Cannabiz Media’s Co-Founder + Chief Data Officer, Ed Keating, leads a discussion with industry leaders, Brett Harris of @luvbudsco, Liesl Bernard of @cannabizteam + @kalonstaffing, Jacques Santucci of @opusconsulting, Kevin Hart of @green_check_verified, and Kaliko Castille of @thndrstrmstrat, on how they survived 2023 and what they plan for 2024, for the @CannabisChamberofCommerce's Leadership Series.

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Cannacurio Podcast Episode 60 Transcript

The Cannabis Chamber of Commerce: Good afternoon, everybody. Welcome to the Cannabis Chamber of Commerce's Leadership Series today, Managing Cannabis Businesses in 2024. We have a great panel lined up for you today, very excited about this, give you a lot of broad depth of perspective on what the industry has in store for this year, and how to potentially navigate that. We will go ahead and get started. And, Ed, thank you for lining up today's great panel. I will kick it over to you and let you take it away, sir. All right.

Ed Keating: Thanks very much, and we want to thank the Chamber of Commerce for the opportunity to get together and talk about the issues facing the industry as we look into 2024. As we're preparing for this, we all look back on 2023 and realized that, you know, it was a tough year that we're all glad to have behind us. You know, we saw shrinking workforce, the number of licenses declined, you know, businesses shrunk, sales plateaued, diminishing stock valuations. So now Let's look ahead to 2024 and certainly talking with the Chamber and my fellow speakers, you know, we do see some areas of hope and we want to, you know, try and focus on that as well. So, for example, could we be seeing the end of the bottom? So now we may be in a market with fewer competitors. Um, obviously the big topic is, are we going to see a de-scheduling? Um, And then once again, longer term, are we finally at a point where cannabis is kind of an attractive market? I mean, for a lot of us, we've been in the business for a long time now, and, you know, we used to put out ads for jobs and if it said cannabis in it, we'd get hundreds and hundreds of applicants. And, uh, I think that's changed, uh, in the coming year. So those are some of the things that we're looking at and I'm joined by, uh, a great set of panelists here. I'll just briefly give their name and title and business so that, uh, you know who they are. In alphabetical order, uh, Liesel Bernhard - CEO of CannabizTeam Executive Search and Staffing, Kaliko Castille - former President of the Minority Cannabis Business Association, and Co-founder and CEO of Thndrstrm Strategies, Brett Harris - CEO of Luvbuds, Kevin Hart - CEO of Greencheck, and Jacques Santucci - President of Opus Consulting. So, uh, all great folks with a lot of, uh, deep knowledge of the industry and all people that I've had the good luck of interviewing before. So I, I know really, there's a strong depth, of knowledge and background here. So to cover a topic as broad as 2024, uh, we want to put a little structure to it in evaluating any industry, I like to look at some of the big areas that really help you see trends. So these include economic trends, technology trends, socio-cultural and political-regulatory. So we're going to touch on a couple, a couple of these and really try and get a look for what is 2024 going to be like. So the first question I want to ask, and I'm going to throw this to Jacques and Kaliko because they are, uh, folks who've got clients. Um, is the industry, you know, really seeing a bottom and rebounding? You know, what, what have you guys seen? And what have you learned from your clients?

Jacques Santucci: Um, Ed thanks for having us. And uh, so Jacques here. Um, so I've been in the industry now for 12-13 years, spent the first probably 10 years looking at business planning and helping people start their companies. I'm advising them starting my own too, and I'm still doing it. But for the past couple of years, we've been actually focusing on turnarounds and, uh, distressed assets and the receivership of companies. And fortunately, I don't think we touched the bottom yet. I think the end, it's interesting, the industry is still growing, right The market is still growing. Most states are coming online. Health in general are growing, but the companies themselves are struggling. I'm sure we're going to talk about it, but there's a lot of reasons for this, uh, probably too many companies, uh, probably a lot of people who didn't do their, uh, financial planning, uh, properly, no wrong expectation and the, uh, areas of management. Um, and so they, now, you know, it's, it's catching up, right? So my, uh, market are maturing and, um, and it's becoming more difficult.

Ed Keating: Yeah. Jacques, how about you from your perspective?

Kaliko Castille: I would say I agree in some ways in that it's hard to say whether this is the bottom. I think like we have experienced a very large trough. I think it's been very hard for a lot, a lot of people. I'm out here on the West Coast, so I'm in Oregon, which is a mature marketplace. And I just actually had a friend of, I just went into, my local dispensary, I typically go into and just found out another edible company was closing up shop. One that had originally started when I was opening in the medical market back in 2014. So it was hard to say that we're hitting bottom because I know there are still people in some of these mature markets that are still trying to figure out, like Jock said, what to do with distressed assets and sort of how to, you know, Kind of maneuver and get out of the marketplace. But you know, I have clients who are now in New Jersey who are opening up in these newer marketplaces, right? So it's really hard sometimes in this industry to figure out what's bottom because it's bottom for some markets or other markets are growing, right? Cause we have this sort of, you know, this, um, patchwork of laws. Necessitates the situation. We're going to have some markets that are going through the boom and bus cycles at different times. So I do think that we have, we've gone very deep into the trough. I mean, it's hard to say whether it's the bottom, but I think that like for a lot of people, I think that they've had to at least readjust and learn to tighten belts and are at least adjusting to a new normal. Right. And I think that that’s kind of what we're trying to figure out is, um, without all the big headlines about the green rush. What does the regular, you know, typical marketplace look like? And I think that's kind of where we're getting to right now.

Ed Keating: Great point. It's sort of the, uh, you know, you're in the valley, but you don't know when you come up the other side. Now, Brett, what about for you? Because you, you sell, I think in virtually every state in, in, in the US and maybe beyond that, you know, is your business in, in terms of supplies and goods, is it a leading economic indicator or lagging, you know, hard to say?

