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March 30 2022,
TOGETHER WITH
Promotion from MATTIO Communications
We are excited to introduce MATTIO+FIORE Media, a best-in-class 360° full-service agency specializing in cannabis companies.
We’re excited to introduce the first issue of WeedWeek California Pro, the only publication for people who make money in the world’s largest cannabis market.
In this new newsletter, I’ll deliver exclusive reporting and analysis every week. Subscribers will also have access to our new, interactive tax and licensing maps, powerful tools to help you better understand the Golden State’s $5B+ cannabiz.
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SHAKE UPS
LA SET TO OVERHAUL LICENSE PROCESS
LA’s Department of Cannabis Regulation held a webinar yesterday on forthcoming changes to the city’s cannabis ordinance.
Built on top of entrenched grey and illegal markets, the city known as the world’s largest market has struggled with a host of challenges since the California REC market opened in 2018.
Cat Packer, the department’s first executive director stepped down in early March. Her former deputy Michelle Garakian has the reins on an interim basis.
Largely in response to frustrated applicants, the city began an ordinance review process in September. Among other goals, the new draft ordinance aims to clarify and accelerate licensing, with an emphasis on ensuring a smoother process for social equity applicants.
Among its proposals:
A lottery, probably next year, would determine winners of the “phase 3, round 2” process for social equity applicants seeking retail licenses.
They no longer have to be holding the property to apply for a license, but the definition of who qualifies as a social equity applicant is narrower.
City cultivation licenses would be reserved for social equity applicants through January 1, 2025.
Emily Hackman, a license specialist with law firm Vicente Sederberg, said one big takeaway is DCR would have to meet codified deadlines for responding to applicants
The new ordinance could be approved by city council as soon as April, but they will also have opportunities to modify and delay it.
One-third of packages would have to be covered with warnings about DUI, use during pregnancy and cannabis’ potential to contribute to mental health problems, especially when THC is consumed frequently or in high doses.
One of the messages would say: “WARNING: Buy Legal! Illegally sold cannabis is more likely to contain unsafe additives or harmful contaminants such as mold or pesticides.”
In a March 25 letter to Sen. Richard Roth, (D-Inland Empire), chair of the Committee on Business, Professions and Economic Development, CCIA executive director Lindsay Robinson argued the bill would:
Create additional regulatory burdens for an industry that has its share
Be redundant since products already have “significant and effective warning labels”
Lead to increased landfill waste and carbon emissions
Do nothing to reduce demand for illegal product
The bill’s supporters include the American Academy of Pediatrics, the American College of Emergency Physicians and the American College of Obstetricians and Gynecologists.
California ER visits with cannabis as the primary cause have increased from 9,793 in 2016 to 14,999 in 2019.
Dr. Lynn Silver, a pediatrician and senior advisor to with Getting It Right From the Start, a program by of the non-profit Public Health Institute, which promotes public health and equity on cannabis policy called the labels a “very low cost intervention.”
“I think it’s in the interests of the cannabis industry for consumers to have safer positive experiences and to avoid adverse experiences,” Silver said.
She expressed optimism that the bill would pass. “We hope to have the support of the cannabis industry as well.”
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Crypto can seem like a technology in search of a business model.
While the blockchain has obvious allure for the cannabiz, which can't access the financial system, it also comes with significant complications. The metaverse, meanwhile, is still in the land grab stage, but some see an opportunity to plant virtual seeds.
Ryan Hunter. CEO of early mover Crypto Cannabis Club, describes the company as a social club with NFTs as membership cards. CCC launched its collection of 10,000 NFTs in July on the Open Sea marketplace. They "minted out" and now trade for between $500 and $10,000 each, depending on whether the dude on the NFT has a hat, a green mohawk, alien skin or other traits seen as more or less desirable.
CCC makes a royalty payment on each sale.
Holders of CCC NFT's hang out together on social media and Discord, Hunter said. They're also entitled to discounts from CCC's more than 20 partner brands, which include Old Pal and Highsman.
NFT Holders also get a discount on CCC's brand, which sells eighths with "commemorative" NFTs. They don't confer the same privileges as the NFTs sold through Open Sea.
CCC's own cannabis brand has launched in California, available exclusively on the CampNova platform.
CCC has also acquired two properties in Cryptovoxels, a "virtual world" built on the Ethereum blockchain.
It's building one into a "virtual dispensary" where it can stream events and performances and link to its partners' sites.
The other property will have a game play experience, Hunter said.
These virtual spaces can can blend into IRL. When we spoke on Friday, Hunter was in Playa del Carmen, in Mexico's Yucatan, where holders of CCC NFT's were converging from several countries for a beach weekend. Activities are free for the Open Sea NFT holders after airfare and hotel.
Hunter said he expected 80 people to show up. A spokesman said later said about 30 made it.
Next on CCC's event agenda is a 4/20 event in LA.
