For this week’s Power Players interview we spoke to Dan Ripoll, CEO of Pushr, which he believes is the only Black-owned licensed distributor in SoCal. A Stanford grad who used to work on Wall Street, Ripoli discussed competing with the illegal market, the upside of affordable products and how distributors act as California’s “unpaid tax collectors.”
This interview has been edited for length and clarity.
No more “turkey bags”
WeedWeek: Tell me a bit about yourself and your business.
Dan Ripoll: Up until 2018, farmers sold weed by the pound in turkey bags. Which is pretty simple and straightforward. Now, in order for flower to reach a licensed retail store in California, it has to be transported by a licensed distributor, quarantined, lab tested, packaged, labeled, sold, and distributed to retailers.
It’s an enormous effort to build a supply chain, and it adds several hundred dollars per pound to the cost of the weed. Farmers simply don’t have the wherewithal, or the interest, in building out all of the infrastructure required to get their flower onto retail store shelves. That’s where Pushr adds value.
Now, that’s one half of the equation. The other half is bringing value to consumers. Pushr is on a mission to make cannabis accessible to everyone. We provide an assortment of curated products that are priced to compete with the illicit market.
The reason this matters is that California’s tax and regulatory framework is unnecessarily burdensome, and adds so much to the cost of cannabis, that consumers often choose to buy from illicit market dealers, who easily undercut licensed retailers because they don’t have to invest in lab testing, packaging, labeling, or compliance of any kind.
In order to combat this, we specialize in bringing quality products to market at prices consumers can afford. We’re one of a small handful of brands and distributors who sell products which are priced at, or below their illicit market equivalents. Making legal cannabis accessible to everyone is our way of promoting the legal market.
WW: Right now what are the key dynamics for a California distributor?
DR: Distribution can be very challenging in many ways. In California, cannabis distributors are charged with collecting taxes from cultivators and retailers, as well as procuring product, ensuring the product is free of harmful chemicals, packaging the product then selling and delivering it to its final destination. There are more moving parts to a distribution business than any other license type. There are more activities in which the distributor must demonstrate competency on a consistent basis. It comes down to the people, the products and the processes.
A lot of our competitors have blown up and gone out of business. There are so many things that can go wrong. The majority of the transactions between distributors and farmers are fraught with risk. Distributors can pay for flower, and lose money on because they paid too much for the bulk, and overestimated what retailers would pay. The flower could also fail after the distributor has paid for the product, rendering the entire batch a loss. Then the distributor would have to go back to the farmer to get their money back. These are transactions that almost always run into the six and seven figure amounts, which makes transacting at this scale challenging without the benefit of banking and the use of escrow services.
Perhaps the biggest challenge with distribution is that the traditional market is many times larger than the legal market. The illicit market buyers are purchasing the majority of the weed in the California system, and selling it right out the back door. There’s so much product going right out the back door in this industry due to loopholes. This is happening because it is much more profitable to play in this illicit space.
It’s important to remember that California’s industry is still heavily influenced by a criminal element who will always find a way to circumvent the system. So the majority of the pounds that are being sold by cultivators in this market never see a licensed dispensary shelf. Distributors in the legal space are being outbid by their illicit market counterparts who don’t have to comply with any laws, or pay any taxes on the product.
“Out the back door”
WW: Are you talking about going out the back door of a licensed company?
DR: Absolutely. Absolutely. By the millions of pounds.
WW: How does that work?
DR: Very few people talk about it. I don’t see it written up anywhere.There’s a few different schemes that we know of. One is a burner license scheme. They obtain a burner license ( a temporary license which requires less time and money and fewer inspections than an annual license). Then they do as many transactions as they can for a full year, not paying any of the taxes, and walking away from the license.
WW: What are some other ways?
DR: Other ways involve reporting a product, on metrc [the state’s track and trace software], as a waste product, saying that something failed the lab test. Then instead of actually destroying the product, they’re destroying something that looks like the product, like CBD flower, then showing that on video that it was destroyed. Meanwhile, the cannabis that supposedly failed is in their pickup truck, being shipped somewhere. Those are at least two ways it’s happening and there are other ways I’m sure.
