A Vegas Proof Point

SPEAKER_02 0:00

We were closing down the trade show and went out in Vegas for the night. And I just drank those in my drink. I just mixed up a drink and drop those in. And I had the best night that I've ever had in Vegas. It was amazing. I felt great. I had a good time. I consumed four drinks over the course of an entire evening where otherwise, you know, eight, 10 hours in Vegas, you would have more alcohol. And I woke up the next morning going to the trade show because we had one more day of the show left. And I felt awesome. And half the other vendors are hung over from partying in Vegas the night before. So that was my nugget of there's something really cool in cannabis beverages. But that was in 2019.

AnnaRae Grabstein 0:56

Hey everybody, welcome to High Spirits. I'm Ben Larson. And I'm Anna Ray Grabsian.

Ben Larson 1:02

And it's episode 149. We're recording Tuesday, August 18th, 2026, and we've got a great conversation for you today. We are bringing on our friend Jason Dayton from the Minneapolis Cider Company, aka Trail Magic, and we're going to dive into all things hemp beverage and the impending November deadline. But before we get there, Anna Ray, good to be back. Good to see you. Great episode last week. I love the conversation with Anna. You guys represented California very well.

AnnaRae Grabstein 1:35

We missed you. It's not the same when you're not here, but thank you. I'm glad you listened even when you weren't on.

Ben Larson 1:41

I did listen and I tried to kind of like keep inserting myself into the conversation, but the two of you just know California cultivation so much better than I that it actually was probably better that I wasn't there.

AnnaRae Grabstein 1:54

Yeah, I'm definitely a bit of a dork when it comes to cultivation. I know it inside and out for sure.

Ben Larson 2:00

Yeah. But I did have a good excuse. I was full on into my team week, our annual Tosa week. It was our eighth annual. And um yeah, I was it's my favorite week of the year. I love just getting everyone in town and is going headlong into all that, but like also a stark difference than being head deep into baby stuff for the previous six weeks.

AnnaRae Grabstein 2:27

Right. I know. Thank you so much for including me in some of the Tosa week uh programming. I got to stop by the Virtosa office as part of um the ops tour that you were giving staff that had joined more recently that hadn't seen the full tour. And so I got to see how all the emulsion is made. Um and just really clean and organized and like a laboratory as to be expected. Um, so it was it was great to see and meet so many of your team members. I was I was very grateful to be there as well.

Ben Larson 3:02

Um yeah, I it's funny. It's like we I I deliberately refer to all of our manufacturing facilities as labs just to kind of keep that mentality in people's heads. Like I want it like as clean as a lab anytime someone comes in. Um yeah, it's just kind of one of those little nuanced approaches.

AnnaRae Grabstein 3:22

It's it's funny, you know, there was a moment where I was brought back to my days when I was the COO of a meat company and I used to take people on tours of the meat plant, and we would always go into the walk-in fridge and and on your ops tour, um, there was a moment where um George on your team walked everyone up and said, and here is our walk-in fridge, and opened the door, and inside is just lots of bottles of emulsion. And the the walk-in refrigerator on my meat plant tours was always the place that I liked to freak people out because it's where all the purposes would hang. And I thought, well, this walk-in refrigerator is a lot more boring than the meat company's walk-in refrigerator.

Ben Larson 4:06

Until you start quoting some numbers, because I think those walk-in refrigerators can fit, what, I don't know, like 50 of those jugs, and each one of those jugs uh can probably infuse 200 or 300,000 beverages, depending on the formula.

AnnaRae Grabstein 4:20

Wow. Yeah. So there's a lot of juice in there. That's amazing. That's amazing.

Ben Larson 4:28

So sometimes I go in and stand in one of our fridges, and I'm just like, well, who's consuming all of this? Because I remember the very early days, like when we made our first carboy full of emulsion, and I put it into my fridge in my garage because you know we were we had a distributed lab at the time. And yeah, I have a picture of it just sitting there, and it was like maybe a quarter full. Um, and to think that we've gone from there to filling up multiple walk-in refrigerators around North America is um, yeah, just very exciting.

AnnaRae Grabstein 5:01

Pretty cool. Absolutely. Uh and other than that, I mean, I think that there's a real energy. We're deep into Q3 now. And um, whether it's Vertosa, who I visited last week or other cannabis companies that I work with or talk to, everybody's starting to think about 2027, which is a wild, wild thing that we're now in the third. Yes. I'm just trying to get to Q4. Uh it's this crazy wild moment of like it's the skip ahead time of year. So I'm feeling it. I'm doing a lot of forward looking and um interesting moment for that. But let's uh jump into the news update.

Cannabis By Mail In Georgia

AnnaRae Grabstein 5:40

What do you think?

Ben Larson 5:40

Yeah, yeah, let's go forward.

AnnaRae Grabstein 5:42

Cool. We've got two stories for us. Um, first one, Georgia regulators are proposing new rules that would let medical cannabis be shipped straight to patients via USPS, FedEx, and UPS using certified mail with signature required from the patient caregiver or healthcare uh staff member. State officials say this is possible because of the Trump administration's move earlier this year to reclassify medical marijuana from Schedule 1 to Schedule 3, a shift they're leaning to justify federal mail delivery. Uh, Georgia's Cannabis Commission will take public comment on the policy September 16th and vote on the rule September 30th. Uh, this might not sound like a big deal to folks that aren't deep in cannabis, but um, this is Georgia's regulated medical cannabis program choosing to create a pathway for cannabis products to be delivered through the mail. And it is the first time that um any regulated cannabis program has done anything like this. There are active delivery mechanisms in states like California and Florida, Massachusetts, all over the place, lots of regulated states, but those are generally done um almost more like an Uber Eats model with drivers delivering product direct to uh customers' homes as opposed to getting to use the mail, which is the cheapest and most efficient pathway. So this is this is big news to me.

Ben Larson 7:17

I does schedule three actually enable that? Like, can we order other schedule three drugs through the USPS?

