Don’t miss this insightful interview with Jake Berry, CEO of Cloud Labs, as he shares his journey with Guillermo and Brett. From budtender to cannabis manufacturer, Jake discusses the challenges and strategies involved in growing his business. He highlights the importance of understanding market dynamics, consumer behavior, and pricing strategies. Jake also delves into the regulatory landscape and the impact of potential legalization on the industry. The episode provides valuable insights into the cannabis manufacturing sector, emphasizing the need for accurate data and strategic planning for long-term success.
“Developing a quality product that’s always available on the shelf and having good brand reps who are happy when they go in, that’s what has made us successful.” – Jake Berry
The finer details of this episode:
Episode resources:
Timestamps:
Introduction to the Episode (00:00:00)
Guillermo Rodriguez introduces the Cannabis Success Show and its focus on scaling cannabis businesses.
Guest Introduction (00:00:26)
Guillermo introduces Jake Berry, CEO of Cloud Labs, discussing his transition from retail to manufacturing.
Brett's Thoughts on the Interview (00:01:01)
Brett Adams shares insights about Jake's market vision and his successful business approach.
Upcoming Insights (00:01:29)
Guillermo hints at actionable tips and market demands that will be discussed later in the episode.
Jake's Background (00:02:07)
Jake Berry recounts his journey from budtender to cannabis manufacturer, starting in Colorado in 2013.
Initial Business Plans (00:03:08)
Jake discusses his initial plan to open a dispensary and the evolution of his business model.
Challenges in Obtaining Licenses (00:04:05)
Jake explains the difficulties he faced in acquiring cannabis licenses in a limited market.
Realization of Business Potential (00:06:02)
Jake reflects on his bud-tending experience, realizing the potential for running a successful cannabis business.
Data and Retail Operations (00:08:22)
Discussion on the importance of data analytics in managing cannabis retail operations effectively.
Financing Decisions (00:09:06)
Jake shares his decision to avoid debt and the implications it had on his business growth.
Business Model Overview (00:12:14)
Guillermo asks Jake to explain his manufacturing-focused business model in the cannabis industry.
Connecting with Retailers (00:15:45)
Jake discusses strategies for building strong relationships with retailers to promote his products.
Market Dynamics in New Jersey and Michigan (00:17:37)
Jake highlights the pricing strategies and market conditions in New Jersey compared to Michigan.
Product Categories and Pricing Strategy (00:20:22)
Jake outlines the different product categories his company operates in and their market share dynamics.
The Gummy Market Dynamics (00:21:24)
Discussion on gummy pricing and market competition, particularly in Michigan.
Price Compression in Cannabis (00:23:12)
Insights on how price compression affects various cannabis product categories.
Market Trends and Consumer Behavior (00:24:25)
Exploration of consumer purchasing trends and potential market stabilization.
Future Price Predictions (00:25:20)
Jake discusses anticipated price drops in emerging markets like Missouri.
Impact of National Legalization (00:26:14)
Effects of national legalization on consumer behavior and market dynamics.
Industry Regulations and Trade Organizations (00:28:23)
The role of trade organizations in lobbying for beneficial regulations.
Networking in the Cannabis Industry (00:30:08)
Importance of networking and community in the cannabis business.
Market Expansion Strategy (00:31:04)
Jake shares his approach to entering new cannabis markets.
Market Research and Analysis (00:34:01)
Jake discusses how he selects new markets based on demographics and regulations.
Challenges of Starting New Markets (00:36:53)
The lengthy and challenging process of launching cannabis operations in new states.
Future Market Interests (00:37:40)
Jake expresses interest in Ohio as a promising market for cannabis.
Risks of Real Estate in Cannabis (00:38:45)
Challenges of real estate investment in the cannabis industry.
Emerging Markets and Opportunities (00:40:16)
Potential of Minnesota and Ohio markets for future growth.
Market Entry Challenges (00:41:07)
Discussion on the timeline and costs associated with obtaining cannabis licenses and starting a business.
Data Sources for Market Research (00:41:59)
Jake Berry shares insights on effective data sources for understanding market performance.
Limitations of Market Data (00:42:44)
Critique of existing data sources and the importance of accurate, real-time market data.
Impact of Online Menus (00:43:51)
The shift to online menus post-COVID and its effect on data collection in the cannabis industry.
State Data Accessibility (00:45:04)
Exploration of state-provided data and its usefulness for cannabis businesses.
Legalization and Market Dynamics (00:45:18)
Jake discusses the implications of legalization and rescheduling on his business strategies.
Interstate Commerce Concerns (00:46:39)
Concerns about interstate commerce and its potential impact on local businesses and jobs.
Competition with Large Producers (00:48:42)
The challenges small businesses face when competing against large-scale cannabis producers.
Future of Cannabis Manufacturing (00:49:32)
Speculation on the future of cannabis manufacturing amid changing regulations and market dynamics.
Final Thoughts on Industry Changes (00:51:01)
Reflection on the potential consequences of legalization for small cannabis businesses.
Conclusion and Contact Information (00:52:05)
Jake Berry shares where to find him and his company, promoting their upcoming website.
Intro 00:00:00 Welcome to the Cannabis Success Show. If you're a cannabis company owner or operator who's ready to scale your business, grow your profits, and plant the seeds to take your business to new heights. This show is for you. We'll share expert insights, industry trends, and actionable strategies to help you blaze a trail of success in the cannabis industry.
Guillermo 00:00:26 Welcome to the Cannabis Success Show. I'm your host, Guillermo Rodriguez, and I'm joined by my co-host Brett Adams. Today we're interviewing Jake Berry. He's the CEO at Cloud Labs. I just love what he has to say about his business model and what it means to be a manufacturer in the cannabis space. He goes into his story about how he started in retail and ended up on the manufacturing side. It's a it's a fascinating story and he's got a lot, a lot of great tips on what to talk about and how to get into manufacturing on the cannabis side. Brett, what did you like about that?
Brett 00:01:01 Interviewing Jake was great. He's the type of guy you just want to sit down and talk to you, like, all day long, right? Have a cup of coffee and things.
Brett 00:01:08 Kind of pick his brain. it seems like a good businessman. I really liked, the new market that he's kind of looking forward to. So, make sure everybody sticks around for that, to the end to see where he's looking to go next. Because he's been successful so far. I have no doubt he'll be successful in that market too.