“An unpaid tax collector”
WW: I’ve heard that in the current regulatory regime, distributors are saddled, not necessarily with paying everybody’s taxes, but with sort of computing their taxes. Can you explain how that works?
DR: Sure. We’re like an unpaid tax collector for the state of California. Essentially, when we pick up flower from a cultivator, the cultivator is supposed to send with the flower a tax of $154 per pound with the flower. That’s the way the laws are written. No one actually does that though. So they sell you the flower pretax, and then they expect the distributor to just cover the tax out of sales.
So the distributor, for every pound of flower, they bring in, has a $154 a pound tax liability to the state. Then, every time you make a sale to a retailer, you essentially have to charge the retailer 27% of the total ticket amount, and that’s the excise tax payment that the retailer has to give to the distributor when they pay for the product.
Now, the cannabis industry is much more challenging than anyone expected. Many distributors are underwater financially, and they are using the tax dollars they’ve collected from retailers to cover operating expenses.
WW: How can that be fixed?
DR: I think the first thing that the state needs to do, and people have talked about this ad nauseum, is reduce taxes. This is Econ 101. I mean, the taxes in 2019 were outrageously high and the geniuses at the state thought it would be a good idea to raise taxes in 2020. Despite the challenges operators had in 2019, both the cultivation tax and the excise tax went up! Hard to believe, but that’s what happened.
So I think tax relief is the way that makes the market work better, and to compete with the illicit market.
WW: You’re the only black owned distributor in Southern California?
DR: That I know of, yes. Pushr is black-owned and women-owned.
WW: There’s a lot of talk right now, about supporting black owned cannabis businesses, not necessarily distributors, but brands. Are you detecting that the talk is actually translating into changes in consumer behavior?
DR: I’ve got a couple of firsthand accounts, like my sister’s company. She’s a co-founder of a really successful startup out in Atlanta called Honey Pot. They’re a Black-owned and women-owned feminine care products company, and they’ve definitely seen a lot of support from consumers and the media. So, yeah, I think changes are happening, I mean, we haven’t seen anything direct, but yes. I mean, there’s definitely seems to be a shift in sentiment and I am certainly hopeful that change is coming.
The value of value brands
WW: People don’t necessarily understand the distributor business well. What separates you from your competitors?
DR: What’s different about Pushr is our vision. Our focus. Our value proposition of creating a supply chain of quality cannabis products at prices people can afford.
Unlike our competitors, we don’t spend much energy sourcing vapes or concentrates. We don’t bother much with topicals or tinctures. We’re focused on providing value to farmers by building the infrastructure to bring flower to the largest cannabis market in the world. This focus drives key decisions in everything we do in getting the plant from a bulk form to a retail ready form.
Consumers benefit the most from our model. While we are not yet a licensed retailer, and do not have direct contact with consumers, we create value for consumers indirectly by pricing products to move. For example, a 3.5gram bag of sun-grown flower from Flow Kana might cost $35 before taxes, a similar 3.5gram from Pushr would cost more like $20 or $25, depending on the retailer’s markup. We also move a lot of ounces which is more of a bulk product with even better value.
Our products do extremely well because they’re affordable. e’re trying to create a complete menu and catalog of quality products available at prices consumers can afford. And that’s really, the business model. To create the kind of savings that raises eyebrows and creates excitement and loyalty among consumers.
WW: How has the pandemic affected demand for flower?
DR: Nothing but increase it from what we’ve seen. And we’ve seen an increase in demand for the kind of flower that we sell.
Most people in the business got into the industry, really excited about the high end, top shelf, really sexy indoor flower that everybody loves, but not everyone can afford it, right? Half of cannabis consumers make under $35,000 a year, they can’t afford luxury brands, but there aren’t many options out there, except for Old Pal, you have Eighth Brother and Pacific Stone. Those two or three brands are focused on this space, but it’s much less crowded than the higher end space and a much bigger market.
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