Brett Harris: Um, I don't know, I don't know if it's an indicator. I mean, I'll say that, you know, we've been in the industry since the beginning of legalization in Colorado. Um, and we've seen all of these states, you know, uh, open and, uh, some of the states, you know, their legislative, uh, processes were done properly. Uh, some of them were a little bit strange. Uh, and, you know, everything, every market has got its cycle, you know, and we've, you know, obviously Colorado and Oregon and Washington have been through the cycle. But even now, I don't think we've seen the bottom just yet. You know, we're, we're seeing long-time customers that have been in business from, you know, from 10 to 8 years ago. Still now, um, in economic situations, a lot of it has to do with the poor tax plan 280E is still a major, uh, catastrophe, you know, to many of these companies, some have chose to ignore it. And I think. Uh, you're seeing the fallout there, but I mean, and, and, and then also the consolidation of the industry in general, like those people that recognize they were in trouble and should have got out, um, the MSO, the MSOs are started, they have either accumulated them or if they were unable, if they, um, misinterpreted their own valuation and did not get out in time. Those are the ones that are seeming to be finding themselves in difficulties.

Ed Keating: Yeah. Yeah. I agree as a MedMen stockholder. I think, you know, I'm pretty much down to zero. So, yeah, you touch on something that leads into the next year of sort of like M&A and consolidation. So I want to ask Kevin, you know, you're on the tech side with, with Green Check, uh, Fintech GreenTech. You bought some companies. What are you seeing out there in terms of M&A and assets that are available? Is it what we'd expect to see sort of as a market is shrinking, but hopefully poised for for more growth? I mean, what's your take?

Kevin Hart: Well, I agree with the other esteemed colleagues here. I don't think we're at the bottom yet unfortunately, I mean, I wish I think we'd all like to say that but I still think there's going to be some further shakeout. I think a lot of companies, uh, and whether you're direct plant touching or on the ancillary side, um, you know, got enough runway or a little mixture of kick a capital in Q4 to get them through Q1 based upon projections. Um, but I don't think a lot of those projections are going to shake out. So, um, on the, on the cannabis direct side, et cetera, based upon our visibility into how these accounts are banked, we see their sales trajectory by account for each and every one of them. And so we look at that and your colleague was right. Some of the some markets are better than others and some are struggling mightily. So, uh, and unfortunately you see a race to the bottom by putting each other out of business on price point pressure. Nobody's going to win. Um, and, you know, we've seen that historically, you know, from the West Coast, but now it's a much bigger market and it's kind of moved across. So optically, there's that challenge and that's going to transfer over into the ancillary space where we play on the tech side. We, we, uh, we acquired two companies in 2023. A very accretive and fair market price because we're buying tech companies. We're not, we're not subject to the crazy cannabis valuations and deal structures and stuff that went on. We're buying tech companies as a tech company. Uh, but 2024, we're not Just as I said, there's going to be opportunities coming out of Q1 going into Q2. I mean, our phone is already rung a couple of times. Hey, would you, what do you think about this or something? And, um, we're always looking, uh, but, you know, there's some of these companies that sadly, they need to go out of business. Uh, you know, I think, Brett, I don't want to put words in your mouth, but you as much intimated that and said that. I mean, some of them just need to go. They, they're, they're not going to survive.

Ed Keating: Yeah. Yeah. I remember I've quoted this often. There's a, the, the Economist magazine said that you know, a downturn is a way for the economy to shift resources where they're not needed to where they are needed. And, you know, obviously, there's pain and challenges there, but that is pretty much what, what, what happens. I think that is what we're going through. So, you know, we've touched on some of this with consolidation and, and, and distressed asset. We see it on the license side, just how there's definitely been declines in some areas. The most stark change we've seen has been in grow licenses, whereas three years ago, all the states together issued about, I think it was 9,100 new grow licenses. The next year, 2022, it was about 6,100 new grow licenses. Last year it was about 2,400. Because they're just too many. I mean, we, we, we've seen all the economic reports that show that we're producing way more cannabis than than can be consumed in a lot of markets. So, um, so definitely challenges on that consolidation side. One of the other areas I wanted to focus on sort of stick with the economic side is substitutes and complements. So, um, we see in like a state like Florida, there's about 640 licensed stores. However, there are 10,639 licensed CBD retailers. What the heck does that mean? Like, you know, how's a consumer to choose? And I'm, I'm just, I'm going to throw this out to anybody who wants to jump in, but you know, we'll look at licenses. I mean, especially Cannabiz Media. It's all we focus on, but to most people, a store is a store. And do they even know that? Do they even care? So I don't know if anybody wants to just opine on that, but 600 to 10,600, it's a wide chasm.

Jacques Santucci: I can start on this. Uh, so we advise our clients, we open stores and we'll talk about it a bit later, but we open stores for clients. And when we do our, uh, uh, planning, that's always what I say, you got to be different. A store is a store, you know, I'm not even sure it's a brand store, it means anything. So you gotta be, you gotta be different. And I always refer to Starbucks. Starbucks is successful because they are different compared to the local coffee shop, who is also different. But if everybody is like the local coffee shop, then you just want in a million.

Ed Keating: Right. That's a great point.

Kaliko Castille: Um, I'll just jump in real quick to say like I from a marketing standpoint, because I think about it from a marketer standpoint that there's just so much education that's going to be need to be done. Right. So like from a regular licensed retail, like adult use dispensary, you're going to do a lot of education for them. for your, your consumer, because most people have never kind of come into the regulated space before in the first place. So there's a lot of education that needs to be done there, but then when you're comparing it to all of these other options that are in less regulated situations, I think it just, it puts even more emphasis on the need for everybody in the cannabis industry to really double down on the need to educate the incoming consumers because most of them, yeah, a store is a store, but if they know better, they'll do better.Right. And so we do as an industry have to do some of that education.

Ed Keating: Yeah, great, great point.

Liesl Bernard: Yeah. And who knows the difference between a legal store and an illegal store. You know, I think we're seeing that in a lot of states. And I think that's where a lot of education needs to happen to. It's just for safety as well. Um, you know, and I think that's, there's a huge, you know, huge burden there as well, or opportunity if you want to see it that way.

Ed Keating: Yeah, I think you're right. Because I know in Connecticut, some of you have heard me say this, it's pretty often that a vape store gets shut down for selling cannabis. What they never say in those press releases is that all those vape stores have a license from the regulator to sell vapes. Now they're not supposed to sell cannabis, vapes, tobacco, but time and time again, and we see it in a lot of states. Um, so, you know, definitely this, this issue, I think that, uh, as several of you pointed out. It's a it's an opportunity, but it's also a big challenge to figure out a way to stand out.