AnnaRae Grabstein 7:27

Not sure, I think.

Ben Larson 7:29

Um I think I can skip to being optimistic, but like my my skeptic immediately jumps in and be like, does the move to schedule three actually enable that? Because I don't know, we're we're still not allowed to move things like interstate until there's an actual, I think, ruling about transferring things from DEA license to DEA license. Like um I want this to be true. I think if this does inevitably happen, it really makes everyone start imagining the future very quickly because if the USPS is moving things, why can't Amazon? And then if Amazon's moving things, like do we start building kind of the pseudo-legal marketplace that some people have have uh forecasted for for this kind of schedule three move, right? And so it's like, you know, do things towards kind of an open environment or easy access actually start to happen?

AnnaRae Grabstein 8:29

Well, so um I did just pull up a list of some schedule three drugs to think about if you can receive them through the mail. And certainly some of them you can. Some examples of schedule three drugs are things like acetuminiphen with codeine, which you might get prescribed by a doctor, um, testosterone, ketamine. Those are all examples of of schedule three drugs that you can receive through the mail.

Ben Larson 8:54

So my ketamine treatment's running a little bit behind. Uh, I'll have to check with the USPS on that one.

AnnaRae Grabstein 9:02

Um all right, our next story, and this is one that I have often thought about and uh has to do with is there a cannabis voter out there? Can cannabis voters really shift or change the dynamic of an election? And um, James Tallerico in Texas thinks so. He is testing his Senate bid on the theory that hemp and THC restrictions can pull in swing voters, pitching the Texas THC ban as government overreach that helps, quote, big beer and big tobacco while hurting veteran, seniors, and small businesses. He's framed it as a rare cross-partisan issue, arguing outrage over the band's fans across the spectrum, which lets him court libertarian-leaning and hemp industry voters alongside his Democratic base. A notable break from other prominent Democrats like Gavin Newsome, who's taken a much harder line on intoxicating hemp. Uh, the bet raises the real question: is there actually a persuadable cannabis voter block in Texas, or is this more of a wedge issue gamble in a race that's currently a dead heat with his Republican competitor Ken Paxton?

Ben Larson 10:15

Hmm. Um it it might get you some voters in Texas, actually. I mean, this has been a huge deal in Texas.

AnnaRae Grabstein 10:23

And it really has.

Ben Larson 10:25

And I I I mean, he credit to James. Like he's gone viral for his grandstanding, and and it's been actually It's impressive in the fact that it just makes so much sense, right? It's just like everything he says is true. And so, you know, with the presidential election and everything, like or or Senate elections, it's wait, sorry, is he running for Senate or Senate? Senate, okay. Um Yeah, I I I think it it might work in Texas. It but but more than

Texas Politics And The THC Voter

Ben Larson 10:55

anything, more than swing voters, like how about the young voter? Like hearing someone talk common sense and be like, stop, like with the ridiculous laws, um might get out the younger voter. And Texas also has a lot of those.

AnnaRae Grabstein 11:12

If he wins and he is able to lean into the idea that THC was a wedge issue that got him elected, it would create an incredible ally for the industry. Uh so uh I'm definitely paying attention. And I'm I'm rooting for James Tallerico.

Ben Larson 11:32

I mean, we have James Talarico, we have Beth Van Dyne who brought forth the the hemp beverage bill. Um yeah, Texas turned around. Meanwhile, California is becoming more conservative over the years, so um, I think I don't want to make this political uh podcast, uh, but you know, the Democratic Party is in in disarray right now.

AnnaRae Grabstein 11:55

Okay, we're not have making this a political conversation. Okay, our guest today is Jason Dayton. He's co-founder of Minneapolis Cider Company and Trail Magic, Minnesota's first hemp-derived THC beverage. Um, what started as a class project at University of Minnesota in 2015 has grown into a two-time Inc. 5000 honoree, one of the fastest growing beverage companies in the country, uh, with growth of 357% three-year revenue growth on the most recent list, which is huge. Um, Trio Magic launched in 2022 as the first teach the beverage to hit shelves in Minnesota, apparently in just 19 days, and has since expanded into over 20 states, winning best infused ready-to-drink, uh, ready-to-drink beverage at the 2024 High Spirits Awards. And uh Jason's definitely the guy that can tell us exactly what it's like to build a hemp beverage brand inside of an alcohol company in real time, while the rules underneath him keep changing. So we're really excited to bring on Jason for the first time. Can't believe he hasn't been on before. Uh, welcome, Jason. Hey guys, welcome. Thank you so much. Yeah, hey, bud.

SPEAKER_02 13:14

Excited to be. You know, hello from the great state of Minnesota. It is a great or what looks like the Apple Studio fitness. Very chic.

Ben Larson 13:28

Anna Ray and I you know Anna Ray and I re very much remember our first time in Minnesota. It was um so amazing. Like it was what, two and a half years ago at the Canra conference. Yeah. Um and going into the restaurants, the bars, having THC beverages available, uh, it was just this moment where you realize it's like, oh, this is what the future could look like. Right. And um

Meet Trail Magic Founder Jason Dayton

Ben Larson 13:55

yeah, that was just something really special. And man, what a journey we've been on for the last two and a half years. But um trail magic playing a really big role in that kind of emergence.

SPEAKER_02 14:06

Well, it's it's funny. I mean, it's normal now for everybody in the hemp beverage industry and the cannabis industry to walk into a bar and see a cannabis beverage. Um but we went to MJ BizCon in fall of 2022, and we went around and told people, did you know we sell THC beverages at a bar? And it just it blew people's minds, and they did not comprehend how that was even how that was even possible. Um, so it's been it's been a ton of fun to see just how fast the industry has come. Our background, uh, like Anna Ray was saying, is is in alcohol. We've been an alcohol business for, you know, 10 years. We have a national hard cider brand named Crispin Cider. And when this all started in 2022, our business plan, especially after those early conversations at MJ BizCon and elsewhere, was okay, this is gonna take years and years and years before uh distributors and retailers outside Minnesota will ever talk to us. It's amazing how fast it's happened.