Guillermo 00:01:29 So yeah, I mean, at one point we get into what consumers are demanding and what to look out for specifically, and we get into some real actionable tips, some real insights on where to find data and how to look at markets when, when you're expanding. And so that's what's coming up next on the Cannabis Access Show. And just make sure you stick around to the very end where he talks about what Brett mentioned, what market he is most excited about in 2024. Welcome to the Cannabis Success Show. Today we're joined by Jake Berry, CEO of Cloud Labs. Jake, thanks for being on the show today.
Jake 00:02:07 Yeah.
Jake 00:02:07 Thanks, guys. Thanks for the introduction. My name is Jake Berry. I've been in the cannabis industry since 2013 around, I started in Colorado as a as a bartender right after I graduated college. So, you know, I graduated from the University of Texas at Austin. From there, I developed a business plan, to open up a dispensary. And so, a lot of people told me that it was a great idea at the time. And I said, you know what? Maybe this is I'm on something. So, I moved to Colorado in 2013. got working in a dispensary pretty quickly realized that, you know, I think I could figure something out to run one of these, actually. And a year later, I applied for a license and, and was awarded one in Wheat Ridge, Colorado. So, we've been in business in Wheat Ridge since 2015. I'm not doing a dispensary. I'm doing manufacturing now. But, since then we've actually expanded to Michigan in 2020 and in New Jersey just this year, 2024.
Jake 00:03:08 we had our first month of sales in February. So, you know, from bud Tender to, to owner, expanding into multiple markets, haven't taken on a ton of debt. A lot of it's just been rolled in from, you know, the money we've made in these markets. And, there's just me and, and one other owner and. Yeah, we've had some successes and a lot of failures, but, yeah, we're pretty happy with where we are.
Guillermo 00:03:36 So, so you started off on the, on the retail side. You got that experience being right on the front end with, with the end consumer in 2013 very early earlier on right in, in the rec program there. Yeah. That was in emerging market at the time. Right when you applied for a license. Jake, did you want to go into the retail or was there something that said, I want to pursue the manufacturing side, or was it just what you were awarded at the time?
Jake 00:04:05 Yeah.
Jake 00:04:05 I mean, so back then, your options were pretty limited. I was and there was no, like, repository for these businesses. Nobody had really developed as there are no brokers yet in the selling licenses. So, it was all like word of mouth or Craigslist. So I was literally on Craigslist, like finding business like marijuana business licenses for sale. and I reached out to probably four different groups, and I wouldn't sell the facilities. You know, a lot of them, a lot of them had a dispensary and maybe grew attached to it. But at that time, the licenses were so limited that every license was automatically $2 million. It doesn't matter what the business was doing at the time, it was 2 million bucks. If you want to, you know, buy some failing business to get into the industry. and, you know, at that time, you know, looking around at what was for sale, what I could find, it was just like, you know what? I don't want to do this.
Jake 00:04:58 I don't want to buy this piece of crap. You know, let's just let's see if we can go the, the application route and apply for a license. And so, you had multiple municipalities coming online developing their program, which, you know, wasn't really a thing yet. So, the city of Aurora, which is essentially, you know, the second I don't know if it's like it's a suburb of Denver, was coming online and building out all these regulations. And so, you know, I was just looking through local, Denver metro area, municipalities that were, you know, had cannabis programs. And so that's how I kind of got into manufacturing because of the municipalities I was looking at, very few were coming online. We rich happen to be coming online, and they were going to be having a lottery for a manufacturing license in one month. So, I found their posting. They were going to do the lottery a month later. And I was like, hey, this is an opportunity.
Jake 00:05:52 Let's dive right in. It felt that the application and submitted and you know yeah that's how I got I had no plans of going into manufacturing originally at all. Yeah.
Guillermo 00:06:02 Just happened like that. And what was it about your experience as a Bud Tender that made you realize I can do this? Was it the demand for the product, or was it something about running the business that excited you about it? Or said, you know, I can do this, and I can pursue running a business like this.
Jake 00:06:20 Well, you know, I think everybody has this like, this idea that, like, the cannabis industry is some, you know, super.
Guillermo 00:06:30 Profitable.
Jake 00:06:31 Or well, no, like just like it's a different business. And at the end of the day, it's not like a dispensary if you're running a retail business. That's, that's all you're doing at the end of the day. And after I got into there and kind of got like demystified to like, oh, I'm selling weed, this is so different.
Jake 00:06:48 I was like, I could, I could run it. I could start a dispensary tomorrow and run and run a successful retail business. You know, this isn't that complex. People have been doing this forever. And so, you know, I'm not trying to sound like, you know, like, I know it all, but that's that was my feeling back then, you know, when I was, what, 20, 24? I think I was like, you know, I can figure this out. Jumping into manufacturing. That's a whole another thing that I was not prepared for and had to learn a lot, a lot of, like, on the job type of stuff. But that's what kind of made me think that, yeah, hey, I can get this done because on the dispensary side, it's just retail. At the end of the day, you know, making sure your inventory is right. You know, scheduling employees, you know, high turnover customer service, that's what you're doing, you know.
Jake 00:07:36 Yeah.
Brett 00:07:36 So there's a lot of cool things on the retail side that you can do, with data analytics and things like that. Because especially with the amount of regulation and the amount of tracking and stuff like that that you have to do from a regulatory perspective, you have at your hands more data than most retailers could ever hope to have. So yeah, but just thinking about the dispensary, side of things as a retail operation that that to me is just that's basic, right? Like that. That's, that's the first step people need to take when they're going into this kind of thing. It's like, come on, guys like you are you are selling products to a consumer. They're price sensitive in some cases. And so, we need to, you know, who's you.
Jake 00:08:22 Consumer and your area. You know. And yeah, all that data that did not exist ten years ago. You know, whenever I was in the industry, you know, there was no data. I mean, we were still doing, you know, mailers.
Jake 00:08:36 You where you were advertising and, and the very few publications that you could print media wise to get customers in. I mean, your options are pretty, pretty limited. You have a lot more. There's a lot more to it now than there was back then, is what I will say. Yeah.
