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Welcome back indeed.
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I am Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands, and I am back with the wise, the grizzled vet.
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His name is Morgan Paxia.
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Morgan, what's up, man?
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How are you?
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Uh, I'm doing well.
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All good down here in San Diego.
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Life is good.
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Good.
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Yeah, I'm firing up, man.
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I think today is going to be a fun show.
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We have a cool firm to talk about and a couple cool guys that work at that far that firm.
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So let's welcome back the CEO of Grown Rogue.
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He has a unique name.
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It is Obi Strickler.
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Obi, how are you doing, man?
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Hey, really good.
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Good to see you guys again.
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And thanks for having us on today.
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And we also have fellow Chief Strategy Officer Josh Rosen.
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Josh, thanks for being here.
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Yeah, happy to.
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I'm looking forward to it.
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Well, great.
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A heck of a lot has changed since we last spoke.
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1,718 days ago it was Obi in September of 2024.
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So we have a ton to cover today.
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But before we get into it, Morgan, please tell me about Bud Tender Love Week at FlowHub.
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It is indeed.
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It's Bud Tender Love Week, and it's FlowHub's annual celebration of the people behind the counter who keep retail moving.
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Now, in its third year, the campaign recognizes the important role Bud tenders play in guiding customers, recommending products, building loyalty, and creating great dispensary experiences.
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Throughout the week, FlowHub is celebrating standout bud tenders with Flow Hub Bud Tender Awards and sharing original content focused on their knowledge, experiences, and impact on the industry.
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You can find FlowHub in person this week at The Exchange in Oregon, the Poseidon VC and CEO mixer, and Ignite at Market Spotlight in Colorado, and Revelry Buyers Club in New York City, booth L454.
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FlowHub is and partners across the industry are doing a major bud tender love giveaway.
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25 plus chances to win amazing prizes.
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Enter by Saturday, September 19th at FlowHub.com slash Bud Tender Love Giveaway 2026.
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We do need to love our bud tenders that give us our products.
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And we're working on getting this CPG brand we have called Himalaya.
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It's a great vape brand we acquired a few months ago.
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We're looking to get that into more doors right now.
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And I'm learning how expensive how important it is to have the bud tenders on your side informed about your products and uh showing them what's great about it.
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So awesome to see that at FlowHub as well.
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Morgan, let's kick kick this off and frame it up.
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I love the architecture for today's show, and I think we can have a great chat to start out with about the state of the cannabis industry.
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So kick us off, my friend.
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Yeah, I'm excited about this section because Josh and I have actually known each other for quite a long time.
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Um we were just chatting before the show how it's actually we we would see each other more often in the early days, but we're still here.
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Indeed.
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So Josh with plenty of scar tissue, right?
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Yes.
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Endless.
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Um one of you have no one one of you has no hair and one of you has gray hair.
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And you know I'm feeling it too.
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So yeah, we all got it.
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Uh but we look, we're aging beautifully.
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I don't know what you're talking about.
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Cannabis keeps us young.
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Exactly.
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Um so Josh, we we've been kicking around in this space since before the term MSO even existed.
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No.
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So, you know, I guess maybe just kicking it off.
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What what do you think have we learned as an industry from the first, you know, the emergence of the MSO model?
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Um and you know, let's just start there.
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Yeah, I mean, I think and I mean some of it's gonna fast forward to why I spend and enjoy my time with Grown Rogue so much, but to me, this really dials into the you know the the product side.
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I mean, I think a lot of times we get we get lost in the call call it the storytelling or the public market version of things.
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And and the core of the industry for me, even going back to 2010 when I first started looking at it as an investor, and 2011 when you know Chris Crane and I first formed Forefront, uh the the core to me has always been the migration of regulated or excuse me, illicit to regulated.
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And you know, really supporting that dynamic.
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Yeah, I remember, you know, when when Chris and I formed Forefront, our mission statement was just simply to help professionalize the industry.
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Uh, I think that dynamic, uh, one of the things that I've kind of come full circle on when it comes to the product side is while I still, you know, the professionalization is very important.
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I think at times we've almost erred on trying to quote unquote professionalize the industry at the expense of just what that migration from illicit to regulated looks like and what customers actually want.
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And so for me, if we've yeah, I think there are a lot of lessons, you know, there are capital markets lessons that have been learned along the way, a lot of operational lessons.
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And I think one of the things that I'm and still kind of gets me out of bed every morning.
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I mean, Jesse made makes made that comment earlier, this this idea that we're uh, you know, we're kind of excited to get out of bed every day.
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Uh, the puzzle of the industry still is exciting to me, uh, despite the scarce issue.
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Uh, you know, lots of mistakes made, lots of lessons learned.
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Um, but we're still in the early days.
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And I think that is often lost on people, particularly Morgan, you and I, who have been at it so long, is like we can we can feel the years in the industry.
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But from like we're gonna, I'm sure we'll talk a little bit about New York.
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Uh, we'll talk about some of the markets that are still, in my in my view, very early from a migration to the regulated side of the equation.
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And you know, those dynamics because of how this the state markets have worked in our industry, they kind of play out, each individual state plays out at its own cadence, its own supply chain.
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Um, but there's still loads of immaturity, and that's exciting to me.
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Yeah.
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I no, I agree.
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I mean, it's it's kind of amazing.
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I mean, what would you think are like some of the top points of what you look at for how where we are in this maturation cycle?
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Like, you know, because I feel like it's immature too.
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But I'm just kind of curious like how you gauge the immaturity.
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Is it a regulatory thing?
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Is it a people thing?
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Is it all of the above?
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I mean, the the the simplest answer for me in terms of how I view the world is it's a customer choice thing, like customer choice and price point thing.
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Like to me, when a regulated market is like competing head on and taking the majority of the market share from the illicit market, I kind of feel like you're looking at what's probably a more supply, a more mature ecosystem.
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And so, you know, we have a lot of protected markets that might take quite a bit quite quite a long time to get there if if interstate commerce doesn't happen, for instance, these these protected markets probably persist for a while and you've got potentially higher profits in those markets because of it.
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But structurally, you know, one of the things that we've always underwrote to, you know, wearing my investor hat on the Bengal side is this idea that every market's going to go through this maturation curve.
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And, you know, we're looking for sustainable profits, not just kind of the instant profits you might get when a market turns on.
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And so, you know, that dynamic of maturity, I think it kind of falls into this patchwork state system that we have.
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There is not a one size fits all, like, here's where we are in the maturation curve.
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It's really, you know, Colorado looks pretty mature.
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Oregon, for its own, you know, has its own idiosyncrasies, looks pretty mature.
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Illinois, for as long as that market's been in involved now, still has a lot of characteristics of an immature market.
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Um, and New York, clearly, lots of characteristics of an immature market with a lot of illicit.
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And so that, you know, I think those dynamics uh are really varied across.
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And I've I've not done, you know, I tend to focus on what I know and pretty open-minded about what I don't know.
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I've not spent as much time in the international learning of this.
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Um, but in some ways, we've seen a maturation curve play out in Canada, right?
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And now we're starting to see at least the pull of demand from Europe for some of the Canadian producers revitalizing that dynamic.
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But I mean, these I'm a I'm an equity analyst in my formative years.
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Like the core supply-demand fundamentals of the industry are not rocket science.
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It's pretty straightforward.
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And you know, the the elasticity of price, also not rocket science.
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When price, when price gets cheaper, you know, more of the elastic was done in the regulated market, when quality improves, more people come into the regulated market.
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Like there's a whole host of dynamics that are fairly obvious when you step back and think about it.
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Yeah.
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Yeah, and that's a good point too, how regulations actually drive how the customer's cycle is impacted, right?
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Because if they're limited in form factors or whatever, they might not just get to experience what it is, the form that they're actually wanting if they're limited by it, and versus more traditional markets or like, you know, uh more mature markets where they have the full menu.
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Um, you know, they're they're gonna experience a lot more and find what you know what works for them.
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Um, and you know, it just makes me think too, again, back to the uh, you know, kind of original idea of the MSO model back in the early day, it was plant flags, right?
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It was like try to do the land grab, get out there.
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And it was like the customer was an afterthought.
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It was like, let's just focus on trying to secure licenses and get market share, and not really as much, and just just because or couldn't, because time you know is going so fast, they just had we're just trying to get things established.
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Um but can I jump in on that one real quick, just because I I love this point and because it it allows me to tell the story about Chris Crane stealing something from me.
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Um so you're going back several years.
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I think this is this is something that I've probably always been predisposed toward, maybe to a fault.
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But I used to refer to this, and Chris actually wrote an article about this years ago: the game of monopoly versus the game of risk.
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And this industry, what you were just describing, Morgan, to me, was very much just this game of monopoly.
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And the game of monopoly was very rewarding.
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And it was about, you know, it tied into this the storytelling as well.
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But at core, like if you're gonna have a sustainable bit sustainable business, and if you're going to win long-term, and win isn't necessarily at someone else's expense, this industry has so much opportunity from you know, kind of an abundance versus scarcity standpoint.
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But if you're gonna win, you got to know how to play the game of risk as well.
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And it's not just this game of monopoly.
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And, you know, I think that that has been, you know, to some degrees when you mixed up with how the capital, the capital formation cycle has worked our industry, it's just created tremendous pain because so much capital was deployed playing the game of monopoly in a pretty haphazard fashion at times.
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Oh, for sure.
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And then back in the day when we had ample equity markets, which I know is really kind of funny to say to people today, but there was actual equity and it was kind of readily available, especially if you're public.
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I mean, look at what the Canadians did with all their funded capacity.
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I mean, they just raised ungodly amounts of capacity that have finally worked out today, um, mostly because of having a robust export market.
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Um, but you know, here we are today.
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We're seeing quite a bit of deck chairs getting reshuffled, and we'll come back to some of those points a bit later.
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But you looking at the MSO model today, what is actually like some of the key points that you would think are proven as like, you know, durable in the face of price compression, in face of still illicit markets, you know, like we're we still have a lot of things as you know, as we were just talking about from a maturity standpoint, but what what is working for in the MSO model?
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Yeah, I mean, I think it it differs by state to a degree, but yeah, I tend to tend to think of like three buckets of profits.
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Like you've got your regulatory capture bucket, which is early days, having a license in a limited license state, being one of the only shows in town, you know, what what Virio and GTI are experiencing in Minnesota right now, for instance.
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Like they're the show in town.
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And if you want legal product, that's where you tend to go get it, right?
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And that's pure regulatory capture to show.
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You don't have to be that good.
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I mean, not saying they aren't, but you don't have to be that good in that environment from an operation standpoint.
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And then you you migrate to me to this, like we kind of think of it as a geographic bucket of profits or a like a moat that might not still be operational, but you've done a real estate hustle and you created a geographic barrier or a strong business that's really hard to dislodge.
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And I think if I were to paint a broad stroke across the MSO landscape, a lot of the more successful ones have done a pretty solid job of that piece.
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Uh, and particularly on the distribution retail side.
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They've either they've got protective markets that allow for it and have helped them stay protected and have that, or they've consolidated their way to the position.
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But a lot of them have really good real estate teams, they've got great development teams with respect to getting the local zoning done.
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And so they end up with a really strong competitive advantage on the distribution side of the house because this doesn't, you know, we don't have a three-tier system in most markets.
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And so that ability to be the shelf space, uh particularly coming back to the bit about flow hub with bud tender appreciation, like we have an industry that's still, from an influence standpoint, dominated by the bud tender exchange.
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And it's because we don't have a lot of real authentic sustainable brands that have that have developed.
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And so the bud tender carries, you know, that immature supply chain, giving the bud tender a kind of undue influence.
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And you know, that dynamic leads to that distribution level, uh call kind of a geographic bucket of profits being a competitive advantage if you use it well.
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And then the last piece, which I tend to think is more durable, and which is why you know Obi and I are really appreciate spending time with the grow and row business, is the the competitive advantage that comes from being really skilled operationally.
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And that piece might not always show up in profits when you're in a state like Oregon in terms of depth of profits and capabilities, but that capability set mapped to me is more durable.
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You know, which don't need to spend time on valuation, but to me, I pay, I personally as an investor, I pay more of a multiple for something that I think is durable versus not, uh, in terms of what can be eroded or how you can use that capability set and grow the business.
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Uh and that skill set, I think, varies across the MSOs.
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I think one of the, you know, we're on the Bengal side kind of noting this.
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I think people always view GTI as a best-in-class operator amongst the MSOs.
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Uh, I tend to agree, but I actually think it's largely because they've paid more attention in the cultivation operation than the others.
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I think they're inherently they generally have better product in those states we go to than their peers.
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And I think that engine of the industry on the supply on the supply side feeds their distribution, feeds, you know, feeds the things that all the MSOs do.
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And I think others are getting better at it.
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But to me, that that dynamic, that third bucket is where the MSOs historically have not been as strong.
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Because when you're east of the Mississippi, you haven't had to compete with Obi very often, you haven't had to compete with Ted from Alien Labs very often.
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Um, and you know, in those markets, like you don't you don't get to get away with kind of true mids.
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Like your mids are quality in Oregon, your mids are quality in California.
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Like mid is a different definition across states.
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There was a there was a brand uh that we love to quote internally.
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It was fire ass mids.
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And we're just like just gonna own it.
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It's so good.
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Okay, but funny thing about cannabis is like, you know, a common phrase outside of cannabis is like that's two certainties in the world are death and taxes, but in cannabis we kind of have a third, and that's price compression.
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And it's like inevitable, right?
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A new market opens, great pricing, it's great for a while, and then inevitably too much, you know, people get too excited and we see price compression.
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But um, you know, with that in mind, and especially like thinking about how you guys manage it, is like when you're entering a market, like what how do the winners overcome that?
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And you know, what are people that struggle continue to repeat?
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What mistakes are they continue to repeat that just are leading to this dynamic?
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Yeah, I mean, I think Obi has some comments on this as well, because one of the things that he's done really, really well is not overbuild from a capacity standpoint.
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And now, you know, what when you when you're first into market, sometimes there are some there are reasons to have that first mover advantage and there aren't there's not a lot of capacity in markets.
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So the idea of overbuilding or just building a lot of capacity makes sense.
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And I think most of the folks, for instance, in Illinois, they've built a lot of capacity, like they've made very good use of the capacity they built in Illinois broadly.
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And I think, but you know, when you mix that with not necessarily having the discipline about what it costs to build a facility, whether what what your lease structure looks like uh in terms of the capital that's into that, what you're having to pay.
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I mean, if you just looked at you know cost of production and the occupancy costs tied to a pound of product that comes out of some of the facilities that are on the more expensive leases in the industry, it's it's cost prohibitive when the market normalizes from a pricing standpoint.
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And those dynamics of not being efficient enough on not just building too much, but even spending too much per square foot that you're building, uh, there just was a you know a lack of discipline, kind of going back to the comment about monopoly.
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When you're playing Monopoly and you're just trying to go fast and you don't have the expertise in-house yourself, you're relying on consultants, you're relying on you know the contractors that are also relatively new in the industry, um, and you don't have a system that iterates and learns real quickly, you spend too much money, you end up with with cap structures that just put you at a really tough spot when prices normalize.
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Yeah, there's a great Buffett um, I think it was like late 80s, talking about C's candy, where it's just like that relentless uh satisfying of the customer and equal relentless focus on cost.
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And it's like, you know, just having that incredible dedication to both is just you know, it's so important.
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So I just it is, you know, it's good to hear because I mean it's it is.
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I mean, it's it's what how you run a business.
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You gotta be relentless.
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And it's like, you know, just but you also have to know what you're doing, right?
00:18:02.559 --> 00:18:18.960
I mean, it's it's you gotta have a good baseline of like what what you're trying to grow, like mentioning like GTI too is like they put more focus on actually making good products, you know, having some understanding of what it is you're trying to achieve, but then just being relentless about it.
00:18:19.599 --> 00:18:23.119
That's what I think there's not enough passion, you know, across a lot of the companies.