AnnaRae Grabstein 15:10

Well, so give us the gut check then. So where is Trail Magic today in terms of units, stores, revenue, however, you're tracking your growth to um explain to the people in states like California and other places that don't have access to these hemp beverage beverages, what what does the business look like today?

SPEAKER_02 15:30

Yeah, I mean, so I always get a bit of a kick when I see folks in the traditional cannabis world talk about unit sales as in like individual cans being sold. Um, but a case in the case world from a beer perspective, which is 24 individual cans, um, you know, we'll exceed 100,000 cases again this year. Um, the business is is healthy. We're in 20, 21 states through traditional three-tier, uh, mostly beer wholesalers, a couple of wine and spirits guys. Um, and then we have some direct business in in markets uh where we don't have a wholesaler, but maybe we have a retailer who's carrying the products like a total wine, or even you know, small independent retailers through AirGoods. So our goal has always been to be pretty much wherever THC beverages are being sold through the traditional retail channels. Um there's been some ebb and some flow over the years. Uh, New York for us was a really great market for about uh two months um back in 2023. And then when the law changed in New York to 175 um milligrams per container serving, we pulled out. Obviously, there's a lot of people still selling product in New York. If you go to New York City and any bodega, you'll still see beverages.

Ben Larson 16:44

And

Scaling Into 20 Plus States

Ben Larson 16:45

uh Massachusetts was another greater than 1.75.

SPEAKER_02 16:48

Greater than 1.75, right? Um Massachusetts was another market that that you know, unfortunately was sunseted. Um, and then you know, we've kind of as a larger brand, we've tried to sort of ride the balance of creating different versions of packaging for certain markets where it's worth it, but we're not necessarily going after every single individual change and you know, focusing on key markets, which in this year, past you know, what happened in November last year, has been beneficial for us as a brand. We've been able to kind of focus on what's continuing to win and go after the unique opportunities that come up, like Target, for example, in Texas and Florida and Illinois.

Ben Larson 17:29

So I want to just get a get a picture of like your day because that's a very diversified business. Like running a TAC business in all these different markets is is hard. It's especially right now. And you know this, like there's a lot of pol policy going on, whether it's at the state level, all the individual states, and the federal level. Um, but you also have your local alcohol business and tap room, and then you have Crispin, which I know I know about Crispin. I was surprised the first time I heard that. Like that's a that's a well-known cider brand. You can get it in California. You can actually get it in California. One of the offerings. Um yeah, like how do you divide your day? Like, how do you keep your head on straight with so much happening in so many different directions?

SPEAKER_02 18:17

Yeah, um, it's not easy, and it's been something we've had to learn and struggle through. Um, I think any entrepreneur understands the pitfalls of context switching. Um, you know, layering on a new brand on top of it, uh, you know, based on the day pretty much. Minneapolis Cider and the Twin Cities, Crispin nationally, Trail Magic nationally. It's it's been challenging. And I think it's a credit to our team that they are able to adapt and ebb and flow between the brands. Um, a lot of the work is similar, which is nice at least. I mean, we're still at the end of the day, we're putting 12 ounces of liquid in a can. We're moving that can to a wholesaler and removing that product from the wholesaler to the retailer to the consumer. Um, so the rails are in theory the same. Um, I think the biggest challenge for us has been, especially with the speed of change in cannabis products and cannabis beverage, especially, um, being on top of those changes. And, you know, we've changed our business a little bit. Like we've gone from purchasing almost all printed cans where it's a three-month lead time on artwork, you know, huge minimum mortar quantities, to, you know, on Trail Magic, it's almost all digital print, right? And we're changing those pretty rapidly as we have to. Um, and then for me as an entrepreneur, it's, you know, you're juggling and you're working a lot, but I think for all of us, this is probably the most fun we've had in the last five years, fun, like type two fun, maybe, but uh I I I, you know, my wife will sometimes ask, you know, well, why are you doing this? Like, why are you stressing yourself out? And I'm like, no matter what happens, this has been the most growth that I've ever experienced in my career. And probably, you know, for anybody in this industry who's gone through it, these are the war stories we're gonna tell. Hopefully, in five or 10 years when um we have a stable regulatory system and national distribution, and we're all just, you know, sitting back sipping our cannabis beverages at, you know, MJ BizCon at the at a casino somewhere.

Ben Larson 20:17

Amen.

AnnaRae Grabstein 20:18

Yes, I agree and I am excited for that moment. Uh well, so let's talk about the consumer a little bit. Uh, I want to know what you've learned about the consumer in your time, how the consumer might have evolved. And and if you believe that the trail magic consumer is the same as the Crispin consumer, is the THD beverage an alcohol alternative? Kind of what what have you learned, especially because you get to have this hands-on relationship with consumers through the tap room, which is a really exciting and kind of unique perspective that not a lot of companies get to have?

