🎙️ Benjamin Ballinger, Diamond Miners Consulting
🎙️ Benjamin Ballinger, Diamond Miners Consulting
Ben co-founded Shryne Group (Stiiizy's parent company) before joining Left Coast Holdings (MI) as COO. He now consults with Cannabis operators on business development, product, and operations.
💬 I’m trying to have more conversations and spend less time doing the write-ups and editing them. So going forward, I’ll be including then otes that I use for the Interview and an auto-generated transcript of the conversation. I started the podcast with the intention of sharing conversations that I have and spending days/weeks to have up write-up sort of took me away from that. Let me know any feedback that you may have.
Thanks,
Dai
Background. Benjamin Ballinger is a cofounder of Shryne Group, California’s largest vertically-integrated operator—with retail, manufacturing, cultivation and distribution operations across the state, and the parent company of STIIIZY—the biggest vape brand in the US. As one of Shryne’s top executive, Benjamin oversaw the massive scaling of the company through California’s initial legalization period from 2017 to 2020—with a 10x increase in company revenues between the years of 2018 and 2020 alone. More recently, Benjamin was COO of Left Coast Holdings—a Michigan-based vertically-integrated cannabis company with a successful portfolio of brands—before founding Diamond Miners Consulting—a cannabis consulting firm specializing in helping operators in the areas of business development, product development and operational excellence.
Notes:
Shryne Group. Shryne Group was founded in 2017 by seasoned cannabis industry experts from California, the epicenter of cannabis. Our founders are rooted in the California cannabis culture and have grown STIIIZY into the leading cannabis brand in the United States. The STIIIZY lifestyle brand wasn’t created overnight. STIIIZY is a culmination of the perseverance, innovation, and vision of our founders. With industry-leading experts from every vertical of the cannabis business, we are on a mission to become the number one cannabis company in the world.
Left Coast Holding. Left Coast Holdings is in a key position to deploy years of cannabis experience on the Michigan market. Armed with knowledge from the California cannabis market, and strong, proactive business practices, Left Coast Holdings plans to continue expanding throughout the State and, eventually, nationwide.
Illinois Craft Cultivation. As of March 7, 2023, Illinois has issued 88 adult-use cannabis craft grow licenses so far, but just a few are operational. “We’ve seen licenses when these were awarded valued at $5 million dollars and now they’re selling for under a million because people don’t have the capital to stand them up,” said Dan Schmalshof, a board member with the Illinois Independent Craft Growers Association. The state Department of Agriculture pushed back a March 1, 2023 deadline for licenses to be operational by more than a year given challenges around securing capital, among other challenges. For the first round of growers, their deadline is now Feb. 1, 2024, and for the second round, it’s Dec. 1, 2024. There are only 21 licensed full-sized growing sites in Illinois.
Transcript:
Dai Truong: Why don't you start off with giving us your background, how you got into cannabis and what you've been up to since?
Benjamin Ballinger: Absolutely. I appreciate you having me on. I'm excited to chat about some cannabis. So I live in Illinois now but I actually started working in cannabis about eight years ago in California where I'm originally from and I'm one of the co-founders of Shryne Group if you've heard of it out there. So I was doing that up until about middle of 2020 and then ended up moving out here to the Midwest and kind of got caught up unintentionally, actually, in the Michigan market where I joined Left Coast Holdings, which is a vertically integrated company up in Northern Michigan.
I was the Chief Operating Officer (COO) up there for about 18 months. And then I had a kid, second kid, and decided I needed to step back from active operations, kind of focus on the family a little bit.
So I transitioned into more of an advisory and consulting role. And I have since formed a company called Diamond Miners Consulting.
And we really just work with private companies, primarily kind of across the United States, anything from product development, operational excellence, business development, leadership, and just kind of really building high quality companies with employees that are happy to be there and want to continue carrying that sort of company flag with them moving forward.
Because I see a lot of companies sort of struggling with that aspect of running and managing their businesses.
Dai Truong: Yeah, so let's go back to Shryne Group and have you tell us a bit more about Shryne Group for those that are not familiar and how that relates to Stiiizy.
Benjamin Ballinger: Sure, absolutely. So the history behind it is pretty convoluted, like most early cannabis companies are, but a friend and I started a vertically integrated company up in Northern California back in early 2016.
We opened a dispensary in San Francisco, had some farms up in Humboldt County and opened a manufacturing and distribution operation in Oakland. And around beginning to middle of 2017, Stiiizy came onto the scene down in Los Angeles, a vape brand, and they were just blowing up and getting a lot of attention.
And they were looking to sort of make their way into Northern California where we had a full distribution operation going. So originally we were sort of partners of theirs on the distribution side of things. And we got their products into a lot of shops in Northern California, Bay Area, Sacramento area in Inland Empire, sort of the North side of Modesto and all the way up to Humboldt County. And then as the market was changing, especially over here in the Midwest, and we were seeing a lot of companies gobbling up assets and becoming, you know, larger vertical operations, we ultimately decided to merge our two companies together.
