Podcast Transcript
Blaine: Hello everyone. This is Blaine from Distru and this is episode two of the Distru podcast. We have Courtney from Shelf-Life Distribution. Feel free to say hi to everyone.
Courtney: Hi everybody. Thank you for having me Blaine.
Blaine: We'd love to start with just an introduction about you and your background and Shelf-Life Distribution.
Courtney: Absolutely. So my husband, who's an integral part of our business, came from the wine and spirits wholesale industry. He was third generation liquor distributor. So while he had a seat at the table to enter into the liquor distribution world, he's anything but traditional and decided to move across the country to California and seek out the cannabis mission. Flash back about four or five years ago, 2014 or 2015, he was a collective supplier in the state of California, running a sales run throughout San Diego and saw the long term opportunity as transitioning into a regulated environment.
As I was watching him do that, he is anything but somebody who reads regulations, so he's the sales guy who's out and talking to everybody. I was running real estate offices, so coaching small businesses so compliant, right, reading rules and laws, and I dove in headfirst to the Bureau of Cannabis Controls Regulations, joined on as his partner and we kind of attacked it as a mission together. Needless to say, our collective organization transitioned into a corporation, Shelf-Life Inc., June of 2017, as we prepared for the marketplace and we have been growing our team and our network ever since.
Blaine: Awesome. Since you are a distributor and you've been in for quite a while, there's a lot of chaos in the California distribution landscape and just change. I would love to just get your overall view on the station in California right now.
Courtney: Oh my goodness. Three words come to mind; one is evolution, right? State of Cannabis as a whole has been evolving, and I say the number one word is to be flexible and it's due to that evolving nature. We're seeing really a disruption in the marketplace right now due to the financing behind it. So one, money was hard to come by starting March of this year with the Canadian market. Step two was if you secured funds prior to that benchmark, did you utilize them? Did the entity utilize them in the proper way? So you have organizations who have now spent that money. So due to the nature, I would say, of the funding that it takes to scale the business and to grow a distribution business in the state of California, it's created an evolution and a change really that comes from the need as a distributor to scale, right? If you're scaling brands, that means an increase in accounts receivable and increase in inventory and it can become, I call it the snowball, as you grow your snowball grows and finding the right partners to help you through that process. So I would say state of distribution, and it is disrupted at the moment. That’s the way I could say it.
Blaine: There's two things I'd love to continue on [00:03:01 inaudible] is you mentioned financing. What made that change? Was there recent influx of money or a lack of influx of money? I love to know from your perspective, what changed there.
Courtney: From my understanding, it was reported earnings from companies that had secured funding at a high level, right? So their projections were much higher than the revenues that came forward and when that happens, there's trepidation in the marketplace. I think it was a halo effect of cannabis is coming and this is going to be a big business booming. The market's not necessarily there, the black market is still thriving somewhat in California. When that happens, the retail marketplace, the licensed retail marketplace, isn't seeing the traction that we need it to, therefore numbers aren't going up the way people anticipated them to. So I think there's a lot of things at play that lead to kind of the hesitancy of people, spending money.
Blaine: Yeah, just over expectations from the investors, lot of money coming in, and then now reality.
Courtney: Absolutely.
Blaine: You said something about black market and I know [00:04:03 inaudible], oh there's a lot of black market sales, it's so hard to understand how bad it is. [00:04:12 inaudible]. I'm curious, what percentage of the industry in California do you perceive is still black market?
Courtney: See, and that's a hard one. I don't even know where to start on that answer because one, like you said, what is the black market? That means so many different things to so many people. For me, from my lens, we travel to different communities throughout the state of California. We check on our dispensaries in those areas, we do ride-alongs with our sales reps, so when I'm visiting a community, one of my favorite things to do is ask an Uber driver, let's just call it, what their favorite dispensary is in the area. I want to see which of our group that they're going to refer us to. The most interesting thing to me is nine out of 10 times, they say they still get it from their buddy down the street because they don't have to pay taxes. I challenge people to ask that question because that's… the black market can sometimes go, oh, big, massive movements of cannabis and who's shipping it out a back door, or what does that mean? And to me, it's just your every day guy or girl who happens to get it from their friends still. They either don't know how to walk into the dispensary, if they did walk into the dispensary, they don't know where to get started. If they did walk in and get started, now the taxation comes through and they don't understand that. I think it's just a lack of education and that's, what's really keeping the black market alive. Does that make sense?
Blaine: I love that way of understanding if the black market is still active. [00:05:32 inaudible] honestly the most underrated way to figuring something out, just ask the person. That Uber driver technique, I might steal it, that's really smart.