SPEAKER_02 20:56

Yeah, I mean, for us, there's a lot of overlap. Um, we're a fruit company, first and foremost. Like you won't see Trail Magic making a salts, or everything we do is, you know, real fruit, and that comes from our background insider. And so, like, our customer base is already somebody who's kind of looking for flavor and craft quality ingredients that sort of resonates from where we started. Um, and then most of them drink alcohol. 90% of our Trail Magic consumers, according to all of our research, are still consuming alcohol on a regular basis. And so we have a lot of those overlap consumers. We certainly had people who stop consuming alcohol and only drink THC products, or we have an NA cider or two. Um so we do see a lot of overlap in those consumers. But what I think's interesting for this industry and an issue we're all sort of trying to work through still is there's a difference between the average consumer if you ignore how much they're consuming, right? So forget who's spending the most money, but just the average person who drinks a cannabis beverage in a six month period compared to who is. Is really purchasing a lot of the products and driving a lot of the sales for the market. So if you look at our sales in Minnesota or really any other brand, you see a, you know, 80% of those sales being 10 milligrams. You go to markets without any milligram cap, and the 25s and the 50s are the best sellers products. And that's real in the market, despite kind of us in the hemp beverage world talking about that three and five milligram soccer mom consumer. And the example that I use for it in the conversations we have is our 10 milligram consumer has replaced a significantly higher amount of their beverage consumption with THC drinks. They're drinking them maybe a couple at a time, they're drinking them multiple days a week, right? They'll go through a four-pack or a 12-pack in a week, just like maybe your average beer consumer would, you know, a couple of years ago back in craft beer. Where the soccer mom type consumer, the three milligram consumer that we all talk about in the industry is she is drinking one or two a week. And so when you scale that out over the course of a year, um, the consumption difference is huge. And we've even seen that in Minnesota where we've struggled to keep our low-dose products on shelf, not because there's not a consumer for it, but because the retailer is seeing the velocity of the higher dose products and they're wants and therefore wants to allocate more shelf space to higher dose. The problem is that becomes a self-fulfilling prophecy when you walk into a store and there's only 10, 25s, or 50s on the shelf, and you're a brand new consumer, there's nothing for you. And so you just say, okay, you know, THC beverage, great. Like that's not for me at all. Um, I'm gonna drink something else. And so that's the shame and that's kind of thing that we're advocating for all the time. But you know, we've had it impact our business. We don't sell our three milligrams anymore. And that's my favorite drink.

Ben Larson 23:51

But it just didn't this literally happens to me at the office. Like I go into our sample fridge and it's like 10, 10, 10, 10, 10, 10. And I'm like, oh, there's a three. You know, grab that and I'm like, God, it's so annoying.

SPEAKER_02 24:05

Our friends at Fable, the one milligram, and then when we were at CanadaCon or uh this, you know, at the beach party, we were all drinking the one milligrams from Fable. Those were great. I love those drinks.

Ben Larson 24:17

Yeah, yeah. Shout out Ben Kennedy. That's a great, great product. Yeah. Um, so you you brought up growing this business, doing all these crazy things, your wife asking you, like, are are you having fun? Like, as someone who uh people have looked at sideways sometimes for making major life decisions in the middle of like, you know, raising a family and and growing this cannabis business. Um, I do want to go back to the story that you told me when you launched Trail Magic. Um, I remember you telling me at MJ BizCon, and it was some crazy accelerated schedule. Like the regs dropped in Minnesota, and you're like, we're gonna do this. I think there was a hospital involved, and 19 days later you had Trail Magic.

SPEAKER_02 25:03

Yeah, so context for where we were as a company. We had a tap room, we had a production facility, we had Minneapolis Cider Company up and running. We were just kind of coming out of surviving through the pandemic. We were mostly a hospitality business, and so we didn't have a huge distribution footprint at the time. And during my sort of career before doing the cider company full-time when it was a small business still, um, I worked for a company called Gamer Packaging, which some people may be familiar with. We had been to MJ BizCon. I had sampled, I'm pretty sure it was source. So I'm, you know, I'm not 100% positive who it was from, but it was these five milligram um emulsion vials, and they gave us a sample pack of four. And we were closing down the trade show and

Dose Wars And Shelf Space Reality

SPEAKER_02 25:55

went out out in Vegas for the night. And I just drank those in my drink. I just mixed up a drink and dropped those in. And I had the best night that I've ever had in Vegas. It was amazing. Um, I felt great. I had a good time. I consumed four drinks over the course of an entire evening where otherwise, you know, eight, 10 hours in Vegas would have more alcohol. And I woke up the next morning going to the trade show because we had one more day of the show left, and I felt awesome. And, you know, half the other vendors are hung over from partying in Vegas the night before. So that was my like nugget of there's something really cool in cannabis beverages. But that was in 2019. So fast forward to 2022, we're sitting at the lake over the 4th of July. Um, and all of a sudden, front page news hits across Minnesota that THC is now legal. The state, in many ways, sort of accidentally legalized Delta IX. Uh, it was an attempt to regulate the Delta VII market that was in the state, and the way the law was passed, it opened up Delta IX, which wasn't previously legal in Minnesota. And it set a five milligram cap and 50 milligrams per package was the rule.

Ben Larson 27:06

So, from your perspective, it was an accident.

SPEAKER_02 27:11

Certain people knew what they were doing. Um the majority of people who voted for it, there was no floor debate of whether or not we should have THC beverages or gummies or edibles. I mean, all the conversations that we've had in South Carolina and like the heated lobbying and public activation, like all the stuff we're seeing now, didn't happen. But in Minnesota, there was this really interesting undercurrent already happening. We didn't have legalized marijuana yet. We had a um medical program, and we had a major political party. So we had the Democrats and the Republicans, and then we had the Legalized Marijuana Now Party. And to be a major party in Minnesota, you have to achieve at least, I think it's two and a half to five percent of the vote in the previous election. You automatically get on the ballot, just like the Democrats and Republicans do. So they'd been on the ballot for a couple of years, never winning anything, but like this issue was sort of front and center coming around. And um they if you watch the committee videos, you you can see very clearly that most of the members did not really understand what they were doing. Pass it, move on, session ends in May, right? So this doesn't even take effect until July. But by July 1st, um, retailers are ready, and this category turns on, and it's front page news in the Star Tribune or local newspaper. You know, THC is now legal, and there's lines at smoke shops for people to get the very first THC products in Minnesota. And in that, there was another brewery who back in 2019 had made a CBD product, and the state actually shut them down from doing it at the time. And they said they were going to get into THC beverages, and it brought back that story of 2019 and that night in Vegas and how great of an experience that was. So I come home from my week at the cabin and sit my business partners down on July 10th and say, like, here's what's happening, here's the law that's changed, here's how we do it. Um, reached out to the handful of contacts that we had. And we, you know, in a period of 19 days, went from that meeting to the launch of Trail Magic. And our first couple of products, I mean, we went out and our uh Cider Maker was working on hot water. So we said, great, we'll add emulsion to that. And then we opened our walk-in cooler, and in our cooler, we have things like fresh blueberries and basil and just other random fruit and ingredients, you know, sitting around. And we had blueberry, strawberry, and basil. And we're like, great, go in a tank. That's berry basil. And that was our second skew that we launched. And that was the product development cycle for it. And we called up, you know, a handful of our friends who had emulsion companies and we ended up working with um EnviroStar and Roxanne, if folks know them. Great group. But three people we called said, Yep, we've we've heard that this is becoming a category. We can't get to you for two or three weeks. You know, we'll send you some samples and let's talk. And Roxanne said, I can be there tomorrow. How does that sound? Wow. So they showed up this showed up the next day. We're we're building our first trial sample beverages that next day. We call in every favor that we have on label companies and can companies and um put the whole thing together. And uh we launched on a uh we had an outdoor movie night for Ferris Bueller's day off, and we launched Gail Magic for that.

