we have an amazing team that can run circles around me in their respective areas, and a lot of my energy has had to move into more strategic initiatives and cultivating the talent and then making sure that they have the resources, the sort of dignity in their role, the support they need to be successful, and so I've had to become more of a facilitator and team builder, which has been super rewarding and fun to see and, honestly, I just feel really lucky that I get to work with so many smart and talented people.

Speaker 3: 54:03

Navis has tons of amazing employees and tons of amazing leaders that I look up to and get to work with. So, frankly, it's a privilege and have had to spend more and more of my time sort of moving towards how do I coach our leaders to be successful with their respective teams and how do I get blockers out of their way, in a sort of servant leadership approach of how do I block and tackle for the broad leaders of each department to make sure they have what they need to be successful. So it's been quite the journey and I wouldn't say I'm done yet. I'm still learning every day. So, yeah, it's just I feel lucky to get to work with really smart people on a really hard problem, and Navis has a lot of people that feel similarly, which is part of what makes it a fun environment.

Speaker 2: 54:45

Amazing. Thanks for sharing that. I think it's hard, you know, as companies grow and change and how we have to individually grow and change as leaders with it, to serve what's happening today with the company, while also looking into the future and trying to level up and grow with it. So, yeah, thanks for sharing that and we'll be excited to follow on as your journey when you guys start hitting the next hundreds and then thousands of employees along the way, which it sounds like is where you're going. So it's the end of the show we're wrapping. We want to hear your last call, so you take it away. Will Let us know what you want to leave our listeners with today?

Speaker 3: 55:27

Sure. Thank you guys. Last call. I would say, if you're interested in learning more about Navis, go to naviscom and reach out to us. If you're a retailer in the state, check out our marketplace, Work with our many amazing brands. If you're interested in working with Navis we have quite a few roles posted right now Check out our careers page and come work in that environment I just described. And even if you're out of California and are interested in talking to us and maybe learning from some of the mistakes we've made, feel free to reach out through the site as well. We talk to folks from lots of different states and where we can't provide direct distribution services, we make partnerships and talk to folks and sometimes just say, hey, here's what we would do if we were in your shoes. So check out naviscom and let us know if you're interested in working with us in some capacity.

Speaker 1: 56:19

Amazing. Thank you so much Will Incredible just to learn and dive into distribution. It's something that's just always been there as far as the industry goes. And, yeah, I learned a lot from you and I love how you capped off the conversation, which is talking about servant leadership, and that it's near and dear to my heart. But, thank you.

Speaker 3: 56:40

Yeah, me too, and thank you guys for having me. I've learned lots listening to your podcast, so it's a pleasure to be here.

Speaker 1: 56:45

All right, man, have a great afternoon. Same to you. Thank you again, anna Rae, another great one in the bag. Thank you for tuning that up. It's great Will's local here to us at the Bay Area. Nice to have another fellow Californian on always. And thank you, our audience, for joining us, as always. What do you think? Let us know who we should have on the show. What should we be talking about? Like subscribe, do all the things help support our growth? We're having a great time. Like Anna Rae said at the beginning of the show, we're going to be in Miami next week. It's going to be awesome. Yeah, just can't wait to see all the folks at Delta Emerald. I know Gary Kaminski is going to be there, one of our guests and friends, and a whole host of others. So find us at CanadaDataCon next week and if you're not there, join us. Live on. Well, I think Thursday We'll shoot off the official time. Until then, thank you to our teams at Vertosa and Wolf Mayer. Stay curious, stay informed and keep your spirits high. We'll talk to you soon.