🎙️ Naturae, CEO, Nicolas Guarino
Naturae has been able to build three brands across vape, gummies, and tinctures, while being break-even in NY's adult-use market with ~$4M of funding.
As of June 30th, 2023, Naturae has 3 brands and ~30 SKUs selling at 15 of the 16 opened adult-use dispensaries in New York.
Summary
Challenges and evolution of the company from CBD to Cannabis
Development of in-house brands while also running a vertically integrated company (excluding retail)
Strategy to defend their brands in the market as more brands and MSOs enter. Naturae is focused on providing excellent service, offering quality products at competitive prices, and forming partnerships with dispensaries
How they met their largest investor Brian Hinchcliffe (Kirkland Lake Gold), who has been a significant figure in the company's growth and success
Self-distribution as a necessity for now but were open to exploring third-party distribution options if they could maintain control and meet their delivery requirements
Maintaining a 5% market share in the near term
Why the Company will have a brand in every category but flower
Transcript (unedited)
0:00 - Nicolas Guarino
So I got into cannabis basically straight out of college.
But in my family and most of my experience and business in general has been with my family. We've been working for four generations and specialty agriculture.
And specifically like livestock specialty agriculture for the past 30 years. We've been working with water buffalo and I've just always been very involved there. Then I was getting training. Let's say more formal training in college in the US studying finance and business administration and some international business because we trade a lot of livestock.
And I had a passion for cannabis and I really was looking for anything to sort of make my own market differentiate in the agriculture space from what we have been working on forever.
Now, and so we New York legalized CBD production, hemp production for cannabinoids. I decided to get involved. So I would say really like the past five or six years in the cannabis space and the cannabis industry has been the most formative part of my background in addition to everything that I worked on with.
And then naturally itself as a company was born from myself and to roommates of mine in college. We were looking to get into cannabis and this was the fastest way that we could do it in New York and where we were.
And we saw that it was a possibility to create a vertically integrated CBD producer. Of course, we learned a ton of lessons of how difficult it is and how hard it is to
Work in the cannabis space during those five years. But we win ourselves and when fundraising, and we raise $2 million in equity and a million in debt, and builds out our extraction facility and production facility, which then I guess to what's most interesting in the conversation in the company now, going from five years of really struggling in this TBD industry, of producing more, of adding more hours, of being more at the production plant, getting more output out and making less money.
And I would say it was kind of like the best training ground that we could get, making that attempt of a vertically integrated producer in CBD to enter THC now and to pivot into the adult use market in New York as that opened up.
So I would say generally that's the most important background, but I think as we as tell, Fuck and go through the journey that the company has had more will come out for sure.
@3:06 - Dai Truong
Yeah, so what was the intention always kind of to go from CBD to teach? You're that kind of happened with the challenges of being a CBD and some of the challenges with the Farm Bill.
@3:17 - Nicolas Guarino
It was like from the first year that we got into it, it was always a conversation of, oh, this will be a training ground.
No matter what, if we're working in this space, we're going to be a lot closer to being able to enter adult use, recreational.
But it was so far away, right? We had no idea how New York was even going to legalize it.
So it was always just, well, you know, we might be on a short list for that market if we're working in this market and working in this market and I don't think we knew to what extent it was going to be an important training ground.
But we always saw it as a training ground to understand how to deal with cultivation, extraction, with some manufacturing.
But not nearly as much as we deal with now. And then from there, the way that things develop with the conditional adult use market in New York, of course, made that a lot more of a reality.
at the time, was just, I mean, the focus really was on the non-psychoactive cannabinoids, let's say. And then we knew that maybe one day there was a chance that we'd be able to go into recreational through that.
At some points, that light was very, very dark, though, for sure.
@4:33 - Dai Truong
Yeah. And so as you mentioned, kind of the challenges the companies navigated over the past five or so years, you didn't mention being able to raise a mix of equity and debt.
When did that happen? sort of, you know, was a vision or the strategy that kind of sold investors on putting money into the company?
@4:55 - Nicolas Guarino
Yeah. So that's, I mean, that's a good question because it was a very different time. I'm then than it is today.
We put together our business plan and project before we even had our CBD license, in 2017. And it was primarily built around the visits that we were lucky enough to have in Oregon and California to CBD and THC farms that existed at that time there.
And we were able to work there. And so we saw, OK, well, we want to have a vertically integrated operation where ultimately we sell a non-psychoactive cannabinoid final product.
But that's only going to be a small part of the revenue streams because it's a very competitive place in retail.
our primary revenue stream is going to be wholesale kilograms of non-psychoactive cannabinoid. So we're essentially an ingredient provider. And we are licensed to be an ingredient provider, a cultivator extractor and provider of.