Kevin Hart: I think it creates a huge problem, though. And, you know, I live here in Florida, so I get to drive by and and see this all the time. And it's just a quick anecdote because Jacques brought up, you know, a great point when he talks about Starbucks, you know, in Florida, we have everybody's got grocery stores. We have Publix. You walk into any grocery store, no matter which state you're in, you're going to see between SKUs in the footprint of a major grocery store. If we all can go with the consensus that an average, uh, retail establishment is about the size of a Starbucks, maybe a little bigger, some smaller, but that's somewhat the average. So far this year, through, you know, all the transactions that we've monitored, we've identified over 2. 9 million SKUs. Okay? That is asinine. That's insane. Because you're asking consumers that know what to buy in a grocery store, when you go into any of these other CBD shops, What am I buying? Why am I buying it? Where did this come from? It was just tested, but I, you know, they don't know anything. You can't throw 2.9million choices at consumers. It's not. That's the supply chain problem. It's that economic ripple that that's more like a tsunami because these brands and all these other people are competing and just crushing each other.

Ed Keating: Yeah, no, no, they forgot to read the behavioral economics book about the paradox of choice like, you know, you don't need 500 of anything, right? So, uh, so, um, the sticking with the economic theme, you know, land, labor and capital are things that people look at when they evaluate business. And, uh, I wanted to talk to Liesl about the labor portion because it is a big portion of all of our expenses. And when, when we last, uh, talked about this, Uh, Liesl through, uh, the report that they generate was showing that a lot of companies in our space are moving toward fractional talent and gig hiring, and I'm curious, you know, that was true in 2023. Is it still going on and what do you see happening in 2024 Liesl?

Liesl Bernard: Absolutely. Yeah, I think in, in, you know, especially where the industry is right now, everyone is super tight on cash and labor is a huge expense for these companies. And yet they have to continue harvesting and manufacturing and distributing and running retail stores. Um, but because of 280E, they can't deduct their cost of business, right? And that includes payroll. Um, and as things tighten, continue to tighten in the market, not more investment coming in cashflow being tight. A lot of clients are moving, or a lot of the companies in the space, um, are moving to fractional executives. So you can have access to a CFO at a fractional of the cost. You know, some of these companies are still startup and they don't need a full time. CFO, CMO, or, or legal person. So fractional has become a trend where you can get access to executives, uh, for one or two days a week, or a few days a month, definitely a smarter way to staff. We're seeing this in other industries too, but especially in cannabis where, uh, resources and cash are tight right now. That's the, sort of the trend that we're seeing in this as also temp staffing. Right. So you can scale up or down as your production or cultivation needs, um, demand. Um, yeah, and I'm really excited to see what, how things are going to change. Hopefully when rescheduling happens this year, um, and I think a new influx of cash coming into the industry.

Ed Keating: Yeah. Uh, and, and I was gonna say, that's a great segue, cause I do want to move to sort of what's happening now, you know, economically from what I've heard from all of you is sort of. We're in the bottom. We're probably not at the end. You know, cash is tight and there's still challenges as we look ahead to 2024. But, you know, Liesl touched on probably one of the biggest things that people wonder about, which is what happens if there's a change in how cannabis is scheduled and what impact will that have? And while we all know that it's tough to have hope as a strategy, I think there's a lot of pent up Demand on, you know, hoping that, that, that, that, that's going to happen. Um, so, you know, if, if we did have de-scheduling and elimination of, of 280E, you know, how might that affect some of our businesses? You know, like Brett, does it have any impact for you or is it more your clients? Like, well, suddenly they have more cash to be able to buy more goods from you or more services from, from our consultants or more software from Kevin.

Brett Harris: Yeah, I think I, first of all, uh, I think I've learned being in this industry to sort of not hope, uh, sort of deal, deal with what it is. Uh, you know, obviously, you know, I mean, it doesn't matter what side of the aisle you support, uh, there have been promises made, none of them have been kept. You know, not only is 280E very, very difficult to maneuver for a retail cannabis company. Uh, obviously the, the schedule, the de-scheduling would be key, but you know, there's other factors like the Safe Banking Act, I think is one of the key components that we've been waiting for and might've had passed as we had a speaker of the house and award didn't break out right at the same time. So, uh, you know, I mean, uh, hoping for those things. Uh, is, uh, is nice, but you know, we've ran our company based on the way this is the way it is, and you've got to stay tight and get through what's going on. I think that it's a matter of time that 280E is thrown out. Um, and you know, and one of the reasons that I started LuvBuds was to sell accessories in dispensaries was because of 280E, because. Actually, a percentage of their revenue is not cannabis. They actually can write off those things. So not only does it help their business, but it also is a tax deduction. So, uh, you know, I still assume that, uh, 280E were to find its way out of our lives, that it would improve everyone's business and, you know, and then, and then couple all of these things along with, you know, interest rates and the difficulty that these companies have in borrowing. So the Safe Banking Act and 280E, these things all play together. At some point, I believe these things will find their way out, and I think that there will be a massive boom because these companies have been working under really, really tight constraints during all of these, uh, really restricted legislative processes, but, uh, you know, I don't expect them to change, but we certainly would welcome them, and I believe that would be a boom for the industry in general when they do.

Ed Keating: That's a great point. It makes me think of the Rocky movie where didn't he have his hand tied behind his back for a while to train and then suddenly, like, you know, he came back full floor. So, uh, Kaliko, what about you? Cause I mean, you, you've been to many lobby days, you're on the trade association side of things and you have a long history of advocacy. You're perhaps closest to this in terms of how the you know, the legislative, you know, sausages made, as they say, like, you know, what do you think is going to happen? And what impact will it have? And will that impact be equally felt across all participants?

Kaliko Castille: Yeah, I appreciate the question. I think, um, I think, like everyone is saying, we all are Massively awaiting and eagerly awaiting the fall of 280E. Um, I think I've been working on that issue now for basically like seven or eight years. Um, so I do believe that like, that is something that we should obviously see fall. I don't know what we can think about in terms of the timing of de scheduling, right? Like there's some people that think it's going to come any day. Some have said it's going to come. before the State of the Union on March 7th.

Ed Keating: Uh, 4/20.