00:18:23.279 --> 00:18:27.440
You see a lot of it kind of locally in terms of like people that really care about what they're trying to do.
00:18:27.599 --> 00:18:36.319
And I think this industry really got ahead of itself in terms of you know, the focus on again the land grab or just like they're gonna buy whatever we put in front of them.
00:18:36.400 --> 00:18:39.359
Um and people got really spread out, you know, they lost that discipline.
00:18:39.440 --> 00:18:49.440
You know, Grown Row got a little bit distracted early on and kind of as we were building the business, but coming back to flower, like that's what we care about, that's what we're passionate about, um, that's where our energy goes.
00:18:49.599 --> 00:18:58.799
Um, and I think that's really important as you're building a business because that translates through to like not only the products, but just the feeling customers get and the way you can talk about it.
00:18:58.960 --> 00:19:02.640
Um you know, you gotta have something that you stand behind and that you're proud of.
00:19:02.720 --> 00:19:13.440
Um, and if it's just a product for product's sake, um that lasts for a little bit, but it just doesn't have any kind of continuity or kind of per perseverance, uh, so to speak.
00:19:13.920 --> 00:19:19.039
Yeah, what I find over and over again, Obi, you know, I had one dispensary for a few years in California.
00:19:19.200 --> 00:19:21.200
And what you realize is stoners are smart.
00:19:21.279 --> 00:19:27.440
Like you're not gonna trick them just because like I used to say flat, you know, a cool name and a great picture will sell it once.
00:19:27.599 --> 00:19:30.240
If somebody actually like really likes it, they'll buy it twice.
00:19:30.400 --> 00:19:35.039
And very rarely, in my experience, does somebody buy the same thing three times over and over again.
00:19:35.200 --> 00:19:41.359
So I say that in the spirit of like, A, you need choices out there, but B, you've got to actually do it really well because there are other choices.
00:19:41.440 --> 00:19:48.640
There's other flower brands, as Josh very smartly pointed out, just a traditional market or black market versus the regular regulated market.
00:19:48.799 --> 00:19:51.200
And I hate the idea, Obi, I completely agree with you.
00:19:51.279 --> 00:20:01.279
I hate the idea that we're gonna build glitzy doors to get the regulatory capture, but then put out mid-product at a high price and think that people are gonna line up for it just because we put it out there.
00:20:01.440 --> 00:20:04.799
And in my experience, and I think in the industry's experience, that just ain't what happens.
00:20:04.960 --> 00:20:11.680
Like if you if you have the story up front, you make the promises, you have the flashy door, you better put the fire product inside because somebody will come in once.
00:20:11.759 --> 00:20:15.359
But the stoners are smart, they're not to come back two or three times if the stuff isn't good.
00:20:15.599 --> 00:20:17.519
Yeah, they're a very discerning customer.
00:20:17.599 --> 00:20:21.839
And that's like honestly, why flour is so hard, right?
00:20:21.920 --> 00:20:23.519
It's not a recipe, right?
00:20:23.680 --> 00:20:33.599
You don't just hand it to someone and you like reproduce this, like there's genetic, there's different facilities, and how your kind of plants will um, you know, kind of manifest their expression inside of that.
00:20:33.759 --> 00:20:38.480
Like, you know, edibles, you can give a recipe to someone, it goes into their kitchen, it's very repeatable.
00:20:38.640 --> 00:20:46.559
Um, and so that's been the challenge, you know, for grown rogue to try and scale our business and push forward into these markets, but it's where the real opportunity sits.
00:20:46.720 --> 00:20:52.799
And we've yet to see a flower brand in the US really have staying power, right?
00:20:53.039 --> 00:20:56.000
You've seen, you know, there's several of them that are doing a really good job.
00:20:56.160 --> 00:21:07.839
But you see a lot of localized, you know, flower businesses that have really good kind of market share reputation inside their individual states, but which companies are able to scale a flower brand kind of national?
00:21:08.160 --> 00:21:11.359
And I think that's where Grown Rogue is really excited about where we sit today.
00:21:11.599 --> 00:21:32.160
Um, you know, we just entered our sixth state, and as long as we execute, and we will, when we get like kind of this absorbed and digested, it'll probably be as a flower forge focused organization, the you know, most scaled kind of platform in the US, um, which is super exciting for you know our team and you know what we've been doing in the last several years.
00:21:32.319 --> 00:21:35.920
Um but it's hard because you have to control the facility.
00:21:36.160 --> 00:21:49.759
You know, trying to do a licensing deal is difficult because yeah, you can give them an SOP and kind of a practice and a process, but the culture, the passion, that day to day kind of decision making, and you know, all the iterations and changes you have to make.
00:21:50.079 --> 00:21:54.079
Like you can't back to the recipe thing.
00:21:54.240 --> 00:21:55.759
It's just it's not a recipe you hands on.
00:21:56.000 --> 00:21:59.759
Like these are chefs and artists, like all that piece that comes in to have consistency.
00:22:00.400 --> 00:22:10.079
That product, you know, over time, which is again why we like to kind of control our own kind of destiny with our expansion into the facilities where we have operational control.
00:22:10.720 --> 00:22:12.960
It's pretty exciting for where we sit today.
00:22:13.440 --> 00:22:14.799
Yeah, I think that's super well said.
00:22:14.880 --> 00:22:29.599
We talked about that in the show about yeah, you could scale an edibles brand because you could get the same chocolate and similar distillate in most markets, but bringing a flower brand nationally, you know, you look at the snags cookies got into, you know, bigger snags than we than I'll get into right now, but at least uh on the licensing deals, yeah.
00:22:29.680 --> 00:22:33.039
I don't know how well they replicated that quality in different markets.
00:22:33.279 --> 00:22:43.359
You know, cookies, jungle boys, I mean not cookies, you know, jungle boys, for example, you know, they've gone to Florida, they had some industrial challenges going from growing in Florida, uh California to growing in Florida.
00:22:43.519 --> 00:22:46.240
So it definitely is harder to scale a flower brand.
00:22:46.319 --> 00:22:50.559
I do love the the way you guys are doing it, that you're trying to control it and keep it quality along the way.
00:22:50.799 --> 00:22:53.039
But let me run you a couple steps back, OB.
00:22:53.279 --> 00:22:58.559
And um, I'm reading this book called uh actually I just finished it, called Start with Why by Simon Sinek.
00:22:59.200 --> 00:23:00.960
And yeah, right?
00:23:01.200 --> 00:23:04.640
And it just read Mike and uh Micah read it, and he's like, Jesse, you've got to read this.
00:23:04.799 --> 00:23:05.200
I read it.
00:23:05.359 --> 00:23:08.720
Mike and I looked at each other like, dude, we've been talking about the company in the wrong way.
00:23:08.799 --> 00:23:10.400
Um, that's a different conversation.
00:23:10.480 --> 00:23:13.279
But the whole notion of start with why, like, why are you here?
00:23:13.440 --> 00:23:15.599
Like, Obi, what's the why around Grown Rogue?
00:23:15.680 --> 00:23:16.799
You read the book, like, why are you here?
00:23:17.039 --> 00:23:17.599
No, it's funny.
00:23:17.680 --> 00:23:25.039
I wrote that book in like 2017, and it gave me such like energy and like we're taking the company public, like starting Grown Rogue.
00:23:25.200 --> 00:23:31.119
Um, he does a really good job of just getting to the core basics of like, and it's a great question, like why?
00:23:31.279 --> 00:23:32.799
And it's for us, it's really simple.
00:23:32.880 --> 00:23:35.359
Like, we just we love flour, right?
00:23:35.519 --> 00:23:48.720
Like, and you know, we got distracted, but like going back to when I first started growing in like you know the early 2000s, like the reason I started growing was because you could not get consistent supply and you could not rely upon the quality, right?
00:23:48.880 --> 00:23:50.400
Pricing was whatever it was, right?
00:23:50.480 --> 00:23:59.359
Like it was expensive back then, you know, these like East Coast prices on the West Coast, which you know kind of uh compressed or normalized pretty quickly.
00:23:59.519 --> 00:24:01.519
But like that's the wife for Drone Rome.
00:24:01.759 --> 00:24:04.559
Like, we love flour, like that's how all of our decisions are made.
00:24:04.720 --> 00:24:09.680
I mean, there's a much bigger portion of the business in terms of how you have to professionalize it, the accounting, the finance.
00:24:09.839 --> 00:24:13.279
But at the core of what we do, like we love great flour.
00:24:13.440 --> 00:24:22.559
Like, I don't consume like I used to, but if I smoke, like it's a joint, you know, maybe with some of our new like cured resin, vape carts, and things like that that have that true expression of flour.
00:24:22.720 --> 00:24:25.039
But like, you know, it's a really interesting thing.
00:24:25.200 --> 00:24:32.079
We hired a guy, um, his name's Josh Crane in New Jersey, and so big history on the West Coast.
00:24:32.240 --> 00:24:38.559
Um, moved out to New Jersey to turn on Garden Green, which was kind of the largest independent in that state.
00:24:38.799 --> 00:24:52.880
Um, and you know, as we're talking to him, we're talking about our passion and our culture and how much we care about, you know, flower and the quality and the genetics, and just and you know, you can I in hindsight I didn't realize because that's how we think, that's who we are.
00:24:53.119 --> 00:25:00.640
But it took him joining our team and sitting in a meeting with what we call our brain trust, which is our DLCs across the market.
00:25:00.880 --> 00:25:02.480
I'm not a Ned, by the way.
00:25:02.799 --> 00:25:08.640
Yeah, Josh is, you know, and I've stopped even joining some of these because part of this is you know, allowing your team and empowering them.
00:25:08.720 --> 00:25:15.599
But getting back to that, like Josh is I mean, he's been in the industry for 20 years, like he knows his stuff, he's very connected.
00:25:15.759 --> 00:25:17.519
You guys might even know Josh Crane.
00:25:17.839 --> 00:25:20.160
And he called me after that first meeting.
00:25:20.400 --> 00:25:28.880
And he's like, Obi, I've never in my entire career sat in a meeting with people that are that passionate about flour and about this product.
00:25:29.119 --> 00:25:32.880
And you told me you guys were, and I heard it, but everyone says that.
00:25:33.359 --> 00:25:40.079
But he's like, Holy shit, like sitting there and listening to that team and the intensity and the care.
00:25:40.720 --> 00:25:43.359
You can't you can't fake that, right?
00:25:43.519 --> 00:25:55.839
And I think that's what translates through from the team first, the quality in the product, the way we, you know, you know, way we show up every day, and then how that translates into the experience that our customers get.
00:25:56.480 --> 00:25:57.359
That's the other big thing.
00:25:57.440 --> 00:26:03.839
And Josh talked about that, and Josh Rosen, like uh people put the customer last.
00:26:04.960 --> 00:26:12.400
And what business in CPG or any business has ever started with, the customer is secondary to any other kind of objective.
00:26:12.559 --> 00:26:15.119
Like the customer is who grades you every single day.
00:26:16.000 --> 00:26:17.359
And they are discerning.
00:26:17.440 --> 00:26:27.519
I mean, you're right, we say we get one chance because if you're gonna go buy, I mean, maybe in a less expensive market, but even in a less expensive market, like you get one, maybe two chances.
00:26:27.759 --> 00:26:32.880
And so your quality control, what you put for it, the decisions you have to make, I mean, it has to be on point.
00:26:33.039 --> 00:26:37.039
Like, you have to be perfect, hopefully, every single day.
00:26:37.279 --> 00:26:48.799
Because if you go buy a$50 eighth in New Jersey or a$40 eighth, and it doesn't meet your standard, or it's like small or doesn't smell good, or it doesn't have the flavor or the taste, like there's plenty of brands that'll take that.
00:26:48.960 --> 00:26:50.799
And so just that consistency.
00:26:51.119 --> 00:26:55.359
Um, and so going back to the why, it's like we just we love flour.
00:26:55.519 --> 00:27:05.680
Um, and that's where our energy and effort and kind of you know, the way we hire, um, the way our meetings go, like it all comes back to that's the most important thing we do.
00:27:05.839 --> 00:27:12.400
And I think that discipline and focus is another thing that's really allowed grown rogue to kind of achieve the things, and we still got a lot of work to do.
00:27:12.480 --> 00:27:16.240
Um, but not getting spread out is another important factor of that.
00:27:16.720 --> 00:27:24.960
Yeah, and so how does the current model answer the challenges and opportunities Josh was framing in the MSO analysis?
00:27:25.119 --> 00:27:28.400
Because I think one thing we're trying to do, I'll be Obi, is always be learning in real time.
00:27:28.480 --> 00:27:30.880
Like there's been something about the large MSO model that works.
00:27:31.039 --> 00:27:37.359
There's been some things that showed up to be challenges, and I think you know, we can all learn and evolve from that, but also learn and evolve from our own mistakes.
00:27:37.440 --> 00:27:41.599
Like if we're not looking at what we did three years ago and getting better, right, we're for sure going to fall behind.
00:27:41.759 --> 00:27:48.720
So I'm curious, like with the framing of the way Josh looked at the industry, how do you see grown rogue as a response to the challenges and opportunities?
00:27:49.119 --> 00:28:00.400
You know, it's um I don't think we got lucky, but you know, there was this great quote I read around like uh intensity creates your own luck or whatnot, or your work ethic or whatever it is.
00:28:00.559 --> 00:28:10.880
And so, you know, as we've expanded and we've taken on a couple of distressed assets and we've seen some of the, you know, the way they constructed their facilities, like the design process.
00:28:11.200 --> 00:28:16.160
You know, for a long time I was like, God, these they don't know what they're doing, like like why would they choose this?
00:28:16.240 --> 00:28:23.119
And then it dawned on me like most of that land grab was before you actually knew what problems existed, right?
00:28:23.279 --> 00:28:26.799
Grown rogue has been solving problems since we started a business.
00:28:27.039 --> 00:28:32.559
I think where we got lucky a little bit is we're expanding from a position of strength.
00:28:32.799 --> 00:28:40.960
And so the problems that you see in the business, inventory allocation, genetic sourcing, like facility design, like we've learned a lot of those things.
00:28:41.039 --> 00:28:42.079
And we're still learning, right?
00:28:42.160 --> 00:28:44.480
Every single day there's a new fire you got to put out.
00:28:44.640 --> 00:28:50.880
But we didn't go into eight states without the foundation of how do you want to run your business.
00:28:51.119 --> 00:28:58.720
Because if you're in eight states, and like a great example is in Jersey, um, you know, Oregon and Michigan are more bulk markets, right?
00:28:58.799 --> 00:29:04.559
And so the brand like package product is not as um, it's just not a big as big a portion of our business.
00:29:04.720 --> 00:29:07.440
In Jersey, we're 100% packaged, right?
00:29:07.599 --> 00:29:11.680
Which is pretty amazing as we build a brand and we get that loyalty with the consumer.
00:29:11.920 --> 00:29:15.920
But allocation of product into your brands becomes super critical.
00:29:16.079 --> 00:29:22.480
What goes into this brand, what goes into this brand, what goes into pre-rolls, you know, all those kind of different decision making.
00:29:22.720 --> 00:29:26.559
And it's something that we just we weren't as familiar with with Oregon and Michigan.
00:29:26.720 --> 00:29:31.200
Um, but imagine trying to fix that problem across eight states simultaneously, right?
00:29:31.359 --> 00:29:34.640
And so I think one of the things that grown rogue is kind of, you know, this incremental approach.
00:29:34.720 --> 00:29:36.559
And 2026 is going to be a big year.
00:29:36.640 --> 00:29:44.559
I mean, we're turning on three markets, like Illinois just had their first harvest, Minnesota and New York are spinning up almost simultaneously.
00:29:44.720 --> 00:29:56.319
Um, but I think that's been a big advantage for us is not having to solve and getting to a point like where facility design and systems and processes inside the business, you know, we've got a really good handle on that.
00:29:56.400 --> 00:30:02.240
So as we're expanding these markets, it's from this position of strength with processes that we know function and work.