Ben Larson 30:40

That's amazing. That's amazing.

AnnaRae Grabstein 30:42

Wow. Minnesota really opened the door. And there really was no cannabis program there. There was a medical program that was in existence, but pretty restrictive, small. So it was such an exciting time for Minnesota. And I think Minnesota has continued to kind of chart its own path as it comes to regulating and creating access to cannabinoids first by while you guys were the first beverage, really creating this very robust beverage and edible environment for intoxicating hemp products. Um, and then layering on their adult use program later. Um, and there is some new cannabis rules in Minnesota, and it seems like you might be the best person to talk us through what's been going on there in the last 12 months and what are the most recent changes that just took effect this month. Can you kind of break that down for us?

SPEAKER_02 31:39

Yeah, I mean, so Minnesota is unique in that we had the hemp category. Like you said, we had the hemp category before we had the rec category. And so when the when the law was wit written for rec, they were writing and updating the law for hemp at the same time. And so we created this really unique structure where we have um adult rec products, which would look very familiar to anybody in any other adult use market with dispensaries and flour and high-dose products and that same dispensary experience, go in, show your ID, you know, pay with cash, et cetera, product behind the counter. But we also created the lower potency hemp edible license type, which says if you are manufacturing, distributing, or selling a lower potency hemp edible, there's a different set of rules that apply to you. And it opened that market up way beyond what the traditional rec market would be, right? So, for example, there's no cap on the number of licenses. There's not a lottery system involved. It's do you have a business? Is it passing inspection? Do you meet the rules and requirements of running this operation? Great, apply for your license. Here is your license to operate, kind of the way pretty much any other business outside of cannabis would operate. And that's what's very

The 19 Day Minnesota Launch Story

SPEAKER_02 32:55

unique to the Minnesota market is we opened up access and we did so in a very licensed and controlled uh manner, including through liquor store channels, grocery stores, and kind of places that would otherwise be familiar with selling adult products. But you mentioned what's happening in Minnesota now. We've, like every state, have a cannabis bill every year, and there's been additional changes. Um, one of the unique changes that happened this year is we opened up the large format model. So obviously, a lot of listeners are really familiar with the success of brands like Nowadays and the other brands in the Spirits formats. The way Minnesota's beverage rule was written, we have a um limit of how many servings you can have per container in a beverage, right? It was two five milligram servings. So you could only have 10 milligrams. Effective August 1st, we opened that up to allow um 750 milliliter or greater packages. Um, so you're not limited to the 750. Tell you why for Trail Magic in a second. Um, and then five milligrams per serving up to 17 servings, right? So we capped the amount, 85 milligrams per bottle essentially is allowable now. And that market has just launched. It will be interesting to see how um the category does here. I think it's people have launched tinctures that have effectively been spirits in Minnesota before and they haven't done well. Um, there are several brands on the shelf currently. So it's a new product category that Minnesotans aren't necessarily used to. And we'll see how those dynamics work. If they work the same as every other state that we've seen, or if there's something different about the Minnesota market?

Ben Larson 34:35

So so the market essentially is expanding. I I know there's been other other headwinds that have have made things a little bit more challenging, and we can dive into that. But does that mean the general sentiment is that this is working, that you know, that the world hasn't burned down and that this is a a viable strategy for Minnesota? Or is I mean there's always kind of like the the other side of the argument, and those voices can be pretty loud sometimes. And so I'm just from where you sit, is Minnesota happy with the the oops that they made, you know, back in 2022? Um, you know, and are we gonna see this kind of this bifurcated market persist?

SPEAKER_02 35:20

Yeah, I think, you know, you look at markets like Massachusetts and a and a repeal campaign. I mean, that's not something that exists anywhere in Minnesota. There's zero conversation from anyone, even folks who are generally opposed to um, you know, mind-altering substances of any type, nobody's looking at trying to undo the Minnesota market. And in fact, you know, we have really strong bipartisan buy-in to do things that we can to protect the Minnesota market and look at how can Minnesota as a state um craft policy that helps these brands continue to survive and thrive in our market, sort of regardless of what happens federally. And um, the Office of Cannabis Management has been very engaged in that process, have had state legislatures from both sides of the aisle. And part of it is what makes Minnesota unique and why this market worked so well, it wasn't outside cannabis companies coming in. It wasn't cannabis companies spinning up out of nowhere with venture capital, you know, and launching their products to to the market and trying to convince people. It was your neighborhood brewery, right? So if you're a Minneapolis cider customer, if you come and play pickleball and play our pickleball leagues every week, and I'm gonna say, hey, Ben, we just launched this new product. It's a THC beverage, you're far more likely to trust that product from Minneapolis Cider that you've already been visiting than some random brand or going into a different retailer that you haven't been for. So across the board, whether it was the factors, your local brewery, it was your liquor store, it was your grocery store, it's the places that consumers already were entrusted, that let the category take off much faster compared to markets where maybe it started only in gas stations with brands that people have never heard of, and it was merchandise next to like Kratom. And like so it was a very different way that the category was introduced to most Minnesotans in the market. And I think that changed how people accepted it.