Kaliko Castille: Yeah, 4/20. There's all these things that people are throwing out. But I saw, uh, today Shane Pennington, who's one of the, you know, lawyers who writes a lot about this, this issue had said that the average change for the DEA to move for a reschedule is nine years. Right. So like, I think it's really important sometimes as the cannabis industry, when we're talking about the political process to compare it to what that political process has been for other industries or other situations, right? The Trump Tax Cut that passed in 2017, 2018, uh, had a big tax cut in there for the alcohol industry that was thought to be similar to about the amount that 280E would be for the cannabis industry. It costs the alcohol industry 300million and over 20 years of lobbying to get that down. Right. And so I think sometimes, especially as we're talking about the macro sort of like growth of our industry for a long time, we've been making bets that were not, um, in congruence with the amount of money our industry is actually investing in advocacy, right? I'm a jaded, happy warrior who spent a lot of time in advocacy organizations. And frankly, a lot of people are not actually donating or contributing to those. Obviously, we're here at the Cannabis Chamber of Commerce. This is not the problem group here. But there are a lot of people who are not actually investing in the advocacy that we need to see to get these things to fall, right? So I think we have a lot of business goals, but sometimes the advocacy is not lining up with that. And in order for us to see things like 280E fall, to see de-scheduling and these things to happen, we still need to close that gap in between the things that we want as an industry and the stuff we're willing to actually invest in.

Ed Keating: Very good. Very good. Kevin and I were down in Miami a couple weeks ago and at the CannaDataCon Conference and they had speakers who had come from the tobacco industry and they talked about what life is like under federal regulation and the challenges and they say, you know, the lobby team would come back and say, yeah, Brett, we got it done. You know, we think it's going to go this way. The taxes are going to be this. And then the regulators will come out and be like, yeah, the tax is going up. And, you know, pretty much everything that was not promised, just it didn't work out because the regulators really have all the control. So I think that there are lessons to be learned, Kaliko of, of, you know, how other industries have had to deal with this. So, um,

Kaliko Castille: all I would say is strap it in and hang on, because like I said earlier, like hoping it's not going to work. And like, there's a good chance that nothing happens this year, right? We're in election year. There's no incentive for Congress to actually get anything done and to work together. Like I had said this on an op-ed last year that like, if we didn't get safe banking done before all this stuff had blown up, that was probably the last chance we saw to get anything really passed at the federal level for at least another presidential administration. So like we need to continue to invest in the advocacy, but from business planning perspective. Don't count

Ed Keating: Got it. Now, you know, looking at other parts of the regulated arena, Jacques, I wanted to ask you what's happening in the one of the areas that you're kind of a expert in our specialist, which is tribal. Like, how does that factor in? Like, we see in states like Minnesota, where it gets passed and they're the first ones to open up like, okay, we can do adult. We're in there. It happened in New York too, where as soon as they open it, you know, the, the, the tribes, you were able to race in because they're their own sovereign nation. What do you see happening there? And I don't know if there are lessons that we can take from that or if it's just, they're another choice for people.

Jacques Santucci: Well, I think both. Uh, so yeah, we've been working with, uh, uh, Native American tribes for five-six years now. Done a lot of feasibility study. We actually opened, you were just mentioning New York. We actually opened a store for the Seneca Nation and we're building a cultivation production facility. And what's interesting is they have a lot of advantages for them, right? They have, most of them have sovereignty. I think 14 or 15 states right now have cannabis stores owned by a tribal organization. Okay. And it gives them a lot of opportunities that they, most of them are not subject to a 280E or any taxes. They own their land. Uh, if they have some sovereignty that allows them to have their own program, they can actually, uh, uh, making, you know, make it some of the regulation, uh, a little bit better. Uh, so I think it opens a lot of doors for, uh, better product, different, uh, different type of stores and also a different economic, uh, um, framework.

Ed Keating: Yeah. Interesting.

Jacques Santucci: I think we're going to see more, we're going to see more and more tribes, like you just said, Minnesota, right? There's, uh, there's going to be a lot of tribes that have, um, uh, funds available. And they are not there to sell, they're not there for economic development. So for them, it's creating jobs, uh, bring, um, bring, uh, funds to their community. So they're there for the long run.

Ed Keating: Yeah. Interesting. So, uh, you know, other regulations. Come from the States. I mean, that, that, that's why so many of us are so busy because every state is its own sovereign nation when it comes to cannabis regulation. And I was just curious, you know, especially for, uh, Brett, Liesl and Kevin, where, you know, you're operating or have people operating in different states, you know, how do you manage? Managing all that regulation, how do you stay on top of it? Like, you know, I'm thinking of, you know, workplace rules for, for labor or, you know, Kevin, you're a lot of your, your software is predicated on different rule, different states. How do we manage that? So, you know, how are you staying on top of that? And, and, uh, and what's that process like for, for all of you?

Kevin Hart: Well, Liesl has to go first.

Liesl Bernard: Okay. I'll go first. Um, well, we place temporary talent, uh, across the U. S. for different companies in the cannabis industry and, you know, badging, uh, is a, is a different sort of animal in every state. So we have to comply with all the different badging requirements, which in some states is a very quick process, you know, just a background check, and they can start working in another state that takes up to, you know, months, sometimes even longer to go through the requirements that the state have to get, get someone working, you know, in the cannabis industry. So, I think de-scheduling and, you know, taking away sort of the individual state requirements will really make labor a much easier process. Um, you know, and obviously with rescheduling as well and 280E going away, um, will, will have, you know, companies will be able to deduct their payroll costs. And, um, I think that'll be a huge boost for the labor market in the cannabis industry.

Ed Keating: So, but do you think the states, do you think some of those states regulations will go away? I mean, I think a lot of times when regulators levy power, they don't like to unlevy it. So, you know, yeah,

Liesl Bernard: that's, yeah, we'll have to see, right. We'll have to see how that goes. But, you know, I think maybe if de-scheduling happens and I'm open to other people's opinions here, but interstate, uh, commerce will likely start happening. And I think with that, you know, some of these states will have to. Uh, probably, um, lower their badging requirements, et cetera, because the product is going across state borders that will be much harder to, you know, enforce that. So we'll see how that all plays out. But, you know, it's a nightmare right now with every state having their own requirements and having educational requirements to work, et cetera. Um, And, uh, you know, we've got four states that are, uh, looking to go legal this year, right? So four states, including, uh, I think it's Florida, Idaho, um, Nebraska and South Dakota are voting, um, for legalization. So, you know, that's going to be new markets, a lot of growth and a lot of hiring. Um, so it'd be interesting year this year.