Brett 00:08:50 So you mentioned earlier you built this without debt. Was that a conscious decision or without a lot of debt anyways? Was that a conscious decision that you guys made and did? What was the offset of that? Was it just slower growth or how did that kind of play out?
Jake 00:09:06 Yeah, I mean, I worked with one individual angel investor for the original loan for the business. and, you know, the biggest thing I didn't want to do is give away equity. So, you know, still today, I am the majority owner of the company. I said there's only me and one other business partner. for all entities. and, you know, I wanted to be able to make the decisions, to steer the ship myself.
Jake 00:09:31 Really? back then, which I think is still true now. You know, everybody was kind of pooling their money together. So, the average license in Denver, in Colorado at that time, you had about 8 to 10 owners on average. because people pulled their cash together And, you know, a lot of those guys are not in business anymore. You know, just because they've sold there's, you know, too many chiefs, you know, trying to try and trying to try to steer the ship here. And that's what I kind of wanted to get away from. So that was the biggest reason, you know, and also back then, I mean, I've looked into a lot of different financing options, and the rates are insanely high. I mean, I've been quoted up as up to 30%, on borrowing. And it's like, you know, I don't need to do that. but I've been fortunate enough to have, you know, that investor who kind of believed in the business, believed in me, believed in, you know, what we could do and achieve.
Jake 00:10:30 And so I haven't had to go out and go back and borrow more money, or, you know, bring in somebody else, that has cash and whatnot. So, and yeah, it's been slower growth. You know, we haven't been the weren't want to. Our approach was different than the madmen of the world. You know what I mean? so many of these cannabis businesses that are growing don't have sound fundamentals, aren't making any money. I mean, I still don't know that many cannabis companies that are making money that are profitable. It's pretty rare to find one. And so, you know, that was kind of the whole idea was like, let's just build like a, let's build a business, you know, and, and scale it that way slowly.
Guillermo 00:11:31 So yeah, I mean, if you read the stats, I think manufacturers are more profitable and retailers and so forth and so on. And I've had this discussion with the fee folks of like, well, How much more profitable are cannabis companies going to be? after 280 goes away? And then there's the reality that there's a lot of companies that aren't actually paying their 280 taxes, and they're not profitable anyways. And it's like, it's not so much the tax burden. It's also that there is a large portion of the industry and operators that, that just aren't profitable. Kind of going back to your comment about just sound fundamentals.
Brett 00:12:13 About fundamentals.
Guillermo 00:12:14 Improving your gross margin, managing your cash and your balance sheet and growing the business. but let's kind of go back to, to basics. You know, just I always like to just talk about you, your business model, like for folks who don't understand. You mentioned earlier you were looking at licenses where they might have been to grow attached to the manufacturer.
Guillermo 00:12:38 can you talk about what it means to be what a business model where you're strictly, manufacturing what that looks like, who your customer and consumers and which markets that you're in. Just to kind of explain what a what your business model looks like today.
Jake 00:12:53 Sure. Well, you know, when one of my business started originally I was awarded a grow license and a manufacturing license. So, I've done both. and I recently shut my grower down about a year ago in the Colorado market. You know, from learning from that, I never decided to get and grow in any other markets. And I haven't pursued one. And I don't really plan on pursuing another grow facility. So, what my business model essentially is, is, you know, I'm a I'm a I'm a liquor manufacturer, right? So, I manufacture the liquor at a warehouse, and then I distribute it to stores all across the country. Right. Like, that's the idea. and that's all I'm doing.
Jake 00:13:33 So I manufacture a product at my factory. I have a sales team and a marketing team. And I distribute all these products into the various dispensaries in each of those states that I'm that I'm operating in. cannabis is a little bit different. So, each of my businesses or different entities. So, Colorado is its own, you know, facility has its own production facility has its own team that's doing sales and, and everything. And it's the same thing for New Jersey and, and Michigan as well. So that's the business model. You know, I source material that I process from various growers throughout the state that I'm operating in. So, in Colorado I work with about two different large groves on a consistent basis. That's where I source all my material from. You know, I've, I've worked with a lot more than that, but I've kind of settled on a couple that I know give me good yields, and, and are good to work with. Right. And, and that's kind of what I've done and all the states that I'm in.
Jake 00:14:37 So I only work with about maybe 2 to 5, grow facilities in each market that we operate in. and in new Jersey, there's just not that many options available because it's so new. So, I'm kind of limited to who I can work with there, but I've narrowed down who I work with, in Colorado, in Michigan, for instance. So, you know, that's it. So, I buy the raw material from growers in the state, I process it and I sell it into dispensaries that are in the state and. Yeah.
Guillermo 00:15:09 What's helped you be most successful when connecting to the retailers? Because I'm sure your experience as a Bud tender has taught you that that relationship from bud tender to consumer really kind of makes or breaks your brand right here. Yeah. You're not quite going all the way there, right. You're selling to the retailer. So, there anything that's taught you from, from your experience as a bud tender or anything you've learned along the way, like how to really connect with the person that's going to be selling your product to the very end consumer, make sure they're there promoting your product? Or are there any thoughts around how you've been successful with that?
Jake 00:15:45 Yeah, I mean, you know, this kind of goes back to when I was about Tinder.
Jake 00:15:51 We can talk about that, but that's who selling your product at the end of the day. So, they have to buy into your brand and into your product. And most bystanders are pretty fickle. you know, they will love your brand one month and move on to the next hot thing the next month, right? So, there's not a ton of loyalty there either. So, there's all types of things you can do. There are incentives programs. but for me it's just been about developing a quality product that's always available on the shelf and then having good brand reps, or sales reps, excuse me, that are going into these stores and that are, you know, happy when they go in sampling out the button. There's the teams and you know, getting the butters to like us. And, you know, a lot of the time our most successful stores are ones that we can develop that relationship with. We become a staple on their shelf and the products just always available. And so, you know, any of the centers that are customer facing that are selling our product, we just become the go to product.
Jake 00:16:52 You know, it's like an affordable product. That's quality. Right. So, you know, that's kind of the customer base that I'm going after is that middle tier. I try not to go after the super price conscious individual, and I try not to go after the super, you know, highest quality customer either. Right? Because those are much more narrow. So, I'm trying to appeal to a wider base and so, a lot of that's just like pricing, you know, setting, setting those things at a, at appropriate levels. And, but it's also market dependent, like that category that I'm going for doesn't really exist in the Michigan market, for instance. you know, but it does. It's been a hit.