00:30:02.400 --> 00:30:06.160
And we're not in this like corrective action kind of component.
00:30:06.319 --> 00:30:17.279
Um and then you take that with some of the, and again, back to the design, like you know, like I mean, what we took over in New York, I mean, that pharmacan facility there, they spent a lot of money on that thing.
00:30:17.359 --> 00:30:20.960
There's still design flaws, like they didn't build a dry room.
00:30:21.680 --> 00:30:22.720
Think about that, right?
00:30:22.799 --> 00:30:27.119
And so, like the importance of like cure um and the post-harvest.
00:30:27.200 --> 00:30:31.519
I mean, I've said for years, like you, and this has come from our outdoor kind of experience, right?
00:30:31.599 --> 00:30:34.640
That's how we kind of started in my early days with all outdoor.
00:30:34.880 --> 00:30:38.319
You can spend six months growing it and six hours screwing it all out.
00:30:38.559 --> 00:30:41.519
100%, 100% post-harvest process as well.
00:30:42.640 --> 00:30:43.680
Yeah, it's interesting.
00:30:43.759 --> 00:30:54.799
I would real quick, just to add one little nugget to to Obi, because it's the part of the business that I still get the most noise from is just watching people properly supported that haven't been supported as well in the industry or haven't had the right inputs.
00:30:55.039 --> 00:31:03.759
And I think one of the things, you know, Morgan and his seas candy reference point, like that kind of spoke to me is because it kind of describes Obi.
00:31:03.920 --> 00:31:12.960
Obi is, you can tell, all about the flower, but with this cost discipline, because he's had to live and compete in Oregon for so long, it's like, yeah, I'm all about the quality and I'm all about the costs.
00:31:13.039 --> 00:31:16.000
And they're not, you know, they're not at odds with one another because they can't be.
00:31:16.480 --> 00:31:23.519
But but that bringing people into this culture that have the allocation experiences referencing, for instance, in New York, we're taking on some stores.
00:31:23.680 --> 00:31:26.559
Like Grown Rome doesn't have that capability set, but I've lived that.
00:31:26.720 --> 00:31:48.799
We've got a lot of folks in our network with kind of the scar tissue and and can come in and apply their learnings, but in our culture, and it's just that's what I have the most fun with, frankly, is just tapping into you know the network that I have, the network that we collectively have, and introducing them to this very pasture and flower forward culture and giving them the proper support because you know it's it's vetted talent, it's reference talent.
00:31:48.880 --> 00:31:51.440
And it's I just that I love that part of this job.
00:31:51.759 --> 00:31:53.119
Yeah, that's awesome, Josh.
00:31:53.200 --> 00:31:54.319
And I can't believe that story.
00:31:54.400 --> 00:31:55.359
I really can't believe it, Obi.
00:31:55.519 --> 00:31:58.400
Like when I was learning how to grow, like you guys, I'm late to the game.
00:31:58.480 --> 00:32:00.240
So my first crop was in 2016.
00:32:00.400 --> 00:32:03.039
And I say crop, I mean six plants in the backyard.
00:32:03.279 --> 00:32:15.680
And uh, buddy of mine who has a great, great uh brand in California, told me, Jesse, it's one-third the genetics, it's one third what you do with it when you grow it, and it's one-third the cure and the uh the drawing and curing process.
00:32:15.839 --> 00:32:25.440
And we could argue about those pieces in terms of you know fractional percentages, but to that last point, like yeah, Obi, you can blow up, you know, nine months of work and three hours if the garage is 110 degrees.
00:32:25.519 --> 00:32:27.119
And so it's uh insane to me.
00:32:27.200 --> 00:32:38.160
We're at the stage of the cannabis industry where somebody designs a facility with A without a drawing room, but I would be spending a disproportionate amount of time on that drawing and curing process saying, how can I do it well but do it quickly enough that it makes sense?
00:32:38.319 --> 00:32:40.720
So that's a that's a wild story to hear, man.
00:32:40.799 --> 00:32:42.480
But let me wrap my section.
00:32:42.559 --> 00:32:43.680
I'm gonna throw it back to you, Morgan.
00:32:43.759 --> 00:32:49.119
But Obi, I actually talked about you yesterday and I was on a podcast and we're talking about different models out there.
00:32:49.279 --> 00:32:57.759
And I said one that always fascinates me is what grown rogue is doing because the objective is to craft high quality flour at, I don't know what we want to call it.
00:32:57.839 --> 00:33:01.440
It's not a low price, but let's call it an affordable price, or certainly a great value.
00:33:01.599 --> 00:33:02.720
And we've had you on before.
00:33:02.799 --> 00:33:09.920
I think I've interviewed you three or four times uh in my life, OP, and I'm always trying to understand the question about like what makes that difference?
00:33:10.079 --> 00:33:16.000
Like, what is the grown rogue edge that allows you to produce great flour but still at an affordable price?
00:33:16.640 --> 00:33:18.559
I mean, there's a ton of pieces that go in.
00:33:18.960 --> 00:33:19.839
That's what you always tell me.
00:33:19.920 --> 00:33:20.319
You never tell me.
00:33:20.640 --> 00:33:20.799
Right.
00:33:20.880 --> 00:33:22.319
Well, it's I mean, it's true.
00:33:22.480 --> 00:33:24.559
And people are always like, well, where's your mode?
00:33:24.640 --> 00:33:25.599
Like, where's your IP?
00:33:25.759 --> 00:33:28.559
Do you have this special patent on this fork or whatnot?
00:33:28.960 --> 00:33:35.039
Um but I I it fundamentally it starts with that's what our focus and passion is about, right?
00:33:35.200 --> 00:33:39.119
And then with inside of that, all these different pieces come together, right?
00:33:39.279 --> 00:33:46.160
And so, you know, like genetic selection is super critical inside of that, right?
00:33:46.319 --> 00:33:52.960
Not only growing for the characteristics that are desirable from a consumer standpoint, but then you have a business, right?
00:33:53.039 --> 00:33:55.519
Like yield really helps with cost control, right?
00:33:55.680 --> 00:34:03.599
And so, you know, a lot of your costs are fixed, so higher yield against a fixed kind of denominator, like you get a better cost per pound.
00:34:03.759 --> 00:34:12.880
Um and culture, like you got to have a team that gives that cares, right?
00:34:13.039 --> 00:34:14.079
That shows up every day.
00:34:14.159 --> 00:34:21.039
I mean, that this is sometimes it's glorified labor, like there's a lot of monotony to like we're we're effectively a manufacturing business.
00:34:21.199 --> 00:34:34.239
And you know, I come from an engineering background, geologist by training, a lot of time in natural resources, and so cost control and pricing is always super critical because at$3 copper project doesn't work, at$5 copper, you should probably retire.
00:34:34.320 --> 00:34:37.039
And so that pricing environment is super important.
00:34:37.360 --> 00:34:48.960
But one thing you can control is your cost and your inputs, and so constantly trying to drive that towards lower input costs, but it's not like we have some, you know, like we get our consumables cheaper than anyone else.
00:34:49.039 --> 00:34:50.800
So that stuff is pretty consistent across.
00:34:50.960 --> 00:34:55.039
Yeah, we get some scale because we buy on bigger increments and we negotiate heavy.
00:34:55.280 --> 00:35:00.239
Um it's it's a whole combination of those components that come together.
00:35:00.320 --> 00:35:05.519
But I would say genetics is at the forefront, um, yield is super critical in that.
00:35:05.679 --> 00:35:09.360
And then what I think a lot of people miss, right, is it's sell through.
00:35:09.519 --> 00:35:11.360
Like you have to be able to monetize that product.
00:35:11.519 --> 00:35:18.719
So having that velocity, a product the customer actually wants to put that cash back on your balance sheet to either expand, pay your bills.
00:35:18.800 --> 00:35:24.239
Um, so you'll see a lot of people with these big yields, but then it's really low quality and you don't get the sell through.
00:35:24.320 --> 00:35:34.400
Um, and so when you combined all those things together, and then all the little stuff that's our special sauce, you know, the way we track data analytics, the relevance that we bring to our business in terms of what's important.
00:35:34.559 --> 00:35:45.360
You know, I think we have really good data capture that comes back to the early medical days, like we kept, and this is when I had a lot more of that responsibility, it was much simpler back then in terms of how you manage these businesses.
00:35:45.599 --> 00:35:47.599
But data was always super critical.
00:35:47.760 --> 00:35:49.679
Um, but relevant data.
00:35:49.840 --> 00:35:57.360
And so there's been a lot of times when we bring in new teams or you know, new talent, and they'll show me like their I'm like, oh, that's amazing.
00:35:57.440 --> 00:36:02.480
And then you get into the detail and you're like, yeah, but 17 of these 25 things are irrelevant.
00:36:02.559 --> 00:36:03.280
Like, who cares?
00:36:03.360 --> 00:36:06.000
So you got someone tracking that, spending time on it.
00:36:06.159 --> 00:36:11.920
Um, and so I think our team has done a really good job of getting to relevance really quickly in terms of what's important to track.
00:36:12.159 --> 00:36:16.079
Um yeah, so it's uh that would be Jesse.
00:36:16.239 --> 00:36:18.159
If I told you, you know, everyone would be able to do it.
00:36:18.239 --> 00:36:22.000
So that was Obi's Obi's long-winded version of culture, right?
00:36:22.079 --> 00:36:25.039
Like, I mean, think it like that's the answer to me is culture.
00:36:25.119 --> 00:36:31.920
And I think it's just culture is not something that, you know, wearing my investor hat, like everybody says it, it's it's hard to replicate.
00:36:32.079 --> 00:36:34.480
But to me, that's the that's why I'm here.
00:36:34.559 --> 00:36:35.840
That's the differentiator ultimately.
00:36:35.920 --> 00:36:43.119
And I think of, and I think going back to the MSO business model, I think of headquarters for a multi-state operator as being a tax on the business.
00:36:43.280 --> 00:36:51.280
Like what we do at HQ is expensive, and we need to justify ourselves every day in the field by adding value.
00:36:51.519 --> 00:37:10.000
And I think what's different about grown rogue, the secret sauce per se, is that we're run by a grower who is not just a grower, but if if you've got something on the infrastructure side, he might not know the answer because Obi's not the biggest expert on every subject matter with respect to cultivation across the board.
00:37:10.079 --> 00:37:18.159
We've got team members that are technically deep in individual categories, but you want somebody that's gonna ask a relevant question on a cultivation-related topic and do it quickly.
00:37:18.320 --> 00:37:20.159
I've never met anybody better than Obi.
00:37:20.239 --> 00:37:24.719
Like you want to walk and roll with someone that wants to ask, you know, the relevant inputs, same thing.
00:37:24.880 --> 00:37:34.239
And so our ability at headquarters to push relevance into the field and make sure they're focused on the right things, and you bring kind of a stupid question to Obi, and he's kind of gonna chuckle at you.
00:37:34.320 --> 00:37:38.800
And if you bring it, you know, the same question two or three times and be like, yeah, this I don't think this person's the right fit for us.
00:37:38.960 --> 00:37:43.119
Like it happens pretty quickly with us because of that, you know, that that focus.
00:37:43.280 --> 00:37:44.800
And that's where culture shows up.
00:37:44.880 --> 00:37:48.239
But it's you know, it's the undefinable piece, but it's not SOPs.
00:37:48.400 --> 00:37:56.000
I mean, there are other folks with great yields in the industry and you know, ultimately low cost of production, but you gotta have something people want.
00:37:56.960 --> 00:38:00.400
I think there's also a lot of empowerment that comes into it, right?
00:38:00.480 --> 00:38:04.400
In terms of like we talk about it being a modular business a lot.
00:38:04.480 --> 00:38:09.360
Like each state has like 70% of it that's consistent, right?
00:38:09.519 --> 00:38:13.440
And then this state will have a regulatory thing that you have to stick a mod in.
00:38:13.679 --> 00:38:20.079
Um, but even like our DOCs, our directors of cultivation in each market, like they have guidelines, right?
00:38:20.239 --> 00:38:24.559
And practices that we want to deploy, but each one has their own, it's the artistry.
00:38:24.639 --> 00:38:26.480
Like, this is what I love about cannabis, right?
00:38:26.559 --> 00:38:30.079
It's the combination of ag and engineering, right?
00:38:30.239 --> 00:38:35.519
And if you just try and grow it through engineering, um, and it's a little bit of art in there as well, right?
00:38:35.599 --> 00:38:42.960
But like if you just set it through one of those two kind of principles that is so black and white, like you're not gonna be successful, right?
00:38:43.039 --> 00:38:46.719
And so allowing our teams to have that artistic touch.
00:38:46.880 --> 00:38:49.679
I mean, we talk about flower a lot like fashion, right?
00:38:50.000 --> 00:38:58.400
You trust a brand, like you trust Han or Nike or whatever it is, but you don't want the same pair of tennis shoes every single year, right?
00:38:58.639 --> 00:39:02.000
So the company has to keep bringing you stuff that you're excited about.
00:39:02.079 --> 00:39:04.239
Um, and that's where that artistry comes in.
00:39:04.400 --> 00:39:09.679
Um and then we're not afraid to make mistakes, you know, like we test new genetics all the time.
00:39:10.079 --> 00:39:11.440
Some are awesome, some are not.
00:39:11.599 --> 00:39:14.480
Sometimes you put them into production and you're like, ah, we screwed that up.
00:39:14.559 --> 00:39:20.800
But like you got to keep pushing the limits as well, taking that risk to continue to bring stuff that the consumer is looking for.
00:39:20.960 --> 00:39:29.360
Um and so it's a yeah, multi-faceted approach, but giving your team that empowerment to be creative is super critical to our success.
00:39:30.639 --> 00:39:35.840
So something you were mentioning about with some of these facilities that you have taken over.
00:39:36.079 --> 00:39:45.199
I was just kind of curious to pull that apart a little bit more because it seems like you know, you have a kind of a process with how you like to build these things, a cost structure around it.
00:39:45.519 --> 00:39:56.000
So, when does it work and why to take over, like let's take PharmaCan's Illinois facility for starters versus building from scratch?
00:39:57.280 --> 00:40:00.639
Uh cost to entry is going to be cheaper, right?
00:40:00.800 --> 00:40:05.440
The way we're able to enter these distressed assets is way less than what we'd be able to construct them for.
00:40:05.679 --> 00:40:09.840
Um then your timeline to market is significantly reduced, right?
00:40:09.920 --> 00:40:13.760
It might take, I mean, it took us a eight months to build Minnesota.
00:40:13.840 --> 00:40:15.599
You know, we closed the building in December.
00:40:15.760 --> 00:40:19.599
You know, we had started doing some of the engineering work, so your time to market goes up.
00:40:19.840 --> 00:40:27.360
Um in a perfect world, if you had the right cost of entry and an accelerated timeline, of course, we'd want to build it ourselves.
00:40:27.599 --> 00:40:34.639
Because when you walk into these, you know, assets, and we do a fair amount of due diligence, but again, our team's super scrappy.
00:40:34.719 --> 00:40:40.880
And so when we see like a lack of a dry room and they turned one of their indoor rooms, it's not like they don't have any dry, like there's dry space there.
00:40:40.960 --> 00:40:44.559
It just was not uh built as dry specific.
00:40:45.039 --> 00:40:46.880
The team's really scrappy, right?
00:40:46.960 --> 00:40:50.559
Like that's the other thing I think in this industry is I mean, you should go to our grow in Michigan.
00:40:50.639 --> 00:40:52.480
It's like we call it the million-dollar basement grow.
00:40:52.559 --> 00:40:56.239
Like people overcomplicated what it takes to put out the product into this market.
00:40:56.719 --> 00:41:05.360
And so we look at these things and where there's a good return on investment in terms of, you know, we have to do this, um, we will, but a lot of times it's just no.
00:41:05.519 --> 00:41:13.679
And I tell the team all the time, like, you know, no, like that's one of my my nickname as a grown rogue, which is no, because they'll ask for something.
00:41:13.760 --> 00:41:15.119
And it's like, nope, not yet.