Ed Keating: You're a great point about the interstate cause you're right. Cause then suddenly the barriers are down. I had thought that, uh, thought that, but you're right. Cause then the badges, the badges leaving the state too. Uh, Brett, how about for you on the packaging side? I know when I was at MJ biz, somebody came up to one of my client, uh, one of my colleagues, and I think they were in the, uh, The printing business where somebody asked them, well, will you print up these counterfeit labels for California stuff? And the guy said, hell no. The guy said, well, I got somebody in China who'll do it. And I'm like, well, great. You know, we're not going to do it. So I mean, there's packaging and other requirements. Is that a big part of your business? And is it hard complying with States or are you able to, you know, make products that are, are easy to move across borders?

Brett Harris: Yeah, so one of the reasons I got in this part of the business is because I really tried my best to stay unregulated. Uh, um, uh, that's changing slightly, but you know, listen, first of all, every state has their own rules, right? So there are certain, um, electronic products, for instance, that you can sell in every state that you can't sell in Florida, or maybe you have to go through an approval process. Uh, we, we, we, I've had a very interesting seat, uh, watching this industry grow. Cause. Uh, you know, a state will go legal and I'll see you kind of watch the rollout and watch the fodder, uh, you know, I remember early on California legislators, you know, contacting me and asking me what we thought about the rules. And I'm like, guys, we have several models that are ready to start in Colorado, Oregon, Washington. All three of them did it differently. I think that it's fair to say that Colorado really did the best as far as evening out the number of grows, the number of retailers, um, at least early on. It really looked like that was a great model. And my suggestion to the legislators who really, they really substantiate their own existence by creating new rules and complicating things. Uh, you know, I said, don't rewrite it, you know, improve the ones that already exist. But that fell on deaf ears and every state created their own rules. Uh, and, you know, listen, I mean, you see like an example of Oklahoma who just, you know, issued far too many retail licenses. I think everybody would agree that that's the case. Um, uh, and, you know, now you're seeing the fallout of that. Too many people that really should not have had business licenses should not have been in business. Uh losing their businesses and also because it's federally illegal to you can't file bankruptcy if you're a cannabis related entity.

Ed Keating: Right

Brett Harris: So that debt follows you the rest of your life at least until something changes. So, um, uh There's some states that do it very right. There's some states that have done it horribly wrong. I mean i'm afraid that california's, uh Policies are making it really really restrictive and difficult for companies to succeed Thank you The tax, the taxes are just too high and not to mention the fact that haven't done a good enough job of cracking down on legal operators. And the same thing with New York. I mean, you can buy cannabis and nearly every bodega on every corner. So there are issues around and eventually there will be a come to Jesus and there will be some organization of best practices in all these states, hopefully. Uh, and, uh, I'll be here to watch, I'll be here waiting for you to do that.

Ed Keating: Hey, Kevin, how about for you? Because, I mean, you know, a lot of the backbone of your business is, is sort of this, you know, regulatory information, rules and regs, and we know they change and whatnot. You know, how, how do you keep track of it? And, and, who are you keeping an eye on in terms of states?

Kevin Hart: Well, we have a team of nerds and I can say that because I'm a nerd, but all they do is compliance and regulations and, and, and you know them and we rely on you and your services to to help us with that. But that's the whole premise and how we started. I wasn't as smart as Brett. I went to the, I went to how can we make this as hard as possible and how we're supposed to do it. To look at all the rules and regulations, because I thought that was going to be the best opportunity. I still believe so. But you look at states and you have city, county, and state level, um, and they're changing all the time. And when it goes from medical to a mixed-use market, you have those challenges. And then we have the indirect and we talked about Florida that's happening all over the place. But for financial institutions, at the end of the day, their challenge is how they know they're letting good money in and keeping the bad money out. And that means what was sold, who was it sold to, how much was sold, how is it paid for, how often did that person buy it, blah, blah, blah, blah, blah. And so that's, that is our compliance rules engine and that's why we've been able to scale and we stay on top of it. And, you know, the interstate conversation came up, um, you know, when that happens, a lot of, uh, existing programs that are out there, that have banking services today. Um, those programs are going to fall apart because they're not going to be able to accommodate this. I think the one thing, one of the things that we all can agree on or, and maybe not, but when Washington does finally do something, it will not happen in 2024. I'll put money on that, I’m taking bets on the side. Please call me. Um, uh, nothing's going to happen in 2024, but there's going to be more rules and regulations not less more And the one of the big things that is in every bill every act every conversation Washington is the excise tax and so now we're going to have Washington And all the states fighting over the same pool of money. And we've seen time and time again, as you introduce that tax, the market or the legal market shrinks, and the illegal market bubbles up, etc. So now you start adding interstate and international commerce is going to come into play. There's going to be more regulations. It's going to be a mess. It's going to cause a real shitstorm. Sorry, you can edit that. But that is what it's going to be. And so it's what are those tipping points that are going to happen. So, um, and that candidly excites me. Because, you know, the opportunity to make sure that it's done the right way for the people who are trying to run compliant businesses is, is enticing. And it’s important.

Ed Keating: Yeah, it's a complex problem to solve. When I got out of college, I worked for a big tax publisher and that kind of stuff, you know, definitely got the tax nerds excited because it's complex and it's important and there's money at stake. So, definitely. Jacques?

Jacques Santucci: If I can add a word, yeah, I agree with Kevin, you know, from, from a, um, political standpoint, I guess, you know, I agree that, you know, any form of legalization will be good. But, um, and I agree that, uh, 280E is not fair and I've been dealing with it. On the other side, it's a devil we know. And I think, uh, it won't happen in 2024. I'm on your side, Kevin, but I think, uh, what could come next could be even worse than to, uh, to eat. I mean, of course, different, but that means a lot more competition, a lot more people coming in. The cost of the price is going to come down, and I don't think companies are set up to accept the changes. I mean, most companies, they barely have books. They don't know the cost of their, their, uh, production. And, uh, I think, um, it's be careful what we wish for.