Guillermo 00:17:33 The most by pricing is what you mean by that there.
Jake 00:17:37 Yeah. I mean, that's a pure price driven market. That's all that it is. compared to.
Guillermo 00:17:42 New Jersey, that's newer. And you're able to be in that middle ground.
Jake 00:17:47 Yeah, yeah.
Jake 00:17:48 And I'm actually I'm actually at the, I'm, I'm the lowest prices in new Jersey. but I'm meeting the margin that I want to make there, which is very good. and I'm not over I'm not gouging. You know, a lot of the individuals that I'm pricing against, I know they're probably, you know, 80% is what they're making a per product. And like, that's like kind of outrageous. And, you know, my goal with the new Jersey market entering it and going up against the major MSOs that are there, the Gtis, the Curaleaf, Verano, etc., it's like I needed to gain market share. Now, while there's not as much competition. And so I'm going to be priced competitively, I'm not going to be I'm not going to super undercut the market by any means. But I'm also not going to try to go in at really high prices and gouge now and grow slowly in the marketplace, you know, so it's a different approach there. but yeah, I mean, the average consumer in New Jersey can spend a lot more money because their average incomes are much higher than, than Michigan, for instance.
Jake 00:18:51 But there's a lot more things plaguing the Michigan market than just like income of individuals. It's just way too much competition from the illegal market and the legal market. I don't think the regulations were put in place pretty poorly. by just giving away way too many licenses and, and then just not enough enforcement against the illegal aspect. there's a lot of illegal product that's being sold in dispensaries in Michigan. That comes in into legal operators that are selling this product there, which artificially lowers the prices. and so, I don't know, there's a lot more to talk about with that if you want to go.
Guillermo 00:19:32 No, that's a great topic. You kind of read my mind and I was wanting to get into the differences in the different markets with you being in different markets. before the show, I forgot it was this before the show because we were having a good conversation before the show. We went right into it. But we were talking about how, you know, when you started, there wasn't, the data analytics that we have now, how have you use data to help you with pricing? And the other thing I want to get to be, which, which categories are you in and how have you seen pricing within the different categories? And is that being part of your, of your success of being in that middle ground and being able to price that middle ground? Has that had to do with your brand or more of the form factors that you feel like you're competing in there?
Jake 00:20:22 Yeah.
Jake 00:20:23 you know, we haven't talked about that. So, I, we have, Loud Labs produces, three different brands. So, our main categories pyramid. Right. And so that is our vape option and concentrate option. We also have zombies which is a gummy line. And we're going to be introducing a hard candy line as well. in the next couple of months. And then drinks are our infused pre-roll category. So those are the main three categories that I operate in. Those are also three of the largest categories by share. When you look at the whole pie, right, flour is 50% of the total market no matter what. And then it's vaped, then it's gummy. Or you know, I think I think pre-rolls like right there after vape. and then, you know, you can have everything else. So, I'm competing in pretty large categories right now. Certain things have been done well. Like for instance, my pre-rolls are pretty innovative. they're different. And so that's what's gotten me into a lot of different dispensaries and had good shelf share.
Jake 00:21:24 And they're had good prices, right? They're not overpriced, not underpriced. And so, you know, that's been effective. some categories are purely commodities though. And that's really what the gummy category is. It's a commodity based, product is what it's turned into, unfortunately. like, you know, we spend a lot of money and time developing a good gummy, it's a, it's a variety pack. It's different. You have five different flavors in your pack, but it doesn't matter. Especially in, like, a market like, like Michigan, where it's pure price based, you know, like there are 200 milligram packs in Michigan, which is different than most markets. And it can be 200mg in one gummy as long as you put hey, you can if you cut this in multiple pieces, that's your serving size, right? So, it's like there's kind of shenanigans like that that happen. And so, you know, if you want to be competitive on the gummy market in Michigan, you need to be selling a $2, 200 milligram gummies.
Jake 00:22:15 Well, the only way to do that, you know, where you can actually have any margin is to kind of play by those rules. So that product just become a pure commodity in, Colorado, in Michigan. And I'm sure it will in New Jersey as well. But do you know that same product that I'm making in New Jersey? I'm selling for $15 wholesale versus Colorado. I'm selling it for $4 wholesale, you know, realistically. So, there's a huge price difference there. and then vape is somewhat commodity, but you still have individuals who are, you know, looking for products that are a little bit better, get you a little bit higher, etc.. and same thing for concentrates. So you can kind of play the middle ground and vape in certain markets. Again, Michigan vape is a pure commodity at that point in time. So, if you want to be successful in getting onto shelves, you need to be pricing your product at 4 to $5 wholesale for a full gram cartridge, which nobody's making money at.
Jake 00:23:12 and so what I have done in kind of like what, some of the tools that I'm using is I get, weekly reports or really, it's monthly that kind of follow, the price compression that's occurring among each of these categories. So, I get a vape, a concentrate, a pre-roll, etc. that's following the prices that are being listed in the stores, you know, week over week over week to see if like, okay, hey, I'm seeing you're starting to see a decline. pre-rolls or lowering by a dollar consistently every single month. So, we're seeing more price compression. Like let's reassess our pricing sooner than later so that we don't get stuck where, you know, the dispensary to stop buying our product because it's too expensive, because too many people have come in and undercut us. So, you kind of need to get ahead of that, before it changes on you, and you get kicked off the shelf because kind of like what we said. There's not a lot of loyalty and it's kind of market dependent.
Jake 00:24:08 But, you know, if you have these good relationships you can see on the shelf and they'll have those conversations with you. But a lot of times it's just, hey, here's this new thing. It's cheaper, I'm buying it, and they stop buying your product. Right? So, if you can kind of get ahead of that, you can stay on the shelf and continue to gain market share.