AnnaRae Grabstein 37:27

As it relates to your ongoing abil ability to produce the products that you've been making, and um I'm wondering how this merging of the hemp and cannabis regimes is affecting the supply chain. And one one thing that that there have been folks advocating for at the federal level is this one plant solution and that that hemp is an inefficient ingredient ultimately. Is there a pathway for you to be using regulated cannabis in these low-dose products that are in conventional retail? Are you still restricted to hemp? Can you touch on that a little bit?

SPEAKER_02 38:10

Yeah. So kind of back to the two-tier structure and the way Minnesota defines it as yeah, lower potency hemp edible retail retail products, they have to come from hemp as defined currently in Minnesota to be sold in sort of the variety of channels. And if we get that, if the federal ban comes into force and those products are now considered marijuana federally, that license doesn't go away. That license is still valid and it's still there, and all the retailers and manufacturers can keep selling it. But then the problem becomes where is the hemp coming from? Because Minnesota, well, we grow some, we don't grow enough. Um Ben is, you know, the X is definitely more of an expert on it than I am. But obviously, if we lose the ability to have interstate commerce for hemp and distillate, that becomes a problem for supporting a really robust beverage market. So back to what OCM is willing to do in the conversations we're having is we're starting to talk about let's keep the license structure the same for a five milligram or a 10 milligram beverage, but let's change the definition of what's allowable in it. So that in a post-ban world where these products are federally marijuana and it's an intrastate business, anyways, let's you know allow the input to come from uh Minnesota growing recreational cannabis. And I think there's generally pretty strong support to do that if that is what needs to be done. Because it doesn't change it doesn't change the product at all, right? Exactly.

Ben Larson 39:40

No, I mean I mean we've talked about this before, Anna Ray and I have about just like the convergence of the supply chains in the future and even just getting a certain wedge in, you know, it's like at a certain point capitalism takes over and you want to create like an efficient system, and and Minnesota would be kind of a microcosm of that, of what maybe we could eventually see on at the federal scale. And that's why we kind of like grab onto these news items where it's like, oh, like USPS involvement, like, oh, how does that extrapolate into um you know a year or two years into the future?

SPEAKER_02 40:16

Um does from an alcohol perspective, like regulate the end product, right? Absolutely. Regulate corn differently for how it's going to be used. It's we regulate corn and it's in a certain way, and then here's all of the different outputs that you can get from it. You regulate the outputs.

Ben Larson 40:34

But do regulate beverages different than chocolate bars, uh maybe just throwing it out there. Um but in this kind of like intermediate state where it's like we might be able to solve for what is licensed THC, right? Whether it's hemp or cannabis, um, it does call into question about the challenges that the cannabis industry currently faces and this big push that the industry is making for safe banking and all these kind of things. And I think, you know, insurance, uh, you know, access to safe banking or payment rails, like these all immediately start to become

Minnesota’s Two Track Market Model

Ben Larson 41:10

concerns. Um, how how are you thinking about that and kind of that that transition?

SPEAKER_02 41:16

Yeah, all of those are still real, right? We have to understand how to navigate to ADE on a banking perspective. You know, we are fortunate to work with a state chartered bank. So we work with an ag bank who is very familiar with cannabis and is working with other cannabis companies already. So they're very comfortable with the category. Um, and so we we're starting to inherit a lot of the challenges that any other of the rec cannabis companies have in Minnesota or any other market. And that's that's new for us. That's been one of the advantages with hemp. Um, but you know, to all of my friends in the rec cannabis world and people who are maybe, you know, less supportive of of hemp because they think hemp should have to play by the same rules that they play by, which I can understand their perspective. None of us should be playing by those rules. Like we should stop treating cannabis like plutonium and treat it like a CPG could. I'm in jail.

Ben Larson 42:12

Therefore, everyone else should be in jail.

SPEAKER_02 42:16

Break some rationale, dude. And I think that's that's our hope for what Minnesota will do. I mean, I I think if you had the entire country look like Minnesota from a perspective where we have um cap, tax, licensing, and importantly enforcement, and the consumer doesn't walk into a store and worry if that product is safe, uh, I think the conversations in Washington would be really different right now from the conversations that are happening currently. Um I wish everybody looked like this. So let's take the Minnesota model and apply it federally. But then, you know, over time, let's take that hemp model and apply it to cannabis. Because at the end of the day, the molecule of THC is still the molecule of THC. And it makes absolutely no sense that we've shown for the last four years that we can sell THC in 3,000 retailers across the state of five million million people, and the world isn't burning down. Um, that that's not something that we should, you know, do and expand more broadly across the country.

AnnaRae Grabstein 43:23

Mic drop there. Well, I think that we can't record this conversation with you and not talk about what's happening federally. We're talking about a lot of positive signals in Minnesota and optimism for your business and how the regulations have been expanding. All of that sounds great, but there is this massive elephant in the room that I think that we must address, uh, which is what was going to be the November ban and is now looking to be the December ban. Uh but what does that mean to you as you navigate the next steps in the future for trail magic? Um inside Minnesota and oh in all of your other markets.