00:41:15.280 --> 00:41:18.400
Like, show us the proof, like show us kind of where we're going.
00:41:18.559 --> 00:41:23.360
Um, the biggest thing I think we see in these facilities is mechanical, right?
00:41:23.519 --> 00:41:24.880
Especially as you go through distress.
00:41:24.960 --> 00:41:32.480
Like, that is really the you know, it's the heart of your facility in terms of having your temperatures and humidities and kind of that control apparatus.
00:41:32.960 --> 00:41:34.159
They're complicated.
00:41:34.320 --> 00:41:38.079
And so a lot of times you'll get deferred maintenance as people are managing cash.
00:41:38.239 --> 00:41:42.719
And so getting those things back up and operating properly is probably one of the biggest hidden costs.
00:41:42.800 --> 00:41:49.119
Um, but again, it just comes down to dollars, and you know, nothing's unsolvable.
00:41:49.280 --> 00:41:52.719
And so you gotta maybe spend a little bit more money because this HVAC doesn't work.
00:41:52.800 --> 00:41:57.360
Um, but still the overall cost and timeline greatly supports kind of this approach.
00:41:57.519 --> 00:42:05.679
Um, that being said, like we love custom building, like what we built in Minnesota that we're just turning on, like it's gonna be amazing, right?
00:42:05.840 --> 00:42:10.719
Built to our spec with our system, with our sizing, with our process and flow.
00:42:10.960 --> 00:42:15.599
Um so it's a good balance between both, right, in terms of how we're gonna go about it.
00:42:15.679 --> 00:42:29.039
And I expect us to continue that path as we continue to expand some select greenfield expansion into markets where we think that's the right place to deploy capital, coupled with there's still gonna be a lot of distress in this market over the coming years.
00:42:29.119 --> 00:42:31.599
Um, and the opportunity that presents itself.
00:42:31.920 --> 00:42:32.400
Right.
00:42:32.719 --> 00:42:34.960
So, like, is there kind of like a framework?
00:42:35.039 --> 00:42:45.039
Is it how much I understand the timeline savings, but to your point, there still is invested dollars to get it back into the mode that you want it to be?
00:42:45.280 --> 00:42:58.000
Is there like kind of like a metric like we want this to be at least 30% better than if we were to go build it ourselves, or like some kind of framework that you're trying to think about that because I'm sure there's gonna be more to your point, there's gonna be more opportunities.
00:42:58.079 --> 00:43:02.320
There's probably plenty of opportunities to find these distressed situations.
00:43:02.960 --> 00:43:13.679
But is it like what's like your crossover point where it's just not worth the hassle to get it right versus Josh may have better kind of like structures as he thinks about that and kind of leads that portion for our business.
00:43:13.760 --> 00:43:22.800
But I'll tell you just from Illinois and New York, um, a third of the price and twice as fast, is generally how I would look at that.
00:43:22.880 --> 00:43:26.719
And New York might even be way less than a third of a price that you'll do my entry point there.
00:43:26.880 --> 00:43:35.440
But Illinois was kind of in that range in terms of what the construction costs would take versus taking on this, you know, taking over this asset that had, you know, been evicted from.
00:43:35.599 --> 00:43:38.400
Um, but I'd say that's kind of a general rule.
00:43:38.559 --> 00:43:42.239
Um, but again, it depends upon the opportunity, Morgan.
00:43:42.400 --> 00:43:46.000
Like it's not there's no cookie cutter solution in this industry.
00:43:46.079 --> 00:43:49.440
It's not like there's this box that's it doesn't hit the box, we don't do it.
00:43:49.760 --> 00:43:51.360
Um, but that's my response to it.
00:43:51.440 --> 00:43:53.840
Josh probably will say it much more eloquently than I do.
00:43:54.159 --> 00:43:59.760
No, the the only thing I'd I'd add is actually ends up, I think Morgan, outside of the economics, like it it's a little bit more.
00:44:00.239 --> 00:44:13.679
binary than I think for you know than formulaic in the sense that there's a sufficiency dynamic that is me making sure I get OB andor our lead on the infrastructure side mark Dority out to a facility mark is super technically strong.
00:44:13.840 --> 00:44:16.320
It's like, hey, let's go, let's go compare this.
00:44:16.480 --> 00:44:17.920
What do we think we can do with this?
00:44:18.159 --> 00:44:26.079
And then it comes back to me with a, okay, what do we, what economics do we think we can get if we're dealing with a landlord that needs to re-tenant it?
00:44:26.239 --> 00:44:30.239
Okay, well, here's what we think we can afford from an occupancy cost per pound of flour we can produce.
00:44:30.320 --> 00:44:35.199
Here's here's what we're going to get out of this facility because of its, it's, you know, it's sufficient for this.
00:44:35.440 --> 00:44:41.199
And then that, you know, that discipline comes back to me with a, oh, well, in Illinois, we can only afford to pay this.
00:44:41.360 --> 00:44:45.119
If it works, then we have something we can move forward with and and proceed.
00:44:45.360 --> 00:44:54.719
And one of the benefits of of you kind of my network within the industry and my history in a lot of these regulatory environments is just the ability to get to good information quickly and kind of go no go quickly.
00:44:54.800 --> 00:44:59.280
So we filter pretty fast to, oh yeah, this one I think we can probably get for a price that works for us.
00:44:59.440 --> 00:45:02.079
When the market gets competitive, we're still going to make money.
00:45:02.960 --> 00:45:05.760
And Mark and Obi have said it's sufficient.
00:45:05.840 --> 00:45:09.760
So you get like the sufficiency test and then I get to run and play with the economics.
00:45:09.840 --> 00:45:12.719
And then if I get really excited about something I might push on them a little bit.
00:45:12.800 --> 00:45:25.679
And you know New York is probably that example where I just see such a lack of indoor flower canopy in the regulated market in the state of New York that it was, hey, like this is one I really, you know, we're gonna we're gonna lock in and find our way into the state.
00:45:25.760 --> 00:45:27.440
Like we belong in the state.
00:45:27.920 --> 00:46:08.079
Yeah and interestingly with New York that came along with it came retail the four stars and I know Josh you were mentioning that was that was that intentional that you that grown rogue is changing that you want to start doing more retail or was this just such a an attractive cultivation setup that you're like we're gonna we'll still make retail work but this is not a broader change just kind of curious you know with that passed up yeah much more the latter than the former so for us it was the wholesale market development opportunity for grown rogue that drove the excitement drove the the business but you know to be you know the the registered organization license class in New York can can grow up to 100,000 square feet of canopy.
00:46:08.320 --> 00:46:15.360
And in order to to have that license and renew that license you have to have four medical stores open under that same license class.
00:46:15.519 --> 00:46:26.400
And so like just from a sustainability standpoint you've got to have those four doors and over you know over time three of them can be converted to medical and adult use.
00:46:27.199 --> 00:46:32.000
But for us for the integrity the license having the stores was a need.
00:46:32.880 --> 00:46:35.280
Yeah we have some degrees of freedom as we go forward.
00:46:35.440 --> 00:46:58.480
I mean there are ways to you know bring in others to help manage things if we feel like we it's kind of beyond us we don't feel that way we we're pretty excited about taking on retail and we've got you know we've we have plenty of folks on our network uh to kind of lean into that um but it was not a intentional grown rogue now going vertical expanding yeah we're not out hunting for a bunch of stores in Illinois we're not out hunting to be a vertical player.
00:46:58.960 --> 00:47:02.000
So so you're not you're not gonna MSA those Josh you're gonna run those yourself?
00:47:02.320 --> 00:47:08.800
To start with we're gonna yeah I mean we're still in integrate like heavy duty integration learning mode right this moment.
00:47:09.280 --> 00:47:18.400
So just you have a I yeah I think it was it was rough for I mean there weren't new plants planted in that in the growth in the cultivation facility for like really since late March.
00:47:18.639 --> 00:47:23.199
And so the first party supply that was working through those stores is winding down.
00:47:23.360 --> 00:47:27.840
We've got some transition issues just very naturally to deal with on its own from a supply standpoint.
00:47:28.000 --> 00:47:38.000
And so we're kind of collectively with the pharmacan team which is a strong retail team on the ground already just collectively managing the supply chain disruption that was going to be happening to them regardless.
00:47:38.480 --> 00:47:45.119
So we're taking that on ourselves um but yeah TVD like there's just there's a lot of flexibility attached to it.
00:47:45.519 --> 00:47:46.000
Yeah.
00:47:46.320 --> 00:48:12.800
And while we're living in this regulatory limbo medical enjoys the benefit of not having two ADE in adult use still does is that a benefit is that a factor when you're with Illinois and and New York or was that just kind of just I mean I'm sure this all happened before these things were going on but I guess how are you thinking about medical versus adult use in in these two more recent markets?
00:48:13.360 --> 00:48:26.880
Yeah really from a I'm a more of a long-term thinker and long-term planner with regarding with regard to underrating et cetera so we do some handicapping about what might come but I find a lot of a lot of those points to be really dynamic to be conclusive on.
00:48:27.119 --> 00:48:41.920
And so like you know for instance you know we're not an organization that went out and you know press released the fact that we did the DEA paperwork with where we've got medical but like yeah we do the work um but we're not particularly certain about what comes next or how it comes.
00:48:42.400 --> 00:48:52.880
And so for us we've got such a core focus on our fundamental business that we don't spend a lot of time thinking through those dynamics until they're more certain.
00:48:53.039 --> 00:49:21.119
And obviously we're waiting for you know adult use schedule three news um like it just it feels premature to make some stronger strategic conclusions for us then doesn't mean probably like Jesse's business that we're not thinking man we we need to make sure we're ready for some version of interstate commerce or we actually think probably international export comes before interstate commerce in most realms at least probably probabilistically in our world we think that but don't know if we're right.
00:49:21.199 --> 00:49:51.360
Like that stuff is still in my view you know speculative as opposed to certain and what I'm certain about is what we can go execute on in these regulated markets, whether medical or adult use, and just deliver the you know deliver the the product quality and then what I'm also I'll call it speculative but also certain about is that skill set the production of indoor flour high quality indoor flour at a great cost that skill set is transferable internationally that skill set is trans if you have it that skill set is transferable.
00:49:51.519 --> 00:49:55.440
It's not just an asset in Illinois now and an asset in New York now.
00:49:56.320 --> 00:50:04.320
It's something that can be applied now we only have so much bandwidth to apply it and you probably hear you know Obi talk about yeah there's gonna be a lot more distress.
00:50:04.719 --> 00:50:06.480
We we've got a lot to digest at the moment.
00:50:06.719 --> 00:50:28.559
I don't think you're gonna see a lot of you know we might look for ways to get deeper places and and you know do better in markets but I don't think you're gonna see us try to be in 12 markets in 2027 for instance yeah I one thing to add to that I mean don't forget we're I mean home for us is in one of the best production areas in the US for outdoor flour.
00:50:28.880 --> 00:51:18.559
And people talk about in indoors generally the best, you know, greenhouse but like you know you think about pre-rolls or infusion I mean Jesse it's kind of how Leaf is building some of your kind of story and the opportunity that sits in front of that business but like you know interstate and regulatory change for us like we're really really well hedged not only because we sit in an area where you could spin up you know we probably do 10 000 pounds of outdoor like whole flour 15 to 1800 pounds a year of total biomass but like like this is an agricultural region and to spin that up to a hundred thousand you know there'd be challenges within that but like there's an ability to have a significantly larger um kind of footprint of production coming out of the state what I think a lot of people miss is the importance of brand and the relationships you build.
00:51:18.719 --> 00:51:30.159
And so people have always asked like why are you expanding if you think interstate's coming I'm like well because A, we don't know if it's coming and we're building a business that'll be successful today not waiting on something that may happen in the future.
00:51:30.400 --> 00:51:40.719
But two, and we've learned this like you don't just show up I mean even Jersey undersupplied high pricing it's not like we showed up and everyone's like thank God growing rope's here with good flour.
00:51:41.360 --> 00:51:41.599
Right?
00:51:41.760 --> 00:52:20.639
You have to earn that trust you have to earn that business not only with your retail partners but also with the consumers and so to expand that brand and that presence across these markets and set up these hubs I think it sets us up for interstate in a much more demonstrable way than people that are sitting on the West Coast waiting for that opportunity because brand is important, relationships are important and you don't build those overnight and so us kind of getting that national expansion coupled with the backbone of having production capability to come out of the West Coast I think we've hedged kind of the opportunity in both sets of kind of regulatory environments in a very healthy way.
00:52:21.840 --> 00:52:27.440
Yeah I feel like you have an obligation Obi to jump in and say something I'm sure you'll agree with which is outdoor could be fire too.
00:52:27.599 --> 00:52:42.639
Like everyone wants to create this everyone wants to create this good better best category thing where indoor sits on the top greenhouse sits in the middle outdoor sits at the bottom that works in in terms of pricing but I don't know if you'd agree Obi but in terms of quality I think the depths and the straight outdoor can be super fire as well.
00:52:43.039 --> 00:52:47.199
Back when I was a heavy consumer that's all I smoked was outdoor.
00:52:47.360 --> 00:52:47.679
Yeah.
00:52:48.000 --> 00:53:09.119
Our our GM in Oregon just migrated from running outdoor to to because our Oregon VM moved to be a Minnesota GM so promoted internally and our it came from the outdoor and I was just with him recently and he was just actually and the first time I met spent time with Obi in person I got the Interstate Commerce pitch back in 2021 from Obi which I still tease him about.
00:53:09.679 --> 00:53:29.199
But uh but along those lines yeah Seth Seth um Seth Seth is his gentleman's name and he was like Josh he's like I can't wait for Interstate Commerce just because particularly if you can take it out of the out of the jar like outdoor pre-rolls are better than every other pre-roll like that is it's a better smoke.
00:53:29.280 --> 00:53:32.239
Like our outdoor product is a better smoke than our indoor product.
00:53:33.199 --> 00:53:42.480
My challenge with that right and this is what no one's solved yet and maybe greenhouse becomes important to this um is aging of the product.
00:53:42.559 --> 00:53:47.679
That's another reason why indoor has such a strong dynamic is you can grow it anywhere.
00:53:49.199 --> 00:53:50.800
And outdoor ages, right?
00:53:50.880 --> 00:53:56.880
So to have like alcohol production you harvest in October that then you're trying to sell in July like it starts to degrade a little bit.
00:53:56.960 --> 00:54:00.000
Now we've been spending some time looking through preservation strategies.
00:54:00.159 --> 00:54:07.440
We found a couple that we really like um but there's a balance I think for all those different kinds of production methods.
00:54:07.679 --> 00:54:35.760
And again why I like outdoor and people that get exposed to it do it like I'll tell you what when you look at indoor quality product and there's still a lot of ego that comes into it especially when it's flour and that's back to the core of our business like for pre-rolls for extracted inputs like you know when flour is no longer the centerfold of your product um indoors hard to beat I mean you look at the best outdoor in the world and then you grow that strain strain in indoors and it's like nine today.
00:54:36.000 --> 00:54:39.840
Like it is it's so controlled right it's so controlled.
00:54:41.119 --> 00:54:48.000
And so I think there'll be a place where all those different products in the flower spectrum um across the board.
00:54:48.159 --> 00:55:14.320
But like you know you think about long term like you know and people say there's different qualities of distillant but like where's distillant going to be going like big fields it's a chemically processed like just it's like a true commodity right it's a certain purity it reminds me of cockle like that should not be grown anywhere other than like big farms in the middle of the country where aggregate maybe California where the weather's right but it's just it's a chemically extracted compound.
00:55:14.719 --> 00:55:16.800
So low cost on that is super critical.
00:55:17.039 --> 00:55:36.719
But as we're learning more and more about consumer behavior like um the essence of the product like full spectrum type experiences whether it's in flour and like live I mean I've been watching Leaf like going more into live resin, live rosin like that's what the customer actually really wants when they get a chance to get exposed to it.
