High Spirits

#037 - The Rapid Rise of Retail in Hemp THC w/ David Gonzalez of Hemp House

March 28, 2024 AnnaRae Grabstein, Ben Larson, and David Gonzalez Episode 37
High Spirits
#037 - The Rapid Rise of Retail in Hemp THC w/ David Gonzalez of Hemp House
Show Notes Transcript Chapter Markers

Discover the seismic shifts in the hemp THC retail sphere and the implications of a national market in our latest deep dive with David Gonzalez. As Total Wine and DoorDash venture into THC beverages, we peel back the layers on the political and societal impacts of this move, emphasizing the triumphs in low-dose hemp accessibility while advocating for continued strides in cannabis decriminalization. We also analyze how the convergence of hemp and cannabis under potential new regulatory frameworks could reshape the industry landscape.

Tune into a riveting conversation exploring the strategic advantages of e-commerce for hemp companies, with Hemp House at the forefront of innovation. The national market for hemp products is changing consumer behavior, and we're here to dissect how businesses like Hemp House are leveraging platforms like Shopify and USPS to reach customers across state lines. We also consider how online analytics drive smarter marketing, and the clever moves for dominance in both local and national markets, setting the stage for a new era of cannabis success.

The episode culminates with a forward-looking analysis of Hemp House's national and international expansion strategies. We discuss the ins and outs of entering new markets, the importance of infrastructure and industry alliances, and the potential of an omnichannel approach, mixing e-commerce with brick-and-mortar. Hemp House's journey is a blueprint for growth, charting a course that could redefine the THC beverage sector and leave a lasting imprint on the global cannabis stage. Join us as we conclude with our bold predictions for the future of Hemp House and the strategic maneuvers they may deploy to conquer new territories.

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Ben Larson:

Hey everybody, welcome to High Spirits. I'm Ben Larson and with me, as always, is my smarter half, Anne-Rae Grabstein. We're recording Thursday, March 28th, 2024. And today we're talking about the rapid rise of retail in hemp THC. We'll be talking about e-commerce versus brick and mortar. What's going on with Total Wine and DoorDash getting in the game and take it back to where it all started? I know we were talking about beverages all the time. I'm talking about beverages all the time, but it's not just me. There's a good reason for it. So we'll dive into all that. But before we get there, Anna Rae how's it going?

AnnaRae Grabstein:

It's good it's Thursday. It's my favorite day of the week, as I get to do this with you. How are you doing, ben?

Ben Larson:

I'm doing good. I'm doing good. It's been a crazy week. Speaking of Total Wine they launched here in California with their THC beverages on the end caps All up and down the state. I've been receiving text messages and pictures and we've been seeing it on LinkedIn. It's been crazy and it just happens so much faster than I think any of us expected.

Ben Larson:

I'm interested to see how the response is, just because it's a very live conversation right now, with AB 2223 out there and trying to really kind of frame it up like what are we going to do with all of this? But they just kind of went right ahead. And, contrasting that, yesterday I was at this press conference that was organized by Amber Center and Supernova Women a lot of incredible speakers Etienne Fontaine and Kat Packer and Evelyn LaChapelle and so many great advocates talking about how Schedule 3 just really doesn't do anything for the social equity conversation and how we really need to decriminalize and deschedule. So it's like there's this dichotomy that we're all living in. It's like we're getting so much progress with low-dose hemp, creating access to the plant, but also needing to continue to fight and push that conversation forward to legalize the entire plant.

AnnaRae Grabstein:

Yeah, I'm glad to hear that you went to that press conference. You know, oakland is where I got my start in cannabis as well, and Oakland has always been kind of at the forefront of innovative policy. But as a result it really had no one to look to of someone that came before, and Oakland created the first social equity program. So I think it made a lot of sense for this group of folks to come together and hold this press conference there where it all began, and I'm curious how the turnout was and if there was good coverage and what the message was that people were sharing.

Ben Larson:

Yeah, it was a great turnout and just so well organized. We were there for an hour at City Hall in Oakland, packed room, there were news cameras and microphones and, yeah, just really impactful speeches by the advocates. And you know, talking about just access. And you know Etienne is one of the founders of Berkeley Patients Group and just for decades, you know, trying to create access for people that truly need it. And you know his entire military career was just like stopped and ended after his time in Desert Storm and to know that he was using cannabis for medicine and because of that he lost all his VA benefits, he lost his positioning, you know he was escal be regrounded and all that.

Ben Larson:

It's somewhat easy, admittedly, to kind of lose touch with that when you're in the day-to-day really trying to like, you know, run a business and then try to like capture, you know, the opportunity wherever it's arising and to bring it back to our roots and really remember you know what we're here fighting for. I think it's super important. I do know that it got onto the news first thing. This morning Amber Center sent me a picture. You know it was like the 8 am news Fox here in the Bay area. So I think there's a big event April 18th so just in time for 420 where we're taking the conversation to DC and just demanding more from Biden.

AnnaRae Grabstein:

And it's interesting timing and bringing it back to our podcast.

AnnaRae Grabstein:

You know, last week we talked about the red wave in certain red states are starting to implement and look at reforming cannabis laws, and I was speaking with someone yesterday who said, well, none of none of the schedule three stuff will matter if if Donald Trump becomes the next president, which lots of people are predicting and I think that there has been this attitude that cannabis policy will stop moving.