A lot of investors were just, they wanted to put money into cannabis in some form or another. We were very lucky with the time.
were a very young management team when we raised the money. I would say I always talk about this as a point of pride because everybody expects that we had family help or that somebody very close to us put up the money.
But really we just, we pitched dozens and dozens of investors and we're able to put the money together at the time for CBD based on this $8,000 kilo price point.
And by the time we were in production, much like a mining company or something like that that might experience a shift in commodity pricing.
By the time we were in production, CBD kilos were about $4,000- $5,000. Producing them for about 1,500. And so it was still a great business.
But that really lasted like six months. And there was a precipitous decline from there. From when we started selling at $5,000 or $6,000, to when we cut off production of CBD, February of 2022, from $6,000 to about $60 per kilo wholesale.
And so to this day, unfortunately, we still haven't been able to pay out our original shareholders in our first raise.
And they're all still very much looking forward to the fact that we're even still alive and exist today to potentially take advantage of this new market that's opening up.
@7:44 - Dai Truong
Yeah, and they must be excited, though, by what you've been able to do in the last six months being first to market with your vape brand and then very recently launching your gummy brands.
So I'll kind of let you get into that in terms of covering the products for a kilo and when you launched it.
@8:00 - Nicolas Guarino
But I imagine some of these investors are happy with the transformation of the company now. Yeah, yeah, for sure.
And I have to say, in case some others are listening, a huge part of us being able to make it to this point was an additional investment of about $3 million that one of our investors, Brian Hinchcliffe put in.
And so, and at the time that that investment happened, it was actually for CBD production expansion to lower our production cost to about $80 per kilo, which we achieved.
But then the market went to $60 per kilo in transitioning into THC, since 2022 in this conditional program was announced, we've invested about like 1.6 to 1.7 million or so in product development and new equipment in biomass and inputs.
Originally in 2022, since we had to add significant amount of manufacturing and we had to add distribution as a new business, our plan was actually to do quite a bit of brand licensing and we were going to bring on out of state brands that already had all the design work, all the marketing, all the branding established and we were just going to be paying a royalty and there's different structures of these deals that we could do.
But as we continued that process, we were never able to close a deal that really made sense to both sides where it felt fair on us putting in the license and capital for producing the product and then putting in the marketing.
was never able to work out. through that journey, we were forced in November of last year, December, because we didn't have a deal close with that to develop our own in-house brands and put aside the fear of, okay, we have to operationally deal with manufacturing as a new business and we have to deal with distribution and we're also going to have to manage in-house
Brands, which is a whole other behemoth on its own. And we just kind of put horse blinders on and said, OK, let's develop our brands as quickly as we can.
In November, we got the license. And then we had our vape brand, Jaunty. to market by January. And what made it super simple for us is because everything in CBD has been very extract focused and extraction base and technical things about extraction, whether it be distillate live resin live resin.
We decided to just make our brands based on the outputs that we were putting out because as a consumer myself, I use distillate for different things.
I use resin for different things. So on the outputs and the form factors that we were putting out, we just decided to focus the brands there.
So Jaunty is a distillate brand and it has 510 carts, distillate disposables, distillate gummies. And then resonators is our live resin solventless brand.
And that's got hash. It's got cold, cure-rosin. So that's what simplified it for us, just looking at it from an input perspective, because I also feel that since the different inputs and form factors of different occasions and uses, you're just able to very easily focus the marketing on that.
And so we put, I would say, these three brands together that we have, Jaunty, T, is-day, they're all to market.
And Jaunty had about 60 days to get to market. And then obviously with the intention and thought, the whole time that, hey, this is a version one that we're putting out, there's fast, and we have to get out there as quickly as we can.
But we're always going to have an opportunity to put a V2 and V3 out, and that's what we've been doing.
mean, July, we'll have version two of Jaunty out with quite a few improvements. But yeah, what we've been...
What to do in the past six months, I would say, has crystallized and come from five or six years of a lot of lessons, whether it be operationally administration, the actual product development and getting to see for years and beyond the sidelines of the rec market and watch everything.
And then, of course, like as a New York company having the chance to look at what's worked and it does another state.
know, mean, we can look at California. We can sign up for headset. Which we did. And we can look at the form factors and the brands that are leading in the market or that are breaking through in the market and take inspiration, let's say, from those markets to take advantage of our position here.
@12:44 - Dai Truong
Yeah, I want to go back to what you've kind of done the past six to nine months in terms of saying, okay, loyalty agreements with established brands in California or other states aren't just going to work out based on economics.
We're going to launch our own brands. And launched three separate brands while managing a very integrated business. So a lot of potentially complex, challenging things.