00:55:37.519 --> 00:55:48.559
And I see that as the industry continues to kind of migrate towards you know a better experiential kind of um you know exposure um with the different products that are available.
00:55:48.880 --> 00:56:02.320
Yeah you're speaking about language OV we're seeing in California that uh live resin vapes, eclipsed distillate vapes in terms of uh leading the sales category and so that's probably music to your ears and music to my ears in terms of people getting that getting that whole plan experience.
00:56:02.800 --> 00:56:09.840
Well boys we've got one minute left so we all have to jump to other meetings but I could talk for another hour so we'll have to have you guys back on another time.
00:56:09.920 --> 00:56:10.960
This was super fun.
00:56:11.360 --> 00:56:11.760
Yep.
00:56:12.159 --> 00:56:15.280
Yep thanks for having us for you both really appreciate it.
00:56:16.000 --> 00:56:20.719
No worries and before we get out of here I need to say thank you again to FlowHub for sponsoring today's show.
00:56:20.800 --> 00:56:37.599
Whether you've got four doors like Grown Rogue or you've got 178 like Kira Leaf or maybe just a guy like me who's running a who used to run a single dispensary you need great software behind the counter FlowHub quite simply guys best in the business go to FlowHub.com and book a demo today.
00:56:38.079 --> 00:57:00.159
On the programming front the higher exchanges September to remember continues next week when we are back with Hugo Alvez CEO of Oxley a uh Canadian operator who's really doing well up there and shout out to our friend uh Mark Merritt for the intro there he's been champion championing them on X for a long time so looking forward to digging in so we'll see you back here next week for that show.
00:57:00.400 --> 00:57:12.960
And that's it guys we're out of here see you next week everybody head to your meetings thanks guys the Fuse Express is podcast are provided for informational purposes only nothing we said should be considered research nor recommendation.
00:57:13.119 --> 00:57:17.199
All investing involves risk including the loss of principle.
00:00:30.399 --> 00:00:31.760
Welcome back indeed.
00:00:31.839 --> 00:00:38.719
I am Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands, and I am back with the wise, the grizzled vet.
00:00:38.880 --> 00:00:40.240
His name is Morgan Paxia.
00:00:40.320 --> 00:00:41.039
Morgan, what's up, man?
00:00:41.119 --> 00:00:41.759
How are you?
00:00:42.240 --> 00:00:43.600
Uh, I'm doing well.
00:00:43.840 --> 00:00:46.079
All good down here in San Diego.
00:00:46.399 --> 00:00:47.280
Life is good.
00:00:47.920 --> 00:00:48.159
Good.
00:00:48.240 --> 00:00:49.439
Yeah, I'm firing up, man.
00:00:49.520 --> 00:00:51.759
I think today is going to be a fun show.
00:00:51.920 --> 00:00:56.079
We have a cool firm to talk about and a couple cool guys that work at that far that firm.
00:00:56.320 --> 00:00:59.679
So let's welcome back the CEO of Grown Rogue.
00:00:59.759 --> 00:01:00.399
He has a unique name.
00:01:00.479 --> 00:01:01.439
It is Obi Strickler.
00:01:01.600 --> 00:01:02.640
Obi, how are you doing, man?
00:01:02.960 --> 00:01:03.759
Hey, really good.
00:01:03.920 --> 00:01:04.799
Good to see you guys again.
00:01:04.879 --> 00:01:06.640
And thanks for having us on today.
00:01:06.959 --> 00:01:10.879
And we also have fellow Chief Strategy Officer Josh Rosen.
00:01:11.040 --> 00:01:12.319
Josh, thanks for being here.
00:01:12.640 --> 00:01:13.359
Yeah, happy to.
00:01:13.599 --> 00:01:15.200
I'm looking forward to it.
00:01:15.599 --> 00:01:16.319
Well, great.
00:01:16.480 --> 00:01:19.439
A heck of a lot has changed since we last spoke.
00:01:19.680 --> 00:01:25.120
1,718 days ago it was Obi in September of 2024.
00:01:25.280 --> 00:01:26.719
So we have a ton to cover today.
00:01:26.879 --> 00:01:32.480
But before we get into it, Morgan, please tell me about Bud Tender Love Week at FlowHub.
00:01:32.879 --> 00:01:33.519
It is indeed.
00:01:33.599 --> 00:01:39.200
It's Bud Tender Love Week, and it's FlowHub's annual celebration of the people behind the counter who keep retail moving.
00:01:39.359 --> 00:01:48.719
Now, in its third year, the campaign recognizes the important role Bud tenders play in guiding customers, recommending products, building loyalty, and creating great dispensary experiences.
00:01:49.040 --> 00:01:58.319
Throughout the week, FlowHub is celebrating standout bud tenders with Flow Hub Bud Tender Awards and sharing original content focused on their knowledge, experiences, and impact on the industry.
00:01:58.560 --> 00:02:12.319
You can find FlowHub in person this week at The Exchange in Oregon, the Poseidon VC and CEO mixer, and Ignite at Market Spotlight in Colorado, and Revelry Buyers Club in New York City, booth L454.
00:02:12.560 --> 00:02:17.280
FlowHub is and partners across the industry are doing a major bud tender love giveaway.
00:02:17.360 --> 00:02:19.919
25 plus chances to win amazing prizes.
00:02:20.159 --> 00:02:27.520
Enter by Saturday, September 19th at FlowHub.com slash Bud Tender Love Giveaway 2026.
00:02:28.719 --> 00:02:32.080
We do need to love our bud tenders that give us our products.
00:02:32.159 --> 00:02:35.840
And we're working on getting this CPG brand we have called Himalaya.
00:02:35.919 --> 00:02:37.919
It's a great vape brand we acquired a few months ago.
00:02:38.080 --> 00:02:40.159
We're looking to get that into more doors right now.
00:02:40.240 --> 00:02:48.159
And I'm learning how expensive how important it is to have the bud tenders on your side informed about your products and uh showing them what's great about it.
00:02:48.319 --> 00:02:51.680
So awesome to see that at FlowHub as well.
00:02:52.000 --> 00:02:54.240
Morgan, let's kick kick this off and frame it up.
00:02:54.400 --> 00:03:00.479
I love the architecture for today's show, and I think we can have a great chat to start out with about the state of the cannabis industry.
00:03:00.639 --> 00:03:02.000
So kick us off, my friend.
00:03:02.400 --> 00:03:07.439
Yeah, I'm excited about this section because Josh and I have actually known each other for quite a long time.
00:03:07.520 --> 00:03:15.919
Um we were just chatting before the show how it's actually we we would see each other more often in the early days, but we're still here.
00:03:16.319 --> 00:03:17.120
Indeed.
00:03:18.000 --> 00:03:20.719
So Josh with plenty of scar tissue, right?
00:03:21.840 --> 00:03:22.240
Yes.
00:03:22.560 --> 00:03:23.360
Endless.
00:03:23.599 --> 00:03:27.039
Um one of you have no one one of you has no hair and one of you has gray hair.
00:03:27.120 --> 00:03:28.960
And you know I'm feeling it too.
00:03:29.039 --> 00:03:30.479
So yeah, we all got it.
00:03:32.000 --> 00:03:33.919
Uh but we look, we're aging beautifully.
00:03:34.080 --> 00:03:35.280
I don't know what you're talking about.
00:03:36.400 --> 00:03:37.599
Cannabis keeps us young.
00:03:37.840 --> 00:03:38.240
Exactly.
00:03:38.400 --> 00:03:43.520
Um so Josh, we we've been kicking around in this space since before the term MSO even existed.
00:03:43.840 --> 00:03:44.080
No.
00:03:44.879 --> 00:03:47.759
So, you know, I guess maybe just kicking it off.
00:03:47.840 --> 00:03:54.800
What what do you think have we learned as an industry from the first, you know, the emergence of the MSO model?
00:03:55.599 --> 00:03:58.240
Um and you know, let's just start there.
00:03:59.680 --> 00:04:10.159
Yeah, I mean, I think and I mean some of it's gonna fast forward to why I spend and enjoy my time with Grown Rogue so much, but to me, this really dials into the you know the the product side.
00:04:10.240 --> 00:04:18.079
I mean, I think a lot of times we get we get lost in the call call it the storytelling or the public market version of things.
00:04:18.240 --> 00:04:34.959
And and the core of the industry for me, even going back to 2010 when I first started looking at it as an investor, and 2011 when you know Chris Crane and I first formed Forefront, uh the the core to me has always been the migration of regulated or excuse me, illicit to regulated.
00:04:35.199 --> 00:04:37.519
And you know, really supporting that dynamic.
00:04:37.600 --> 00:04:43.519
Yeah, I remember, you know, when when Chris and I formed Forefront, our mission statement was just simply to help professionalize the industry.
00:04:43.839 --> 00:04:53.199
Uh, I think that dynamic, uh, one of the things that I've kind of come full circle on when it comes to the product side is while I still, you know, the professionalization is very important.
00:04:53.360 --> 00:05:03.600
I think at times we've almost erred on trying to quote unquote professionalize the industry at the expense of just what that migration from illicit to regulated looks like and what customers actually want.
00:05:04.160 --> 00:05:12.079
And so for me, if we've yeah, I think there are a lot of lessons, you know, there are capital markets lessons that have been learned along the way, a lot of operational lessons.
00:05:12.160 --> 00:05:16.639
And I think one of the things that I'm and still kind of gets me out of bed every morning.
00:05:16.720 --> 00:05:24.000
I mean, Jesse made makes made that comment earlier, this this idea that we're uh, you know, we're kind of excited to get out of bed every day.
00:05:24.160 --> 00:05:29.040
Uh, the puzzle of the industry still is exciting to me, uh, despite the scarce issue.
00:05:29.279 --> 00:05:32.800
Uh, you know, lots of mistakes made, lots of lessons learned.
00:05:33.040 --> 00:05:35.439
Um, but we're still in the early days.
00:05:35.519 --> 00:05:43.279
And I think that is often lost on people, particularly Morgan, you and I, who have been at it so long, is like we can we can feel the years in the industry.
00:05:43.680 --> 00:05:47.600
But from like we're gonna, I'm sure we'll talk a little bit about New York.
00:05:47.920 --> 00:05:54.959
Uh, we'll talk about some of the markets that are still, in my in my view, very early from a migration to the regulated side of the equation.
00:05:55.120 --> 00:06:04.240
And you know, those dynamics because of how this the state markets have worked in our industry, they kind of play out, each individual state plays out at its own cadence, its own supply chain.
00:06:04.319 --> 00:06:07.839
Um, but there's still loads of immaturity, and that's exciting to me.
00:06:08.079 --> 00:06:08.399
Yeah.
00:06:08.800 --> 00:06:09.680
I no, I agree.
00:06:09.759 --> 00:06:11.040
I mean, it's it's kind of amazing.
00:06:11.120 --> 00:06:18.959
I mean, what would you think are like some of the top points of what you look at for how where we are in this maturation cycle?
00:06:19.199 --> 00:06:21.199
Like, you know, because I feel like it's immature too.
00:06:21.279 --> 00:06:24.399
But I'm just kind of curious like how you gauge the immaturity.
00:06:24.480 --> 00:06:25.519
Is it a regulatory thing?
00:06:25.600 --> 00:06:26.399
Is it a people thing?
00:06:26.560 --> 00:06:28.160
Is it all of the above?
00:06:29.279 --> 00:06:35.360
I mean, the the the simplest answer for me in terms of how I view the world is it's a customer choice thing, like customer choice and price point thing.
00:06:35.519 --> 00:06:49.279
Like to me, when a regulated market is like competing head on and taking the majority of the market share from the illicit market, I kind of feel like you're looking at what's probably a more supply, a more mature ecosystem.
00:06:49.680 --> 00:07:03.680
And so, you know, we have a lot of protected markets that might take quite a bit quite quite a long time to get there if if interstate commerce doesn't happen, for instance, these these protected markets probably persist for a while and you've got potentially higher profits in those markets because of it.
00:07:03.759 --> 00:07:12.879
But structurally, you know, one of the things that we've always underwrote to, you know, wearing my investor hat on the Bengal side is this idea that every market's going to go through this maturation curve.
00:07:13.040 --> 00:07:18.160
And, you know, we're looking for sustainable profits, not just kind of the instant profits you might get when a market turns on.
00:07:18.399 --> 00:07:25.360
And so, you know, that dynamic of maturity, I think it kind of falls into this patchwork state system that we have.
00:07:25.600 --> 00:07:29.680
There is not a one size fits all, like, here's where we are in the maturation curve.
00:07:29.839 --> 00:07:33.120
It's really, you know, Colorado looks pretty mature.
00:07:33.279 --> 00:07:37.040
Oregon, for its own, you know, has its own idiosyncrasies, looks pretty mature.
00:07:37.360 --> 00:07:43.839
Illinois, for as long as that market's been in involved now, still has a lot of characteristics of an immature market.
00:07:44.079 --> 00:07:49.680
Um, and New York, clearly, lots of characteristics of an immature market with a lot of illicit.
00:07:50.079 --> 00:07:54.160
And so that, you know, I think those dynamics uh are really varied across.
00:07:54.319 --> 00:08:00.319
And I've I've not done, you know, I tend to focus on what I know and pretty open-minded about what I don't know.
00:08:00.480 --> 00:08:02.879
I've not spent as much time in the international learning of this.
00:08:03.040 --> 00:08:06.560
Um, but in some ways, we've seen a maturation curve play out in Canada, right?
00:08:06.639 --> 00:08:13.680
And now we're starting to see at least the pull of demand from Europe for some of the Canadian producers revitalizing that dynamic.
00:08:13.759 --> 00:08:17.439
But I mean, these I'm a I'm an equity analyst in my formative years.
00:08:17.519 --> 00:08:21.120
Like the core supply-demand fundamentals of the industry are not rocket science.
00:08:21.279 --> 00:08:22.639
It's pretty straightforward.
00:08:22.720 --> 00:08:26.079
And you know, the the elasticity of price, also not rocket science.
00:08:26.160 --> 00:08:32.159
When price, when price gets cheaper, you know, more of the elastic was done in the regulated market, when quality improves, more people come into the regulated market.
00:08:32.240 --> 00:08:36.480
Like there's a whole host of dynamics that are fairly obvious when you step back and think about it.
00:08:36.720 --> 00:08:37.039
Yeah.
00:08:37.279 --> 00:08:44.480
Yeah, and that's a good point too, how regulations actually drive how the customer's cycle is impacted, right?
00:08:44.559 --> 00:08:59.039
Because if they're limited in form factors or whatever, they might not just get to experience what it is, the form that they're actually wanting if they're limited by it, and versus more traditional markets or like, you know, uh more mature markets where they have the full menu.
00:08:59.519 --> 00:09:04.960
Um, you know, they're they're gonna experience a lot more and find what you know what works for them.
00:09:05.200 --> 00:09:14.000
Um, and you know, it just makes me think too, again, back to the uh, you know, kind of original idea of the MSO model back in the early day, it was plant flags, right?
00:09:14.080 --> 00:09:17.360
It was like try to do the land grab, get out there.
00:09:17.519 --> 00:09:19.759
And it was like the customer was an afterthought.
00:09:19.840 --> 00:09:32.000
It was like, let's just focus on trying to secure licenses and get market share, and not really as much, and just just because or couldn't, because time you know is going so fast, they just had we're just trying to get things established.
00:09:32.240 --> 00:09:42.080
Um but can I jump in on that one real quick, just because I I love this point and because it it allows me to tell the story about Chris Crane stealing something from me.
00:09:42.399 --> 00:09:45.039
Um so you're going back several years.
00:09:45.279 --> 00:09:49.840
I think this is this is something that I've probably always been predisposed toward, maybe to a fault.
00:09:50.000 --> 00:09:56.159
But I used to refer to this, and Chris actually wrote an article about this years ago: the game of monopoly versus the game of risk.
00:09:56.480 --> 00:10:01.919
And this industry, what you were just describing, Morgan, to me, was very much just this game of monopoly.