Kevin Hart: Mhmm.

Ed Keating: Yeah it’s great. Great point in looking across the states. Which is something that I think a lot of us have to do. It's interesting to see some of these things that are on the horizon. Some of my favorite oddball examples to put out there are, you know, Georgia decided it would be fun to vend cannabis through pharmacies, independent pharmacies. So CVS and Walgreens just watching the independents are good to vend that. And then in New Hampshire, we have this notion of the possibility of selling through state stores. So, so to Brett's point, like, hey, Colorado did it pretty well. And then other states are like, yeah, well, let's try something totally different. So I'm curious from any of your perspectives, uh, you know, are there states that you think are doing it well, or ones, you know, besides California that we talked about that really have a long journey ahead to get it right?

Kevin Hart: I think Connecticut did a good job. With their program. Now, some you could argue is too slow, took too long, et cetera. This is not about speed, you know, as we, as we know, you can always buy weed. If we, if anybody of us wanted, we could hang up and, you know, have stuff in our pocket inside the 10 minutes. Um, but, you know, in, in the compliant landscape, I think Connecticut, uh, did something interesting. It's a little-known fact, possibly little-known. Um, when they started the program, they moved it to schedule two, right out of the gate and they put it in the PMP program that happened years ago from the very beginning. And Washington said, you can't do that. And Connecticut said, show me where. And they couldn't. So that's why it's on the PMP program. And it's been, it's been so well run and from a growth perspective. So, you know, and then there are some of the other states that are mentioned that are, you know, hold on.

Ed Keating: Kaliko, how about you? I mean, you, you, you, you, you, you've seen this, uh, this. Big giant country and things that have gone right and not gone right. What do you think?

Kaliko Castille: I just don't think like there's a get it right. And under the scenario in which we're working with, right. Like in a, in a broken fragmented marketplace where we don't have a national marketplace, like we're fighting up against the laws of economics and the pressures of supply and demand that like we are tweaking an industry in a way that it doesn't need to be tweaked. And we're doing it constantly. And I think in a situation where we have federal de-scheduling, we have interstate commerce, like open up, there's going to be a period of time where that is a bloodbath. And a lot of things are going to get shook out in that time. But on the other side of that is going to be a much more, um, balanced marketplace, because it's going to be actually truly. Dependent on true laws of supply and demand right now we are tweaking marketplaces and putting our thumbs on scales in a way that it's hard to say that any one state's getting it right from a social equity perspective, which is where I spent the last like five or six years doing advocacy on with MCBA. I know people don't like to hear this. I think New York did the right thing. New York put their money where their mouth is. They said, we want to have an equitable marketplace. And to the point earlier about slow doesn't necessarily mean bad. They have taken their time to do exactly what they said they were going to do, which is set up an equitable marketplace, which means they held out the largest players who had been medical operators there for years because giving people access to Uh, medical marketplaces, just immense and inequitable medical marketplace. So like, that's one of the examples I put out there as a counterexample. A lot of other people that would say New York's a shit show and a disaster that nobody should ever try to implement. What I give them credit for is they are doing what they said they wanted to do, which is create an equitable marketplace, and they are making people make the sacrifices that are necessary to get to that place and sometimes I think in this industry when we're all here to make money on understandably, we forget that that doesn't have to always go in front of the other part. That is tied into all of this, which is it comes from a very racially motivated history, and the reason why we're all sitting here is because it was made illegal, largely on the back of racism, right? And so we have a once-in-a-lifetime opportunity to set up a marketplace in a way to make sure that those people are no longer being negatively impacted, and arguably are disproportionately benefiting from a legal marketplace. So I would just throw New York out there as a counterexample to a lot of other people that they're doing what they said they were going to do, even though that's a very hard thing. And there's a lot of complications to get them getting,

Ed Keating: You bring up a provocative point. It makes me think of sort of the industry that I'm in information, publishing software, where we talk about, how you need to be timely, accurate, and comprehensive. Accurate always has to come first. Being timely and wrong sucks. Nobody's happy that they got the information and then it's wrong. So, you know, I think sometimes patience is hard. I think Where there's, there may be some interesting challenges with the social equity side is with interstate commerce coming or some type of federalization coming. There's been academic papers written on this. It says, what happens to all those carefully crafted programs who are describing, like, we're going to assign these licenses to here, these licenses to here. But if suddenly it's a race to the bottom to grow cheap weed in Texas, because they have lots of sunshine, just ship it all over. All those carefully crafted things, uh, will probably blow apart, even though states will try and regulate it. So I think it's, it's still going to continue to be very challenging as, as, as, uh, the nation figures out sort of what to do next.

Kaliko Castille: Definitely take thoughtful collaboration for people to figure out what does the true end game look like for our industry, right? And how do we make sure that We lift as many boats with the tide as possible. Um, because we are only going to get one shot at this. As we talked earlier, we're not going to roll back regulations. We're only going to add to them in the future. We're not going to be able to roll back and undo whatever it is that we do here in this end game. So we get one shot at it and we need to put our best foot forward.

Ed Keating: Yeah, huh. So, uh, we've touched a little bit on interstate commerce, which I think to me is perhaps maybe one of the last things that happens, I just don't see that happening easily, but I do wonder if some of the states. Are just going to get so frustrated and and and and may take a go at it uh, there have been a lot of articles here in the last couple weeks in the northeast because Connecticut apparently where I live, and where Kevin spends part of the year doesn't have enough cannabis. There's only Four and a half, maybe supposed to be six growers here, but it's still really four and and two small ones. I think New York has an oversupply of cannabis and you know, they're talking about destroying crops. So everybody wrote these articles like, well, look at this. You know, we got this problem here with supply and demand. Um, you know, do you think anybody's going to try and experiment with, uh, with interstate commerce or they know that the feds would probably step in and slap them down for that? Yeah.

Kaliko Castille: I think you're going to see states jump out ahead of the feds because the feds are not going to move for comprehensive reform anytime soon.

