Cannabis, California, Massachusetts discussed on OC Talk Radio
Eric Comes from one of my favorite cities after L._A.. From Boston and in fact <hes> Eric I gotta I gotTa tell you that <hes> my only subscriptions newspapers his the Boston Globe that is my favorite goto newspaper. Eric traveled all the way across the country after after being <hes> very much involved in arrogance at beer in in Massachusetts <hes> came out out and for a while was in newspapers in southern California especially in Orange County with the register and now he's onto a whole new adventure that we want to hear about so eric welcome to the pilgrim on the four. Oh five thank you for for having me well so so what it tells you about <hes> about post register life for you. I've been a lifelong entrepreneur. The register was one of the chapters in my life that showed some entrepreneurial expertise experience knowhow and we got into an operating business that was very difficult to sustain as a business <hes> just look at the rest of the industry. We thought we had some insights. Some of them were correct. Some of them proved harder than we had imagined. Yes yes okay so that's all the past. It's all back there so tell us about the path from venda here well. It's interesting <hes> how you ask the question because as register was winding down as an opportunity for me I started to look at some other industries trees where I could leverage my experience and my skill set and it dawned on me that the previous eight years for of which were spent at the register in the newspaper and what I call the California Policy Space Ace and four of them were spent in the beer industry in Boston. I saw in early two thousand sixteen that the emerging cannabis space was a perfect confluence of California policy and beer and decided that I wanted to sit and think about how to engage with that space beer is a very interesting industry but it is old and crowded and cannabis provided a new opportunity to build something from the ground up which is what I love good good so so what did I do yeah so I picked up the phone after doing a bunch of homework so first thing I did was I started to look into the supply chain of cannabis and talk to people and do research and try and figure out what the emerging supply chain was going to look like and I quickly understood that the retail side of the business was one that wasn't particularly interesting to me. <hes> neither was the growing side of the business given my lack of even having a garden so neither of those is going to work which left the rest of the industry street in the middle of the supply chain <hes> which is brands and distribution and I started to focus on those two segments and figure out what it might look like in a regulated environment and the first thing saying that popped up was that the first four recreational states California. I'm sorry Colorado Oregon Washington and Alaska did not have distributors. They had transporters. Transporter's instead so a distribution license was missing from the regulation the regulatory policy so you didn't have the ability to buy and sell the product as a distributor that is unlike doc what a distributor does in every other industry so we set out to try and figure out I if it was possible and second of all to see if we could help determine that California policy would I'd have a distributor but the first thing I did when I realized that this was going to be a policy driven business at least for the first couple of years was I picked up the phone and I called my friend. Bill Lockyer Bill is the former attorney general of California a and it's former state treasurer and I think one of the top <hes> grey hairs in California politics and I called him up and asked him if he might have interest in going on this cannabis this journey. It's Nice how owning a newspaper in Orange County can give you access. It is nothing like access that you get when you own a newspaper right but I called bill and to my surprise he had great interest and I thought that it would be an interesting way to look at and do something that he had only seen infrequently in his life which is the emergence of a new industry tree that as he said in politics nothing new has happened since seventeen eighty seven and now we had the opportunity to build something from scratch and what I talked about from the beginning was the idea of design we set out to help design the policy that would form the regulatory framework in the state of California good good and and we spent two years almost two two years in development I would say meaning that we knew when we got started in two thousand sixteen in April of that there was no operating business until January two thousand eighteen that was when the original medical policy was set to start and we also knew that there was likely going to be a referendum on the two thousand sixteen ballot that would also dovetail timing wise with that two two thousand eighteen January launch lo and behold in November of two thousand sixteen. Most people remember that for a different reason we in the cannabis industry remember it as the Referendum Brendan passing prop sixty four making cannabis legal in California and starting with a two thousand eighteen January date all right so now in that initiative did did it have have a role for district distribution. Yes so <hes> we along with the teamsters <hes> the League of cities and several other California distributors got together and formed a lobbying coalition coalition to negotiate with the powers that be in Sacramento the legislators the administrators the governor's office and try to figure out what policy would come together between the medical real policy and the recreational policy so governor Brown in January two thousand seventeen stood up and said I don't really want this to be my legacy but I do WanNa make sure of one thing and that is that we don't have to separate separate policies. We need to have a single policy framework that includes and marries what we've voted on in the legislature <hes> on the medical side and what the citizens have voted on the referendum side so that started a four or five month debate in Sacramento between the folks on the distribution side who were vying for control distribution and those on the other side who were the cannabis cannabis folks the old line cannabis folks largely who wanted distribution to be less mandated and more loosey Goosey and that's what they got in Colorado Washington Oregon and Alaska <hes> we ended up getting what we wanted ended up which I describe as three exclusive jobs for a distributor now is that it do you have a license for that. That's correct so there is now a type eleven distribution license in California that. Requires