00:10:02.080 --> 00:10:04.240
And the game of monopoly was very rewarding.
00:10:04.399 --> 00:10:07.919
And it was about, you know, it tied into this the storytelling as well.
00:10:08.159 --> 00:10:18.559
But at core, like if you're gonna have a sustainable bit sustainable business, and if you're going to win long-term, and win isn't necessarily at someone else's expense, this industry has so much opportunity from you know, kind of an abundance versus scarcity standpoint.
00:10:18.639 --> 00:10:21.759
But if you're gonna win, you got to know how to play the game of risk as well.
00:10:21.919 --> 00:10:23.840
And it's not just this game of monopoly.
00:10:24.000 --> 00:10:39.120
And, you know, I think that that has been, you know, to some degrees when you mixed up with how the capital, the capital formation cycle has worked our industry, it's just created tremendous pain because so much capital was deployed playing the game of monopoly in a pretty haphazard fashion at times.
00:10:39.519 --> 00:10:40.159
Oh, for sure.
00:10:40.320 --> 00:10:50.240
And then back in the day when we had ample equity markets, which I know is really kind of funny to say to people today, but there was actual equity and it was kind of readily available, especially if you're public.
00:10:50.320 --> 00:10:52.879
I mean, look at what the Canadians did with all their funded capacity.
00:10:52.960 --> 00:11:03.279
I mean, they just raised ungodly amounts of capacity that have finally worked out today, um, mostly because of having a robust export market.
00:11:03.840 --> 00:11:06.080
Um, but you know, here we are today.
00:11:06.159 --> 00:11:11.360
We're seeing quite a bit of deck chairs getting reshuffled, and we'll come back to some of those points a bit later.
00:11:11.600 --> 00:11:32.080
But you looking at the MSO model today, what is actually like some of the key points that you would think are proven as like, you know, durable in the face of price compression, in face of still illicit markets, you know, like we're we still have a lot of things as you know, as we were just talking about from a maturity standpoint, but what what is working for in the MSO model?
00:11:32.799 --> 00:11:38.000
Yeah, I mean, I think it it differs by state to a degree, but yeah, I tend to tend to think of like three buckets of profits.
00:11:38.080 --> 00:11:49.600
Like you've got your regulatory capture bucket, which is early days, having a license in a limited license state, being one of the only shows in town, you know, what what Virio and GTI are experiencing in Minnesota right now, for instance.
00:11:49.840 --> 00:11:51.279
Like they're the show in town.
00:11:51.440 --> 00:11:55.360
And if you want legal product, that's where you tend to go get it, right?
00:11:55.519 --> 00:11:57.360
And that's pure regulatory capture to show.
00:11:57.440 --> 00:11:58.240
You don't have to be that good.
00:11:58.320 --> 00:12:02.799
I mean, not saying they aren't, but you don't have to be that good in that environment from an operation standpoint.
00:12:02.960 --> 00:12:20.000
And then you you migrate to me to this, like we kind of think of it as a geographic bucket of profits or a like a moat that might not still be operational, but you've done a real estate hustle and you created a geographic barrier or a strong business that's really hard to dislodge.
00:12:20.240 --> 00:12:28.159
And I think if I were to paint a broad stroke across the MSO landscape, a lot of the more successful ones have done a pretty solid job of that piece.
00:12:28.240 --> 00:12:30.639
Uh, and particularly on the distribution retail side.
00:12:30.799 --> 00:12:38.799
They've either they've got protective markets that allow for it and have helped them stay protected and have that, or they've consolidated their way to the position.
00:12:38.960 --> 00:12:45.519
But a lot of them have really good real estate teams, they've got great development teams with respect to getting the local zoning done.
00:12:45.679 --> 00:12:53.519
And so they end up with a really strong competitive advantage on the distribution side of the house because this doesn't, you know, we don't have a three-tier system in most markets.
00:12:53.679 --> 00:13:06.080
And so that ability to be the shelf space, uh particularly coming back to the bit about flow hub with bud tender appreciation, like we have an industry that's still, from an influence standpoint, dominated by the bud tender exchange.
00:13:06.320 --> 00:13:11.759
And it's because we don't have a lot of real authentic sustainable brands that have that have developed.
00:13:11.840 --> 00:13:16.960
And so the bud tender carries, you know, that immature supply chain, giving the bud tender a kind of undue influence.
00:13:17.200 --> 00:13:26.080
And you know, that dynamic leads to that distribution level, uh call kind of a geographic bucket of profits being a competitive advantage if you use it well.
00:13:26.240 --> 00:13:41.360
And then the last piece, which I tend to think is more durable, and which is why you know Obi and I are really appreciate spending time with the grow and row business, is the the competitive advantage that comes from being really skilled operationally.
00:13:41.679 --> 00:13:51.039
And that piece might not always show up in profits when you're in a state like Oregon in terms of depth of profits and capabilities, but that capability set mapped to me is more durable.
00:13:51.200 --> 00:14:03.759
You know, which don't need to spend time on valuation, but to me, I pay, I personally as an investor, I pay more of a multiple for something that I think is durable versus not, uh, in terms of what can be eroded or how you can use that capability set and grow the business.
00:14:03.919 --> 00:14:08.159
Uh and that skill set, I think, varies across the MSOs.
00:14:08.480 --> 00:14:13.360
I think one of the, you know, we're on the Bengal side kind of noting this.
00:14:13.440 --> 00:14:18.240
I think people always view GTI as a best-in-class operator amongst the MSOs.
00:14:18.399 --> 00:14:24.159
Uh, I tend to agree, but I actually think it's largely because they've paid more attention in the cultivation operation than the others.
00:14:24.320 --> 00:14:29.759
I think they're inherently they generally have better product in those states we go to than their peers.
00:14:29.919 --> 00:14:37.279
And I think that engine of the industry on the supply on the supply side feeds their distribution, feeds, you know, feeds the things that all the MSOs do.
00:14:37.360 --> 00:14:39.039
And I think others are getting better at it.
00:14:39.279 --> 00:14:45.440
But to me, that that dynamic, that third bucket is where the MSOs historically have not been as strong.
00:14:45.840 --> 00:14:53.600
Because when you're east of the Mississippi, you haven't had to compete with Obi very often, you haven't had to compete with Ted from Alien Labs very often.
00:14:53.840 --> 00:15:00.480
Um, and you know, in those markets, like you don't you don't get to get away with kind of true mids.
00:15:00.559 --> 00:15:03.679
Like your mids are quality in Oregon, your mids are quality in California.
00:15:03.840 --> 00:15:06.399
Like mid is a different definition across states.
00:15:07.519 --> 00:15:11.600
There was a there was a brand uh that we love to quote internally.
00:15:11.679 --> 00:15:13.279
It was fire ass mids.
00:15:15.200 --> 00:15:17.120
And we're just like just gonna own it.
00:15:17.200 --> 00:15:17.919
It's so good.
00:15:18.159 --> 00:15:29.919
Okay, but funny thing about cannabis is like, you know, a common phrase outside of cannabis is like that's two certainties in the world are death and taxes, but in cannabis we kind of have a third, and that's price compression.
00:15:30.159 --> 00:15:31.759
And it's like inevitable, right?
00:15:31.840 --> 00:15:39.840
A new market opens, great pricing, it's great for a while, and then inevitably too much, you know, people get too excited and we see price compression.
00:15:40.159 --> 00:15:48.559
But um, you know, with that in mind, and especially like thinking about how you guys manage it, is like when you're entering a market, like what how do the winners overcome that?
00:15:48.799 --> 00:15:53.200
And you know, what are people that struggle continue to repeat?
00:15:53.360 --> 00:15:57.519
What mistakes are they continue to repeat that just are leading to this dynamic?
00:15:58.240 --> 00:16:06.720
Yeah, I mean, I think Obi has some comments on this as well, because one of the things that he's done really, really well is not overbuild from a capacity standpoint.
00:16:07.039 --> 00:16:15.759
And now, you know, what when you when you're first into market, sometimes there are some there are reasons to have that first mover advantage and there aren't there's not a lot of capacity in markets.
00:16:15.840 --> 00:16:19.919
So the idea of overbuilding or just building a lot of capacity makes sense.
00:16:20.000 --> 00:16:27.120
And I think most of the folks, for instance, in Illinois, they've built a lot of capacity, like they've made very good use of the capacity they built in Illinois broadly.
00:16:27.360 --> 00:16:40.399
And I think, but you know, when you mix that with not necessarily having the discipline about what it costs to build a facility, whether what what your lease structure looks like uh in terms of the capital that's into that, what you're having to pay.
00:16:40.559 --> 00:16:54.960
I mean, if you just looked at you know cost of production and the occupancy costs tied to a pound of product that comes out of some of the facilities that are on the more expensive leases in the industry, it's it's cost prohibitive when the market normalizes from a pricing standpoint.
00:16:55.200 --> 00:17:07.839
And those dynamics of not being efficient enough on not just building too much, but even spending too much per square foot that you're building, uh, there just was a you know a lack of discipline, kind of going back to the comment about monopoly.
00:17:07.920 --> 00:17:29.279
When you're playing Monopoly and you're just trying to go fast and you don't have the expertise in-house yourself, you're relying on consultants, you're relying on you know the contractors that are also relatively new in the industry, um, and you don't have a system that iterates and learns real quickly, you spend too much money, you end up with with cap structures that just put you at a really tough spot when prices normalize.
00:17:30.559 --> 00:17:44.799
Yeah, there's a great Buffett um, I think it was like late 80s, talking about C's candy, where it's just like that relentless uh satisfying of the customer and equal relentless focus on cost.
00:17:45.119 --> 00:17:52.160
And it's like, you know, just having that incredible dedication to both is just you know, it's so important.
00:17:52.319 --> 00:17:55.599
So I just it is, you know, it's good to hear because I mean it's it is.
00:17:55.680 --> 00:17:58.400
I mean, it's it's what how you run a business.
00:17:58.480 --> 00:17:59.440
You gotta be relentless.
00:17:59.519 --> 00:18:02.480
And it's like, you know, just but you also have to know what you're doing, right?
00:18:02.559 --> 00:18:18.960
I mean, it's it's you gotta have a good baseline of like what what you're trying to grow, like mentioning like GTI too is like they put more focus on actually making good products, you know, having some understanding of what it is you're trying to achieve, but then just being relentless about it.
00:18:19.599 --> 00:18:23.119
That's what I think there's not enough passion, you know, across a lot of the companies.
00:18:23.279 --> 00:18:27.440
You see a lot of it kind of locally in terms of like people that really care about what they're trying to do.
00:18:27.599 --> 00:18:36.319
And I think this industry really got ahead of itself in terms of you know, the focus on again the land grab or just like they're gonna buy whatever we put in front of them.
00:18:36.400 --> 00:18:39.359
Um and people got really spread out, you know, they lost that discipline.
00:18:39.440 --> 00:18:49.440
You know, Grown Row got a little bit distracted early on and kind of as we were building the business, but coming back to flower, like that's what we care about, that's what we're passionate about, um, that's where our energy goes.
00:18:49.599 --> 00:18:58.799
Um, and I think that's really important as you're building a business because that translates through to like not only the products, but just the feeling customers get and the way you can talk about it.
00:18:58.960 --> 00:19:02.640
Um you know, you gotta have something that you stand behind and that you're proud of.
00:19:02.720 --> 00:19:13.440
Um, and if it's just a product for product's sake, um that lasts for a little bit, but it just doesn't have any kind of continuity or kind of per perseverance, uh, so to speak.
00:19:13.920 --> 00:19:19.039
Yeah, what I find over and over again, Obi, you know, I had one dispensary for a few years in California.
00:19:19.200 --> 00:19:21.200
And what you realize is stoners are smart.
00:19:21.279 --> 00:19:27.440
Like you're not gonna trick them just because like I used to say flat, you know, a cool name and a great picture will sell it once.
00:19:27.599 --> 00:19:30.240
If somebody actually like really likes it, they'll buy it twice.
00:19:30.400 --> 00:19:35.039
And very rarely, in my experience, does somebody buy the same thing three times over and over again.
00:19:35.200 --> 00:19:41.359
So I say that in the spirit of like, A, you need choices out there, but B, you've got to actually do it really well because there are other choices.
00:19:41.440 --> 00:19:48.640
There's other flower brands, as Josh very smartly pointed out, just a traditional market or black market versus the regular regulated market.
00:19:48.799 --> 00:19:51.200
And I hate the idea, Obi, I completely agree with you.
00:19:51.279 --> 00:20:01.279
I hate the idea that we're gonna build glitzy doors to get the regulatory capture, but then put out mid-product at a high price and think that people are gonna line up for it just because we put it out there.
00:20:01.440 --> 00:20:04.799
And in my experience, and I think in the industry's experience, that just ain't what happens.
00:20:04.960 --> 00:20:11.680
Like if you if you have the story up front, you make the promises, you have the flashy door, you better put the fire product inside because somebody will come in once.
00:20:11.759 --> 00:20:15.359
But the stoners are smart, they're not to come back two or three times if the stuff isn't good.
00:20:15.599 --> 00:20:17.519
Yeah, they're a very discerning customer.
00:20:17.599 --> 00:20:21.839
And that's like honestly, why flour is so hard, right?
00:20:21.920 --> 00:20:23.519
It's not a recipe, right?
00:20:23.680 --> 00:20:33.599
You don't just hand it to someone and you like reproduce this, like there's genetic, there's different facilities, and how your kind of plants will um, you know, kind of manifest their expression inside of that.
00:20:33.759 --> 00:20:38.480
Like, you know, edibles, you can give a recipe to someone, it goes into their kitchen, it's very repeatable.
00:20:38.640 --> 00:20:46.559
Um, and so that's been the challenge, you know, for grown rogue to try and scale our business and push forward into these markets, but it's where the real opportunity sits.
00:20:46.720 --> 00:20:52.799
And we've yet to see a flower brand in the US really have staying power, right?
00:20:53.039 --> 00:20:56.000
You've seen, you know, there's several of them that are doing a really good job.
00:20:56.160 --> 00:21:07.839
But you see a lot of localized, you know, flower businesses that have really good kind of market share reputation inside their individual states, but which companies are able to scale a flower brand kind of national?
00:21:08.160 --> 00:21:11.359
And I think that's where Grown Rogue is really excited about where we sit today.
00:21:11.599 --> 00:21:32.160
Um, you know, we just entered our sixth state, and as long as we execute, and we will, when we get like kind of this absorbed and digested, it'll probably be as a flower forge focused organization, the you know, most scaled kind of platform in the US, um, which is super exciting for you know our team and you know what we've been doing in the last several years.
00:21:32.319 --> 00:21:35.920
Um but it's hard because you have to control the facility.
00:21:36.160 --> 00:21:49.759
You know, trying to do a licensing deal is difficult because yeah, you can give them an SOP and kind of a practice and a process, but the culture, the passion, that day to day kind of decision making, and you know, all the iterations and changes you have to make.
00:21:50.079 --> 00:21:54.079
Like you can't back to the recipe thing.
00:21:54.240 --> 00:21:55.759
It's just it's not a recipe you hands on.
00:21:56.000 --> 00:21:59.759
Like these are chefs and artists, like all that piece that comes in to have consistency.
00:22:00.400 --> 00:22:10.079
That product, you know, over time, which is again why we like to kind of control our own kind of destiny with our expansion into the facilities where we have operational control.
00:22:10.720 --> 00:22:12.960
It's pretty exciting for where we sit today.
00:22:13.440 --> 00:22:14.799
Yeah, I think that's super well said.
00:22:14.880 --> 00:22:29.599
We talked about that in the show about yeah, you could scale an edibles brand because you could get the same chocolate and similar distillate in most markets, but bringing a flower brand nationally, you know, you look at the snags cookies got into, you know, bigger snags than we than I'll get into right now, but at least uh on the licensing deals, yeah.
00:22:29.680 --> 00:22:33.039
I don't know how well they replicated that quality in different markets.