AnnaRae Grabstein:

Think that there has been this attitude that cannabis policy will stop moving if Republicans win the presidential election at the end of this year. And I just want to say that I think it's a real toss up and I think that both parties have skin in the game to continue reforming cannabis policy, and how that unfolds is really complicated, but I don't think it's off the table and that's one thing that I was really convinced of from our conversation last week with Hirsch and the fallout conversations that came since then. So I hear these equity advocates that Schedule 3 isn't enough and that de-schedule is the way to go, and I think we just need to stay tuned to see what happens next.

Ben Larson:

Yeah, I think it's gonna be a really interesting year. It's an opportunity for us to like really kind of bring the hemp and cannabis conversations closer together. For many years there's been this divide and they've been like kind of separate conversations. But I think the convergence is is accelerating. It's in, you know, having hemp beverages in mainstream retail. Um, you know where the signs is, just clearly says thc, like you can't, you can't avoid that conversation anymore. And I think it's really interesting in in june, uh, canra isRaw is holding their regulators conference in Minnesota. So I think that's like an important signal and we're going to talk about this on the show today. I'm sure this conversation under one regulatory body and, I think, maybe a symbol of what we might be able to see across the states.

AnnaRae Grabstein:

Yeah, and as the cannabis industry has its debates about the right path towards federal policy change, we have a much more open access model happening in places all around the country, and the home of that movement is Minnesota, and we have an incredible founder and entrepreneur from Minnesota today, who's really one of the leaders of that open access to hemp derived THC and other hemp derived products, to join us today. So maybe we should jump in and bring David on.

Ben Larson:

Let's do it.

AnnaRae Grabstein:

Well, so I'm pumped to invite David Gonzalez to join us today. He is one of the co-founders of Hemp House, which is a hemp dispensary chain in Minnesota, and also a founder of Fizzy THC, where they make THC-infused dissolvable beverage tablets and other products. His background is as a growth marketer in e-commerce, tech and data products. His background is as a growth marketer in e-commerce, tech and data, and he likes to say that his passion is to get as many THC beverages into the hands of 21 and over adults that he possibly can. So welcome to the show, david. I support that. Thanks for having me.

AnnaRae Grabstein:

Excited to be on. Yeah, thanks for being here. How's it going? What's going on in your world these days? Excited to be on, yeah thanks for being here.

David Gonzalez:

How's it going? What's going on in your world these days? Yeah, just enjoying life here in Minnesota with the cold weather, snowing. I have a nice newborn at home, so trying to catch up on sleep when I can, and all the while just making sure Hemp House keeps chugging along and finally got to launch our first new drink here. It's our prebiotic soda. Really excited to get that rolling. But, yeah, fun times and excited to talk about Minnesota. All things retail, e-commerce, thc, beverages, all that.

AnnaRae Grabstein:

Yeah, so, coming from a traditional e-commerce background and then starting in the hemp space in Minnesota Hemp House, I know, has three stores and a really significant e-commerce platform it would be great if you could share a little bit about the company, where it came from, where it is today.

David Gonzalez:

Absolutely yeah. So Hemp House started off with very modest roots, and so actually it started off as a manufacturer for Delta 8 carts. This was back before Minnesota inadvertently passed that legislation that we're all enjoying today, but basically what happened was we were manufacturing carts, we hopped into our first like storefront, if you will. It was kind of like a pseudo warehouse. We opened up the front one day, started selling carts to customers and then, as you all know, we basically overnight Delta A carts, more or less, weren't allowed anymore, and so regulators in Minnesota were trying to obviously get Delta A products off the shelves, and for us that was like oh man, our whole catalog and forte is now no longer there for us. And so how do we adjust and adapt? I don't think anybody anticipated the level of growth that we've seen for Hemp D9, thc beverages and edibles, and so once there was like a codified law for Minnesota that said THC edibles, drinks, manufacturing is all fair game just really opened the floodgates. And so I think breweries were kind of the first ones to take advantage of that. They had this infrastructure in place already. They were nailed by COVID. Some of them were close to closing their doors and all of a sudden they had this lifeline. And so some of the breweries today here, I think THC makes up 40% to 50% of their revenue at this point, and so it's very, very much a huge revenue driver. So for us we started picking up some of these seltzers from breweries got some incredible reception.

David Gonzalez:

I think we've all kind of seen those moments where people discover THC beverages. It's kind of like, oh, there's cannabis in a can, oh, this is legal, I can just have this. And oh, there's all of these, there's hundreds of these things. And so that kind of discovery process was really eye-opening for us. And that's when we kind of realized the impact that that legislation might have locally, but also nationally as well.

David Gonzalez:

And so we went from Delta A carts to I think we have over 200 plus THC beverages at this point a whole bunch of gummies and edibles no-transcript one of the hotter new markets for these beverages. So, as you know, minnesota has over 3000 places. You can go get these things now it's very accessible In addition to retail. You can go get these things now it's very accessible In addition to retail. Obviously we do e-commerce and then, as of last week, you can now even order them on DoorDash, and so it's been a crazy ride, very exciting, and I think now for us at Hemp House, we're looking nationally, we're seeing which markets are next. How can we help more people get their hands on these products and ultimately continue to get as many THC beverages into the hands of 21 plus year olds as we can?