We took all the assets from our side of things, JBTV Holdings was the name of our main entity, and then their brand, and their sort of flagship building down in Los Angeles. And we combined them all and created Shryne Group, which was the holding entity that sort of managed all of the subsidiaries.
Obviously, Stiiizy is the best known brand. There's several other brands in the portfolio, but at this point, Shryne Group is the biggest private cannabis company in California, which I believe makes them the biggest cannabis company in California, given that most of the public companies aren't there, and they are also the #1 vape brand in the United States. They also have other products and stuff but their vapes are definitely their their #1 seller.
So they're actually out here in Illinois now too.
Dai Truong: I know that's a very recent development for them to go outside of California in the past year or two. So you also helped with product and brand development and I know you mentioned that Stiiizy was already kind of a thing before you merged, but did you work on other products and other brands?
Benjamin Ballinger: Absolutely and you know I mean even with Stiiizy, there was a lot of iteration and sort of evolution over time but we had several brands at JBTV prior to the merger that made it over into the portfolio. The one that's probably most prominent would be Honeyleaf, it's my original brand. Now it’s kind of transitioned from what originally it was and now it's like a value brand, kind of similar to, I suppose, Raw Garden or Old Pal or something like that. And it does a lot of like larger sized flower offerings, some really cheap live resin products, things like that.
But yeah, so I mean, I did a lot more brand development probably with Left Coast in Michigan than with Shryne because our primary focus was continuing to build Stiiizy, which was definitely the biggest strength we had.
So one of my focuses with Stiiizy, especially towards the end of my tenure there, was expanding into other markets.
So I was heavily involved in the launch in Michigan, which was how I was introduced into the Michigan market in the first place back in 2019 when the state went rec.
So that was an interesting experience, very different, very similar to California in many ways, but also very different in other ways.
So, it was a good learning experience that I was able to take with me later when I went to actively operate there with Left Coast, who ironically actually was producing all of the Stiiizy products at the time.
So, small world.
Dai Truong: Yeah, and on that point, since you have experience across three markets, along with Illinois, where you're spending time these days and there are a bunch of the MSOs there, you certainly didn't have the same level of success [with Stiiizy] in Michigan as they did in California.
Can we kind of talk about how you can have a successful brand when you're not headquartered in Michigan, going into Michigan and why maybe it didn't do as well in Michigan?
Benjamin Ballinger: Absolutely, it's a great question. So I think the first thing to keep in mind is Stiiizy has a really high benchmark to meet too, right?
So them not doing well in Michigan, that's by their standards, right? Like, they still did pretty well compared to a lot of other brands.
I mean, they were at one point, I think, they were the #2 vape brand in the state. And then #3, I think they've slipped a little bit.
But like ultimately they still sell, you know, hundreds of thousands of units and month, right? But compare that to California, where you look at the top five vape products in the state and they're all Stiiizy and they have been for a long time now.
They have like 20% of the market share there, or more. So there's there's a couple reasons for that. I think 1. The Stiiizy marketing team and just the entire company sort of like embodies cannabis culture in Southern California.
So like they're creating the culture in many ways, right? They're driving a lot of the trends and stuff. And I think that makes a big difference.
A lot of these brands that you see that are uninspired and the consumer aren't as connected or excited about it, right?
So whenever they have another option, it really just maybe comes down to price or just whatever's most convenient for them.
But they're not going to the store excited to buy a particular product. Stiiizy is totally different when we launched the first Stiiizy store just seeing like people were camped out. And there's other brands that do that too right, they are by no means the only one. But I think we all know these brands as the iconic cannabis brands, Cookies, 710Labs and Jungle Boys and all this stuff right. So, there's a there's a certain element of connecting with those consumers and every state has a different community Yes, there's some similarities between the cannabis culture in Michigan and California like I mentioned the consumers have some similarities in their tastes. And you know both have had like a pretty substantial Medical Market. Illinois did not, so there's a big difference there, but what I discovered when I went into Michigan was that a lot of Michigan people are protective of the state they don't necessarily like brands from outside [the state].
They prefer stuff that's homegrown. I think that was part of the problem, part of the challenge for Stiiizy up front.
You'd think you'd go in and say, hey, we're a huge California brand. We're coming to Michigan and everybody would be like, oh, that's awesome.
But instead it was kind of like, well, what are you doing here? We don't necessarily want you. We want Michigan brands.
So one thing that I think that Stiiizy did well later, a couple of years after they launched was they really started focusing on promoting Michigan separately. Instead of just having all of their social media about LA, about the Bay Area, stuff that Michigan's not going to sort of connect with. They started talking about Detroit. They made like letterman jackets, specifically for Detroit, and started really kind of pushing more of the Michigan side of things.
I think companies that really understand Michigan culture specifically and find a way to integrate into that are going to see more success than companies that kind of just come in and run the same playbook that they're running in the other states.
But that's Michigan, specifically, that's not every state. Illinois is different, at least in my experience, I think Illinois people love California.
They love visiting there. They want to live there and they like California brands. And so a lot of the California brands that we've seen come over from California to Illinois have actually done really well.
And in fact, Stiiizy, is doing really well in Illinois, even though it's just launched here maybe a month and a half, two months ago.
