Eric Spitz, C4 Distro
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From Boston and in fact <hes> Eric got got to tell you that <hes> my only subscription newspaper is his the Boston Globe that is my favorite goto newspaper so Eric traveled all the way across the country after after being <hes> very much involved in air against beer in in Massachusetts came 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 having me well so so what it tells a lot 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 and then to hear 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 four 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 mystery 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 thing 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 would 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 years was I picked up the phone and I called my friend Bill. Lockyer bill is the former attorney general of California. 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 abyss journey. It's Nice how owning a newspaper in Orange County can give you access it is there's 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 st 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 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 horrendous 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 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 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 recreation 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 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. Wanted <hes> 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 and and the people who seem to be making most of the money is is the beer distributors. Oh the brands make a lot of money. Well Okay but what I see most of present publicly is the distributors that's right and the reason why I 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 reps who are on the streets in the bars in the stores deploying wing 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 up 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 combines 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 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 and products that are synthesized using T._H._c. inside of them so think about topical 's tinctures and edibles 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 hard work 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. <hes> you know western Massachusetts all those big big mills that were out there on the water. He said that that he lives out in Warwick in said you know I noticed that Athol the big mill and Ethel had been sold. Maybe look at it and it was sold you may you may notice 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 them and and was talking with him and then he came to me and said did 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 in 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 it did not happen much in California because the market was already there. I didn't understand why but I certainly experienced the difference. In in Massachusetts. There is a a large the 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 said 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 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 the cannabis industry sure I ask them. How are the store is doing? This stores doing doing fine but mostly what is happening is trading a flower because if the stores aren't selling a whole lot of flour they're not in need of everyone's product so what happened to that product. It's certainly if you're producing fifty thousand dollars a month or every eight or ten weeks of flour then you're not consuming it yourself doing with right so if the if the stores aren't buying it and you don't WanNa be selling it to your buddies on the street. You're basically left trading trading trading what what what is the value of the trade i. I get to have different variety than the stuff that can grow interesting well with with Vermont New Hampshire New York Canada. It looks like there's a large market. That's going to be there for a while. The cannabis industry and this is back to what Bill told me Mr Lock your when we first got started. He said it's I saw the Internet but we didn't know how big that was. If we already know how big cannabis cannabis today is a fifty three billion dollar industry in the United States and what does alcohol beers a little more than one hundred billion alcohol in total is roughly two hundred billion. Yeah these cannabis will exceed it. I don't think it will exceed it. I think you'll eat into it. Yeah Yeah interesting interesting well all right so in California cornea. Let's go back to distributors. So what does a company like yours. What are you doing? We spend our day in a very similar way as has a beer distributor so we have a warehouse and product gets dropped off at our warehouse growers. Drop it off or do you go pick it up. Largely we get it dropped off <hes> we can pick it up but for the most part they are dropping it to who us and to others other distributors that they have a elsewhere in the state <hes> unless they have state <hes> state by state distributors but even if you had a state by a full state distributor you would have multiple warehouses that you that the manufacturer would deliver to so the manufacturer extra grower delivers to the warehouse we take on the product we put it in a quarantine area if it comes in untested which means that it has to then get tested by a testing lab <hes> once it gets passes the test we remove it from the quarantine area and we moved into our inventory system where we then make it available to be picked and packed what that means is. We pick it and pack it by store order so our sales force is in stores collecting orders for the various products that we potato butte potato chips potato chips beer wine. How many skews do you want? How many orders do he wanted? This skew that's range the let me reset the set for you sure you know it's interesting. <hes> Massachusetts heads <hes> seed to store for <hes> the testing in and it's the the grower who is responsible for maintaining the his part of the record in initiating it and so <hes> they they have to check the seed in that seed gets registered and it moves all the way through the various steps all the way to the store in here here. You're doing the testing the yeah I think you're conflating the seed to sail system with the test. You need to have a test inside of the system regardless. It's just a function of where it happens so oaten. There's just because you know what the seed looks like doesn't mean for this quality testing. It's it's really efficacy testing health and safety testing okay <hes> it's less quality meaning to see see to sale is really D- tracking where where it came from correct okay correct and the reason they do see to sale is not only to maintain the the propriety of the product but to ensure that diversion out of the system doesn't happen the version out of the system industry so that every seed that moves through the system has been licensed. It'd been produced by licensed grower. That's cracks okay all right so so you're testing for efficacy and safety safety <hes> then you deliberate Oh that's right. You're you're the potato chip. People very good friend of mine was a lays potato chip salesman and stories he would tell me about how how to make the potato chips. That's wonderful so all right so so. Where do you want your business to be in a year? We expect our business to be very similar to where we are today with the exception of having more brands going through more stores and including. Adding Northern California so we spent the first year and a half just focusing on southern California and we are ready to go north with a new system up north meaning a new set of <hes> facilities and sales people in drivers et Cetera so what are the obstacles to growth the biggest challenge that we have had has been with our supply chain partners meaning that we somewhat uniquely inside of cannabis rely on other companies to contribute to our success meaning that we only sell products that other people make with one exception we have our own brand of flour that we have recently launched and you're growing. We're not growing growing. We are acquiring so we're procuring product and putting it into our your brand our brand us correctly so think about it like <hes> budweiser buying wheat and corn to make their their product <hes> <hes> we buy flour we put it into jars. <hes> we <hes> arrange it and sell it to the stores so obstacles obstacles to growth in the distribution business are really the about bringing on quality brands and selling them into stores against a very crowded field of brands meaning that this industry has very very low barriers to entry MHM and very high barriers to scale well is it. Is it <hes> a salesman job or a marketing job. What what is it that that <hes> allow brand word or yeah well what makes a brand work in a consumers boomers mind is tugging at their emotions getting them detri- satisfying their trial and get him to buy it again? I don't think there's any different about any difference between doing that. In the cannabis space in the beer space in the liquor space or in the salty snack space last night my wife and I discovered this long term serial called Madman and if you recall it begins with Lucky Strike and how are we going to distribute to distinguish ourselves from every other cigarettes was it's toasted bread right defined. You're absolutely well. He's a bit great great to be with you. Erica and reconnecting a whole different world absolutely absolutely so. Is there anything you'd like to tell our audience I there is we elected. Tell the quick story of our flower brand that we have in the stores which is called M._p.. He glass worthy so we built a brand around a legendary character named Malcolm P glass worthy who is the ninth earl of the glass where the Family Fortune in Wales he lived from fourteen eighteen sixty nine to fifteen ninety-nine. He's the Johnny appleseed of cannabis the father of social lubrication call him and he has done some amazing things in his life like help Michelangelo get through painting the Sistine Chapel on his back. He was in a lot of pain and glass worthy showed up with the cannabis and helped him through that he also helped Leonardo Davinci create the Codex on flight and create the helicopter <hes> he introduced Ferdinand and Isabella to Feller Stone Christopher Columbus and stowed away on the trip and the Pinta as the botanist for the for the vest for the voyage so glass where these motto is a family motto it comes from the Latin and in Latin it is neck with a near tech to optimus. Beretta's Ivory Jar Says Envy T. S. O. V. on it in English it means never arrived arrive with the second best wheat and it's toasted and it's great. Well look forward to look for a lot a lot more fun with you. Eric so sounds good rate to be with you so here we are seeing anyhow business in California thrive in a new and interesting ways. You've been listening to the pilgrim on the four. Oh five with will crist and will your child be ready for kindergarten at Chester broke academy preschool. The answer is yes. Our curriculum offers the perfect balance of learning and play. Our teachers personalized that experience.