Ben Larson:

It's so interesting, you know, to see it explode the way it has. I remember when Minnesota legalized and how people were scrambling to try to figure it out and it has evolved over time and the way it's influenced the national market has been really crazy. Because in those early days I know people were looking to go to Minnesota, manufacture product in Minnesota and then distribute within Minnesota largely, and then people started to realize that oh, I can order these from a retailer such as yourself in Minnesota and get them shipped to our local markets around the nation. And that has since evolved to hemp markets bubbling up everywhere, people manufacturing all across the United States. And now we're seeing retailers pop up, like we mentioned earlier in the show this week, total Wine opening it up in Southern California.

Ben Larson:

Just kind of a wild, quick evolution. Yeah, I want to drill down into something because you know you brought it up beverages right In the regulated market we've always lamented about how small of a percentage beverage has been and in your marketplace you're offering a lot of the same products that dispensaries are. How has that proportion of beverages grown over time and does it differ between your brick and mortars versus your online retail?

David Gonzalez:

Yeah, that's a great question. So I think the epiphany we had was actually we went down to Chicago for the Cannabis Drinks Expo and I hadn't been to a regulated market and looked for beverages previously. And then once I walked in and saw the user experience if you will like, having to walk in, go through security, pull out cash, you walk in maybe you get patted down. Then from there you walk in and the vast majority of products are obviously highly concentrated THC products your smokables, flour, etc. And then, like in a little tiny corner behind some glass was like one or two cans that are just sitting there like these low dose products, and that contrast was just like very eye opening for me. I was like, ok, this is very inaccessible, and so what we've done is try to make it as accessible as possible and total wine places like that picking up these drinks. That's a great proof point. I don't think they were ever meant to live in these highly regulated recreational channels, because people go into dispensaries and they're trained to grab the strongest shit. They walk in. They're like I want the 30% THC, and so a 2.5 milligram, 0.3 milligram THC drink for six bucks, that's not going to move the needle, and so you're right, I think it's like 2% of recreational sales or beverage. You have to get refrigeration space, you have to hold that inventory, and so it just doesn't make a lot of sense. But since these beverages are low dose, they're comparable to alcohol and so it does make more sense to have those kind of side by side. And for us, one of the things that really stands out is to your point, we had to reconcile that If we are a hemp dispensary that sells low-dose products and there's 3,000 places people can go get them they can go to grocery stores, liquor stores, gas stations, smoke shops, your chiropractor, your spa, somebody's mom if they're registered with the state, how do you compete on a retail level if they're registered with the state? Like, how do you compete on a retail level? And that's what really opened us up for e-commerce, because it's good to have retail, because it's a place people can go to come in, ask questions, they can have educated bud tenders. Liquor stores right now they don't have this two years worth of selling THC beverages, they don't know how to mix and match a brand or a product to a certain segment. And so you walk into a liquor store and they're like oh, try out this new indica strain THC beverage and you kind of laugh to yourself because there's no such thing as a hemp derived indica strain.

David Gonzalez:

So I think for us what we've noticed is by having an omni-channel approach, it allowed us to not necessarily compete on a land grab level for retail, but rather get products in the people's hands who don't have that same access to retail. So different states, further suburbs, et cetera, and the buying behavior, to answer your question, is very interesting. So beverages went from making up 10% of sales to, I think, like 40 in the span of a year. But really what was exciting for us on the e-commerce side was people don't always have visibility into this Minnesota market, so they don't realize that these drinks are illegal and that we can ship them across state lines and the amount of options that there are. And so we focused on having a curated collection with lots of options, because we want people to find the drink that resonates with them instead of just being forced to have that seltzer.

David Gonzalez:

And so I was talking to Anna Rae before this and she brought up a good point.

David Gonzalez:

She's, like my husband's, a beer drinker. He's not a light floral seltzer, and that's a good call out because even on a geographical basis somebody who has a seltzer in the cities that same product might not resonate 15 miles away in the suburbs where someone's like I don't care if it's 40 grams of sugar, I want a THC soda. So the buying behavior that we see now on the e-commerce side and on the national side is people who aren't in Minnesota. They'll come in, they'll buy like 15 drinks at a time. They're all different brands, different flavors, different types of drinks, thc, cold brews, seltzers, sodas, teas, and so there's just this curiosity of what's going on here. And that's what I'm most excited about is imagine if every market did look like Minnesota. What would that mean for the category? What would that mean for drinking? How would that impact recreational cannabis? How would that impact alcohol? And I think that reality is getting closer and closer as more and more of these larger brands like Total Wine make that plunge.

AnnaRae Grabstein:

What you're talking about with e-comm is just the tip of the iceberg of the things that I want to know, because what is so exciting here about the fact that you're operating on the hemp side of the market as opposed to cannabis is that you are talking about a national market and that's something that cannabis businesses have only been dreaming about and advocating for, but nobody has been actually able to pull data from a national one platform serving everybody in the same way and doing transactions and things like that, and I think it's just incredibly exciting.

AnnaRae Grabstein:

You talked about some of the regional purchasing patterns you're seeing between cities and suburbs, but I also want to bring to the light of the fact that you are a hemp business means that you have access to more traditional business tools than cannabis businesses have, and I wanted to talk about some of those things In particular. I know that your website is built on Shopify. I know that when you order on your website, you're going to get a product through the USPS. You have access to traditional advertising. I'm not sure about how you're doing payment processing, but I'd love it if you could just talk about some of these tools that are probably really normal from your background in e-commerce but that have broadly not been available to THC products before hemp came in the game, and how confident you feel and continuing to have access to them, just all of it. Let's talk about that.