But I think it's well received because people actually want that association with California.
Dai Truong: I've heard that from other brands that have California roots or started in California, and have gone into other markets. You have to localize the marketing, some brands that come to mind that that does is Old Pal, LEUNE, 710Labs. I've heard a lot of this from the CEOs at those companies. That's what they learned early on. You can't have palm trees in Massachusetts advertising, you can't sell that lifestyle.
And I imagine Michigan, is that somewhat influenced by the car culture in Detroit whereit's like, Ford, GM, cars made in America. Where they may want that American made car and kind of adopted that into the Michigan mentality. [A preference] for, made in Michigan vs. elsewhere?
Benjamin Ballinger: I mean, I have a couple thoughts on that. So first I'll say Michigan people in general, and I don't mean to stereotype here, but I think it's worth saying like the handiness and like, let's call it mechanical genius of the average Michigan person is substantially more than other states that I've been in.
I was continuously blown away by the fact that like when I was a Left Coast, pretty, much everyone in the company had some skill of either like figuring out how to customize extraction rigs or just figure out stuff in a mechanical sense and I do think a lot of that comes from the history of the state being an industrial state. That being said, I think it also the industrial state has sort of left Michigan in many ways and I think a lot of people from Michigan feel like they've been neglected. It's been neglected as a state, right?
Obviously there was all the issues with like drinking water and Flint, and Detroit has [been making a] come back now. But it was more or less destroyed when everyone kind of like left In 2008.
So I think they've sort of felt like they've been on their own and had to pull themselves up by bootstraps in many ways And maybe that's carried over into their consumer tastes. But one of the best things we did with some of the brands we launched in Michigan Was we really leaned into the pride of the product being from Michigan.
And we might mention that there was some inspiration from California. But we never really pushed [that we’re from] California, that we're better than Michigan.
We're bringing California to Michigan. It was more like we're home grown in Michigan, and we brought lessons learned from California over so that we can give you the best thing that you can possibly consume, but not really leaning into the California thing too much.
Dai Truong: And that served us a lot better. Yeah, and I'll note this, for people who aren't as familiar with Left Coast Holdings Companies. But, both of your prior companies have excellent sites, with maps and what sort of assets they have and what brands they have.
So for Left Coast Holdings Companies, there's a map of Michigan. It outlines cultivation, processing and retail, and then about five brands that you guys have.
So all that is to say, what brands have done really well in Michigan? Because if I look at Left Coast Holdings Companies since those are the brands that you had a hand in developing—FAKTOR, caddy, Heritage Provisioning, Feritage Farm Company, Authentic 231.
There are a lot of brands in Michigan, and then a lot of brands outside Michigan have come in. What are the ones that are doing well and why?
Benjamin Ballinger: Yeah, so I think like external brands that are doing, so I still think Stiiizy does pretty solid in Michigan. All things being considered.
Dai Truong: Yeah, and agree with you, that the Stiiizy bar is very high.
Benjamin Ballinger: So from a universal perspective, they're one of the external brands, I think it's done well, Jeter's done really well. They came in and just exploded onto the scene with their infused pre-rolls. I'm trying to think of other ones. I mean, 710 Labs and Cookies. Cookies has an interesting [approach], there's not a lot of continuity to me with the Cookies products in various states.
And you hear a lot of people say things like, I tried Cookies and I thought it was gonna be great and then I wasn't impressed, right?
I mean, even in Illinois, I know there was an MSO that was making Cookies for a while in their first batch, I think got rejected by Cookies, which was smart, because it didn't meet their standards. But I can't imagine knowing what I know about that company, that the product was ever really that good.
So, you know, Cookies has their products and some of their stores that GAGE runs and all that. But I don't really know if they're doing particularly well there.
Wonderbrett is out there now. I think they're doing pretty well. They have great products though. And, you know, they're bringing their genetics over and like overseeing the actual production so that they're making sure that it's at the same quality level as it is in California.
Again, I think that's really important. I know 710 Labs is out there now. But again, I know 710 Labs has really solid products in California.
I haven't tried any of their products in Michigan, but I did hear some grumbling that, you know, at least in the beginning, maybe they were just figuring things out.
But it wasn't like up to the same standard as it was in California. So I think internally, we see a lot more companies that are doing really well.
I mean, Element Extractions, Lion Labs, which owns Element Extraction and a couple other brands, they're very well respected in the market.
They do live resin and rosin, and a couple of other products. They have like a medical focused brand that does RSO Syringes.
They got the Edibles brand. So they're typically one of the ones that if you'd ask a cannabis consumer in Michigan, like what's some of their favorite extract brands, most likely they're going to say Lion Labs or Element Extractions.
There's some growers out there that have pretty solid product, Pro Gro, Michigrown, Glacier Cannabis, there's a couple others. And I think it really comes down to maintaining quality.
We saw really bad price compression sort of towards the end of 2021 and all through 2022. And a lot of brands made the mistake of cutting corners during that process.
And I think it hurt them a lot because it reduced trust from the consumers. And the brands that chose not to do that, I think that they're really going to capture a lot of market share this year because the cannabis consumer in Michigan just doesn't forget.