And I think that whether you've seen Washington, Oregon, Colorado passing these bills to say that they can open up stuff to interstate commerce, I know there's efforts to try to get their, their attorney generals to be asking the DOJ what they would do if they were to move forward. With some of those steps, I think those efforts are well underway and are more likely to happen before federal prohibition ends. One of the things from a social equity perspective I would put in there, because this is what I've brought up in these discussions is I think that you're going to have to have a period of time where those interstate commerce import-export licenses are specifically going to social equity businesses, and they can partner with larger entities who can do the scale of distribution and that sort of stuff. But I think the way that you maintain putting your thumb on the scale so the social equity programs are not decimated as you give those folks first dibs to be able to do the import-export. Because on the East Coast, it was mostly black and brown folks who were getting imported weed from the West Coast and distributed it on the East Coast. So those folks should have the ability to get same situation, weed from the West Coast, and distributed to their folks on the East Coast. On the West Coast, we got a lot of growers who were getting arrested, some white, some black and brown who were already getting arrested for exporting over state lines. So I think those people who have been caught up in those systems for having a traditional economic system should not should be the ones that get to benefit from that, that interstate commerce marketplace. And I think that's, that's going to be the key to making sure that it's not just the largest entities that dominate and we're not just seeing, you know, Philip Reynolds and these others come in and take over.

Ed Keating: Yeah. So, you know, we've talked about what's going on economically, the political regulatory front sounds like a “cluster”, if you will, where on the state and the federal level and hope is not going to be the strategy for us. So, as we turn toward, you know, what's happening from like a sociocultural perspective, uh, you know, Liesl touched on it before where, you know, there's more states that are likely to come on board. I mean, we've really, we're well past the tipping point. And, and, you know, recent studies show that more youths are likely to smoke cannabis, than tobacco. What do we see that doing if we actually, you know, add all the states on, like socioculturally, we've got such a high percentage of the population now that can consume, you know, how does that help the cause, if you will, in, in, in moving us forward and growing the industry and, and hopefully, you know, growing it and raising the tide for everyone. You know, is that enough? I guess if more states come on, it seems to be happening.

Kevin Hart: I think it's been proven out as more states come on and, you know, they, they, uh, keep a very, um, focused eye on making sure that it's as equitable as possible. And it's never going to be perfect as we all pointed out and talked about, but as states make more efforts in and around those programs, Um, that should continue to help. Um, I haven't read up on the states are coming on board that or that are looking to change it. That Liesl talked about it, South Dakota. I think that's a dead one just politically anyways. But, you know, who knows? Been wrong before. But as long as, you know, more, more efforts are being made to make sure that that can happen, I think it will continue to improve, but it's like everything else we're talking about. It's going to take time. It's going to keep people just pushing on this.

Ed Keating: Yeah. Well, I'm just thinking like, uh, some of the, uh, I think I can't remember, it was the senators that asked, uh, the regulators, like, We want an update on how you're proceeding on this. They got no answer. I think it's supposed to come by February 12th. We want to hear, and they, they heard crickets. So, uh, I, I think the federal regulators are gonna, are gonna move at their, at their own, uh, pace in terms of, you know, how this, how this plays out. But, uh, with this broad proliferation, as we talked about earlier with so many places to buy cannabis now, whether it be smoke shops, licensed cannabis, uh, retailers, or CBD, I think that it's just becoming so much more pervasive and, um, you know, just a bigger part of our, our, our, our culture and, you know, what we talk about. So…

Kaliko Castille: I think it's just real quick. I think it's really important that like, when we're thinking about cannabis, that we're not only talking about the adult-use recreational marketplace, right? Because we're talking socio-economic, like we're also one part of the democratization of medicine. Right. Like cannabis is part of a broader movement of being able for people to be closer to things that are helping them for whatever ails them, whether it's using tinctures or, or, um, edibles or, you know, topicals, those sorts of things. So I think it's also really important that as we're talking about, like, can this potentially have negative effects on the socio-economic part of the country? I think there's a lot of aspects that like, don't get covered a lot in the industry because it's. Part of this like previous era of cannabis, where we were focused on medical marijuana. But I think the future is actually going to be a lot of the growth is going to come from people who are discovering that as it is something that actually gets them closer to where they're trying to be.

Brett Harris: Yeah I don't, I'm sorry. I don't think anybody here would disagree that, you know, keeping cannabis out of the hands of children is a very good idea. I think that everyone agrees on that. But also, you know, I mean, we're looking at potentially a generation where alcoholism is dramatically reduced. Lung cancer is dramatically reduced. I mean, you know, there are many, many benefits to this shift. Um, and, uh, and, and, you know, listen, I mean, there are, there are other six that are now are starting to be significant studies on this, you know, the helping of PTSD and anxiety and sleeping. So, I mean, you know, you know, this whole new world - cellphones and lack of attention and you know, you know, cannabis does, does may, may, you know, we may wind up at the end of the day where cannabis comes to the rescue and does resolve a lot of problems and prevent an entire generation from cirrhosis and alcohol diseases and domestic violence. I mean, listen, I, you know, I mean, as badly as none of us want this, I mean, I think we'd all agree with rather be on the highway with some, with 10 people that were high than 10 people that were drunk, you know what I mean? That's going to happen. Uh, high people tend to be awfully careful where drunk people tend to be a little bit reckless, you know I mean, there's a lot less bar fights and there's all you know, the streets, uh in some cities are far safer So and you know, I mean it's uh, you know, six one half dozen the other I mean there are there are positives, uh, and there and I think it's important that the industry make the you know, the common person that maybe has not exposed to cannabis that still sees it as being taboo aware of these possibilities

Ed Keating: That's a great, that's a great point. I mean, you really hit on a lot of key elements there. Um, one of the last topics I want to hit on and, and, you know, Matthew, let us know if there are any questions that we need to answer, but I wanted to just touch a little bit on technology, like what's happening in, in, in that front. And it's sort of a broad topic, but you know, one area I guess would be sort of the technology of grow. Like we've all been reading about how. The THC percentage that people are able to coax out of plants and out of hemp and whatnot has gotten quite high and there's a lot of machinations around that. What do we see as some of the positive technological developments or ones we should at least keep an eye on as we look to 2024? Maybe these are some of the other bright spots that we started with at the top of the hour.