SPEAKER_02 44:03

Yeah. As as I say on every one of these podcasts, I know we're live now, but we're recording this on Tuesday, August 18th at 12 46 p.m. Central. So things may have changed since you've since recorded. But I A, we're we're very proud of and grateful to Angie Craig and Amy Klobishar, who will likely be Minnesota's uh next governor, that they're putting forward um those common sense rules for Minnesota at a federal level. And obviously there's a ton of people across HBA and the distributors who are working at it. Um, you know, really we look at the bills available right now and the regulatory structure, and we're generally pretty positive on it. I think any win is a win. Um, I think that's a really important thing that the entire industry needs to continue to coalesce around, is that if we pass a bill, there will be a bill next year, right? And there will be a next bill. And like that is the pattern we have to start is there has to be, we have to get Congress in the in the habit of passing a cannabis omnibus bill every single year that addresses whatever the issues that come up. And it's just like we see in state markets. So, you know, wherever we land um from a milligram cap or some of the structures, like I'm a little bit less worried about the immediate impact because I think businesses will adjust if we have some type of federal clarity that this product can exist and let's build the businesses from here. As it relates to kind of the two lead horses, if you would, right now, for like the Bar Craig or the Van Dyne bill, um, we work inside the three-tier system from alcohol. I think for a uh 21 plus intoxicating product, it's a good system. It's not great. There's plenty of issues with it. Anybody in craft beverage will will tell you that, um, but it exists. So rather than kind of rebuilding the entire um system from the ground up, which in rec markets and cannabis is got what got us metric and seed to sale and you know the dispensary model and kind of all the challenges that that industry has. Like alcohol is actually pretty efficient. Let's let's leverage that. And then states get to do their own flavor of it. Um, but it really creates this federal overarching structure for labeling and packaging, which is what a CPG company ultimately needs to be successful. And the example I love to use, especially when I get in debates about milligram potency and product type, is if you go back to pre-prohibition or pre-21st Amendment America, alcohol is banned across the country. 18 months before um the 21st Amendment, we got 3-2 beer and wine. Now, Minnesota, we are the last 3-2 beer and wine state in the country. Um, fun fact. But that was the starting point, and then we built from there into the industry we have today. And so, what is the win that we can get across the finish line? Um, that is the that is what we should try to find to support.

Ben Larson 47:04

Yeah. I I we're we're totally aligned there. Um baked into the the knowing how to operate within the three-tier system, what you're also saying is kind of uh direct-to-consumer goes away. Um, and at least that's what I think you're saying. And that's what's probably baked into the Van Dyne bill. Um that has a like obviously in the future, like we could we can map that, but that has a real like impact to businesses today. And I'm curious as to like how impactful from your perspective is that to the brands operating in the hemp space today? Because you know, people speak very fervently about trying to protect it. Um and it's kind of like this like it's like to your point, we need to get something across the finish line and and there's a lot of friction there, but like I don't want to discount the impact that that has to people's businesses.

SPEAKER_02 48:00

Totally. I think it's different if you're a gummy or an edible brand or you're a beverage brand. Um, first of all, if you're a gummy or edible, direct to consumer is an incredible business. It's lightweight, it's easy to ship. Um, beverages are they're heavy, they're bulky, they're really expensive to ship to begin with. And, you know, so it's it's a helpful model, but it's not a great way to build a long-term business. It's good for getting kind of that consumer trial, early exposure, distribution and sales in places that you don't have. Um, for us, you know, subscription business has been healthy and it's been an important cash flow for a small business. We've got a couple people who work on that. We've got, you know, subscribers getting it every month. Um, but you look at alcohol as an example, it exists in wine. It doesn't really exist in beer and spirits. It is something that I think the category needs to be okay giving up for now to get more allies on board, right? And building that unified coalition. It's gonna hurt small brands more than it hurts big brands. And that is that's tough. I think direct to consumer in the THC beverage industry is the tap room for equivalent, right? When you think about craft beer. And craft beer, if you take away the tap rooms, um, it's really hard for those small businesses to get started, right? Because it's hard to get distribution in in Target and Walmart and Kroger and all those places. So it's it's not an easy thing to give up. But of all of the considerations, I think it's one the

Supply Chain Convergence And Banking Risk

SPEAKER_02 49:35

industry needs to take most seriously to make sure that we have the support.

AnnaRae Grabstein 49:42

And I don't want to be doom and gloom, but I think it's important to tell the stories of what people are faced with if the ban does go into effect. And these bills that you have just mentioned uh don't move. Uh, that on December 12th. I'm curious from your perspective of what what happens to to Trail Magic on that first day in this in this new regime um without change from what we're talking about today to your to your footprint, to your team. Uh what are what are you looking at here if if it doesn't go as as planned?

SPEAKER_02 50:23

So um trail magic is a as a percentage of our overall business, is about 60%. Um so incredibly meaningful for us. It won't it won't kill us if if THC went away, but it would shrink our team and it would make the business a lot more challenging to run for us. Um if that ban goes into effect, I mean the biggest impact is we sell about 60% of our product outside the state of Minnesota, you know, to other wholesalers. We're we're we're largest in Minnesota, it's our biggest market for sure. Um, but a huge amount of our product goes to over 70 wholesalers across the country, and all of that goes away. And frankly, a lot of that's gone away already. Um, you know, all of us in the industry and in the beverage world know distributors have started cutting back orders, retailers have started cutting back orders. I mean, folks are getting out of this ahead of time so that they're not sitting on a ton of inventory they have to throw away. So we're already starting to see um some of those impacts, especially in the long tail markets. And you're that's why you're seeing brands unfortunately lose salespeople, um, reduce their team size, you know, or certain brands just pause production altogether and until there's some clarity. For folks in Minnesota, Trow Magic Among Them, there is a day after, which is good for us. Um, you know, it's not it's not lights out on the day of the ban, but it is okay, now you're selling a Schedule One product and a marijuana product. Your license is still valid. That didn't change. Your inventory is still available to sell, but now you have to figure out how your business can navigate those challenges. And so that's the work that we're doing right now. Um, and you know, we're trying to understand from a 280 perspective, how is this impact the broader alcohol business? Can we isolate some of these expenses? Do we need to divide the company into two entities? Is it actually better to keep it as one? Um, which is we're starting to kind of build that narrative if we have another business and expenses that exist for alcohol. So understanding how we start to restructure the business. And then not only us, but all of our partners through. So,

December Ban Scenarios And Three Tier Tradeoffs

SPEAKER_02 52:40

you know, are our distributors going to keep selling the product or are we gonna have to change distributors or figure out how to self-distribute? What retailers are gonna stay in this category? How are they going to manage their own 280E payment challenges and other issues? So, you know, Minnesota will exist. What it looks like, we don't really know yet. Um, but it's it's gonna change dramatically.