Courtney: That's huge, yeah, and it's just insightful, right?
Blaine: Yeah, that’s qualitative feedback. You can never get enough of that. To kind of circle back to what you're talking about, the state of the industry, you’re mentioning finances, but then you're also mentioning creating a flywheel, from your brand partners to your retailers, to managing your inventory and all of these different layers. I'd love to understand, on the building brand partners, building out a sales team, connecting with retailers, what is the most difficult part for a distributor to get right?
Courtney: It depends on the day and depends on the hour, Blaine. What's the most challenging part for us to get right? Oh my goodness! I will say each have their own set of challenges. If we start with a sales team, right, you can speak to so many cannabis business owners and the evolution of a sales team has been rampant. If I show you or described what our sales team looked like in early January of 2018, compared to what it is today, there's just a beautiful, organic thing that happened, right? Cannabis is not as stigmatized, people can talk about it more, people feel comfortable going home and telling their family, “I work in the cannabis industry”, so your scope and your audience of who you reach has evolved and that's a beautiful thing. That's something that's been a change in motion since day one and I think it's only going to continue to get better.
If I talk about retailers, the challenges that we run into there are they're trying to build licensed reputable entities, and there are certain communities that still have illegal dispensaries down the street, right? So now you have a licensed retailer who's challenged by their neighbor who doesn't have the same taxation, so that's an issue. We live in Orange County, California. There is one city right now, Santa Ana that allows for licensed dispensaries. We have to drive 25, 30 minutes just to get there. I think it's so many layers of challenges, the benefit of having to drive 25 minutes as a consumer to get to that dispensary for a distributor is the fact that we are able to scale, I don't want to call it slowly, but methodically, right? If all of Orange County, all 41 cities, opened up with dispensaries January of 2018, it would have been harder for us to really get that strong distribution footprint. Whereas now, as communities come online, we can see sometimes six months to a year in advance before that community is going to come online and helps us get our logistics play in peace, or our peace in play, I should say. Does that--?
Blaine: Yeah, I get it. The answer is there's so many different layers and like [00:08:18 inaudible] in any given moment changes.
Courtney: Yeah, absolutely.
Blaine: So let’s dive into a few of those different layers. The first layer I’d like to dive into is the brand and distributor dynamic. How has that changed over the last year, and who do you think currently has more power right now?
Courtney: Yeah. If you look at the brand and distributor model, the brands definitely had power early on, right? They were used to, I call it from duffle bags to distribution vans, right? A brand could send out their sales force with their inventory and the Proposition 215 World, they could deliver that. It's not scalable long term, so there was an evolution of branding that happened that said, I'm not sure I want to send somebody all the way up to Humboldt for a delivery. It's going to be gas, it's a hotel, it's the delivery vehicle. So brands started saying, maybe there's an external solution and you saw a little bit of a rise from a distributor in that landscape. It's continuing to grow now because there's more and more brands have come out of the marketplace that dispensary owner doesn't want to see 50 deliveries in a day. I try to equate it to a grocery store, could you imagine managing a grocery store and having each of those products on the shelves come from a different delivery truck every day or every week. That would be a lot of delivery trucks.
As the market continues to expand, I think you're going to see a shift to distribution where it's more valued. I don't know that I'd say power, that's one thing we try to share with our brands is if you say somebody holds that power over the other, I think you fail automatically, so what we've done with our most successful brands is recognize, one, that we need each other. If it's agriculture, if they overproduce and now there's too much product in the marketplace and they have to possibly discount that product, should we share that together? How do we help get that product sold through? On a flip side, how do we anticipate projections so that they can forecast and produce enough product to hit the market? It really comes down to this partnership and I think the ones that work the best are when the brands recognize they need the distributors and we as the distributors know that we wouldn't be here without the brands.
Blaine: Yeah, absolutely. I definitely feel the distributors that have the symbiotic relationships that are doing really, really well.
Courtney: Yeah, absolutely. It's just because we're all traveling down this path that hasn't yet been traveled, right? I mean, not only is it an ungroomed path, but we're all blazing it together so it takes a village.
Blaine: Yeah, and you talked about another dynamic that I think is interesting, which is the brand retailer or distributor retailer relationship, and you were saying that they don't want that many orders there. There's also a lot of brands that consumers want. Who do you think is the person, the entity that has more influence on how the industry will shape up? The retailers or the brands or the distributors?