EQUITY
SAN DIEGO CO. BEGINS LISTENING TOUR
San Diego County, the second most populous in the state, also has one of the lowest concentrations of dispensaries (See chart below). Now it’s seeking to develop an equity program and crack down on the illegal market.
This week a company contracted by the county, Womxn’s Work Consulting kicked off a listening tour to discuss what equity could look like.
Aside from familiar equity issues, participants made intriguing, but unlikely suggestions like community cannabis gardens, farmers markets and government purchase quotas.
Womxn’s Work is also conducting a community survey on what equity should look like and who should benefit. The responses will inform how the county shapes the program.
The listening tour continues Saturday at 10 a.m. You can tune in on Zoom.
Our first chart of the week digs into WeedWeek‘s maps and state data to find the California counties with the fewest retail licenses per person, (storefront and non-storefront).
The graph takes us from Los Angeles County, where 328 active licenses amounts to just one per 30,000-ish people to Placer County which has one active license for its population of just over 400,000 people. It’s Golden State Patient Care, in Colfax, in case you’re hard up.
To be included, a county had to have at least 1 pot shop and 100,000 people.
Mike Tyson’s Tyson 2.0 (“undisputed cannabis”) brand acquired a majority stake in former pro wrestler Ric Flair’s Drip business entity enabling it to launch a new line of celebrity branded products.
SoCal flower brand Stone Road is expanding to Massachusetts. It’s also available in Michigan and Oklahoma.
Collin Palmer, head of formulations at PAX with Chris Sayegh “The Herbal Chef,” and PAX COO Steven Jung smile for the camera at a tasting event for PAX’s new Live Rosin with Natural Diamonds vape pods. Sayegh hosted the event at Nostalgia Bar & Lounge, his restaurant in Santa Monica.
Photo by Kaitlin Parry @shootpeople_ , Courtesy of PAX
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Correction:Last week I incorrectly said Big Pete’s Treats is one of the portfolio of brands at sales and marketing firm PetalFast, which works with distributor Nabis. Big Pete’s no longer works with Petalfast and is distributed by Herbl.
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Pro
Two tech startups changing weed retail
The cannabiz's unique circumstances demand creative thinking. And it's becoming increasingly clear that some of the things that work in cannabis could change the way things get done in the mainstream economy.
Sophisticated indoor agriculture, as it gets less expensive, has attracted attention from farm companies looking to disrupt the food chain. The same thing is happening in retail as the lack of access to marketing channels, among other complications, force brands and stores to experiment. As a new industry, it's also less set in its ways than mainstream retailers.
The startups SparkPlug and Lucid Green, both of which have traction in California, show how cannabis could push mainstream retail in some interesting directions.
SparkPlug
SF-based SparkPlug, which facilitates incentive payments to budtenders, didn't initially focus on cannabis. Co-founders Andrew Duffy and Jake Levin met as Harvard undergraduates where they were fascinated by behavioral economics, especially questions about how employees respond to different forms of compensation.
After graduation, Duffy was in the research department at the huge hedge fund Bridgewater, where he studied labor market behavior.
SparkPlug distills the founder's thinking into a concept deeply ingrained in the cannabiz: Retail salespeople have enormous influence over what consumers buy, and that influence often goes unappreciated. SparkPlug set out to improve retail performance by incentivizing salespeople with cash payments.
The company, which has raised $3.5M from traditional tech VCs, has customers in outdoor gear, beauty and make up, restaurants and other "considered sales" categories. But the founders quickly realized that cannabis, where brands have relatively few ways to reach consumers and many of the products are similar, represented a near ideal use case.
Budtenders' influence on purchase decisions is widely understood within the industry. Brands constantly court budtenders and seek to "educate" them. But budtenders' influence can be hard to measure and leverage.
And it seems lots of stores don't try. Budtenders don't get paid very well and and they turnover rapidly. SparkPlug harnesses budtenders' clout with consumers by paying them cash, which should, in turn, make them more willing to stay at their jobs.
The company launched in 2019 with an app that integrates with Point of Sales (PoS) systems to create sales leaderboards for stores. It engaged employees, even without money on the table. SparkPlug added the incentive payments in 2020, with the onset of the pandemic catalyzing their growth.
SparkPlug has quietly reached about 1,000 dispensaries nationwide, including about 50 in California.
Here's how it works: Dispensaries can install the platform free. They can then create incentive programs or allow brands to create their own.
The fee cannabis brands pay depends on the state market and can reach $4,000/month.
Dispensaries only pay a (substantially lower) monthly fee if they're creating their own incentive programs.
Compared with slotting fees, where brands pay for shelf space, Duffy says SparkPlug creates a less adversarial relationship since both stores and brands are selling more.
It seems to work very well. According to a case study provided by the company, an infused-product brand conducting a trial at five California shops: By offering budtenders bonus payments in the mid two-figures, the brand sold 39% more than the previous month. (Read the case study.)