David Gonzalez:

Yeah, I think that was the big aha moment I had was. So the company I was at before getting into hemp house and the hemp market. I was a company called Return Logic in the Shopify ecosystem, and so I started having conversations with retailers. They were selling, you know, like bongs and pieces and things like that, but I started to see these THC beverage companies like Cannes and some others on Shopify and I was just like what the hell, how are they getting away with this? And so once I realized that Shopify allowed for hemp-derived THC products, that's when I was like all right, this is game on Because, you're right, we don't have the same tax structure, we're not booted off of all of the platforms, like Stripe, for example.

David Gonzalez:

Sure, we can't use that, but there are workarounds, there's authorizers, bankful, et cetera for your payment processing. But I think what stood out to me was all the growth levers and channels that I had access to that I had thought were off limits. And so I got to bring my proverbial preferred tech stack into the hemp market, which is not the case for REC. So Shopify for hosting obviously a ton of apps that go into Shopify it's a great data platform, but I got to use Klaviyo to do all my email marketing, my flows, my campaigns, sms. I got to work with some very innovative individuals Aaron over at Lucid and Breeze, tom Doerr over at over at super dank media so I could do these paid acquisition channels like google ads, like meta ads, like instagram ads, whatever. Uh, liquor stores can't do that and recreational companies can't do that, but for us it's like a five or six row, as, which means for every dollar we put in, we're getting five or six back, and so the ability to have the tools that a proverbial e-commerce company might use and for us, being cannabis, to be able to use those, has made a huge difference.

David Gonzalez:

And the other thing that we haven't mentioned, but the reason, another big reason why I focus on e-commerce and again going back to the last company I was at, there is so much more data online with the different buying behaviors, the conversion pathways, the pages people look at, the products they add to their cart. The learning curve is just. You can learn so much more way faster. Whereas on the retail side, you get your POS data Sure, you get to see sales but for e-commerce we have all these data streams coming in and we know what creative people are interacting with.

David Gonzalez:

They like this ad versus that ad. What products are they buying? How often do they buy? What's the sales velocity, what is the repeat purchase rate, what's the retention rate, what's the profitability, the predicted lifetime value for certain segments of shoppers? And so once I realized that we could start leveraging data back into our tech stack and using that into our operations, our marketing strategy, that's kind of where we had the big epiphany Like. That's where this is all headed. We're not going to be hindered. We have the traditional marketing channels that other segments or categories don't have, and we get to leverage the skill set that we've been able to gain over the past few years, which is an e-commerce business that knows Shopify, that knows traditional acquisition channels, that can operate like a t-shirt company, basically.

Ben Larson:

Can we dive into some of the details if you don't mind sharing? Basically, can we dive into some of the details if you don't mind sharing just around, like what is you?

David Gonzalez:

know CAC and LTV looking like you know right now with with some of these customers yeah, I'd have to go back and take a look LTV, I think, around 90 to 100. Right now, cac is around like 30 bucks or something like that. But what I think is really interesting is how that has been evolving or changing over time. And so the reason that is is when we started off, when we were focused on e-commerce, we weren't necessarily focused on national logistics and shipping products all across the country. We had a hypothesis that we needed to dominate our backyard, and so the reason we did that was we had 3000 competitors pop up overnight, and so how do you win? And instead of us doing a retail land grab, we stopped for a second and we said where do people actually look for products? To begin with, you're not just wandering out in the street, wandering into stores being like do you guys have these? They look online. And so we focused on optimizing our website to rank for high intent keywords. We started looking at brands that had a good online presence. You know that had shoppers already, that had a good SEO search volume. And so when it came to e-commerce, the part that was nice is it was able, we were able to really get a competitive advantage locally. And then, over the span of the past few months, as we got our growth engine dialed, as we start to figure out what is CAC, what is the ROAS, what's CLV for these different segments. That's when we started to target more nationally.

David Gonzalez:

And so now what we do is we target those markets where we know either A access is limited or B it's the next kind of hotbed. And so I kind of joke with my business partners. We kind of like prime the market before we go there, and so I can start targeting people in new markets, making landing pages, searching for these products. We rank above local people because the biggest competitive advantage we have is our ability to outperform people online. And so if we can be where the first search happens and we can acquire that customer, our odds of retaining them we hypothesize is going to be better than the next person.

David Gonzalez:

So we get that first purchase. We make it as easy as possible. It's a smooth customer experience. We make it easy for them to repurchase. We're constantly adding new products to keep them curious and just offer, all in all, a good experience. Why would they go somewhere else? And so we just figured, if we kind of went to the root of it, that would help us create a stickier customer base that wouldn't need to necessarily get off their couch and go explore all these other retail channels.

AnnaRae Grabstein:

That makes sense. And then, after you get that customer you talked about keeping them engaged. What does the strategy look like then? Is it mostly email? Is it social? What does that look like?

David Gonzalez:

Yeah. So I think for most businesses, if you find your three channels that really work for you and you double down on them, it gives remarkable results. So we built email from a zero to $1.5 million channel in about, I think, nine to 12 months, and so that was through doing flows which are obviously automated. We do our deal of the week, which is once a week. There's a new special, new promo going on, and then we have a Friday email. It's called our new in the neighborhood.