So now with that, what's kind of the way to defend these brands as more brands will enter or MSOs, know, you kind of have a couple of years, call it maybe a year and a half or so, or depending where things go with the state and the arrows.
So before the MSOs really enters it so what things are you doing to kind of build a moat or make sure your brands get the same kind of shelf space and success that you've seen today.
@13:39 - Nicolas Guarino
Yeah, so the number one thing that we're focused on in terms of that is service for sure. I mean we do same day delivery or next day delivery.
And we're actually we're putting up about $100,000 now into our distribution infrastructure to make sure we're going to be able to maintain that as more stores open.
But with our with our self distribution plan, but essentially we think that if we have the best service and of course we also have a quality product out of right now, at least in the current market at kind of the best prices in the market, it's going to help us build the relationships with with our dispensary partners and very importantly there we're insisting to our dispensary partners that they mark up our products further than keystone.
So that because we know that they have they get crushed by by two 80 consideration so we want them to make as much money as possible as they can from our products and see that we deliver same day that we deliver next day that we're there to solve any of any of the issues concerns bad replacement cards replacement products that they need as quickly as possible and we think that that in New York is is going to be helpful so that's focus number one and the number two we did decide to
Do now recently to do a little bit of a hybrid with our model and bring in some out of state brands.
So we're going to license critical concentrates, who's going to put in a ton of effort towards our marketing. And so we think with one or two solid out of state brands plus our efforts in providing high quality service and making our dispensary partners.
The most money we should be able to maintain the shelf space that we're looking for for the volumes that we're looking for.
Right. Because we're also not looking to be a hundred hundred and fifty million dollar revenue company. In the next couple of years, we just want to sell between two or three million dollars a month.
And I think there's going to be plenty of stores that appreciate all those things I just said to maintain our products in there.
At least that's what I can say now in the short term and mid term. That's going to develop a lot more with marketing initiatives as we have the capital to even do that in the first place.
Right. We're trying now once we reach break even to start setting aside. 3% of revenue for marketing, I think that that's going to go a long way, and it'll develop itself quite bit too, in that defense, in that support for the stores.
@16:12 - Dai Truong
Yeah, so let's get into some of the monthly revenue numbers. Where are you guys at now? Where do you expect to exit for December of this year?
How many stores do you think that would be based on New York, rolling out additional retailers?
@16:26 - Nicolas Guarino
Yeah, so I think if we just stick to like May and June comparatively, and then go forward from there, it'll be easier.
mean, the previous months are interesting as well, but just to kind of try to keep it. Try to keep it kind of brief.
So in May, we close with 330,000 in retail sales, which in April, we have had 314,000, so it was a small increase, and this goes to the strategy of adding the additional brands.
So that was 330,000 in about 12 stores, eight of those being storefronts. So the average sales per month, roughly, roughly speaking, were about 33,000, 32,000, something like that.
In June, we're going to close now with 515,000. And we only had two new storefronts open in June. So we're finally starting to feel the effects of increasing the skew count from 6 to 24 and soon to 30 and products that address different occasions, different audiences, different different demographics.
So they're all complementing each other on the sales. So from May average of about 30, 32,000 dollars in sales per store, we went in in June now to an average of about $40,000 per store.
we're expecting to be there. Between like 40 and 45,000. Then for July, so we're in 15 out of 16 stores.
Now July and August, we should see about 15 more stores open. The majority of those being storefronts. So that's that's going to take us here from from 500,000.
Hopefully to about a million per month in August. We're hoping August is going to be first $1 million a month.
And then I don't have a ton of like hard, hard vision into what the last quarter into what December will look like.
But based on the OCM numbers, I think there could be another roughly 25 30 stores by December. So we'd be at 60 stores by December.
And and that would have us at a run rate of about $2 million, two to $2.5 million dollars by the end of the year.
That's that that would be the goal if we can get to $2 million plus dollars run rate. In December, I think we're.
We're in a great spot. We've maintained our current position in the market with another 45 stores opening. So that's what would be the goal there.
@19:11 - Dai Truong
Yeah, no. If you're doing a $24 million run rate exiting the year, I imagine the business is potentially definitely profitable.
But where do you think about distribution is to investors at that point? is it, hey, let's continue to. Invest and keep our market share and grow this even more?
@19:34 - Nicolas Guarino
No, we're going to, our view on it for sure is to be a dividend paying company after so many years of investing and believing and continuing and trying.
So I hope that by, let's say, March of 2024, we could already start distributions. If we're. I'm to the investors, we're going to keep 25% of profits to reinvest and we're going to distribute 75% back.
@20:20 - Dai Truong
Well, yeah, I think you'd be one of a handful of companies that I've heard that's able to actually do distributions while I guess public or private because even though the public companies have negative EPS.