Courtney: Oh my goodness. I think it's going to be the consumers that dictate what type of products they want. The brands though, at the end of the day, they have the furthest reach. Brand loyalty we haven't seen a lot of, yet. You don't walk into a dispensary and you go, that's going to be the Coca Cola, right? That's going to be here in 30, 40 years and people are still going to walk in and that will be a staple on every shelf. You don't see that yet, so it really comes down to right now that brand building their brand and touching the consumer and creating a relationship where then that customer walks into a dispensary and says, “I want that brand”, right? “I bought into their story”, “I follow them”, “I had an experience with them”, “Somebody recommended them”, a testimonial to share, and so I think that there's still a lot to be said in that branding world that needs to be done.
Blaine: You said that there isn't any brand loyalty and I've heard that before. What makes you say that? Is there data that you're seeing? Is it just qualitative? What makes you say that?
Courtney: Yeah, when you're talking your dispensary owners let's say a brand runs into an out of stock issue, and it can run into an out of stock because something's caught in testing, a lab is being audited by the BCC, they didn't project enough volume. There's so many different reasons and if that retailer has an out of stock or chooses not to carry something, somebody walks in for that product, 10 out of 10 times a dispensary owner will tell you they'll convert that potential buyer to another product. That to me, right, if I walk in somewhere and I want something right now and I have brand loyalty and you don't have it, I'm going to turn around and go somewhere else so I can get it. So I think that's what's not yet built out. I think that's going to take a little bit more time.
Blaine: Why aren't their shelves restocked already? That would be the first question I'd have.
Courtney: Yeah. One, I want to make sure that our sales rep has been in there and I think for any brand, right? Make sure that it's not on us. We have a requirement for touches in the marketplace. How often are you touching your customers and making sure that they're stocked and merchandised? If they don't have the product because it's lab testing or out of stock or they weren't anticipating, dispensaries will give it few times, meaning they'll keep asking for it two, three times, and if you aren't able to supply that order at a certain point, they may discontinue that product. It's definitely a part of the game, I would say, that needs to be played well.
Blaine: How do you see that shaping up? Do you see distributors in brands having to start to be able to always restock things like at all points in time? Or do you think that it will continue [00:13:51 inaudible]?
Courtney: Yeah, I wish I knew the answer to that and here's what people are bumping into right now - we have products that expire, right? So if they make too many products so that those shelves are always stocked, they might end up with inventory that's expiring that they may have to retest or they may have to eliminate. I think it's really trying to get just a grasp on the market and I don't know. I mean, we'll spend time analyzing reports and we kind of giggle every once in a while going, we just don't have enough history and track record to really do a proper projection on this, and so it's just doing the best we can with the information we have.
Blaine: This is great, by the way, I think I have a really good sense of the state of the industry. I'd love to take it in a little bit of a different direction, and I'd like to know if someone was trying to start a new distribution company, or let's even say it was you and you're talking to yourself and you're trying to start a new distribution company, what is the top piece of advice you would give that person?
Courtney: Oh my goodness. Anything in this industry has to start with passion. So make sure that you are incredibly passionate about cannabis or about regulation or about the benefits that it's brought to your life or somebody else, because the days are long and they're hard, and the only way you keep going or push through 20 hour work days is because you're passionate. So I would say start there and make sure that's alive and well. Number two would be making sure you secure financing and understanding the accounts receivable and inventory balance and distribution. We have more calls directly to shelf life due to another distributor not having made a payment to a supplier that will run you out of business yesterday. You need to be able to pay your suppliers on time so having a good grip on the finances it will take to start a distribution company or the second piece and ask for help if you don't know how to make those projections on your own.
The third thing I would say would be relationships. They're so important, so whether it be you're a vertical company that's going to create products that will allow you to distribute, great, there's a start, that's a built-in relationship. If that's not the relationship, get in the marketplace and start meeting people because what you need as a distributor as a book of business, and if you're starting in distribution but you don't have a product within your portfolio, it's going to take time, a lot of time. Those are probably the three pieces, I would say; passion, finance and relationships.
Blaine: Yeah. I think that rings true for me too. I think that the finance one is so, so important. Relationships too, but like finance, I've definitely seen a lot of companies not [00:16:32 inaudible] on their finances and it gets out of control so quickly in distribution.
Courtney: So fast.
Blaine: Yeah.
Courtney: Yep, absolutely.
Blaine: We don’t realize that.
Courtney: Absolutely. That's exactly it.
Blaine: I'd like to also know kind of where you see the biggest pain points in the industry, because there's a lot of laws that are changing right now, I think it's pretty well known that even BCC and the government they're figuring it out. They're a startup [00:16:56 inaudible]…
Courtney: Absolutely.