David Gonzalez:

So those are all the new products that we got in our catalog, and so what that does is a that's a constant touch point for people.

David Gonzalez:

They're saying, oh, there's a new deal this week to try something new, or oh, there's a new launch that happened, I want to try out this new product.

David Gonzalez:

And then you couple that with the uh, the paid social piece and everybody lives on their phones and if they're scrolling through social media and you're never going to see an ad for a liquor store on social media or, you know, even recreational marijuana, if we're there, we just occupy that mind share and it even serves as a reminder like, oh, I haven't bought in 30 days, I should go back and make sure my fridge is replenished and so we set up things like you know win back campaigns, retargeting.

David Gonzalez:

People went on our website and so all of that just means that that customer is constantly seeing us and thinking of us, as opposed to the value props of liquor stores and retail. Which is the reason people go there is because there's a lot of them. There's just all over the place. So if we are constantly in front of that consumer, they're going to A probably want to go to our shop to begin with, but if not, they're at least able to go to our online store, get it delivered, et cetera. So we solved a user experience problem more than anything, and an access problem more than anything. How do we make it as easy as possible to buy, remind people to continue to buy, and that's what led to the sticky customer base that we've been able to grow.

Ben Larson:

So, speaking of places where people look, you know you mentioned DoorDash. I mean, that's a huge channel and you know, from the early days in in cannabis, I remember it's like we used to hear these pitches of like, oh, we're the doordash for cannabis, and it's like, wow, what happens when doordash actually gets in? And that's happening and that's crazy. How are you thinking about that partnership? How's to the extent you can say like, how's doordash thinking about this category? Like this is kind of like this is huge because we talk about, you know, a major company that is really focused on the consumer experience and meeting the consumer where they are. And you know, you know, uh, immediate delivery is like a huge opportunity, uh, for the category yeah, uh.

David Gonzalez:

So the first thing I will say is to preface, I do not claim to speak for DoorDash or any of the individuals there. They obviously have their own PR team. But you're right, it's a $50 billion company who saw this category and thought, oh, there's something there, and so it's great to have the bragging rights of being the first ever hemp dispensary of all time in the world to be on there and to offer, you know, 200 plus drinks on that platform. That's great. I think the reason why we made sense as a place to look to begin with was we were one of the first to offer local delivery ourselves, first person delivery, the first party, if you will. So it was an easy kind of plug and play. But the other thing I'll say is it took a lot of individuals who are invested in the growth of this category to make that happen. And so you know, ben NRA, we were down in Miami for Canada DataCon, and so the team over at Delta Emerald was very instrumental in helping progress this and make it happen quickly. So we went from zero to 30 in probably three weeks, which is insane.

David Gonzalez:

And so DoorDash was experimenting with liquor stores, so that category, they'd been growing it for a little while and I'm not going to divulge the metrics that they were seeing, but for all intents and purposes very hot sticky products and people were buying them at a very that the growth was consistent. So over an eight week period what they're seeing was that the results were constant and that by basket size, by percentage of sales, there was just something there, and so I imagine more liquor stores will hop on that train. But there's also this opportunity for businesses, merchant types such as Hemp House, to also be on there because of our catalog. It's similar to a lot of types of merchants on there it's gummies, it's drinks, edible products, it's not a whole bunch of flour and smokables and all the other stuff that DoorDash would not touch. But I think it's an exciting time and a big proof point, because if they're turning their eye to a company like ours in Minnesota, you have to imagine that there's probably a larger play at work and so I can't speak for them or where they plan to go next or the evolution of this category. You might hear more about it on 420.

David Gonzalez:

But for now I will say it's been off to a hot start and it's been really cool to see just A the recognition, but B just the purchasing behavior. There's people who you know they're trying. It's similar kind of to our online store. People are coming in trying a whole bunch of new things and you're right, it's awesome if you can just get that in 20 minutes, because there's nothing worse than having that itch to get a little bit high and you have to wait or you have to go somewhere. You know that that inclination can die over time, and so to meet that quickly and to kind of meet this on-demand economy, that's also another thing that helps us create a new revenue stream, but also a sticky customer as well.

AnnaRae Grabstein:

I wanted to ask within the context of growing Hemp House. I know that you and the team are highly ambitious and you talked earlier about looking at national expansion. It is complicated in hemp in that it isn't actually just legal everywhere. There are states that have different rules and restrictions, like there are states that have different rules and restrictions, and since you are selling on the internet and have an open e-commerce platform that anyone, I guess, in the world could probably come onto the website and check out if they're of age, I'm curious how you monitor the laws and regulations to decide where you can ship products and if you share, if there are places that you don't ship products and just how you manage that.

AnnaRae Grabstein:

Okay, idaho, so no, no idaho, but tell me more no, I'm kidding.

David Gonzalez:

Um, so basically, what you can do is restrict, uh online conversions based off zip codes and restrict it to other countries, and so you know, we do have people from other countries who are on the site, but they're unable to buy. But how do we stay on top of things? There's two groups that we're in that give us visibility into different markets and legislation, so Hemp Beverage Alliance and Cannabis Beverage Association. Literally, I go on Slack. There's a channel for every single state. I know what bill's on the floor, I know who's lobbying for it, I get real time updates, and so for us, you're right, we can't just say we're going to open up in all 50 states tomorrow, like that's. That's not realistic, and so historically we have been conservative with our retail approach and how we do expand. But now that we're seeing these states that are becoming more hemp friendly and having THC beverage footprint and, more importantly, infrastructure, that's giving us good signals on where to go next, and so I won't disclose exactly which states we're focused on next. You'll probably see for yourselves in the coming months. But here's what our selection criteria looks like.