@20:36 - Nicolas Guarino
Well, I mean, a big part of that is that so much investment has already been made in the past, right?
over $5 million has been invested. We own our property outright. Brian Hinchcliffe, who I mentioned before, who's been mentoring me quite a bit has helped us a lot to stay super focused on very low overhead.
So we haven't done any unnecessary expansion. We that are facility. If you saw our office lobby right now, there's about eight of us in the management team that are sitting in the same like 200 square foot room.
I just think we've, because we've gone through so much spending. We're lucky that our startup wasn't like hey we're going to raise $5 million to do this facility and this indoor grow and this.
We have our relationships with our farms that provide the inputs at prices that work for our margin. And then we have a 9000 square foot, very humble facility let's say that is able to output $3 to $4 million a month just in distillate products and another couple million in live resin and live talking very small warehousing addition and containers is able to produce $4 or $5 million in revenue per month.
And then what you do with your costs there in the middle to produce that $4 or $5 million. Very simple, what I'm saying, I get it, but it's like what's left of that, you know, you should be able to distribute some of it, or then you've got a problem with your salaries, you've got a problem with your input costs, you've got a problem somewhere for sure.
And our biggest problem and our biggest hurdle right now, like I'm saying, we're at 500,000 in sales, but we're still just breaking even because the effective tax on the excise right now for some of our products is 50%.
You know, I mean, at our price point, like a lot of people in the New York market talk about the excise tax, meaning like 20%, 25% for them, for us and most of our products, it's at least 30%.
And then in some of our products, it's as high as 50%. And that's just such a massive detriment. mean, I know that's a whole other topic, to have the tax in the middle is inflating the price in the end.
The government isn't seeing that inflated price. Nobody's seeing it. So I really hope that we're able to get to a tax after purchase as soon as possible because it's
It's going to help fundamentally with being able to compete with the unlicensed market. It's not about shutting them down.
It's not about finding them about it. It's just about being able to offer the same price points in quality, with more convenience.
@23:15 - Dai Truong
Right. Then becomes a no-brainer to purchase from the legal market and for operators should some of the taxes actually be lowered.
You can actually make money in there.
@23:28 - Nicolas Guarino
And the state will make the same amount of money. That's the very frustrating part with this one. don't know which actuator, which mathematician was in charge of coming up with his excise tax, but they'll make the same amount of money.
They can make it at the end, not in the middle of the supply chain. anyway, that's one of the biggest challenges in terms of cash flow.
Right. Like June 20th, we just made a payment of $227,000 in excise taxes, which would have, I mean, even half of that would have gone.
Unfered well toward more product development or distribution. And that was what the month or that was what you opened for like the first six months?
No, that was for the second quarter. So the first quarter we paid 70,000.
@24:11 - Dai Truong
Yeah, I know that's really high figures, but at least you're doing well enough to rack up a high excess high spell.
@24:20 - Nicolas Guarino
Yeah, that's always how you got to view it now, right? We don't have a choice until the next legislative session.
need to be like, well, at least that means that we're selling more, right? Yeah, for sure.
@24:30 - Dai Truong
And I want to circle back to Brian. know, so Brian seems to be a pretty important figure in the company in terms of, you know, investing several million dollars.
How kind of, you know, audience, you know, how did you guys connect with Brian and, you know, what keeps him interested in the company and the vision and the execution?
@24:51 - Nicolas Guarino
Yeah, I mean, it was super serendipitous. Yeah, he was coming. He was working with one of the cultivators that we work with.
And they were coming to the facility to show around the facility, the processor that they worked with. And so she came by and she said, I'm bringing an investor over.
Just, you know, I just want to make sure that everything's in good order and it's going to be impeccable because he's, he's, he's from the mining world.
He's been working mining for decades previous to that. was in Wall Street, but he's very interested in agriculture now.
And I want to show him the processing side of it, etc. they came by and I happened to that day for whatever reason I was wearing my button down, my blazer.
It was just a coincidence. And he came in and we started talking and there was just a connection right away because he asked me, hey, you're from Venezuela.
You were originally born in Venezuela. I like, yeah, I lived there until I was like 13. My family's from there.
And he told me, oh, I used to have one of the largest nickel mines in Venezuela and we're laughing and this and that and talking and he's telling me all about Chavez and, and, and the stuff that they dealt with politically there.
And then, and then he mentioned that. My wife is from Finland and he was like, you're kidding me, wife's from Finland.
I have a lot of massive gold mine in Finland. so I'm immediately like, OK, this guy's got gold mines and nickel mines like all over the globe.