00:22:33.279 --> 00:22:43.359
You know, cookies, jungle boys, I mean not cookies, you know, jungle boys, for example, you know, they've gone to Florida, they had some industrial challenges going from growing in Florida, uh California to growing in Florida.
00:22:43.519 --> 00:22:46.240
So it definitely is harder to scale a flower brand.
00:22:46.319 --> 00:22:50.559
I do love the the way you guys are doing it, that you're trying to control it and keep it quality along the way.
00:22:50.799 --> 00:22:53.039
But let me run you a couple steps back, OB.
00:22:53.279 --> 00:22:58.559
And um, I'm reading this book called uh actually I just finished it, called Start with Why by Simon Sinek.
00:22:59.200 --> 00:23:00.960
And yeah, right?
00:23:01.200 --> 00:23:04.640
And it just read Mike and uh Micah read it, and he's like, Jesse, you've got to read this.
00:23:04.799 --> 00:23:05.200
I read it.
00:23:05.359 --> 00:23:08.720
Mike and I looked at each other like, dude, we've been talking about the company in the wrong way.
00:23:08.799 --> 00:23:10.400
Um, that's a different conversation.
00:23:10.480 --> 00:23:13.279
But the whole notion of start with why, like, why are you here?
00:23:13.440 --> 00:23:15.599
Like, Obi, what's the why around Grown Rogue?
00:23:15.680 --> 00:23:16.799
You read the book, like, why are you here?
00:23:17.039 --> 00:23:17.599
No, it's funny.
00:23:17.680 --> 00:23:25.039
I wrote that book in like 2017, and it gave me such like energy and like we're taking the company public, like starting Grown Rogue.
00:23:25.200 --> 00:23:31.119
Um, he does a really good job of just getting to the core basics of like, and it's a great question, like why?
00:23:31.279 --> 00:23:32.799
And it's for us, it's really simple.
00:23:32.880 --> 00:23:35.359
Like, we just we love flour, right?
00:23:35.519 --> 00:23:48.720
Like, and you know, we got distracted, but like going back to when I first started growing in like you know the early 2000s, like the reason I started growing was because you could not get consistent supply and you could not rely upon the quality, right?
00:23:48.880 --> 00:23:50.400
Pricing was whatever it was, right?
00:23:50.480 --> 00:23:59.359
Like it was expensive back then, you know, these like East Coast prices on the West Coast, which you know kind of uh compressed or normalized pretty quickly.
00:23:59.519 --> 00:24:01.519
But like that's the wife for Drone Rome.
00:24:01.759 --> 00:24:04.559
Like, we love flour, like that's how all of our decisions are made.
00:24:04.720 --> 00:24:09.680
I mean, there's a much bigger portion of the business in terms of how you have to professionalize it, the accounting, the finance.
00:24:09.839 --> 00:24:13.279
But at the core of what we do, like we love great flour.
00:24:13.440 --> 00:24:22.559
Like, I don't consume like I used to, but if I smoke, like it's a joint, you know, maybe with some of our new like cured resin, vape carts, and things like that that have that true expression of flour.
00:24:22.720 --> 00:24:25.039
But like, you know, it's a really interesting thing.
00:24:25.200 --> 00:24:32.079
We hired a guy, um, his name's Josh Crane in New Jersey, and so big history on the West Coast.
00:24:32.240 --> 00:24:38.559
Um, moved out to New Jersey to turn on Garden Green, which was kind of the largest independent in that state.
00:24:38.799 --> 00:24:52.880
Um, and you know, as we're talking to him, we're talking about our passion and our culture and how much we care about, you know, flower and the quality and the genetics, and just and you know, you can I in hindsight I didn't realize because that's how we think, that's who we are.
00:24:53.119 --> 00:25:00.640
But it took him joining our team and sitting in a meeting with what we call our brain trust, which is our DLCs across the market.
00:25:00.880 --> 00:25:02.480
I'm not a Ned, by the way.
00:25:02.799 --> 00:25:08.640
Yeah, Josh is, you know, and I've stopped even joining some of these because part of this is you know, allowing your team and empowering them.
00:25:08.720 --> 00:25:15.599
But getting back to that, like Josh is I mean, he's been in the industry for 20 years, like he knows his stuff, he's very connected.
00:25:15.759 --> 00:25:17.519
You guys might even know Josh Crane.
00:25:17.839 --> 00:25:20.160
And he called me after that first meeting.
00:25:20.400 --> 00:25:28.880
And he's like, Obi, I've never in my entire career sat in a meeting with people that are that passionate about flour and about this product.
00:25:29.119 --> 00:25:32.880
And you told me you guys were, and I heard it, but everyone says that.
00:25:33.359 --> 00:25:40.079
But he's like, Holy shit, like sitting there and listening to that team and the intensity and the care.
00:25:40.720 --> 00:25:43.359
You can't you can't fake that, right?
00:25:43.519 --> 00:25:55.839
And I think that's what translates through from the team first, the quality in the product, the way we, you know, you know, way we show up every day, and then how that translates into the experience that our customers get.
00:25:56.480 --> 00:25:57.359
That's the other big thing.
00:25:57.440 --> 00:26:03.839
And Josh talked about that, and Josh Rosen, like uh people put the customer last.
00:26:04.960 --> 00:26:12.400
And what business in CPG or any business has ever started with, the customer is secondary to any other kind of objective.
00:26:12.559 --> 00:26:15.119
Like the customer is who grades you every single day.
00:26:16.000 --> 00:26:17.359
And they are discerning.
00:26:17.440 --> 00:26:27.519
I mean, you're right, we say we get one chance because if you're gonna go buy, I mean, maybe in a less expensive market, but even in a less expensive market, like you get one, maybe two chances.
00:26:27.759 --> 00:26:32.880
And so your quality control, what you put for it, the decisions you have to make, I mean, it has to be on point.
00:26:33.039 --> 00:26:37.039
Like, you have to be perfect, hopefully, every single day.
00:26:37.279 --> 00:26:48.799
Because if you go buy a$50 eighth in New Jersey or a$40 eighth, and it doesn't meet your standard, or it's like small or doesn't smell good, or it doesn't have the flavor or the taste, like there's plenty of brands that'll take that.
00:26:48.960 --> 00:26:50.799
And so just that consistency.
00:26:51.119 --> 00:26:55.359
Um, and so going back to the why, it's like we just we love flour.
00:26:55.519 --> 00:27:05.680
Um, and that's where our energy and effort and kind of you know, the way we hire, um, the way our meetings go, like it all comes back to that's the most important thing we do.
00:27:05.839 --> 00:27:12.400
And I think that discipline and focus is another thing that's really allowed grown rogue to kind of achieve the things, and we still got a lot of work to do.
00:27:12.480 --> 00:27:16.240
Um, but not getting spread out is another important factor of that.
00:27:16.720 --> 00:27:24.960
Yeah, and so how does the current model answer the challenges and opportunities Josh was framing in the MSO analysis?
00:27:25.119 --> 00:27:28.400
Because I think one thing we're trying to do, I'll be Obi, is always be learning in real time.
00:27:28.480 --> 00:27:30.880
Like there's been something about the large MSO model that works.
00:27:31.039 --> 00:27:37.359
There's been some things that showed up to be challenges, and I think you know, we can all learn and evolve from that, but also learn and evolve from our own mistakes.
00:27:37.440 --> 00:27:41.599
Like if we're not looking at what we did three years ago and getting better, right, we're for sure going to fall behind.
00:27:41.759 --> 00:27:48.720
So I'm curious, like with the framing of the way Josh looked at the industry, how do you see grown rogue as a response to the challenges and opportunities?
00:27:49.119 --> 00:28:00.400
You know, it's um I don't think we got lucky, but you know, there was this great quote I read around like uh intensity creates your own luck or whatnot, or your work ethic or whatever it is.
00:28:00.559 --> 00:28:10.880
And so, you know, as we've expanded and we've taken on a couple of distressed assets and we've seen some of the, you know, the way they constructed their facilities, like the design process.
00:28:11.200 --> 00:28:16.160
You know, for a long time I was like, God, these they don't know what they're doing, like like why would they choose this?
00:28:16.240 --> 00:28:23.119
And then it dawned on me like most of that land grab was before you actually knew what problems existed, right?
00:28:23.279 --> 00:28:26.799
Grown rogue has been solving problems since we started a business.
00:28:27.039 --> 00:28:32.559
I think where we got lucky a little bit is we're expanding from a position of strength.
00:28:32.799 --> 00:28:40.960
And so the problems that you see in the business, inventory allocation, genetic sourcing, like facility design, like we've learned a lot of those things.
00:28:41.039 --> 00:28:42.079
And we're still learning, right?
00:28:42.160 --> 00:28:44.480
Every single day there's a new fire you got to put out.
00:28:44.640 --> 00:28:50.880
But we didn't go into eight states without the foundation of how do you want to run your business.
00:28:51.119 --> 00:28:58.720
Because if you're in eight states, and like a great example is in Jersey, um, you know, Oregon and Michigan are more bulk markets, right?
00:28:58.799 --> 00:29:04.559
And so the brand like package product is not as um, it's just not a big as big a portion of our business.
00:29:04.720 --> 00:29:07.440
In Jersey, we're 100% packaged, right?
00:29:07.599 --> 00:29:11.680
Which is pretty amazing as we build a brand and we get that loyalty with the consumer.
00:29:11.920 --> 00:29:15.920
But allocation of product into your brands becomes super critical.
00:29:16.079 --> 00:29:22.480
What goes into this brand, what goes into this brand, what goes into pre-rolls, you know, all those kind of different decision making.
00:29:22.720 --> 00:29:26.559
And it's something that we just we weren't as familiar with with Oregon and Michigan.
00:29:26.720 --> 00:29:31.200
Um, but imagine trying to fix that problem across eight states simultaneously, right?
00:29:31.359 --> 00:29:34.640
And so I think one of the things that grown rogue is kind of, you know, this incremental approach.
00:29:34.720 --> 00:29:36.559
And 2026 is going to be a big year.
00:29:36.640 --> 00:29:44.559
I mean, we're turning on three markets, like Illinois just had their first harvest, Minnesota and New York are spinning up almost simultaneously.
00:29:44.720 --> 00:29:56.319
Um, but I think that's been a big advantage for us is not having to solve and getting to a point like where facility design and systems and processes inside the business, you know, we've got a really good handle on that.
00:29:56.400 --> 00:30:02.240
So as we're expanding these markets, it's from this position of strength with processes that we know function and work.
00:30:02.400 --> 00:30:06.160
And we're not in this like corrective action kind of component.
00:30:06.319 --> 00:30:17.279
Um and then you take that with some of the, and again, back to the design, like you know, like I mean, what we took over in New York, I mean, that pharmacan facility there, they spent a lot of money on that thing.
00:30:17.359 --> 00:30:20.960
There's still design flaws, like they didn't build a dry room.
00:30:21.680 --> 00:30:22.720
Think about that, right?
00:30:22.799 --> 00:30:27.119
And so, like the importance of like cure um and the post-harvest.
00:30:27.200 --> 00:30:31.519
I mean, I've said for years, like you, and this has come from our outdoor kind of experience, right?
00:30:31.599 --> 00:30:34.640
That's how we kind of started in my early days with all outdoor.
00:30:34.880 --> 00:30:38.319
You can spend six months growing it and six hours screwing it all out.
00:30:38.559 --> 00:30:41.519
100%, 100% post-harvest process as well.
00:30:42.640 --> 00:30:43.680
Yeah, it's interesting.
00:30:43.759 --> 00:30:54.799
I would real quick, just to add one little nugget to to Obi, because it's the part of the business that I still get the most noise from is just watching people properly supported that haven't been supported as well in the industry or haven't had the right inputs.
00:30:55.039 --> 00:31:03.759
And I think one of the things, you know, Morgan and his seas candy reference point, like that kind of spoke to me is because it kind of describes Obi.
00:31:03.920 --> 00:31:12.960
Obi is, you can tell, all about the flower, but with this cost discipline, because he's had to live and compete in Oregon for so long, it's like, yeah, I'm all about the quality and I'm all about the costs.
00:31:13.039 --> 00:31:16.000
And they're not, you know, they're not at odds with one another because they can't be.
00:31:16.480 --> 00:31:23.519
But but that bringing people into this culture that have the allocation experiences referencing, for instance, in New York, we're taking on some stores.
00:31:23.680 --> 00:31:26.559
Like Grown Rome doesn't have that capability set, but I've lived that.
00:31:26.720 --> 00:31:48.799
We've got a lot of folks in our network with kind of the scar tissue and and can come in and apply their learnings, but in our culture, and it's just that's what I have the most fun with, frankly, is just tapping into you know the network that I have, the network that we collectively have, and introducing them to this very pasture and flower forward culture and giving them the proper support because you know it's it's vetted talent, it's reference talent.
00:31:48.880 --> 00:31:51.440
And it's I just that I love that part of this job.
00:31:51.759 --> 00:31:53.119
Yeah, that's awesome, Josh.
00:31:53.200 --> 00:31:54.319
And I can't believe that story.
00:31:54.400 --> 00:31:55.359
I really can't believe it, Obi.
00:31:55.519 --> 00:31:58.400
Like when I was learning how to grow, like you guys, I'm late to the game.
00:31:58.480 --> 00:32:00.240
So my first crop was in 2016.
00:32:00.400 --> 00:32:03.039
And I say crop, I mean six plants in the backyard.
00:32:03.279 --> 00:32:15.680
And uh, buddy of mine who has a great, great uh brand in California, told me, Jesse, it's one-third the genetics, it's one third what you do with it when you grow it, and it's one-third the cure and the uh the drawing and curing process.
00:32:15.839 --> 00:32:25.440
And we could argue about those pieces in terms of you know fractional percentages, but to that last point, like yeah, Obi, you can blow up, you know, nine months of work and three hours if the garage is 110 degrees.
00:32:25.519 --> 00:32:27.119
And so it's uh insane to me.
00:32:27.200 --> 00:32:38.160
We're at the stage of the cannabis industry where somebody designs a facility with A without a drawing room, but I would be spending a disproportionate amount of time on that drawing and curing process saying, how can I do it well but do it quickly enough that it makes sense?
00:32:38.319 --> 00:32:40.720
So that's a that's a wild story to hear, man.
00:32:40.799 --> 00:32:42.480
But let me wrap my section.
00:32:42.559 --> 00:32:43.680
I'm gonna throw it back to you, Morgan.
00:32:43.759 --> 00:32:49.119
But Obi, I actually talked about you yesterday and I was on a podcast and we're talking about different models out there.
00:32:49.279 --> 00:32:57.759
And I said one that always fascinates me is what grown rogue is doing because the objective is to craft high quality flour at, I don't know what we want to call it.
00:32:57.839 --> 00:33:01.440
It's not a low price, but let's call it an affordable price, or certainly a great value.
00:33:01.599 --> 00:33:02.720
And we've had you on before.
00:33:02.799 --> 00:33:09.920
I think I've interviewed you three or four times uh in my life, OP, and I'm always trying to understand the question about like what makes that difference?
00:33:10.079 --> 00:33:16.000
Like, what is the grown rogue edge that allows you to produce great flour but still at an affordable price?
00:33:16.640 --> 00:33:18.559
I mean, there's a ton of pieces that go in.
00:33:18.960 --> 00:33:19.839
That's what you always tell me.
00:33:19.920 --> 00:33:20.319
You never tell me.
00:33:20.640 --> 00:33:20.799
Right.
00:33:20.880 --> 00:33:22.319
Well, it's I mean, it's true.
00:33:22.480 --> 00:33:24.559
And people are always like, well, where's your mode?
00:33:24.640 --> 00:33:25.599
Like, where's your IP?
00:33:25.759 --> 00:33:28.559
Do you have this special patent on this fork or whatnot?
00:33:28.960 --> 00:33:35.039
Um but I I it fundamentally it starts with that's what our focus and passion is about, right?
00:33:35.200 --> 00:33:39.119
And then with inside of that, all these different pieces come together, right?