David Gonzalez:

First and foremost, we look at legislation. Is there any potential bills on the floor or any coming up to get voted on that might impact our ability to do business. And so, as an example, if I opened up in South Dakota this year, I would have been screwed with some bills on the floor there that are potentially going to be very harmful to the hemp industry there. So we look at legislation. We also look at is there a presence for the recreational market? Because if there is, the odds of the demand being as high is probably a little bit lower, and there's probably some recreational companies who are going to be throwing lobbying dollars to make sure that our products aren't as ubiquitous. So legislation is a big thing, staying on top of which bills are on the floor, et cetera. The next piece, really market demand, and so are THC beverages being sold there today. If so, is it a good footprint? So we mentioned the Southeast. Obviously places like Florida have a great hemp market. So we mentioned the Southeast. Obviously places like Florida have a great hemp market. Places like Georgia we're seeing Tennessee start to really pick up here, obviously Texas as well, and so we look at is there demand there as well?

David Gonzalez:

And then, finally, the last piece is infrastructure. So you all brought up great points. Shipping drinks all across the country is expensive and difficult and it's a fun but challenging logistical problem. And so I was fortunate enough to learn from a logistics guru in a past life, and so I know how 3PLs work, I know how warehouses work, I know how to make it economical to ship from one state to the next and how to set up different warehouse infrastructure to bring costs down, how to basically barter with brands and say hey, if you want to come sell in our state and you don't have a distributor yet, sure you can put product in our warehouse, we'll get a discount, or else you can pay us for it. Or if you need to do fulfillment out of our warehouse to do e-commerce orders, we can do that for you.

David Gonzalez:

And so when we go to new states it helps if there is an existing infrastructure footprint, because then logistically it makes more sense. And if there are co-packers there, suppliers there, distributors there, the rate at which we can operate just goes up a little bit quicker. So all those things in tandem are how we kind of choose a new market. But you're right, it's one of those things where, being in cannabis, you never know there might be something that happens nationally. Obviously, the farm bill is getting voted on this year, there might be new legislation that pops up that hinders people's ability to sell product, and so it is one of those things where you have to have a very strong pulse on the market on what's going on, and for national expansion, it's definitely exciting. At the same time, it's not one of those things where we're looking to just open up as many franchises as possible. It's a very strategic, methodical expansion plan.

Ben Larson:

Yeah, huge shout out to the cannabis beverage association and the hemp beverage alliance, like being a part of these two groups, like talk about active, like those those slack channels. You mentioned wealth of information, so thank you to all the operators that are that are there. It is overwhelming, though, like both of us have, have companies that kind of look at the markets as a whole. There are certain operators that you know are located in Illinois and really tapped into the Illinois market. Same way, you know where we're monitoring California. As someone with an online presence, like, how do you filter that information? Where do you focus your your time and energy? Like what specific bills uh are, are or or states or regions I guess um are drawing your attention the most as you kind of like operate your business sure, um, without giving away too much of our, our master plan, so to speak.

David Gonzalez:

States obviously that um we look at a lot are the Southeast. That's a great market. South in general is pretty solid. There are states like Wisconsin that are actually kind of interesting. It's a little bit unregulated, which does have some risk to it, but also there's clearly a demand for products there and so we're seeing distributors start to open up into the Wisconsin markets a bit. Places like Iowa are interesting as well.

David Gonzalez:

But to answer your question, to put it simply, we more or less avoid states where recreational cannabis is a very big footprint. So Washington, colorado, candidly, new York, unfortunately, michigan, utah, idaho, for example. Again, but those are the ones we look to avoid. The other ones are kind of like a wait and see approach. It might be interesting, but we do look for healthy signals on are we going to be met with open arms to some extent, and is it going to be a market that's going to be lucrative for us?

David Gonzalez:

Because retail this day and age is a gamble. Obviously, economies change over time. You have a lease, you have to open up shop, you have to open up a warehouse, and that's a big commitment. And so if we are to take a plunge in a new market, we want to make sure that we have mitigated as much risk as possible and that's why we didn't take that approach of just spreading like wildfire.

David Gonzalez:

We focus on e-commerce because the other nice part about targeting people nationally is you get to see clusters of shoppers. So another component for this is I can look at purchase behavior and say, oh, we have a very solid repeat customer base in this certain area. That might be a good spot to open a shop and support that e-commerce effort. That might help with local delivery, et cetera, et cetera. So it's a very nuanced strategy. It's tricky and it evolves. And you're right, it's like drinking information from a fire hose because it just updates every single day. But at the same time, being a part of these associations, working directly with these brands, working with suppliers, distributors, it really gives you a lay of the land, and that's been huge for us because I think without that level of visibility, we would not be in the position that we're in today.

AnnaRae Grabstein:

I've got a question about that. You say you're not focusing on these markets but from an econ perspective, someone from Oregon or one of those states that you don't focus on could still purchase product and get it from you In most cases, it sounds like, unless there's maybe a restriction there with an eye towards basically doing a similar thing done in Minnesota, which is opening up actual brick and mortar stores and possibly warehousing 3PL fulfillment services. And I'm curious why? Why continue on that path with the brick and mortar and the online, as opposed to going all in on one or the other, and I would guess the other being e-comm, because it just has that ability to reach so many more potential customers.