Let's talk to him about this in the way that he's going to want to hear about it. And Vitalis, our extraction equipment company, had just came out with this co-solvent system where we'd be able to increase our extraction times.
So we were talking about how rough CBD was at that time we owed this cultivator some money and just going over how tough everything had been.
I explained that with a $300,000 investment, we could double our throughput through the machine and we'd be able to decrease costs from about $300 to about $120 per kilo because we could do it with less people, blah, cetera, et cetera.
And he was like, OK, well, let's sit down and talk to you about how we get that $300,000. Listen, I've worked in processing my whole life.
I'm very interested in processing and I'm looking to get into something new. So, honestly, we got very, very lucky, and him and I just get along super well.
And then in terms of maintaining the relationship, I would say, I mean, he's an incredibly tough guy. was in Goldman Sachs when it was private for years before he went into the mining world.
But it's all just really been about communication and about not being afraid to talk about when things are going badly and about what solutions you think you have, if any.
And if there are none, hey, what do you think we can do? So he's super hands-on, super involved. I must talk to him two or three times a day.
And just generally interested in the fundamentals of business and how they intersect from one industry to another. So the way to keep him involved and interested, it's been to feed him information about all the problems that we have all day.
just telling him, hey, this went wrong, and this went wrong. He sort of hates hearing about when things go right.
When things go right, he's like, I can't. OK, all right, well, I'll talk to you later. So keeping him informed about the things that are going wrong.
And to be honest, that was something that we weren't very good at doing with our previous set of investors, which now we are.
And now everybody's in a much better place. But it's been this learning that communication, good or bad, is absolutely critical.
And maybe that's a very basic thing. But it seems like a lot of people like to make relationships with investors very formal.
And I'm going to schedule it with you. oh, we need to have a call. we do it next Tuesday?
That's when I have some time. Just take all the calls right away, face it right away. And you just have at least a chance at having somebody continuing to believe in the thing.
@28:43 - Dai Truong
Yeah, so it sounds like you now, if I have more of a regular quarterly or monthly investor updates, kind of people on top of how the business is doing.
@28:53 - Nicolas Guarino
Yeah, we'll do quarterly. And then I'll just occasionally, if I have an update, that itches me enough, I'll just send it out to everybody.
@29:00 - Dai Truong
know? That's important, right? If people put money into the company, they want to know how that money's doing. It sounds like Brian also is one of more active investors that want to actually help out and not just passively invest.
@29:32 - Dai Truong
A lot of these Canadian mining guys have come into cannabis, right?
Whether it's like, hey, this show company is a mining company and now I'm going to reverse public with it.
Like I kind of assumed before you told me how you met Brian that that was kind of his background.
@29:55 - Nicolas Guarino
But nope, this is a... Yeah, no, and it is like his main claim to family, let's say, is Kirkland Lake Gold that you founded in Canada.
And that's a big gold mine in Canada. So yeah, yeah, that's definitely the background.
@30:09 - Dai Truong
Yeah, then you know, look, I want to go back to some of what you said earlier as well from a co-manufacturing perspective.
Like, I thought your perspective on it was to kind of not do that anytime soon. But it sounds like that.
Mindset has kind of changed recently, right? Because you mentioned earlier, taking on a few brands to do co-manufacturing.
@30:31 - Nicolas Guarino
Just one right now. Yeah, and I wouldn't say it's co-manufacturing. I mean, it's a licensing deal for sure. We're paying like a 5% royalty on it.
But it's a little bit more involved than that. So critical concentrates. It's a concentrate brand, obviously a dabble concentrate brand from California.
And it was founded by Alex Cupamel. And Alex has been working with us on our live, laws and extraction on our fresh frozen cultivation.
And finally, we realized like, hey, we can't, we just don't have the bandwidth to continue expanding brands, but a concentrate brand especially is something that needs focus from from a founder, you know, it needs, it needs, it needs dedication from from a founder that's thinking about every single strain that's thinking about the trimming of that strain the extracting so have with critical concentrates, it just made sense to bring them in.
And then when we bought it, we actually just signed the deal last week. And I'm not sure I thought I had mentioned them to you, but we realized, hey, they're going to bring in quite a bit of marketing assets.
If there's one brand that we could bring on that covers a few categories that even covers some of our categories that would elevate our portfolio significantly and that it would be a strategic thing.
Let's bring on maybe one more brand outside of Dabbables. But it's like it has to be the right thing, and that would sort of at least close out this pilot portfolio, this self-distribution pilot portfolio for now.
But when I hear co-manufacturing, when I hear like white label, I'm imagining like Natura in California, like where that's the main business and it's massive at scale.
Here it's more like a compliment to the portfolio and to the marketing effort more so than trying to make money off of the co-man as a business model.