Guillermo 00:24:25 Yeah. And I mean, you were at the last conference we were at. And, I mean, you know, this is a conversation, we're at a pact. And it's like, are the retailers training the consumers to buy for cheaper, you know. And is that your take? How much of this has been will start to go away as you see, like maybe more consolidation in the industry or some changes. And how much of this is just the cannabis consumer, right. do you, do you see it? Do you see the trend kind of stabilizing at any point? or do you see this as more of like, this is the market I think we're going to deal with for a long time to come, where you're going to have a new market follow, you know, a great first year, and then slowly, you'll see prices per item start to kind of compress over time and eating away at margins.
Jake 00:25:20 I think we're going to see it eat away no matter what. Like, you know, like the margins that I'm seeing in new Jersey, I They're not going to exist for very long. I mean, you know, we can talk about Missouri. I don't think Missouri has much time left before the. It starts. The bottom falls out. I think that's probably going to happen in the next 6 to 9 months in Missouri. And I think that market's only a year old at this point. So, I typically what I've seen now is new markets. You get two. You can get two good years. And then the prices are going to drop out especially in these open markets. Right. Like Illinois everybody's still making good money there because there's less competition. And you know people are making good margins and they're actually profitable and making money. And places like Michigan, there's no profit margin and you're not making any, any money. But a lot of that is driven by, you know, the, the licensing and also by out-of-state visitors.
Jake 00:26:14 Because what you're starting, what you're still seeing is like national legalization hasn't occurred yet. Completely. So, if you go to any border town or even all the way up into Detroit, in Michigan, for instance, The majority of the individuals that they're seeing don't have Michigan licenses, right? They're coming from as far down as Alabama, like the Deep South where marijuana isn't legal yet. So, what you're having is consumers there that are I wouldn't even call them. I would call them dealers. Realistically, they're coming up to Michigan. They're buying as much product as they possibly can, going all across the state to as many dispensaries began stocking up, taking it back to Alabama and then selling it to everybody there. Right. So, like now you're no your plug is no longer some dude that you don't really know. Your plug ins, the dispensaries in the cheapest possible market, which is Michigan now. So, I think prices will actually increase in Michigan once you start to see national legalization happen. And a lot of these licenses start to go under because people are going to say, okay, the volume game doesn't work anymore here because that out of state or who's coming up, you know, that that customer doesn't exist anymore because once it becomes legal, you know, closer to them.
Jake 00:27:25 They're no longer coming here. And it's kind of what's happened in Colorado. I mean, in Trinidad, for instance, now that New Mexico's legalized, everybody from Texas who we were getting in Colorado is now just going to New Mexico, skipping Colorado altogether. The town of Trinidad had maybe a population of like 10,000 people, and they had 20 dispensaries. All those guys are going out of business because their customer base is gone now, you know, and I think what you'll start to see is and that's happening all across Colorado, licenses are going under. Prices are going to start to increase. Right. So, it's kind of a supply and demand thing.
Guillermo 00:27:59 Yeah.
Jake 00:28:00 And it's something you see.
Guillermo 00:28:01 Go ahead. Right.
Brett 00:28:02 So I was just going to ask so do you see is there any you mentioned the regulations and stuff like that in Michigan aren't helping. Right. And the way that they're doing the licenses, do you see any value to joining something like a, like a state trade society or, you know, and having them help lobby on your behalf? for those retailers.
Jake 00:28:23 I definitely do you know, we're part of an organization in Colorado, for instance. MiG is the name of the organization. And, you know, they work really hard to, you know, lobby for things that the industry wants to make it, you know, better for us, but it also depends on how it was legalized. You know, like if it was a voter approved initiative, like it was in Michigan, it's very hard to change any fundamental rules that are affecting the industry. Right? So, it's like there needs to be license caps. It's just the bottom line. Like unfortunate. Like I know nobody wants to say that. And you know, capitalism is great. It's like the greatest, you know, thing ever. And I love capitalism. But unregulated capitalism doesn't really work. There's a lot of losers that are created from that. Right. And that's what you see in a lot of these open markets. I know a lot of people in Oklahoma who, you know, anybody with a pulse could go and get a license in Oklahoma.
Jake 00:29:22 Right. How many of those people we know invested a lot of money and are no longer in business and have lost their full nest egg? So, there's a lot of busts. There's more busts than, you know, winds that happen in those types of markets. And that's what's happened in it takes a long time for that to, to even out. So yeah.
Brett 00:29:42 Yeah. You mentioned Megan Colorado. We have Mo Kan here in Missouri. Those guys are fantastic to work with. Andrews is a member of that society. So, we attend events with those guys quite a bit.
Jake 00:29:53 So yeah. Yeah. And I mean, I think it's beneficial. It's also just beneficial just for the camaraderie you can get in, like meeting new individuals in the industry and kind of growing your network. That's important. I'm really bad at networking. That's why I'm on your guys show. I don't know.
Brett 00:30:08 Anybody reason.
Jake 00:30:08 For me to be all right. you know, I, I'm, I'm I've been low key since I've started this whole thing.
Jake 00:30:16 Like, if you go to Colorado and you ask who I am, nobody's going to know, you know, because I don't put myself out there like that. But I'm trying to change that because I'm trying to grow and get into more store and into more into more states and more markets, you know and so yeah, I'm having to, to play that part. And yeah, these organizations are great for that. You know, we just joined I can't remember the organization's name in New Jersey, but it's another trade group. And yeah, it's working with regulators to, but you have to have regulators that are, that are willing to listen and like want to change things, you know, and so and I think that's a very hard thing too. It's like a lot of these guys don't really care at the end of the day too. So yeah, that's a.
Guillermo 00:30:56 Good segue into talking about, kind of summarizing what markets you're in and where you're looking to go over the next couple of years.
Guillermo 00:31:04 But before that, I wanted to say, yeah, anecdotally, I can tell you that is happening to your point earlier that, you know, if you're in another state without a rec market, like I know my chiropractor, here in Texas would travel to she would go to Colorado because she has a son in Colorado, had come back with, ten, $20,000 worth of product. And so those average basket sizes are, like, gargantuan. You know, he's kind of throwing it off, and it makes it, you know, from the financial side of things, difficult to, to forecast, right, where you're going financially if you can't really predict that that stream of revenue. But there's certainly macro factors that you can look at is that you could look at a map, you know, the status of where certain states are going with their Rec program, the likelihood and how that's going to impact you and how fast they're going to get rolled out. Right. So all those things have to be considered when you're thinking about your future and planning financially for your business.