David Gonzalez:

Yeah, that's a great question. I think my background in e-commerce, if it's taught me anything, is that e-commerce is not a business, it's a channel, and so the omni-channel approach means that you basically get to serve a different type of customer. Online is great, but if you have to wait two days to get a product and ship it through the mail, it might not be as lucrative. And so there's a few reasons why we are keeping retail as a core part of this operation. A we see it like it drives more sales, and if we can get people in store as well, it's just another avenue where they can go to come in, ask questions about the products, learn more about them, talk to bud tenders. They can pick up their delivery from there, they can do a curbside pickup. And so what we noticed was, you know, looking at the DTC companies of the world your All Bird Shoes, your Chubbies, all these places if they hedge their entire bet on e-commerce, they fail, and so you can go look at their stock prices over the past few years, and it's declined dramatically. Obviously, covid was this huge rush, but with local boots on the ground, with retail stores, it actually helps with some of the logistics costs, helps with fulfillment and, all in all, it's just another way that people can shop, and so it's kind of like when you go to a supermarket, you could check out through the register and talk to a human, or you could check out yourself. Either way, we wanted to give people those options, because the other thing to consider is on the retail level, for instance, a certain demographic of customers that we have and I tell the story all the time but, like the elderly generation, they're not as tech savvy, and so we have a very healthy customer base of 55 and up. They're not going to click on an Instagram ad, they're not going to know how to do a checkout. They're going to call us and be like can I pick this up or can you drop it off? And so you also have to consider the target markets and demographics, and so if we can again complement e-commerce with a retail footprint, it just helps the entire operation go more smoothly.

David Gonzalez:

So we basically have this model today, and the reason why we want to introduce it to new markets is actually my co-partner, dwida Aleen. He was like imagine if we had Hemp House today and we went back in time to 2022, when this first happened. We had a whole catalog. We have all the data, we know what people buy, what they want. Imagine if we had that level of visibility, information, and we entered the market. We would have dominated it, would have flooded it.

David Gonzalez:

And so that's kind of the aha moment we had, which was, if there are new markets that are looking to emulate minnesota, they are not going to have that same level of experience. They're not going to know how to segment shoppers, how to match brands and products to different people. And again, I mentioned this earlier, but at a liquor store, the, the partnership is very much distributor drops off product and says you know, good luck, hope it sells for us. We have a much different approach. We actually work very closely with both distributors and brands. We co-market with brands. So you'll see ads where it's like get can or wonder delivered to your door from Hemp House or DoorDash, etc. Delivered to your door from Hemp House or DoorDash, et cetera. And so just the way that we can operate makes us kind of defy traditional retail. It's more or less just a component, another avenue for people to buy product, another revenue stream that complements e-commerce, but it's very much an entire operation that makes this business valuable.

Ben Larson:

So does that mean and feel free to decline this, to not answer this question are we going to see Hemp House pop up in other states? Oh yeah, oh yeah All right, yeah 100%.

Ben Larson:

There you go. Yeah, it's so interesting, right, Because I was thinking about this as you were talking. It's like you know, Total Wine has been known for having like a very broad footprint, but because it's all alcohol focused, they don't have a large like online presence. Right, it's all about going into their super stores and buying in person, but you do have that opportunity to have that omni-channel approach and to have a nationwide footprint both in physical and online form. That's a pretty unique opportunity.

David Gonzalez:

Yeah, um, I remember Jeremy Johnson and we were in um Miami. He was talking to me. He's like, well, I don't want more liquor stores have any commerce presence, and I was like shut up, let's say another word. Uh, there's a reason for it, reason for it. But yeah, if they don't want to focus on that, if their big value prop is being everywhere, then how do you combat that? Online is a good example. But again, we have a different fundamental buying experience.

David Gonzalez:

The reason to your point that liquor stores are popular and everybody gets very excited about them and honestly I do too. I think it's a good play because it helps build this category and it helps a lot of brands get out of the startup mode. It's so difficult to get this off the ground, and so the more we elevate the category, the more access, the more customers try this, the better. But retail's value prop is or a liquor store value prop is just being everywhere on the retail side, and so we had to find creative ways to combat that here. Because in Minnesota, if we would have tried to compete with that, we would have had a bunch of terrible leases. We would have had stores that were in the red, and so we were like you know what, let's flip this, let's go where they're not, and that's what allowed us to kind of create this moat.

AnnaRae Grabstein:

So as we're getting closer to the end of the hour. We've been talking about all this incredible work that you've been doing and really innovating in this space, in my opinion. I would love to just get a prediction from you about the actual growth potential ahead for Hemp House in the next one. Three years, like what? What do you think?

David Gonzalez:

uh, one, three, five years. I think what will happen is we'll continue to obviously grow our online footprint. We'll expand into new markets. Uh, I'd probably say at some point we'll probably look into franchising. So five years from now, I imagine they'll probably be I don't know 50, 100 hemp houses all around different states, depending on how things go.

David Gonzalez:

But again, you guys brought this up earlier Every day is different in this industry. Information's changing. Obviously. We have the farm bill getting voted on, we have those AGs send a stupid letter, so who knows what the future holds.