Blaine: They don’t even know what’s going on and they're trying to learn from us, we're trying to learn from them, you're throwing in metric with the track and trace in the mix and no one has any idea what's going on a little bit.
Courtney: It's chaos at its finest.
Blaine: Yeah. Chaos is great for startups, right? That's cool.
Courtney: It is, it’s exciting at least, no two days are the same, but I think the biggest challenge is that cannabis is hyper-localized, so the state allows local jurisdictions to set if they would like to have cannabis businesses or they wouldn't. We're located in Costa Mesa, California, where you can have distribution, you can have manufacturing, dispensaries and cultivation are not allowed, and that may change down the road. But what happens is you have the local jurisdiction trying to understand their take. So it might be a very lengthy process for somebody like me. You don't want to know the worst stories of what we've through as far as licensing has gone, but to be able to have a network, right?
The process for me on a local level, I wish was similar to somebody in Salinas, or someone in Los Angeles that that process was expedited and I think there's a peer to peer conversation that can happen on what you do when you hit this hurdle. Because it's so hyper-localized, it's really fragmented and then it adds to it, so fragmented might be the word there. It adds to it once you then fragment out metric, and then the BCC, which is another layer. I just think streamlining the application process, the barrier of entry right now, simply due to the application process is too high.
Blaine: I agree with the whole fragmentation and the laws changing left and right and there's a lot of hand offs I'm noticing. A lot of like, hey, how is this supposed to be dealt with? And then they pass it on to some other entity or some other organization, and they pass that on and then you get five different answers back and you really don't end up with an actual answer, and it just creates a lot of gray area.
Courtney: That’s it. Yeah, that's it, and people just want to know what to do, how to do it and where to do, right, let me run. Yes.
Blaine: I have another question because as you're building this team, there's so many interesting layers; procurement sales, inventory management. What was one of the most impactful hires or areas of hires that you made that helped your company?
Courtney: Does Distru count as a person? [00:19:14 Inaudible] say that? Distru is really our pivoting point so I'm going to pinpoint it on a technology rather than a person, and a person then can be blamed. Hiring you Blaine. For us the order flow, so having a system that spoke to metric that tracked batch numbers. Early on, prior to us receiving our license, the one thing I read in the regulations was track everything, every single thing that you do, and so we've always had a system from early on to try to make that happen. Now, we did use other technology platforms and it created more work, it was clunkier, is the best way I could put it, and didn't allow a proper workflow. For me, other than people, I would say it's actually systems in place that have helped us propel to the next level. One of my favorite things to share with our team is a breakdown before a breakthrough, so any time a system is breaking or there isn't a system and we're all breaking down because of it, it typically leads to a big breakthrough in a system that's created to help us get through that.
Blaine: Yeah, absolutely. I will definitely take that. I’m definitely going to. We pride ourselves on being impactful so that's great to hear. What are some of the mistakes? I know you said the finance, stuff like that, what are some of the mistakes you see people making from, not a distributor’s perspective, but from a brand or a producer perspective that you interact with?
Courtney: Yeah, absolutely. We're preparing to launch a brand we've been in conversation with for a few weeks. They tell us they have X amount of inventory and that should last for X amount of months. They've projected in their minds what this might look like, and they said from there that'll give us enough time to go source, to go create, to distill, to fill pens, XYZ. In my mind, what I'm looking at is a business that's reactive to what the market's demanding instead of proactive, and so I would say that's possibly the biggest challenge when it comes down to products for a brand, right, and that it's just that consistency. How to establish consistency, because what might happen is, what if the source supply isn't there? We have growing seasons. If that's not there or the market price changed of that trim, or of those bead buds, what does that now do to your retail packaged product that's on the shelf if you don't control that supply chain? I would just say kind of more of a running from the hip and really for us as a distributor trying to identify which ones have a solid business plan and which are flying from the seat of their pants.
Blaine: Yeah, or even the organized companies I find that are maybe too presumptuous at how things should work, but I think that even [00:21:52 inaudible] proactive versus reactive, you have to be reactive in this industry.
Courtney: Absolutely. Absolutely.
Blaine: You said something interesting. You hinted on debugged and it kind of sparked an idea as there is so many different ways that bud breaks down. I feel like that's [00:22:08 inaudible]. People think when they think of distribution from other industries that it's these packaged products and like Coca Colas that are going out in boxes, but flowers so common and dealing with pre-rolls and shake and stuff like that, what's the biggest shift you've seen in how bulk bud and bulk flour products are sold and used?