Jake 00:32:03 for sure. And I mean, that's, that's the stuff that I look at, you know, I mean, when I looked at new Jersey, I said, okay, I mean, it's a great market. Pennsylvania, right next to it, has a super, super large population base. Right. And there's nowhere they can go currently. Right. So, Philadelphia for instance, is our best stores in the new Jersey market are the suburbs of Philadelphia. right across the border. You know, those stores are doing massive numbers right now. but, you know, once Pennsylvania legalizes, they're going to become just like any other dispensary, right? So, the value in the dispensary is the border stores. Like, if I was going to buy dispensary anywhere but a dispensary, I'm going to the border, make my money while I can. And then, you know, it depends on what you want to do. Right? Do you want to do you want to sell while you can, while it's high, or do you want to actually make a business out of this? Because, I mean, those aren't businesses, you know, those are those are cash cows that are going to disappear when legalization, you know, happens.
Jake 00:33:03 So it's like, do you want to expand and have more dispensaries in that market? And just do you want to run a business? Most people don't. You know, it's not very fun.
Guillermo 00:33:12 So yeah. Yeah, there's always like a, you know, forward looking approach to things. Right? You could look at what's happening. But what you've seen with a lot of business owners in general, right, is that that just that lack of planning into what may change into the future. Right. Today's run rate is not next years or the rate the year after that. So, you have got to properly plan what's realistic and how you can continue, pivoting around the changes that are going to happen. So, you mentioned going into the New Jersey market, like as a manufacturer, can you talk about that process for like how you grow, how you not within an existing market, but how you step into another market? You apply for a new license to partner with someone. Can you, can you tell us a little bit about that?
Jake 00:34:00 Yeah.
Jake 00:34:01 So I mean, it's, I, I'm constantly monitoring. All I do is read, right? I'm reading every single day. I'm reading about all the new markets I'm reading about; you know, what Brian Kemp in Georgia is doing with weed and all these different, you know, people like what's coming in the pipeline. And then I start researching, okay, what are my populations in each of these places? I know Colorado has like 5 million people who started at four. I know this is like probably the general market size. I can be lucky if I can carve out X amount of money out of this market. And that's how I pick, like, you know, I'm not going to I'm probably not going to go and spend the money to develop a business in a, in a, in a state like South Dakota, where there's sub a million people or whatever it is. You know, I'm looking for a sweet spot of like 4 million plus. and then I start to look at, like, average incomes and things of that nature.
Jake 00:34:53 And that's how I kind of pick and choose and, and see what the laws are and, and how that looks and how easy is it going to be to actually like, get a license, those sorts of things. but that process from me picking a state and launching in that state, it's a minimum two years to launch. Like, that's just how long it takes. I, you know, you can say it's going to happen quicker. Two years is like the fastest. That's the fastest I've done it. And so, I've done two states now. Colorado, Michigan and New Jersey or my new states. They both took me two years to form. I'm going to go out there and start looking for property and I'm going to apply for this license to operational. So, you know what I started? I do the research, I, you know, I, I have my target. I'm going after this. I'm going to start a business here. And a lot of your what you're how the next part is going to be dictated by like which municipalities are going to be opting in.
Jake 00:35:52 Have they already opted in yet or not. And then, you know, what I do is I just go do it myself. You know, it's like I have never had a real estate agent find a piece of property for me that qualifies for cannabis. It's just not going to work for you. Realistically, you got to get your ass out there. You got to drive around and see if you can find property you got to be looking for signs on people's property that says for sale that aren't listed online. You know, I mean, the two properties that I found, neither of them was listed online for sale. I had to, like, find them myself, and, like, look at the map and say, hey, this is going to qualify. I think, you know, let me call this guy, see if I can work out a deal. You know, those types of things. So that's how that's how I've done it. I'm not saying it's right. I know a lot of people don't do it that way, but that's what's been successful for me.
Brett 00:36:46 So what markets do you have your eye on is like up next? Like which ones are you excited about?
Jake 00:36:53. I don't know if I'm going to start from scratch again. It's,as I told you, two years. It's a long process. and it's hard to do when you're, when you're on your own, you know, like I said, we're I consider myself a small company. You know, I'm, I'm in the office every single day. I'm not going or doing anything else. Really. so, I don't know if I'm going to go and apply for a license from the grant. I might, I don't know. It's actually really fun. Never say never. Yeah, honestly, that's what I enjoy doing the most now is that part of it? But it's also a ton of work. but I think the best markets are going to be. I think Ohio is going to be the best market in the country next year. They're actually like, yeah, probably next year, 2025.
Jake 00:37:40 I think Ohio will be the best market in the States, like hands down. I think Illinois is going to remain there, you know, which in Illinois is not really possible to get into. but I want to be in Ohio. so that's kind of what I, what I have my, my eyes on right now. And if I can continue to do well in New Jersey this year, I'm going to be looking to acquire a license in Ohio and launch there. it's a limited license, but you didn't.
Brett 00:38:06 Want to do the licensing. You're going.
Jake 00:38:08 No, I want to buy a license, you know our get there. I don't want to start from scratch. I don't want to go and find a damn price property, build it out and wait along. You know, it's just it's also really risky, right? I mean.
Brett 00:38:20 100%.
Jake 00:38:21 Now you gotta.
Brett 00:38:22 Have your money tied up in real estate. Real estate, especially commercial real estate in probably the markets and stuff like that, that you're looking there, it's probably not going to move quickly.
Brett 00:38:32 So, you know, your money then is not liquid. And trying to get that sold you may end up having to, you know, take a loss on that at some point if you want to get out quickly. Yeah. So that's yeah, I understand the risk involved for sure.
Jake 00:38:45 It's also hard to like most people rent in the cannabis industry. And if you're wanting to go and start a license from scratch somewhere. It's really hard to go and start a license somewhere if you're not going to buy the property and you don't have the cash to buy it, and then sit on it and pay the property taxes while things happen. Our facility in New Jersey was ready to launch in May of last year. We didn't. They didn't give us our license until January. So the entire time, I was just paying for a property that was completely empty. It was fully built out. The whole thing was done, you know? So, all that money was tied up there. But, no, I think Ohio is, like, very attractive.