David Gonzalez:

But I think what we've noticed is we've found a business model that's worked here in the quote unquote Mecca of THC beverages, and so, as more and more states follow suit, just it makes a lot of sense for us to open up shop there, because one of the things to consider is in the recreational side.

David Gonzalez:

We hear a lot of this.

David Gonzalez:

It's people are afraid of the MSOs, right, they say all these people come in, they take our local economy, et cetera.

David Gonzalez:

And so, as we look to expand, I think what's important is that, when we do go into these new markets, we work with local suppliers, we work with local distributors and co-packers, we carry local and regional brands, and we become a good partner for these different markets. And so that's probably in stark contrast to how some other people do things, but for us, if we can be a good retail partner and then also be a good partner for these brands as they look to get into new markets, that makes a big difference, and so that's another piece of our secret sauce. It's if a brand is trying to enter a new market and they don't have a distributor, they don't have that infrastructure like we can be that Trojan horse for them. And so that's what I'm most excited by, and we'll see how all this shakes out. But for now, I think we have some pretty ambitious goals, and I'm sure we'll see how the year shakes out. And five years from now, who knows, maybe it is a 50 state kind of company.

Ben Larson:

It's amazing, david, and you just mentioned at the top of the show that you're a new father.

David Gonzalez:

Yeah, A little three weeks in.

Ben Larson:

Is that right?

David Gonzalez:

Yeah, it feels like three years, but it's been an incredible time. My wife's been absolutely incredible for this whole process and we've been taking shifts, sleeping back and forth, and she's been gracious enough to keep the little one occupied while I'm here talking with you both. But it's been one of the best experiences of my entire life. I didn't expect to kind of be as excited and happy and proud. I thought I was going to be very stressed out and sleep deprived and cranky. But every day I just kind of wake up and see my son and it just kind of reminds me of why I do this stuff. That's amazing.

Ben Larson:

Yeah, I remember those early days and look upon them fondly, even the sleep deprivation. But I remember after my firstborn just feeling so much more focused and very clear on what my priorities were. So I'm excited for you just because I've done so much already and, with the path ahead, just being able to really you know, really understand where, where you need to focus your time and energy.

David Gonzalez:

It's gonna, it's gonna be really powerful yeah, and I think another thing about becoming a parent to your point is you, you kind of realize what's important to you, and so I think, on an altruistic kind of level, what we're doing here is fundamentally changing drinking, yeah, so uh. Actually aaron brought this up in Miami, but he was like more people die from alcohol than from war, and I didn't stop till I consider that for a second because it's such a powerful statement. But I can create a better world for my kid, one that isn't as dependent on alcohol, that has a healthier alternative, that's going to help people get off from smoking as much or from having alcohol as much. To me, that's a philosophical driver that makes the work all that much more rewarding. So very excited to see where this category goes.

AnnaRae Grabstein:

So cool. Well, we're at the close of the hour and so now we're going to actually turn it back to you. That almost sounded like the last call, but I'm going to let you have another one, because it wasn't the formal version. So, david, help us close out the show, give us your last call for today.

David Gonzalez:

My last call for people here is if you haven't tried a THC beverage before, if you're on the fence, if you're wondering, be sure to check out Hemp House. We have the largest online selection of THC beverages. It's a better way of drinking. There's tons of brands, there's tons of people who are now enjoying these products, and so this is the future. This is where cannabis is going.

David Gonzalez:

It's the best form factor for a lot of people who are newer to the plant, and so I just encourage everybody to check out our site. Try one for the first time, try 12, whatever you want to do, but really just excited to be here, to have these opportunities with speaking to people like you both and, ultimately, I'm just very excited to see where the category goes, and if we at Hemp House can help spearhead the growth of this category and be a preferred brand partner and uh, basically help build this category, then then we've done our job. So thank you both for for having me on and giving me the opportunity to chat here and looking forward to having more of these Amazing and uh will.

Ben Larson:

Will we get to see you in uh in miami again for benzinga?

David Gonzalez:

nope, you got a new boy. Nope, I gotta be home with the wife grounded. I spend my time with the loved ones, but I should have known that answer it's like you got priority straight.

Ben Larson:

That's right. I should have known that answer. Amazing, david. Thank you so much. Thank you for being open, uh, and just giving us uh answering all the questions. It was really. Thank you so much. Thank you for being open and just giving us answering all the questions. It was really great.

David Gonzalez:

Thanks so much for having me. You guys have a great show here and obviously great company, so appreciate your time.

Ben Larson:

Thank you, we'll talk to you soon, henry. Another great one in the bag. Man, what an exciting time.

AnnaRae Grabstein:

PEMP Retail just exploding. It's very exciting. Yeah, so much there.

Ben Larson:

So much All right, folks. Well, as we wrap up, remember the dialogue doesn't have to end here. We invite you to continue these conversations and we'd love to hear your thoughts. Who would you like to see on the show? What topics would you like us to cover? We are immensely grateful for you. Our audience, your engagement, encourages us to keep bringing you these thought-provoking conversations. So if you enjoyed this episode, please like subscribe. Share High Spirits with your friends, your colleagues, your family, and a special thanks to our teams at Vertosa and Wolfmeyer for supporting us through this adventure that we're all on. And, as I always tell my team, remember folks, stay curious, stay informed and keep your spirits high Until next time. That's the show.

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Expanding Hemp House Nationally and Internationally
National Expansion Strategy in Cannabis Markets
Future Growth of Hemp House