@32:25 - Dai Truong
Yeah, no, totally. I think of it a little differently. It's more of horse trading.
@32:32 - Nicolas Guarino
You can benefit from it in one way and they benefit in another.
@32:35 - Dai Truong
We've seen deals like Garden Society where they may manufacture for a competitor in each jersey like they are going to do for Kiva, but then that means in California they get distribution through Kiva sales and services.
I definitely don't think it's more of a straight co-man like in more traditional CPG industries. It's more like you use it to monument your poor business and it sounds like an ear
For Case, some SOPs and kind of knowing that, hey, we're doing a lot. This is a lane that maybe it's best fit for someone else to kind of own.
And then going back to what you said about the realty structure, this one seems very favorable for your company to make sense to do that.
@33:18 - Nicolas Guarino
Yeah, yeah, for sure. And then Alex is working with us like every day on a bunch of other stuff.
Yeah, yeah, for sure.
@33:25 - Dai Truong
And on that, so it sounds like you wrapped up that last interesting look, you kind of got in the portfolio in nice shape.
Tell us how many SKUs today and sort of how many SKUs do you envision the exit the year with and how many SKUs do you ever want to have?
@33:44 - Nicolas Guarino
That last one's a great question. We should add our operations manager to that question to what he thinks. So when we started with six SKUs, which was just Jaunty.
Vapes, and then we added Jaunty. Gummies, which had six SKUs because They come in 10 counts, and then we also have a sampler pack that we sell that's a two count gummies.
And that took us to roughly 12 SKUs. Then we brought back Jumbo-Dose, our Tincture brand from the CBD days and pivoted into a rec brand.
And that brought us to 16 SKUs. So by July, we're going to be adding new flavors to Jaunty.
We're going to be adding disposable vapes. We're going to be at around 24 SKUs, if I'm not wrong. By August, we'll be at 32 SKUs, which will include disposable live rosin vapes for resonators.
It'll include four SKUs of cold cure live rosin. So we'll be at that roughly 34. And we still want to add flavors like our hash gummies etc.
But we're going to stop there, I think, for the year. So far, this is what has been the consensus internally.
We're going to stop at least until December. There are so many challenges that are going to come up with expansion from six cues to 30-something cues.
The last thing that we can accept or that we have to avoid is stockouts on any of our cues.
I want to say that most likely the sweet spot is going to end up being still maximum 40 cues, like 35-40 cues.
Then we'll start rotating flavors on quite a few things in there. Just watching from afar what Jeter has done, what Raghard has done, a bunch of these companies have done in California to be able to succeed.
There has been maintaining new flavors and maintaining the portfolio super fresh. It will transition from adding new products and processes to product development, improving the current cues, and switching in and out flavors that perform or don't perform or simply switching them out.
How, because they both perform and we want to update the portfolio bit. So yeah, 35 to 40.
@36:06 - Dai Truong
Sorry. No, that makes sense across three brands, totally makes sense from what I've kind of seen before. And look, it seems like you look to California for information, which makes sense, since its now a very mature.adult-use market. So with that, I kind of want to ask you about the distribution component. We certainly, you know, saw a lot of headlines around HERBL and that did not work.
So, out from a third party distribution standpoint. There's a few companies that self distribute to, you know, 600 dispensaries in California.
Seems like in New York, you're following that model. Is that out of necessity? Would you, you know, I don't know if there are third party distributors today or there will be.
But would you hand off that distribution component or do you want to keep that in house?
@36:54 - Nicolas Guarino
There is definitely out of necessity right now. And because It's been born out of necessity. We want to learn a lot more in distribution.
We're starting to get comfortable with self-distribution at a very small scale. We want to learn more about it. And so we actually have a meeting with NABUS on July 12th or 13th, I think, something like that with Vince Ning, who's supposedly a co-CO and a founder there.
And some of the NABUS teams, so we can really understand what their model is. The most important thing to us is the relationships that we have with the stores.
So any kind of third-party distribution that we'd be able to see control of in our company would have to be a very logistics-focused distribution, where they're just saying, hey, we're just going to take care of delivering this as you guys see fit.
And there's a very good system that we have here where, when orders come in, we can meet your delivery requirements.
Because we want to be very small, fast and in-buh, we want to be able to solve problems for our dispensaries at 9 p.m.
Last Friday, I was making a delivery at like 10.30 pm to a delivery-only store because they needed to drive to Long Island for a delivery on Saturday.
losing control of being able to do those kinds of things is very scary for us because it means we lose control of the moat that I'm saying that we need to build around us to defend against the larger companies that will be coming in.