Like they really are sensitive to that. And they want to know that people aren't just trying to take advantage of them.
I think that's everybody but them, in particular. I've seen a lot of that. So my suggestion to brands in Michigan is really my suggestion for everywhere.
But focus on quality, and figure out how to bring your costs down so that you can kind of protect yourself in price compression more so than just, you know, cutting quality, like bring your costs down but keeping the quality stable.
Which is really the lean approach to manufacturing, right? Finding ways to remove waste and keeping the value, the thing that the customer actually wants to pay for.
Dai Truong: I think that dovetails nicely into what you do now from a consulting standpoint for your company, Diamond Miners Consulting.
Can you tell us more about some of the clients you're working with, what you're helping them with?
Benjamin Ballinger: So my major focus with Diamond Miners is sort of taking companies that [are] preferably passed the startup phase because the startup is a period with a lot of pivoting, and timing, and everything else and sometimes entire blocks of things that you've planned and know what their core competency is or at least have some way of finding that out and focusing on that.
But then have sort of felt a ceiling that's preventing them from scaling up from that. Sort of small local brand and operation to more of a mid-size, let's call it regional brand.
So maybe they're doing one or two million dollars a year in revenue. And they want to be doing, you know, $10–15M, and I'm talking specifically about a brand right. A vertical integration probably is already doing more than that, but that doesn't necessarily mean that they're doing a ton of business, it's just they have more avenues of making money.
So as a brand if you're doing, you know less than $5M. There's definitely a lot of easy things that you can do to boost up. And then once you get into that kind of like $15–20M range, then it becomes a totally different story. And that's where you've got to do like more massive scaling if that's the goal that you have to get up to $100M+ and that's a totally different ballgame.
There's not just a whole lot of opportunities for folks to fund things like that, at least that I'm aware of.
So yeah, I tend to focus on product development and implementing good operating practices throughout a company. So that could be anything from how you empower your employees to make good decisions so that you're not micromanaging because micromanaging is so inefficient.
And the people that are doing the work day in and day out know the answer typically 10 times better than the person that's managing them.
So building opportunities for them to help sort of guide the improvements of the processes of the organization in general, whatever it is, there should always be a continuous improvement stream going on.
Building on communication pathways. So there's not departmental siloes. That's another huge issue I've seen and heard from other operators and their employees is, there will be a miscommunication about something critical from one department to another. And there's a misalignment, which just ends up costing the company money and potentially opportunities.
And it just looks amateur to those from the outside. So once you can bring the departments together and have them operating as a more well oiled machine, it creates a totally different sort of outlook for the company. And expanding into new sales channels, whether that's creating a new product line, whether that's trying to move into co-production.
So performing, processing or manufacturing on a toll or a split with other operators, that's big in States like Michigan, where folks don't necessarily have the capital to pay for someone to process their product. So instead they opt to do a split deal where they'll give biomass to someone to do extraction, let's say a 50/50 split, or 60/40, whatever it is. And so there's no money changing hands, but it's like a trade, right? So learning how to build an operation that you can actually make money doing it.
So business development, product development, just ways to improve the top line and the bottom line.
Dai Truong: Regarding your Company’s website, it has a very claim, right? Saying “Create cannabis products that will dominate your market.” And then there's five things you offer: Identify products that are in high demand, develop an effective prototyping process, structure your product leadership team, standardize production processes, find cost-efficient labor and suppliers.
With regards to identifying products that are in high demand, can you give more details here. I assume your method of doing that is by looking at the data, whether that's headset or BDSA, or elsewhere.
What are some of the ways you do that?
Benjamin Ballinger: The product development process, to me, product development's the entire lifecycle of product. It’s bringint it to market and then iterating on it, improving on it, and then eventually sometimes retiring. It depends. I don't think in cannabis you really need to do that, but I come from a technical or technology background with product development where we were moving on from products that had become obsolete.
So regardless, I think that a lot of companies go about product development incorrectly, especially creating the product in cannabis.
I make a joke of it, but it's true. Usually what happens is one of the owners will be scrolling Instagram and see that someone else did something, and be like, send a message, you know, WhatsApp message or whatever to the manufacturing team, say, “Hey, we want to do this now.” Like, this looks cool. We want to do it. And like, there's this shiny object syndrome where it's like jumping from one thing to another, and if this doesn't work, the answer isn't to fix that.
The answer is to try something else. And it's just, you end up stretching yourself more and more thin. You never really capture the delight and the excitement from the consumer because you didn't start with the question of what are we solving that the consumer has a pain point in.
And at the end of the day, business should be about solving problems, right? So it all starts with how you come up with the ideas in the first place. And that's kind of like what my approach is you use called the scamper model. It's pretty standard in other industries and you basically just start by looking at what's in the market and finding ways to improve on that through any number of different factors, right?
So can you add something or remove something or you know, repackage something or whatever it is that creates more value for the customer and solves the problem better for them.