Courtney: Yeah, so I think there was a race to the bottom, I would say pricing right, and how they're used in the marketplace. There is the race to the bottom that happened with bee buds and then they weren't able to source those long term. Now, if you can't source that product long term, what happens to your brand if you were a brand that was built on the value of the price and no other value. That I think is a shift around types of flower we've seen, specifically bee bud, as far as the use and application, I hate to say same old, same old, but I look at it as levels of the plant and so how do you incorporate all pieces, and there's something to be done with trim, there's something to be done with bee buds, there's something to do with full buds, and how do you approach that agriculture in that market? It might not be what you're looking for so--.
Blaine: No, no, it's all good, and yeah, all elements of the plant should definitely be used. I mean, you have to even stay relevant, you have to maximize your revenue. I'd be curious on pricing now, because I know that like for instance, trim, because of how important that is for [00:23:38 inaudible], pricing you’ll go all over the place and you hit the [00:23:41 inaudible] bottom. Do you see prices normalizing within a range for things like trim and whole bud, or is there still huge discrepancies on any given day?
Courtney: I wish I could look at a crystal ball and tell you that. I do still see discrepancies on a given day and here is why - as of the last few weeks, the BCC has been suspending licenses, and there's going to be an elimination or a lack of cultivation licenses, so licensed material that's available for the public. When that happens, it's supply and demand, the price is going to go up. Now, how long will that last? I just don't know, but I do think that we're going to see an uptick before it normalizes or levels back down.
Blaine: Yeah, absolutely. So you brought up an interesting organization, the BCC.
Courtney: Yes sir.
Blaine: We work with them quite a bit. Now, we all love the BCC, we all love the government, let's get that out of the way, we all have a new license, everything's great, everyone loves everyone.
Courtney: Of course.
Blaine: But if you had one thing you could change about the BCC or tell them that they would implement, what would that be?
Courtney: I can change or implement?
Blaine: Magically, Courtney's the head of the BCC. Enlighten us, Courtney. What is it?
Courtney: Oh, I wish, I wish I could. The BCC for me personally has been wonderful. They respond in a timely manner, they communicate, if I have a question, they're the first ones I reach out to just so I have a clear understanding, so I wish maybe they would get more involved on a local level though. For those local jurisdictions, perhaps give them a program of what it is that they're looking for so that somebody can get through the local steps and make it to the BCC faster. That would be one suggestion I would have, and I think the other is really kind of get some people in the building. I know Senator Bradford has been working on it and proposed for quite some time, but having people at the BCC in particular positions who really understand the cannabis space, and have maybe come from the Proposition 215 World and can help bring some insight to the organization as it continue develops.
Blaine: Yeah, get the operators behind it. Do you think that the tax rates are reasonable at this time, or do you think they're still too high given how much black market's still going on?
Courtney: They're too high and here is why I say they're too high - you have the city of San Diego who charges a tax if you deliver within the city parameters. You have Los Angeles doing the same thing, you have Oakland, if you operate in the limits of Oakland, you're at an 8%. If we operate in the limits of Costa Mesa, it's 6% going out. So me as a distributor, I'm 6% gross receipts tax on a delivery going out, and now I'm going to deliver it in San Diego and have a 5%. That's a total of 13% if I'm doing the math correct right now. Distributors on average run on lean margins, they don't have the same types of margins that brand houses do. So when that's at play, not even talking about excise taxes right now, but the amount of taxes that are layered in, what is left and how do you run a business on a 7% margin? I mean, it's just not sustainable, so I think people are leaning in that's where the money piece comes in. People are putting funds in knowing that these issues will hopefully resolve themselves in due time, but there's no guarantee of that happening so I do think they're too high, I do think it's a problem.
Blaine: Yeah. Awesome. We're about near the end of time. This was great, there's a ton of information. Definitely feel like I have a good state of the industry. I'd love to end with what's your current favorite way to consume cannabis?
Courtney: My favorite way right now, I'm still a flower girl, so give me a bong and let me take a bong rip. It is a happy high, edibles are good on a weekend, but other than that, I'm still a flower girl tried and true.
Blaine: Same, same. All I do is [00:27:38 inaudible], I couldn't agree more.
Courtney: Love it. Love it, I love it.
Blaine: Thank you, Courtney so much. Is there anything you want to say to the viewers about Shelf-Life and what you guys offer? Feel free.
Courtney: Awesome. Shelf-Life, we are a full service distribution company. Services, our model, whether that's the retailer, the brand, however you stretch that reach, cultivators, we are in this together and my advice to everybody is lean in, remember why you're passionate to begin with and let's keep moving forward.
Blaine: Thank you, Courtney, so much.
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