So, I would say right now, we think that we're going to continue on the self-distribution route. If in this meeting with Nabos that I think they'll be coming into the market soon through one of the licensed processors here, they can prove to us that that can be maintained.
Then we would consider it for sure because it's a headache. And we want to get into, for example, beverages through a joint venture that we're exploring with a big New York cider company and that's going to be honestly right now impossible.
The reason we're not doing the JV is because we don't feel that we're going to be able to meet the distribution demands of beverages.
I don't know enough about the distribution companies that are going to come in here and offer their services. I hope that there's one that's very logistics focused and that lets us maintain the relationships and suppliers with the stores at the level that we want to maintain them.
@39:17 - Dai Truong
Yeah, and I think that's more of Navisys model in California, where they kind of do the last model logistics.
They don't get involved in sales like Erbil did. They'll partner with someone like you've heard of pedal fast. They'll kind of let someone like that do the sales if the brain themselves don't want to do it.
I think that's usually more in non-core markets. yeah, Vince is probably in there, except not like 12 months down New York kind of figuring out how they enter.
@39:45 - Nicolas Guarino
So you're definitely going for that. I didn't know that. Okay, cool. Yeah, that's helpful background to go into that meeting because we're...
I mean, you could imagine why you would be very defensive about that position because you're kind of handing over your baby.
If that was the case, if Nabos is doing logistics, and they seem very confident, like, hey, Nick, we're going to show you the portal and you're going to see that this is just going to work to make things easier.
@40:09 - Dai Truong
like, all right, let's see. Yeah, no, I totally get that because that's kind of part of, I would imagine, the 15 dispensaries you work with and, you know, up to the 40 you'll work with to end the year where you guys are going to be different, right?
As one of the brands in the New York market before it gets flooded, you are able to provide. Like, great customer service, on time delivery.
you mentioned within a day throughout the state, like that is what matters to a lot of retailers, and especially over time, that's what's going to keep you on shelves.
@40:42 - Nicolas Guarino
Yeah, yeah, that just reminded me, we also kind of, a lot of states don't have this, I guess. I haven't operated in a lot of states, New York regulators have made it very simple for us.
You know, like, there's a, there's a form that we just fill out if we want to add a distribution facility.
So, like, Our biggest challenge is going to be New York City and Buffalo. And as I understand a lot of other states, you can only distribute out of the license premises that you have.
Well, New York was like, here, just fill out this form and make sure that you meet the security requirements.
And for very low CAPEX and very low recurring costs, you can set up a small warehouse in Syracuse and a small warehouse, let's say, in like Memeronic, close to New York.
And you have a team of two in each one of those. And I mean, at least for the next 18 months or so, I don't think that it's going to be overwhelming to try to maintain the same day next day.
I mean, even if it's two day now, the time we have 100 stores, it's not, it should be manageable.
@41:44 - Dai Truong
Yeah, and that is different from other states where you usually need to invest in larger warehouses and kind of pick, you know, where your hub and spokes are.
that makes it fair, as you were telling me that, what I see if you're not a distribution company. Don't come from that background.
That could be challenging if there's a hundred stores in New York City and you need to do routes and figure out delivery schedules, that seems like that's going to be pretty overwhelming when we get to that point.
@42:12 - Nicolas Guarino
Yeah, yeah, it could be. It could be. We have someone on the team that's got a lot of distribution experience.
So, like we're already looking at zones in New York City. for example, near Union Square, where we've got like, like, uh, Union Square travel agency, housing works and some act that in that zone, for example, if we have three drivers or three people in the car, we can actually do a delivery with one driver go to the next door and deliver it.
So there's like, if you zone it out and you and you really plan out your staffing around it. I mean, it's tough.
I'm not saying it's not tough, but I think that we could meet the challenge for the next 12 to 18 months.
I mean, let's see. Let's see for sure. And if we can, we might have to go to two day delivery and I don't think that
Over the end of the world for most of these stores, because from what I'm hearing is that their average time to get deliveries is about, you know, four to seven days.
@43:09 - Dai Truong
Yeah. And again, I think in California that's anywhere from two to probably five days and some people stretch longer.
You know, obviously, North Dakota, you know, driving between one and two dollars anywhere from six to eight hours.
@43:22 - Dai Truong
Yeah. And certainly would not annoy customers if it took two days instead of one day.
@43:28 - Nicolas Guarino
Can you add simple distribution facilities, warehouse, closet, whatever you want to call it? Can you add simple stuff like that over there?
@43:38 - Dai Truong
Or is it more complex regulatory? It's more complex than that.
@43:42 - Nicolas Guarino
So it's going to be harder to set up like it sounds like you're doing something smaller and you know, thousand two thousand three thousand.
Yeah.
@43:49 - Dai Truong
Now those are more massive facilities that you'll need to invest in.