Stiiizy is a great example. We had vape cartridges prior to the Stiiizy pods, you had PAX pods and you had 510 cartridges. And everyone knows 510 cartridges leak all the time, they clog, they have tons of problems and the PAX pods, at least at the time, didn't hit very well. I mean, you could play video games on them, but you couldn't actually like smoke them consistently. And part of that problem was that the 510s and even the PAX pods were used by multiple brands. So they had to kind of be a one-sized fits all. And that doesn't work great for cannabis vapes.
So the original Stiiizy founders came, two of them, came from the e-cig market. So they had a lot of experience working with vaporizers from that side of things. So they kind of custom fabricated the specs of the Stiiizy device to be specific for the oil that was in the pods and on Stiiizy's proprietary system. So only Stiiizy oils in those Stiiizy pods, right? So what they did was they looked on the market and they said, what's the problem here?
Well, the problem is that there's no real good devices that are designed to work really well with the oil. And so we're going to iterate on that and make something that does work well. People loved it.
And so that's why that's one of the main reasons why Stiiizy exploded on the scene, was because they created something better than what was already there.
They didn't just jump on the bandwagon and do the same thing. So I see a lack of creativity right now where people are just kind of doing the same thing that everyone else is doing and there's not a lot of innovation.
And I think that can be solved by first and foremost coming at it from the perspective of how we improve on what's on the market.
And then like you just mentioned, the second aspect is validating that data because you might think you have the answer, but unless you've confirmed it, then you could be going off in the wrong direction completely.
So there's really two ways to do that, both of which I think are important. Number one is using data, whether that's like you said, you know, Headset. I'm not a huge fan of BDSA personally just because I haven't seen super reliable data there. We had a BDSA account in Michigan and I was checking the data against the brands I knew and I was talking to the brands and confirming. 9 times out of 10 times, it wasn't, matching what was in BDSA. So I think they have an issue with how they're aggregating the data or maybe there's a bug in the software, I'm not exactly sure.
Headset has much better data and another one that I'm a big fan of now is Pistil Data, which kind of comes at it from a different perspective. So I think you can use one or more platforms, but the bottom line is you need to be pulling objective data that you can say, all right, we want to create, I don't know, a suppository, right? Like, is there enough of a market? What's our goal with this and can we actually do that realistically? If there's a 1% market share for that product and there's already three brands that are splitting that evenly, what's your revenue potential and is it actually worth creating a product?
As opposed to just saying we need a suppository product because we don't have one, let's make one. And then the other aspect of validation is talking to people. Go talk to the consumers, talk to the budtenders that interface with consumers, constantly get into the stores, get out on the streets, don't just look at a spreadsheet. Talk to people, show them what your plan is and see what they say. And if they say, “oh man, that would be great.” Well, then that's good feedback that you can use. And if people are just like, “I don't feel like I would have any use for that.” That's also good information.
(28:31) Dai Truong: So I want to go back to what you were talking about on vape hardware. So if I think about it, PAX and then certainly Stiiizy, they're in a close looped ecosystem, somewhat like Apple. But that's great because that ties you in. It really locks up the consumer if they love it. Huge affinity for it. Have you seen your, and see self-silt dominant in market share for five, ten? But what about some of these other sort of, you know, canvas vape companies?
Like if you're from the Green Tank or AVD. Are you kind of up on some of these like newer 510 alternatives?
(29:04) Benjamin Ballinger: Left Coast and some of my advising clients do very products as well.
So I've got a couple suppliers out of China that I worked with before, um, and have done a lot of business with and some of them I choose to continue doing business with because they're very friendly to sort of researching and developing and prototyping along with me or the company that, you know, I'm working with, right?
And unless you have your own engineers in your own fabrication company, then how else are you going to do prototyping, which is another part of product development that a lot of companies kind of skip.
So having a supplier that will work with you and not just give you a one-size-fits-all and say, well, here's what you got, right?
But actually give you the phase one, you go test it, you come back with feedback and you say, hey,
I got this and this problem. The viscosity, the oil is such that it's leaking out of the apertures because they're too big.
Can we bring the aperture size down? Or there's not enough airflow. Can we double the number of apertures? Or can we increase the resistance or reduce the resistance or whatever it is?
There's a bunch of different criteria so you can kind of custom and sort of micro adjust these things. That's a big aspect of it.
But the other aspect is are they high enough quality? Are they going to have defects? I mean, we ordered some product from a state side company.
Most of the state side companies are just resellers anyway, like C-cell.
Dai Truong: Like Jupiter Research, right? Which is basically a reseller
Benjamin Ballinger: I don't know if they've been added value, but reseller of C-cell. Right. So the state side guys like to say that they perform QC, right?
And which would be valuable. But the thing is ask yourself logically, how are they performing like real key? You see on vape cartridge, are they having some guy who once put the cap on and smoke each one?
No, of course not. So all they're doing is they're looking and making sure that the packages are filled, which is not very useful.
What we really want to make sure of is that you don't end up filling 100,000 cartridges and 45% of them leak, right?
Because then you're out a ton of money. Now, you shouldn't be filling 100,000 units in a brand new hardware that you just started using a new supplier anyway.
But my point is that you really need to make sure that the products that you're getting aren't going to be defective, number one.
And number two, like I said, you need to be able to work with the supplier to sort of make the changes that you need to be able to make.