Jake 00:39:27 I don't plan on going anywhere West. I think the West is completely played out and done. You know, the only way you can go in there is if you have a boatload of cash, you know, and I don't think you'll see major movement happening in the West until national legalization happens. And you have, you know, big money coming into the market and buying people and building brands. So, you know, I think that the South is the South is interesting. You know, I, I want to go back to Texas eventually. That's kind of the game plan, but I don't know if it's ever going to happen because of how bad the CBD market is out there. You know, the converted Delta eight crap. It's everywhere. You know, if they don't get that handled, there's not going to be any money to be made for people like me that are doing it the right way in that market. but like I said, I think Ohio is the best right now.
Jake 00:40:16 And nobody else is really there yet. Right? Minnesota's going to be interesting when that comes online. I think Michigan is going to lose a lot of business when that happens. and that's going to be a pretty good market. It's going to be somewhat limited to because the only licenses that they're issuing or social equity licenses. So, there's only going to be very limited dispensaries, limited processors. So, if you can get your hands on one of those licenses, you're going to be in to make some good money and that market for a long time, you know, and I think that's what you got to kind of look at too. It's like we talked about this. The markets are only good for about two years right before it falls off a cliff. It'll stay good. And you can stay profitable if they're somewhat limited licenses. Right. You know, like that's kind of what you got to look out for. And so, I think those two markets are the most interesting and the most those are the sexiest markets right now over the next year that I'm looking at.
Jake 00:41:06 So Yeah.
Guillermo 00:41:07 That's great information to share. You know, when we were in New Jersey, that's where we met you and, and your dad, there is, we had so many people stop by, and talk to us and say, yeah, we're about six months away. You know, we're about pre-revenue. We're about six months away. So, we're saying, oh, we're about a year away. And, but you also shared how long it takes to even get to the license, the license piece. So, you have a couple of years where, you're applying for your license, and, and then you have the period where you may have the land, but you're not ready to go. And so, there's all those costs, and then you have the first couple of years of the business that pricing is pretty healthy, whether at the commodity price or at the retail side. And then you have the compression happening, a couple of years after that. And so there's, there's a there's numbers you can put to all that
Guillermo 00:41:59 Right. And just determine, like where do you where exactly do you need to be to make your business profitable to grow and to have a plan to keep moving forward. So, I think just sharing those kind of experiences, you may not have the exact numbers, but to help others like look out to, hey, this is what this is what to look out for when you're starting a business. Has there been anything you shared, how you research? you know, the market, you know, the consumer where you're headed? Has there been anything that's, you know, in terms of a data source that's been particularly helpful for you? Would this be like the visas of the world, or where does one look to just really get familiar to what the how markets are performing that that's helped you or has it been a multitude of things?
Jake 00:42:44 I mean, it's been a multitude of things. I mean, I've, I've looked at the BDS, AI's, the headsets, and a lot of times I just don't find the data to be that accurate, to be completely honest with you.
Jake 00:42:55 I mean, it's accurate. They tie it back to the actual revenues that are being posted by the state. So that's accurate. But like a lot of times, the actual brand mix that they're putting out there is not close to accurate at all. because they're only looking at they only have access to, you know, 25% of the dispensaries in the market. Right? So, like, they don't really know what's actually happening in the other 75%. So, what I found the best tool that I've found so far has been pistol and alpine IQ. Those are the two tools, and I'm not trying to plug them in. I don't actually use alpine. I have somebody else who uses alpine, I use pistol. That's the only truly accurate data that I found, because what they're doing is, it's a new it's a new way of doing it, but they're scraping all of the menus that the dispensaries are posting. Right? So almost every dispensary uses Dutchie, I hired Jane. Whatever. and they all have online menus.
Jake 00:43:51 Right. And that's kind of the beautiful thing that's happened since Covid. Everybody now has an online menu. A lot of dispensaries didn't before. But now when we move to online ordering, that's just part of the business now, baby. And you gotta you have to put yourself on there for online ordering. And you know what some of these was a lot of these platforms are doing now is just going and saying, okay, out of the 600 dispensaries, 550 of them have online menus. They're all on weed maps. Dutchie, whatever. We're going to go and scrape all that data every single day and give you real time data. You know, of what the prices are, you know, have your product sold through, what's your sell through rate, you know, what is the what's the price point there? How many unique brands are on their shelf, things like that. You know, and it's like its really granular data that you can like, use to really know what's actually happening in the market.
Jake 00:44:41 So yeah.
Guillermo 00:44:41 Yeah, I think that's really helpful because there are so many platforms. There's a more market based like the BDSM. There's the more like you said, at the very granular level at them at the retail level, like the pistol data. So, I think it's helpful for folks just to know exactly like where to look and what's been helpful, like on a real level, like, you know, from your experience what's been helpful.
Jake 00:45:04 Yeah. So, like the States also put out a ton of data to that. You can look at that, I think it is very beneficial. You know, but the granular stuff is what it is, is what I like, you know, and so yeah. Yeah.
Guillermo 00:45:18 Yeah. So as we're getting close to the end, I just want to get your take is, you know, as far as moving into new markets, you said until legalization happens, how do you see that affecting how do you see the, the reschedule affecting any of your, of your future plans or your business in general? and then how do you see legalization just affecting and I assume when you mean legalization, you mean complete de schedule, right? yeah.
Jake 00:45:47 Yeah. Like, I mean, like I, I think we've all come to the agreement that, like, schedule three doesn't really mean shit to anybody. Right? at the end of the day, For legalization. I think we'll change a lot. A lot, a lot of things. I think you're going to see a lot of people like me that are, you know, smaller guys that don't have just like globs of cash to, to continue to grow, kind of go away, you know, we're going to get acquired. It's just it's just going to happen. There's just no way you can get around it. You know, I don't think there's any like independents that are like big enough players where they can compete against those guys that are going to come in with millions and millions of dollars, and like, and focus purely on branding. Right. So, I think you're going to see a lot of people like me kind of disappear potentially. I don't know. but I think it's going to be weird with the whole interstate commerce thing.