@43:53 - Nicolas Guarino
Okay. Yeah. Yeah. So that makes it a little bit easier because I was going to say like Buffalo is a six hour, a six, six and a half hour drive because we're right.
Down the border with Vermont, all the way on the other side. So the Syracuse facility will help a bunch.
And Syracuse will be important for us as well because Flintstone.
@44:10 - Dai Truong
I don't know if you've read about that. Or that door.
@44:13 - Nicolas Guarino
Yeah. They open there and they are just like absolutely crushing it. It's unbelievable. The sales that they're doing there.
I think they've already passed a million dollars and they've been open for like 12 days.
@44:25 - Dai Truong
Yeah. That's like without school being in session, right? Because I imagine when Syracuse is back in session, it's probably going to be...
Yeah, that's just the locals. Yeah. Yeah. Local and then probably people within an hour or two hour drive because right now there's not that many sports throughout the state.
So you still get kind of that demand from folks that are a little bit further away willing to make that drive and sock up for a week or a month.
@44:49 - Nicolas Guarino
Yeah. Yeah, for sure. For sure. And yeah. And I just think Syracuse is like a... It's such a central point for so many different areas.
It's going to be like Buffalo Syracuse upstate. Go region in New York City or kind of going to be the regions.
A ton of Canadians go to Syracuse. They have the Syracuse fair over there and actually Flintstones is going to be opening a store like right next to the fair.
Yeah, I think it's going to be an important spot for New York for sure, for distribution. I mean, I imagine NABBA is looking at Syracuse for sure.
@45:21 - Dai Truong
Yeah, I think usually these guys, they'll want to do one somewhere very central to the state that is roughly in the center and they can be three hours in any direction.
If not, they kind of have two locations that sort of offer something similar.
@45:37 - Nicolas Guarino
Yeah.
@45:38 - Dai Truong
Yeah. So last question for you Nick. What's sort of your near term and let's go on your term, know, two to three years from now and then longer term goals, which are five plus years.
@45:47 - Nicolas Guarino
What's your goals with the company as it relates to the near term and longer term? In the near term, it would be to establish and maintain five percent plus market share with
With our portfolio of brands. And that involves all of the stuff that we've been talking about, right? And then in the longer term, as we learn more about distribution and logistics, if we're able to pull off what we want to pull off here and establish that market share, it'll mean that we're very successful with our self-distribution model.
And we're very tentatively looking at the long term. Hopefully having less production and manufacturing and more distribution and logistics for other New York brands.
That's very far away. I would say like five years in cannabis, as you know, a super, super long time.
we just, we really need to focus on trying to keep, establish and keep 5% market share in New York, which is going to be hopefully a four or $5 billion market in the next three years or so.
Three to. So that's what we're looking at.
@47:02 - Dai Truong
Yeah. Five years is very hard to predict. So I apologize for even trying No, I just said, I even feel a little whenever I talk about a distribution plan in the longer term because I'm like, I just have no idea.
I hope that we can kind of pivot into that. I have no idea. know what I mean? Yeah. let's see rough numbers here to your other answer.
I'm sort of 5% market share. So I see that's 5% at wholesale. So let's say $4 billion. Retail, let's say keystone pricing for simple assumptions, you're coming out $2 billion of wholesale, meaning $100 million revenue.
You guys are going to keep 5% market share.
@47:39 - Nicolas Guarino
Is that correct? Yeah. And three to four years. right now as it stands with the number that the OCM released, we have about 10.6% market share within all categories.
And then if you take away flour, which we don't participate in, we're at about 20% market share. So as the market grows, as each new store opens again.
With a kind of horse blender on, it's trying to stay above 5%. And that's going to, for sure, involve a ton of operational and production challenges when we're talking about a $4 billion market.
But I think we'll meet them whenever they come.
@48:15 - Dai Truong
Would that mean you would consider at some point getting into a flower, given the market share that flower typically sees in every market?
@48:22 - Nicolas Guarino
And, you know, it's typically the number one, if not number two, category? No, probably not. No, I mean, we would.
So right now, the share that the OCM releases flower has 36% and pre-rolls have 15%. So we are going to go into infused pre-rolls.
That's the last brand that we have in house already trademarked ready to go. We just don't have the input for it.
It's Jwalkers. And Jaywalkers will be infused pre-rolls. So hopefully we'll be able to participate in that 15 to eventually probably 20%.
The pre-rolls will be. But that 30 to 40% that flower will hold. The New York is going to stay in other people's hands.
It's just too much investment. It's meant too much. Trying to produce high quality smokeable flowers is a whole other world.
In my opinion, that's too far from any of our management teams' expertise.