So some of my favorite companies are, what is it? I'm sorry, blanking on the name right now because there's two that sound exactly the same.
It's not Ispire. It's the other one out of the US.
Dai Truong: Yeah, Ispire, I know.
Benjamin Ballinger: They're not not Ispire. Yeah, it starts with an “I”, but I can't remember the name off the top of my head right now, some reason.
Dai Truong: Yeah, no worries, [tell me when you remember].
Benjamin Ballinger: I'll come back that but I also like, yeah, Cilicon, which is the maker of stiiizy pods. They do a bunch of other stuff too.
So, I mean, they're, at least from my perspective, I trust them because of the history with the company. So, I got another company that's a little bit smaller that I do stuff with too.
But yeah, I mean, ultimately, you just need to find a supplier that can do that for you and is willing to like stand behind their products because if it's a state-side person, then you need to make sure that they're going to not just be like, okay, well, you had 5,000 units that failed.
So, we'll refund you the, you know, 80 cents per cartridge for that. What about the $4 of contents within there and all the labor that went into it, right?
Dai Truong: Like, you're still out that. So, that's not good enough. Yeah, and I assume there's probably not great customer service there where you are getting paid back for some of those raw inputs.
Benjamin Ballinger: Yeah, not at all. I mean, I understand it from their perspective, but they shouldn't even let it get to that point in the first place because they should not be.
If you're going to upcharge the product, which they are, then you should be taking responsibility for making absolutely sure that whatever brand you're representing and reselling, that they're not going to have those defects.
Any more, that should be the defect problems. You should feel that that hurt you as bad as it hurt the company that it happened to, right?
Because they're ultimately taking your word that this company is, you know, in reality, they're actually trying to pass it off as their own products anyway, half the time.
So, you know, got to stand behind it.
Dai Truong: Yeah, no, we need the industry to get to that point. And another thing I want to go back to that you mentioned, you know, I always remember my conversation with Ron Gershoney over at Jeddi, where he was saying that the illicit market.
From a product development trends perspective, maybe six months ahead of the legal market, right? Just because there's less hoops to jump through before you get something to market.
Are you looking at some of these areas where you want to be ahead of the trends? So I say that in going back to something we said earlier about Jeter, but I came out, exploded on the scene, infused pre-rolls.
Now, every single brand pretty much has infused pre-rolls. If I go back another two or three years, it's like everyone did live rosin, right?
There are people who kind of push the trend and kind of gain a lot of market share for it.
And then there are people who then throw out a similar product, which might still have success, but there's a bit late to the game.
So do you kind of look to illicit markets or other places where you're developing products that are ahead of the data even?
Benjamin Ballinger: Well, so first off, I don't necessarily think that first mover advantage is huge. I think being one of the first is good.
I don't think you need to be the first. I don't know that I don't know who the first first infused fruit.
Well, I mean, like they had tarantulas and stuff way before Jeter was on the scene. So there's definitely other brands that that we're doing infused pearls, you know, earlier.
But I think ultimately, the markets are still young enough that you can move quickly. If you as long as you can move quickly, and as long as you come out with a product that's actually good, you don't have to be the first person for that quote unquote category, right?
I'm more excited about and bullish on technological advancement in the manufacturing space. Then I am about necessary product, like huge product innovation, because we're talking about, you know, combustible plant here for the most part, right?
So this isn't like a high tech industry from a consumer perspective. But from a manufacturing perspective, there's a lot of really cool stuff that's going on right now that's going to be able to help companies be a lot more efficient, automate a lot of
things for them, whether it's on the processing side of the manufacturing side and helping bring those costs down further, which is where my focus and interest is.
So, I don't know that that's necessarily going to result in a new product per se, but it will definitely result in more consistent product, higher ability to control the quality levels, and ability to produce it at a lower rate.
So, I don't know if that answers your question or not.
Dai Truong: No, it makes sense. It's kind of what I agree with. It's like maybe you're not the first alpha gate with it, but obviously, going back to the G-Dirt example, you kind of did a rank, right?
Your plot is just in that the certain marketing, that certain looking feel, and that's not that.
Benjamin Ballinger: Well, and that's the other thing, right? So, you get some people to say, you know, packaging doesn't matter, and then you get some people to say packaging does matter.
I'd say, G-Dirt is a good example of a brand ending a packaging that's made an impact to them.
I mean, their packaging looks cool. They got really bright colors. It looks like something that would pop out on a shelf and that you'd want to take a look at it, right?
The names are cool blah blah. So I do think that's played a big part because ultimately there were other infused pre-rolls You know as gorgeous pre-rolls which actually Think they were number one at one point.
I don't know if they still are but I think they actually are sell more than jeter even does Well, they got bought out by choice so the original owners of Sort of I think the product might have changed a little bit but like ultimately at the end of the day you're talking about a pre-roll and it's got some either distillate or some live resin or some hash or something in it, right and As long as you can give someone the right potency and not you know inflate those numbers And then they find out later from a testing lab and as long as it tastes good then I Think everything else is kind of minor details So you know two things I think you're pretty adept at answering
Dai Truong: So some of these MSOs, they have a brand house, a brand portfolio. They certainly do well, especially in states where you're starting through your retail channel because you're very integrated.