Ben Larson 53:06

Yeah. It was this uh conversation that you and I were having uh that inspired Anna Ray and I to go out and get uh a tax uh specialist to come on the show, and I think that's an upcoming guest of ours. Uh I'm not sure which episode, but in the next month or so. Um a lot of brands, uh their answer would be, oh, we're diversifying and we're we're doing all this stuff. But you've kind of done that beforehand, and I kind of want to like take a little break from from all the the hemp talk and actually talk about that diversification that you've already done. And a big one is Crispin. And so Crispin, also Minneapolis-based, uh, was acquired, I think, back in 2012 by like Molson Coors. Um, and then you struck a deal directly with Molson Coors to acquire that brand. And I'm curious, like, man, big moves. Like you did that in 2023, so a year after launching Trail Magic. Like, what led to that decision in the midst of doing a run-up with a new TAC arm? And yeah, let's unpack the mechanics of getting a deal done like that. Like, like that seems like a pretty big deal, especially now as the hemp industry is hopefully uh looking towards this era of working alongside big alcohol companies.

SPEAKER_02 54:28

Well, Crispin was founded by a friend of ours and who was also a mentor back in 2015. So we had sold Crispin at that point, but helped us get started in the cider industry. And Rob and my part, my partner Rob, who runs all of our production and I, we actually went down to Texas to look at some new equipment to support all the trail magic expansion that we were doing. We're sitting in a bar in Texas and we know we're gonna sell THC in Texas one day. None of the distributors would talk to us in 2022 and 2023. Um, we asked, and the response we got was we have an elk, we have a federal permit, and there is no way we will ever sell cannabis in this business. I cannot tell you how many of those conversations I had between September 2022 and June of 2023. And the idea was essentially we're not gonna take a local Minneapolis cider brand and be able to scale it nationally. It's really hard to do in craft alcohol to scale beyond your home region, especially if your brand is named after you know your local main city. So the thought was how can we build a national distribution network and relationships ahead of when these distributors are gonna get ahead of what Trail Magic will do, and ahead of when um distributors will get comfortable with THC. And so our answer was can we get Crispin from Molson Cores, which at that point had been shut down for about three years? They sunset it in 2020 and got out of the cider business. Ciders of wine, not a beer, different licensing, different taxes. They just got out of the category. And if we could build up a distribution network on the backs of Chris Finn, we knew that was going to be our foot in the door to then start launching Trail Magic with those same wholesalers once they were ready to get on board with THC as a product category. So um you'd be surprised, but really we we knew one or two people who uh knew the CEO of Molson Cores at the time and simply said, you know, can you send an email asking if they'd like to talk about Crispin Cider? Uh and that was one conversation that led to another over the course of six months, and we were able to negotiate um a licensing agreement with them. We don't own the Crispin brand, we didn't purchase it ourselves. Again, small, small startup still. Um but that's allowed us to build a network of we're in 13 states with Crispin, um, including California, which would be great if we could sell Trow Magic in California. We're trying. It's it's gonna be a while. So that was that was the strategy was you know, use this to rebuild the network um and then launch TroMagic into that network. Because again, we thought it was gonna take five or 10 years before people were gonna get on board for selling THC. And very, very quickly in the second half of 23 and early in 2024, um, the hemp beverage category just started to grow and explode, and distributors started calling us about Trail Magic. And so that took over the majority of our focus. We still have Crispin in those 13 markets. And um, one of the conversations we're having is if Trail Magic goes down, and that is a smaller portion of our business, how do we grow our cider business? How do we grow Crispin? Uh, we also launched a um vodka RTD version of a couple of our Trail Magic SKUs with no THT in them to build that brand equity and keep that brand equity going. And so we're having those conversations now with a network of 70 wholesalers to say, how can we keep our brands on shelf? But then also how can we help you continue to fill your trucks, make your margin, keep your team employed, and give your retailers uh, you know, products that they need to sell. Because if you're walking to your average kind of store that's successful THC beverages, it's 20 feet, 25 feet of shelf space that they got to figure something to do with. Totally.

Crispin Cider Deal And Staying Alive

AnnaRae Grabstein 58:22

Well, Jason, it is time for our last call. So this is your opportunity to leave our guests, our audience with a final message, uh, advice, call to action. Uh, what do you got? What's your last call?

SPEAKER_02 58:36

Yeah, I mean, it continues to be uh don't lose faith and continue to be engaged. The stories matter. Um, if you're a small business, the stories matter to your local representatives. Um, it's important for us to not only send the form letters, which are great, but show up in person and tell your personal story. The conversations we're having in Minnesota with our legislators, and I think with a lot of legislators around the country is there's a brewery in your district that revitalized your downtown, that you've held your campaign rallies at, that you've done birthday parties with. Um THC Beverage is not just some faceless, random, venture capital funded brand. Um, there are there are neighbors, right? And it supports a lot of um craft breweries that have been really good for our communities. And it's really important that we keep this category going for those brands. And those are the people that want to do it right. So those personal stories, I think, are ultimately um what matter more than anything else. And it's winning hearts and minds. And I think we're doing that. I think we're we're all doing the work, and I think it is it is starting to turn the tide.

Ben Larson 59:48

Amazing. Don't lose faith and stay engaged. Yeah. Jason Dayton, co-founder of Trail Magic. Thank you so much for spending the last hour with us. Really great to dive into your story.

SPEAKER_02 1:00:00

This was a ton of fun. Thank you guys so much for having me.

Ben Larson 1:00:03

All right, we'll catch up with you soon.

Last Call Stay Engaged

Ben Larson 1:00:06

All right, everyone. What do you think? Go get yourself Trail Magic in Minneapolis, not California. Uh thank you to our teams at Virtosa and Wolf Meyer and our producer, Eric Rossetti. If you've enjoyed this episode, please share, like, review, do all the things wherever you listen to your podcasts. Thank you for listening. And as always, folks, stay curious, stay informed, and most importantly, keep your spirits high. Until next time, that's the show.