that distributors play a role in the system so tell me what that means now now now. If there is the license I mean I'm I'm thinking about beer. I mean in in the people who seem to be making most of the money is the beer distributors. Oh the brands make a lot of money. Well okay all right but what I see most of present publicly is the distributors that's right and the reason why so you see distributors most publicly they are the ones who are in the stores well and they're the ones who are local so the beer industry has gone to a national footprint where most of the beers that we drink <hes> with the exception of the Craft Beers are national brands and international brands where you wouldn't see anybody from the brands themselves because they're not here who you would see would be the distributor wraps who are on the streets in the bars in the stores deploying being the products so if if I wanted to go to the beer industry to get support for whether it was a nonprofit donation or something like that I don't think I would go to the clydesdales. I think I would go to the local distributors. That's correct. They might go to the Clydesdales to get you the support that you're looking for but in essence what a local distributor in the alcohol and beer industry is is the local rap nope for the brand and that's very lucrative it can be yes and the reason why it can be lucrative is because it is built to be a scale business. It is also built to be an olive coppola business where every regulated distributor environment in the United States whether you're talking about beer or wine or petroleum or her pharmaceuticals it is always oligopoly overtime and that's because it's a race to scale and once a single entity gets to scale it becomes incumbent on the rest of the entities to combine combined so that they can reach that scale and compete with the scale operator and now you have two or three entities so how does that affect cannabis distribution in California well. It's a great question so cannabis distribution in California was is built similar to the beer business and that means that the distributor has three exclusive jobs job number one is transportation job number two is tax collection and job number three is test monitoring so let me explain tax collection and test monitoring what it means for the distributor to be the tax collector is that when the excise tax is paid both by the manufacturer facture the grower in the canvas and by the retailer so both of them have their own excise taxes those tax transactions are actually collected on a monthly basis by the distributor so the distributor will make make sure that when he buys product from the manufacturer it already includes the tax because then he pulls the tax out and pays it on the monthly basis manufacturer you mean grower or is this another overstep. There's another step if you're not talking about flour so what we all remember as cannabis is the flower that you put in your pipe or you roll into a joint that currently really that type of ingestion of cannabis now only makes up forty five percent of the market the other fifty five percent is made up of concentrates that are vape Te and products that are synthesized using T._h._c. inside of them so think about topical 's tinctures and edibles now does the distributor distribute to flowers will yes most distributors will distribute into the store. The distribution business in general tends to be a channel business so if you are delivering to a channel of stores you're gonNA generally deliver everything. That store needs okay my son. <hes> has been in retail big box retail management for twenty five years and <hes> he's tired of it burned out artwork probably much like owning a newspaper and and he said I gotta get out of this and we talked about various options that he had in and he you know in you know Massachusetts. You Know Western Massachusetts all those big big mills that were out there on the water. He said that that he he lives out in Warwick and he said you know I noticed that Athol the big mill and Ethel had been sold mitigate. Look at it and it was sold you may you may know the soul to some of the <hes> <hes> I think it was the attorney general former attorney general in Massachusetts but it was that kind of group that was coming together to buy this mill to turn into an indoor grow and he contacted him and and was talking with him and then he came to me and said and you know I have this big garage and so he's in the process now of building a grow inside his big garage and and it's amazing to see this entrepreneurial effort that was created the by the Massachusetts Law and and <hes> now they're it's. It's it's similar to what you described. In Colorado. There is a there is no distributor license it is is the deliverer the transporting license and and just to see how that that grow grows that becomes a business. That's amazing just amazing. It's interesting the story that you tell because it is a different story than in California for for an important reason California has had professional growers not only during the twenty plus years or the. I don't know nine hundred ninety nine so the eighteen years nineteen ninety-six. I'm sorry when prop two fifteen passes passed so the twenty two years that cannabis has been legal medically in California created an entire industry of growers and manufacturers if you don't have that like they don't have in Massachusetts the minute that the consumer and or the non-professional operator has the ability to participate in the market even at a small level they're going to do it. Yes and that's what's happening in Massachusetts and did not happen much in California because the market was already there. I didn't understand why but I certainly experienced the difference in Massachusetts. There is a a large a number of people who are consultants who are doing podcasts is doing all sorts of of providing information and guidance to a lot of small growers and it's just amazing and interesting I mean when when when when my son said to me you know just in this small good sized garage and he just in this garage that I could be generating fifty thousand dollars every five weeks amazing uh-huh amazing in and he said you know I can I can sell it to the to the stores the retail stores or can sell it to manufacturing. Do you want to hear what my friends in Massachusetts. Tell me is going on with the <music>. A cannabis industry sure I ask them how the store is doing this doing doing fine but mostly what is happening is trading of flour because if the stores aren't selling a whole lot of flour they're not in need of everyone's product so what happens to that product. It's certainly if you're producing fifty thousand dollars a.