But pretty soon, some of these markets are going to be more open, more competitive. Where do you see MSOs brands competing with kind of standalone brands and how do they compete versus the standalone and vice versa?
How can the standalone kind of fend off the competition who may have more cash or larger size companies, so on and so forth?
Benjamin Ballinger: I actually like to use a distinction, public company versus private company, more so than MSO, only because nowadays there's a lot of private companies that are doing things right that might be in more than one state.
But I know what you're talking about, but yeah, I'll refer to them as the pubcos out here, especially in Illinois.
Things are already opening up, right? They've released a bunch of licenses. There's some craft grows opening up, which out here can do the manufacturing in addition to the growing.
And there's more brands coming into the state. So it's not just the in-house brands and the licensed brands by the larger companies.
That being said, there's a huge disadvantage in Illinois right now because the original licensees can have over 200,000 square feet of canopy.
The craft grows currently can only have 5,000. And there's a regulation, I believe, is being discussed right now to increase that to 14,000.
But we're still talking a fraction of the size. So there's a huge disadvantage there in terms of economies of scale.
That being said, I don't, again, I don't think that larger companies are operating as scrap believed as they would if they were in a competitive market, or what, you know, it's human nature.
So I don't know that they're as efficient as they can be, probably not, to maybe to a large margin enough that
that size discrepancy isn't, you know, and maybe that can be wiped out by someone coming in and being very, very efficient with the way that they produce.
But I think that, you know, ultimately, what you're going to see is you're going to see brands come in that understand the consumer better, that are there to educate the consumer.
And the consumers are going to become more sophisticated over time like they do in every other market. And as they become more sophisticated, I don't think they're going to want to buy these other products as much.
You know, once you have the taste of what's better, it's like kind of ruins your ability to continue paying super high prices for crumbier products.
So not only is they're going to have access to higher quality product, but they're also probably going to have access to products that are priced lower because there's more competition.
So now the larger, you know, public companies not only have to bring their prices down to be more competitive, but they also bring them like competitive with brands that are better, but they also have to bring
the price is down because the actual market value of those products is coming down. So I don't know how that's going to play out.
I don't have an insight into their operations and what exactly their costs of goods sold are. Even looking at their financials, it's really hard to tell stuff like that in a vertically integrated company because of the combined nature of the financials, right?
So I don't know how much it costs, let's say, a send to create a one gram vape cartridge. I know how much they're selling it for and they're selling it for an exorbitant amount of money, but I guess I get it.
They can, but how long will they be able to continue doing that, right?
Dai Truong: And going back to since this is your local market, craft grows, being able to compete against the larger public company grows, which are in some cases 20 to 40 to 50 times larger in the Illinois.
Yeah. They've had an issue getting these craft grow licenses stood up. So I'm referencing like an article from a month ago called,
but mid-April. So apparently they've issued 88 craft row licenses, but only a few are operational. I don't know if I necessarily believe this cost.
Someone's had 68 million to stand one up. I think that's a little high. And then to date is that that issued 342 adult use licenses to craft growers, infusers, and transporters.
So just going back to that point about, call it around 88 craft rows, but only let's say less than a handful are stood up.
What does that mean for this industry over time? Because that means you're going to be really hard to compete with these harder, probably traded companies, which have said that they kind of just wait for these smaller companies to either go away or doesn't get up and running.
Benjamin Ballinger: And then they have that long string to hold on to supply, right? Yeah, and it's a good point you bring up.
I mean, it's not just on the craft row side, even the retail side. There's the license, the original license expiration is coming up in September, I believe.
I think there's a rolling exploration, depending on when the particular team got their license. But the point is that that exploration is coming up.
And there's a huge percentage of retailers that have not locked down a location. And the craft growers, same thing.
So what's happening is like people got these licenses and then they're like, oh, it's really hard to put together the money to build these things out.
They didn't really, it doesn't seem like there's a lot of planning going on. There were, I think people thought like as soon as they had the license, like their, their life was set, right?
So I know there are definitely some that have gotten up and running. One of my friends has one that's already running.
And I think what's happening is like the ones that are up and running are going to partner with several brands and bring them into the state, right?
So the question is whether they'll be able to get an all biomass to sustain the manufacturing of the products or whether they'll
the mercy of the MSOs and public companies that have all the extra biomass. And if that happens, then the problem is we have some level of control beyond what an open market would have.
But ultimately, this doesn't really change what I'm saying because yes, right now, there, you know, there's certainly not as much competition as there would be if it was easier for these people to get locations and stuff.
But it's still inevitable that over time, you know, they're going to continue to release licenses. They're going to probably take a, you know, if enough people fail, they're probably going to take a look and see what they can do to make the process easier or provide resources or whatever.
But over time, there should be more and more operators in the state. Illinois is a big state. There's a lot of opportunities here.
It would be foolish for companies to write it off the map completely, right? So I think every state eventually is going to be completely open.
Obviously, once it's federally legal, then they'll all be open, right? And so you still need to still operate well in order to compete.
in an open market. So you should kind of carry yourself as such.