Vinny Di Nino, head of sales and marketing for brand CLSICS, which has a wide range of THC products, said the brand started out offering budtenders $1 per item sold and sales went up "immediately."
“Our results have been very solid,” he said. “The best part about it has been the sales have maintained.”
Lucid Green's QR code platform aims to simplify two aspects of the industry that don't usually talk to each other: supply chain efficiency and customer loyalty.
The Brooklyn-based startup, which has landed many top California brands as clients, closed on a $10M Series B in April led by Gron Ventures and Gotham Green Partners.
First, the supply chain component: Seed to sale tracking systems often can require time consuming, labor intensive tasks that invite human error and inventory snafus.
In California, for example, every individual item needs to receive a sticker with a tracking number called a UID code. LucidGreen CEO Larry Levy says dispensaries can spend upwards of $10,000/month paying employees to apply the stickers.
Retailers also have to manually type product names into their PoS systems.
Lucid Green's enables brands to print QR code labels that can be scanned through the rest of the supply chain, eliminating the need for tasks that otherwise have to be done manually.
Levy said 125 California brands have signed up representing about 110M units sold annually, though most are still in the onboarding process.
Lucid Green gets two cents for each labeled unit: (110M units = $2.2M)
After the purchase, a Lucid Green app enables customers to connect directly with brands through the same QR code.
It enables brands to bypass retailers who can have their own agenda.
The app, which enables brands to create loyalty programs and send push notifications, has been downloaded by 85,000 California customers Levy said.
Lucid Green also has revenue streams connected to brand outreach.
In different states, the Lucid QR code can be adapted to different requirements. New York recently announced that all products must have a QR code connecting to testing information. "That was music to our ears," Levy said.
Compared to what currently exists in the mainstream economy, Levy has said the platform is most similar to what's available for pharmaceuticals. It's easy to imagine other applications though Levy didn't stress the point. "If we become the de facto standard in this industry life will be good,” he said.
SILVER LINING IN SACRAMENTO
Supernova Women executive director Amber Senter speaks at the capitol on Thursday. (Courtesy: Supernova Women)
In May, Gov. Newsom’s budget blueprint zeroed-out the hated cultivation tax but proposed raising the excise tax from 15% to 19%, a move the industry strongly opposes.
The document includes concepts to be detailed in the state spending bill, which has to pass by midnight on Wednesday, or budget trailer bills where there is an “informal expectation” that they will pass next week, Jenkins said.
The key thing is the it would keep the excise tax at 15% for three and a half years with the potential for it to stay there indefinitely.
Additionally, the legislative document calls for:
Relief for social equity businesses. Jenkins said she’s hearing about a provision being drafted that would create a $20M set- aside for social equity businesses based on a tax rebate or credit. She speculates that it might only apply to retailers, who would take over the role of collecting the excise tax, now handled by distributors.
Additional worker protections
Stepping up enforcement against illegal operators.
Also happening in the capitol:
Equity group Supernova Womenheld a rally Thursday on the capitol steps to condemn Gov. Newsom’s proposal. East Bay Express
“My great-grandfather was a sharecropper who bought his own freedom,” said Morris Kelly, CEO of SF Roots dispensary. “That’s the dream BIPOC California operators bought into with Prop 64, but the 26% increase in the excise tax will kill this dream.”
Touted as one of the biggest debt instruments ever made available to a cannabis company, Silver Spike Investment Corp. co-led a loan worth up to $170M to Shryne Group, the vertically integrated parent of vape brand Stiiizy. The interest rate and the other lenders were not disclosed. Silver Spike previously created the SPAC with merged with Weedmaps to go public.
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County of LA, Public Health
LA city council votes to join county “emblem” program
Licensed dispensaries in LA have a new way to show they’re above board: a sign to display in their windows. Approved businesses would also have to provide a handout with health info and inspection results. The city council passed motion instructs the city attorney to write an ordinance, with the program likely to launch this year.
The Street suggests that the anonymous purchase of a relatively small plot on the Vegas strip could be weed related.
USC law professor Julia A. Werner-Simon says the recent sentencing of Central Coast “King of Cannabis” Helios Dayspring on federal bribery charges is a cautionary tale for the industry.
In Huntington Beach (Orange Co.), which has no dispensaries, it appears voters approved a measure on how to tax pot shops should they ever arrive. It needed two-thirds support to pass. Voice of OC
California’s weed deserts may be slowly shrinking, but they’re still out there. The new Chart of the Week draws on WeedWeek Maps data to highlight the state’s biggest cities without an open dispensary.
Vertosa, which makes active ingredients used in infused products, named Manon Daoust, a former exec at spice company McCormick, and investor James Pelligrini, of booze-oriented VC Goat Rodeo Capital, to its board.
Tonopah, Nev. about halfway between Reno and Vegas, is getting its first dispensary. Stash Fine Cannabis says it will be providing a direct to consumer “farmer’s market” type experience, the first of its kind in Nevada. News4
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