Kevin Hart: Well, I would say there's a lot of great data analysis companies that are popping up and coming around. Especially around, um, supply chain, demand, demand planning, open order, et cetera. So, whether or not the numbers are all factually correct, I'll go back to, you know, the, the fact that there's too many SKUs out there, 2.9million. If you look at an average retail establishment, they're over 20 percent inventory on average because they're getting 5 percent discount and but their, their cost of funds is 15 percent because they're borrowing, you know, doing merchant cash advance. So that's upside down. And they're not aware of it. And if you look at MJBizCon, it says 65% of those businesses aren't profitable. If you just start controlling your inventory, you're open to order your plan planning, et cetera, and you take that from 20% down to 10% excess inventory, that's 65% non-profitable business goes to 40%. It doubles. Okay.

Jacques Santucci: I agree.

That swing and that availability of data. And making it actionable. The last thing this industry needs, sorry, is more reports. Okay. No disrespect that I'm not talking about you, Ed. They don't need more reports. They don't need a chart and go, I have 20 percent too much inventory. They need action. They need to understand what has to happen and how they actually affect that. And that is what's encouraging. I think, you know, that's why I mentioned CannaDataCon. I think that was one of the cool things that I think the industry is going to see.

Ed Keating: Yeah, they basically, you know, one of the things I remember most of that was inventory is debt. Like you're just carrying that around and, and, and, and if you don't know that you've got some problems.

Kevin Hart: Expensive debt.

Brett Harris: Listen, listen, it's not quite, listen, cannabis is, the level of sophistication is now growing, right? You've got these chains that have got a hundred-plus stores. They're now hiring buyers that come from, you know, from real retail. You know, we're talking about planogramming. We're talking about, you know, uh, uh, you know, projections and things like that. And, and, you know, I mean, you know, for a company like mine, that's supplying so many stores and trying to set SKUs. Yeah. Um, you know, just getting a physical inventory report on a regular basis or connecting to their POS system so I can grab their data so I can see what their sell throughs are so that we can plan our inventory. That is starting to happen very, very slowly, but it's one of the things that we've been pushing very, very hard for. Maybe, uh, maybe Kevin, we can talk about that after this, uh, after this discussion.

Jacques Santucci: Ed, you were talking about technology, I think we're talking about technology. I think what we're talking about is the technology needs the companies to get back to basic - Business Basics 101. I think there's a lot of things that other industries have been doing for years and technology has helped them. And the cannabis industry is behind, you know, Kevin is a big part of it. You are a big part of it, Ed, but you know, Uh, supply chain, cost of goods, you know, accounting. So many companies don't have good books. They don't, it's all, I think the technology is coming now and that's going to help, uh, get the, the industry much on a much, much better foot.

Ed Keating: Well, one of the best takeaways I had from that conference that, uh, Kevin and I were at was talking to a guy who had worked in a lot of different industries and he said to me, this is the last day, you know, outside -  retail is retail is retail, and people are finally starting to understand, like the data that works in other retail areas probably works in cannabis. We don't need to reinvent the wheel. So, um, since we're getting to, you know, the end, I want to just do a, uh, one rapid-fire question as we sort of, uh, um, you know, wrap things up. I mean, we covered a lot of ground today in terms of, you know, the economics definitely still tough, but, you know, hopefully looking better, the political environment, sort of who knows because a lot of it is based on hope what the federal regulation is going to do on the sociocultural side. It looks like things are definitely heading up as more states come on board and more people get used to it. More education and, and, and, and, um, and, and, and to Brett's point. sort of like this whole notion of, you know, my words, plant-based medicine is just getting to be better understood and, and, and welcomed. Um, and certainly on the technology front, having more data is going to make us a better industry. So the last question I want to ask everybody is, will we see de-scheduling in 2024 or 2025? So, uh, I'm going to start with you, Jacques, 2024, 2025, or not at all.

Jacques Santucci: I think it's past 2025. Wow.

Ed Keating: All right. Kaliko. How about you?

Kaliko Castille: If you're saying de-scheduling, I don't think de-scheduling is going to happen for probably 10 more years.

Ed Keating: All right.

Kaliko Castille: One thing I wanna say real quickly is people should be trying to get AI built into their, into their businesses. And that's one of the things I've been trying to help people with, like a lot of efficiencies in being able to have AI be part of your, your sort of business as well. Now kick it around.

Ed Keating: Kevin, how about you? When, when, when might re-scheduling happen?

Kevin Hart: Well, that's a different question. Now you change, you change it. So certainly not going to happen in 2024. And it's dubious in 2025.

Ed Keating: Okay. How about you, Liesl?

Liesl Bernard: Gosh, that's, uh, you know, we're all looking, uh, all guessing here. I'm hoping it'll be 2024, but I also am very hesitant to, uh, to bet on that. Um, but I'm hopeful.

Ed Keating: All right. Well, Brett, I'm going to give you the last word because, uh, you had some thoughtful points whenever we spoke and it sort of closed things out. So.

Brett Harris: I personally, I put no weight behind any legislator. I just, I don't, I just don't, I'm not waiting for politicians for my business. Uh, I think that that's probably wise advice. Don't wait for it. Prepare your company for as it is, because if any of these changes occur, right, if anything goes in the favor of the industry, it will do nothing but improve your businesses. Don't plan on it. Uh, you know, don't don't don't you know, hope is a nice thing But that's the reality is is that we're in the fight. We're in the Legislative, you know situation that we're at today. I don't I don't think it's going to change in 2024. There's there's no reason, I don't know if it's going to change in 2025. We I mean we we still don't know who the presidential candidates are truly going to be You know, I mean, that's where our country is today. I think I've been the country's got greater concerns at the moment. Um, and, uh, you know, you should, if you're in the industry or you're planning on getting in the industry, you're investing in the industry, you should invest or get involved with businesses or plan your business as though the climate is not going to change.

Kevin Hart: Yes.

Ed Keating: Excellent. Well, I, I couldn't have ended on a better point. So thank you for letting me force you to bat clean up there, Brett. Uh, well done. I'd like to thank Liesl, Kaliko, Brett, Kevin, and Jacques for joining me today. It was, uh, it was, uh, the kind of, uh, discussion I thought we'd had and, and hope we had.

And, uh, I appreciate everybody tuning in today. And once again, thanks to the Chamber of Commerce for giving us this, uh, this platform today.

The Cannabis Chamber of Commerce: Until next time. Thank you everyone. And have a great day.

Ed Keating: Thanks everyone. Bye now.

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