Jake 00:46:39 I think that's going to play a big piece in this as well. You know, if I'm Colorado regulators, I don't want to allow my state to start selling weed from California. Why would I want to do that? you're going to put away all those jobs and those businesses that you're receiving like tax revenue from directly, those are gone. Like all those jobs are gone as soon as that occurs. Right. So, it's like, I don't know what the incentive is for these smaller states to allow California to come in and flood their market with a cheap lead. Right? So, we'll see. We'll see. I think you're going to have some states that do it. I think it's gonna start off smaller where like the tri state area, like Connecticut, New York, new Jersey, they have a pact together. And like, you can start selling in between. And those become like a larger market that you have to play in. so I think that's going to be interesting piece to navigate. and that's what's really going to affect my business is seeing how that occurs.
Jake 00:47:41 And I just, I don't know, I think I'm in the minority. A lot of people think that it's just like legalization is going to happen. It's going to come out and everybody's going to be trading weed with each other across state lines. And I just I don't see that happening. I think most states would be kind of dumb to do that, because they're going to lose out in a lot of money and they're going to lose out on a lot of jobs in their town. And there's and their cities and they're in their states. So yeah.
Brett 00:48:08 From the regulatory aspect, I think you're correct. Right? I agree with you 100% on that piece. As a business owner, you know, with what you're doing, I mean, would you see a benefit to, hey, I can go get same standard high quality product that at half the cost ship it in from California into new Jersey, you know, instead of buying their locally in new Jersey. So do you see that competing those two competing.
Brett 00:48:40 like, where are you at on that fence?
Jake 00:48:42 I mean I think yeah, I mean, but do you have enough money to take advantage of that? Okay. So, like in California, you already have these massive factories that are built out to handle a market like that that can easily expand and grow bigger. Now I'm competing with those guys who invested all the money into their one seat that they can supply the whole country. Right. And so, I'm competing against economies of scale here. So yeah, I can get products cheaper, but like I can't manufacture as cheap as those guys either with the way my business is set up. So, it's like it's a net. It's not a benefit to me at all, to be honest with you. and that's why I say, like, what you're going to have is it's going to it's going to depending on how the legalization happens, that's what you're going to see. The winners and losers are, you know, and, you know, once, once, once California can come in and sell directly into Colorado.
Jake 00:49:32 You know, me manufacturing there makes no sense. You know, and if if that occurs and they say, hey, it's a free for all, you know, what I'm going to do? I'm going to shut down my businesses in two states, you know, and I'm going to have a central manufacturing facility, and then I'm going to have maybe satellite offices where I send product to there and sell into the into those markets. Right. So now the city of the, the town that I'm in in new Jersey, where I have to pay a 2% tax on my total revenue. That's gone right, because that's an added expense that I no longer have to pay now. So that city's going to lose out on all that money, all those employees that are not going to have jobs there anymore. Right. And I'm just going to bring all my labor into and into one place, probably where I can produce at the cheapest. Right. Where is that going to be? Probably not in any of the states that I'm operating in now.
Jake 00:50:15 It's probably going to be somewhere in the South where I can get cheap labor. Right. So I think it's an a change, a lot of things. and that's going to be the only way you can, you can actually have those economies of scale, you know, is, is, is by having that central manufacturing facility where you just do everything at one place. And so, I don't know, man, I mean, a lot of people are looking forward to it, but, I kind of look at it as I'm like, yeah, you're looking at you guys aren't thinking about all the waterfall effects are going to happen from what you want to happen. You know, you want all these states to be trading with each other. You don't realize how many people are going to lose their jobs, how many businesses are not going to exist anymore, you know, and how some of these marijuana industries aren't going to exist anymore. You're not going to have processors and growers in the state of Colorado anymore.
Jake 00:51:01 You're just not going to.
Brett 00:51:03 So this was a fantastic conversation. I really, I thoroughly enjoyed talking to you, Jake. so, this was awesome. Thanks for coming on. I really appreciate it.
Jake 00:51:16 You know, by no means. I don't know if I'm right about any of this stuff.
Brett 00:51:19 Absolutely.
Jake 00:51:20 And I'm just not one to sugarcoat it, either. So, I should tell you what I'm thinking. You know, and these are the kind of things that I consider in my head.
Brett 00:51:27 But you've been successful in what you've done, right? And so, there is, there is some, some weight behind that. Right. So, it's even if you're wrong, even the best of us is wrong all the time, right? I'm a big, huge fan of Gary Vaynerchuk. He's wrong more than anybody, but he's one of the most successful people in the country, right? so it's not about being right or wrong. It's kind of about how you pivot and how you adjust and what you do with that information to make, you know, different decisions or whatever next time.
Brett 00:51:59 So I won't hold you to it. You're on your predictions here. Yeah.
Jake 00:52:05 Yeah. It's eventually going to get to that level where we're trading back and forth. I think it's just about how long it is going to be, you know, or how many of us are still going to be, am I still going to be in the industry when that happens? Do I want to be in the industry when that happens? Yeah.
Guillermo 00:52:18 Yeah. Who knows. But the value is in running those scenarios, you know, seeing what it means for your business and how you can how you can get around and plan for all that. So, I completely agree with Brett. It's been a pleasure having you on our show. I think our listeners are going to benefit so much from what you've been able to share. And before we go, where can people find you? Where can retailers connect with you if they want to reach out to you and work with you?
Jake 00:52:48 Yeah.
Jake 00:52:48 Guys, we're in the middle of launching a new site for Loud Labs that's going to have all of our brands on it. If that's not up by the time these airs, that website is loud labs.co. In the meantime, you can get as you can find as that get tubes, get drawings, get pyramid. Those are all of our social media handles. and then you can email me directly at Jake at Loud Labs CEO that's Loud Labs CEO. Awesome.
Guillermo 00:53:16 It's been great having you. And I just want to thank everyone for joining us on the on the Cannabis Success Show. That's all we have for today.
Jake 00:53:24 Thanks for having me, guys. It was a great time talking with you all. Hopefully people gain something from some of my insights. So, thanks again.
Brett 00:53:31 I did. This was fantastic.
Jake 00:53:33 All right.
Jake 00:53:34 Thanks, guys. Thank you.
Outro 00:53:36 Enjoy this podcast. Visit our website Anders cpa.com/virtual CFO cannabis. To get more tips and strategy for achieving business success in the cannabis industry.