Dai Truong: You don't need to. You know, it's actually to make money, right? Like we've been talking at a very high level about revenue, at the end of the day, the cash flow is what matters more like you and beyond you, the two 18 taxes, cash flows, what's going to help these companies survive and thrive.
Last question for you that I usually like to ask people, you know, based on the kind of your perch in cannabis, any other insights that you may have that you'd like to share that we maybe haven't talked about.
Benjamin Ballinger: Like just in general or?
Dai Truong: Yeah, in general. I mean, you have a market with price compression.
Benjamin Ballinger: Yeah, I think yeah, I mean, I think everyone's pretty, I think it's pretty well known, the challenges that are happening.
I don't know that I'd say one area that I would tell people to look at more carefully. Everyone knows about 280 and they know the grumbling since a lot of people.
like to say, you know, tweet sucks, but I recommend people like really, really look at the financial impact of 280 because it is, it's astronomical.
I mean, you're talking like an effective tax rate of 25, maybe even 30%, right?
Dai Truong: No, it's actually, well, yeah. And then once you factor in other taxes, it's like 70 to 80%. And there was a poor email from some consultant that said, Amazon companies overpaid something like a billion and a half in taxes because of 280.
So it's it's orbit for sure.
Benjamin Ballinger: Yeah. And like you said, like if you're in a state that has high taxes, then you might even be a municipality that has high taxes.
And you know, I can stack up to the point where even if you thought you were running a good operation, the tax bill comes.
And then you realize you're actually negative. So, you know, a being aware of that ahead of time, and then setting your projections and everything with that and like really got to be realistic about that because.
As you may discover that what you thought was going to be a big money maker is actually a money loss machine.
And you don't want to be in that position. Not everyone has endless capital to burn, right? If you don't have that.
And you are taking on, you know, friends and family money or smaller investments and you've got a small runway.
You can really screw yourself and everybody else over if you're not, you know, taking that into consideration and you might say, well, I just won't pay the taxes.
You know, I'll consider that alone and in some states that works, but I just saw in Oregon, for example, that they said they're going to stop renewing licenses for folks that owe taxes.
I'd imagine other states are going to look at that and implement the same thing. And if that happens, then, you know, that becomes a big, big issue for people that can't afford the taxes.
Dai Truong: So look at 280E. Yeah, so when you say that, do you mean like 280E strategies so you can maybe shift something so you actually get, you know, certain employees.
and certain cogs that may, you know, count in cogs versus like op-ex, is that what we're saying?
Benjamin Ballinger: Well, first caveat, I'm not an accounting professional, so take all this with the grain of solid YSA, right?
Dai Truong: But we're not saying don't pay your taxes.
Benjamin Ballinger: Yeah, there you go. Taxes is theft. No. There's, I mean, the law is somewhat up for interpretation from my perspective and at the same time, there are limits to, you know, you can't just have like carte blanche to add whatever you want into the cogs, right?
That being said, you do want to take that into consideration and that's one of the benefits of like vertical integration, right?
Because the retail takes it the worst with with 280 because the only cost of goods sold is literally the cost of the products.
Everything else is outside of that. Late none of the labor, any of that, because they want to have, you know, direct costs related to the product production.
If you also own your own manufacturing, and our cultivation, then you can wrap a lot of costs of labor into there and maybe even attach a premium to the product when you sell it to yourself so that you're paying more quote unquote cogs at the retail level, assuming they're separate and it's entities, of course.
You're paying a higher price at the retail so your actual gross profit is lower, but your company as a whole is actually still capturing that income.
So yes, you can wrap things in, your accountant's going to know what can and can't be wrapped in and that's important to not.
You don't want to get audited and then discover that what you wrapped in there wasn't approved, but I do think that if you can argue that management fees, a portion of those need to be accounted for, you know, like the person that's running the facility, right, like they have other obligations as well so you can't say 100% of their management cost is part of cogs, but if they spend time on the floor,
for looking over the operations, then you could argue that that's part of the direct cost. So obviously, licensing fees, you could argue, if we didn't have a license fee, we wouldn't even have a facility to produce in.
So maybe you can wrap those in, so on and so forth. But it ultimately comes down to the accountant, but yes, really what I'm saying is just be aware that there's an inevitable impact right now of this 280E tax law, which makes it so that you cannot write off anything outside, you know, writing off cogs, it's just you can't write off stuff outside of the gross profit, all your expenses get taxed.
And so you're not gonna be profiting nearly as much as you would same dollar amount in any other industry that doesn't have that issue, right?
Dai Truong: Yeah, I think some of the companies that are actually surviving right now either have cashflow or are not burning too much, with very effective 280E strategies.
So certain accountants are getting paid their worth for sure.
Benjamin Ballinger: Honorable. Yeah, maybe that's what I'll leave it off with. Get a really good accountant, a cannabis accountant and understands that stuff. And don't just try to have some accountant from another industry come in because a better part of companies that have had to suffer through that.
Dai Truong: Sounds good.
Benjamin Ballinger: Thanks, man. Cool. Appreciate it. Thanks a lot.