00:33:39.279 --> 00:33:46.160
And so, you know, like genetic selection is super critical inside of that, right?
00:33:46.319 --> 00:33:52.960
Not only growing for the characteristics that are desirable from a consumer standpoint, but then you have a business, right?
00:33:53.039 --> 00:33:55.519
Like yield really helps with cost control, right?
00:33:55.680 --> 00:34:03.599
And so, you know, a lot of your costs are fixed, so higher yield against a fixed kind of denominator, like you get a better cost per pound.
00:34:03.759 --> 00:34:12.880
Um and culture, like you got to have a team that gives that cares, right?
00:34:13.039 --> 00:34:14.079
That shows up every day.
00:34:14.159 --> 00:34:21.039
I mean, that this is sometimes it's glorified labor, like there's a lot of monotony to like we're we're effectively a manufacturing business.
00:34:21.199 --> 00:34:34.239
And you know, I come from an engineering background, geologist by training, a lot of time in natural resources, and so cost control and pricing is always super critical because at$3 copper project doesn't work, at$5 copper, you should probably retire.
00:34:34.320 --> 00:34:37.039
And so that pricing environment is super important.
00:34:37.360 --> 00:34:48.960
But one thing you can control is your cost and your inputs, and so constantly trying to drive that towards lower input costs, but it's not like we have some, you know, like we get our consumables cheaper than anyone else.
00:34:49.039 --> 00:34:50.800
So that stuff is pretty consistent across.
00:34:50.960 --> 00:34:55.039
Yeah, we get some scale because we buy on bigger increments and we negotiate heavy.
00:34:55.280 --> 00:35:00.239
Um it's it's a whole combination of those components that come together.
00:35:00.320 --> 00:35:05.519
But I would say genetics is at the forefront, um, yield is super critical in that.
00:35:05.679 --> 00:35:09.360
And then what I think a lot of people miss, right, is it's sell through.
00:35:09.519 --> 00:35:11.360
Like you have to be able to monetize that product.
00:35:11.519 --> 00:35:18.719
So having that velocity, a product the customer actually wants to put that cash back on your balance sheet to either expand, pay your bills.
00:35:18.800 --> 00:35:24.239
Um, so you'll see a lot of people with these big yields, but then it's really low quality and you don't get the sell through.
00:35:24.320 --> 00:35:34.400
Um, and so when you combined all those things together, and then all the little stuff that's our special sauce, you know, the way we track data analytics, the relevance that we bring to our business in terms of what's important.
00:35:34.559 --> 00:35:45.360
You know, I think we have really good data capture that comes back to the early medical days, like we kept, and this is when I had a lot more of that responsibility, it was much simpler back then in terms of how you manage these businesses.
00:35:45.599 --> 00:35:47.599
But data was always super critical.
00:35:47.760 --> 00:35:49.679
Um, but relevant data.
00:35:49.840 --> 00:35:57.360
And so there's been a lot of times when we bring in new teams or you know, new talent, and they'll show me like their I'm like, oh, that's amazing.
00:35:57.440 --> 00:36:02.480
And then you get into the detail and you're like, yeah, but 17 of these 25 things are irrelevant.
00:36:02.559 --> 00:36:03.280
Like, who cares?
00:36:03.360 --> 00:36:06.000
So you got someone tracking that, spending time on it.
00:36:06.159 --> 00:36:11.920
Um, and so I think our team has done a really good job of getting to relevance really quickly in terms of what's important to track.
00:36:12.159 --> 00:36:16.079
Um yeah, so it's uh that would be Jesse.
00:36:16.239 --> 00:36:18.159
If I told you, you know, everyone would be able to do it.
00:36:18.239 --> 00:36:22.000
So that was Obi's Obi's long-winded version of culture, right?
00:36:22.079 --> 00:36:25.039
Like, I mean, think it like that's the answer to me is culture.
00:36:25.119 --> 00:36:31.920
And I think it's just culture is not something that, you know, wearing my investor hat, like everybody says it, it's it's hard to replicate.
00:36:32.079 --> 00:36:34.480
But to me, that's the that's why I'm here.
00:36:34.559 --> 00:36:35.840
That's the differentiator ultimately.
00:36:35.920 --> 00:36:43.119
And I think of, and I think going back to the MSO business model, I think of headquarters for a multi-state operator as being a tax on the business.
00:36:43.280 --> 00:36:51.280
Like what we do at HQ is expensive, and we need to justify ourselves every day in the field by adding value.
00:36:51.519 --> 00:37:10.000
And I think what's different about grown rogue, the secret sauce per se, is that we're run by a grower who is not just a grower, but if if you've got something on the infrastructure side, he might not know the answer because Obi's not the biggest expert on every subject matter with respect to cultivation across the board.
00:37:10.079 --> 00:37:18.159
We've got team members that are technically deep in individual categories, but you want somebody that's gonna ask a relevant question on a cultivation-related topic and do it quickly.
00:37:18.320 --> 00:37:20.159
I've never met anybody better than Obi.
00:37:20.239 --> 00:37:24.719
Like you want to walk and roll with someone that wants to ask, you know, the relevant inputs, same thing.
00:37:24.880 --> 00:37:34.239
And so our ability at headquarters to push relevance into the field and make sure they're focused on the right things, and you bring kind of a stupid question to Obi, and he's kind of gonna chuckle at you.
00:37:34.320 --> 00:37:38.800
And if you bring it, you know, the same question two or three times and be like, yeah, this I don't think this person's the right fit for us.
00:37:38.960 --> 00:37:43.119
Like it happens pretty quickly with us because of that, you know, that that focus.
00:37:43.280 --> 00:37:44.800
And that's where culture shows up.
00:37:44.880 --> 00:37:48.239
But it's you know, it's the undefinable piece, but it's not SOPs.
00:37:48.400 --> 00:37:56.000
I mean, there are other folks with great yields in the industry and you know, ultimately low cost of production, but you gotta have something people want.
00:37:56.960 --> 00:38:00.400
I think there's also a lot of empowerment that comes into it, right?
00:38:00.480 --> 00:38:04.400
In terms of like we talk about it being a modular business a lot.
00:38:04.480 --> 00:38:09.360
Like each state has like 70% of it that's consistent, right?
00:38:09.519 --> 00:38:13.440
And then this state will have a regulatory thing that you have to stick a mod in.
00:38:13.679 --> 00:38:20.079
Um, but even like our DOCs, our directors of cultivation in each market, like they have guidelines, right?
00:38:20.239 --> 00:38:24.559
And practices that we want to deploy, but each one has their own, it's the artistry.
00:38:24.639 --> 00:38:26.480
Like, this is what I love about cannabis, right?
00:38:26.559 --> 00:38:30.079
It's the combination of ag and engineering, right?
00:38:30.239 --> 00:38:35.519
And if you just try and grow it through engineering, um, and it's a little bit of art in there as well, right?
00:38:35.599 --> 00:38:42.960
But like if you just set it through one of those two kind of principles that is so black and white, like you're not gonna be successful, right?
00:38:43.039 --> 00:38:46.719
And so allowing our teams to have that artistic touch.
00:38:46.880 --> 00:38:49.679
I mean, we talk about flower a lot like fashion, right?
00:38:50.000 --> 00:38:58.400
You trust a brand, like you trust Han or Nike or whatever it is, but you don't want the same pair of tennis shoes every single year, right?
00:38:58.639 --> 00:39:02.000
So the company has to keep bringing you stuff that you're excited about.
00:39:02.079 --> 00:39:04.239
Um, and that's where that artistry comes in.
00:39:04.400 --> 00:39:09.679
Um and then we're not afraid to make mistakes, you know, like we test new genetics all the time.
00:39:10.079 --> 00:39:11.440
Some are awesome, some are not.
00:39:11.599 --> 00:39:14.480
Sometimes you put them into production and you're like, ah, we screwed that up.
00:39:14.559 --> 00:39:20.800
But like you got to keep pushing the limits as well, taking that risk to continue to bring stuff that the consumer is looking for.
00:39:20.960 --> 00:39:29.360
Um and so it's a yeah, multi-faceted approach, but giving your team that empowerment to be creative is super critical to our success.
00:39:30.639 --> 00:39:35.840
So something you were mentioning about with some of these facilities that you have taken over.
00:39:36.079 --> 00:39:45.199
I was just kind of curious to pull that apart a little bit more because it seems like you know, you have a kind of a process with how you like to build these things, a cost structure around it.
00:39:45.519 --> 00:39:56.000
So, when does it work and why to take over, like let's take PharmaCan's Illinois facility for starters versus building from scratch?
00:39:57.280 --> 00:40:00.639
Uh cost to entry is going to be cheaper, right?
00:40:00.800 --> 00:40:05.440
The way we're able to enter these distressed assets is way less than what we'd be able to construct them for.
00:40:05.679 --> 00:40:09.840
Um then your timeline to market is significantly reduced, right?
00:40:09.920 --> 00:40:13.760
It might take, I mean, it took us a eight months to build Minnesota.
00:40:13.840 --> 00:40:15.599
You know, we closed the building in December.
00:40:15.760 --> 00:40:19.599
You know, we had started doing some of the engineering work, so your time to market goes up.
00:40:19.840 --> 00:40:27.360
Um in a perfect world, if you had the right cost of entry and an accelerated timeline, of course, we'd want to build it ourselves.
00:40:27.599 --> 00:40:34.639
Because when you walk into these, you know, assets, and we do a fair amount of due diligence, but again, our team's super scrappy.
00:40:34.719 --> 00:40:40.880
And so when we see like a lack of a dry room and they turned one of their indoor rooms, it's not like they don't have any dry, like there's dry space there.
00:40:40.960 --> 00:40:44.559
It just was not uh built as dry specific.
00:40:45.039 --> 00:40:46.880
The team's really scrappy, right?
00:40:46.960 --> 00:40:50.559
Like that's the other thing I think in this industry is I mean, you should go to our grow in Michigan.
00:40:50.639 --> 00:40:52.480
It's like we call it the million-dollar basement grow.
00:40:52.559 --> 00:40:56.239
Like people overcomplicated what it takes to put out the product into this market.
00:40:56.719 --> 00:41:05.360
And so we look at these things and where there's a good return on investment in terms of, you know, we have to do this, um, we will, but a lot of times it's just no.
00:41:05.519 --> 00:41:13.679
And I tell the team all the time, like, you know, no, like that's one of my my nickname as a grown rogue, which is no, because they'll ask for something.
00:41:13.760 --> 00:41:15.119
And it's like, nope, not yet.
00:41:15.280 --> 00:41:18.400
Like, show us the proof, like show us kind of where we're going.
00:41:18.559 --> 00:41:23.360
Um, the biggest thing I think we see in these facilities is mechanical, right?
00:41:23.519 --> 00:41:24.880
Especially as you go through distress.
00:41:24.960 --> 00:41:32.480
Like, that is really the you know, it's the heart of your facility in terms of having your temperatures and humidities and kind of that control apparatus.
00:41:32.960 --> 00:41:34.159
They're complicated.
00:41:34.320 --> 00:41:38.079
And so a lot of times you'll get deferred maintenance as people are managing cash.
00:41:38.239 --> 00:41:42.719
And so getting those things back up and operating properly is probably one of the biggest hidden costs.
00:41:42.800 --> 00:41:49.119
Um, but again, it just comes down to dollars, and you know, nothing's unsolvable.
00:41:49.280 --> 00:41:52.719
And so you gotta maybe spend a little bit more money because this HVAC doesn't work.
00:41:52.800 --> 00:41:57.360
Um, but still the overall cost and timeline greatly supports kind of this approach.
00:41:57.519 --> 00:42:05.679
Um, that being said, like we love custom building, like what we built in Minnesota that we're just turning on, like it's gonna be amazing, right?
00:42:05.840 --> 00:42:10.719
Built to our spec with our system, with our sizing, with our process and flow.
00:42:10.960 --> 00:42:15.599
Um so it's a good balance between both, right, in terms of how we're gonna go about it.
00:42:15.679 --> 00:42:29.039
And I expect us to continue that path as we continue to expand some select greenfield expansion into markets where we think that's the right place to deploy capital, coupled with there's still gonna be a lot of distress in this market over the coming years.
00:42:29.119 --> 00:42:31.599
Um, and the opportunity that presents itself.
00:42:31.920 --> 00:42:32.400
Right.
00:42:32.719 --> 00:42:34.960
So, like, is there kind of like a framework?
00:42:35.039 --> 00:42:45.039
Is it how much I understand the timeline savings, but to your point, there still is invested dollars to get it back into the mode that you want it to be?
00:42:45.280 --> 00:42:58.000
Is there like kind of like a metric like we want this to be at least 30% better than if we were to go build it ourselves, or like some kind of framework that you're trying to think about that because I'm sure there's gonna be more to your point, there's gonna be more opportunities.
00:42:58.079 --> 00:43:02.320
There's probably plenty of opportunities to find these distressed situations.
00:43:02.960 --> 00:43:13.679
But is it like what's like your crossover point where it's just not worth the hassle to get it right versus Josh may have better kind of like structures as he thinks about that and kind of leads that portion for our business.
00:43:13.760 --> 00:43:22.800
But I'll tell you just from Illinois and New York, um, a third of the price and twice as fast, is generally how I would look at that.
00:43:22.880 --> 00:43:26.719
And New York might even be way less than a third of a price that you'll do my entry point there.
00:43:26.880 --> 00:43:35.440
But Illinois was kind of in that range in terms of what the construction costs would take versus taking on this, you know, taking over this asset that had, you know, been evicted from.
00:43:35.599 --> 00:43:38.400
Um, but I'd say that's kind of a general rule.
00:43:38.559 --> 00:43:42.239
Um, but again, it depends upon the opportunity, Morgan.
00:43:42.400 --> 00:43:46.000
Like it's not there's no cookie cutter solution in this industry.
00:43:46.079 --> 00:43:49.440
It's not like there's this box that's it doesn't hit the box, we don't do it.
00:43:49.760 --> 00:43:51.360
Um, but that's my response to it.
00:43:51.440 --> 00:43:53.840
Josh probably will say it much more eloquently than I do.
00:43:54.159 --> 00:43:59.760
No, the the only thing I'd I'd add is actually ends up, I think Morgan, outside of the economics, like it it's a little bit more.
00:44:00.239 --> 00:44:13.679
binary than I think for you know than formulaic in the sense that there's a sufficiency dynamic that is me making sure I get OB andor our lead on the infrastructure side mark Dority out to a facility mark is super technically strong.
00:44:13.840 --> 00:44:16.320
It's like, hey, let's go, let's go compare this.
00:44:16.480 --> 00:44:17.920
What do we think we can do with this?
00:44:18.159 --> 00:44:26.079
And then it comes back to me with a, okay, what do we, what economics do we think we can get if we're dealing with a landlord that needs to re-tenant it?
00:44:26.239 --> 00:44:30.239
Okay, well, here's what we think we can afford from an occupancy cost per pound of flour we can produce.
00:44:30.320 --> 00:44:35.199
Here's here's what we're going to get out of this facility because of its, it's, you know, it's sufficient for this.
00:44:35.440 --> 00:44:41.199
And then that, you know, that discipline comes back to me with a, oh, well, in Illinois, we can only afford to pay this.
00:44:41.360 --> 00:44:45.119
If it works, then we have something we can move forward with and and proceed.
00:44:45.360 --> 00:44:54.719
And one of the benefits of of you kind of my network within the industry and my history in a lot of these regulatory environments is just the ability to get to good information quickly and kind of go no go quickly.
00:44:54.800 --> 00:44:59.280
So we filter pretty fast to, oh yeah, this one I think we can probably get for a price that works for us.
00:44:59.440 --> 00:45:02.079
When the market gets competitive, we're still going to make money.
00:45:02.960 --> 00:45:05.760
And Mark and Obi have said it's sufficient.
00:45:05.840 --> 00:45:09.760
So you get like the sufficiency test and then I get to run and play with the economics.
00:45:09.840 --> 00:45:12.719
And then if I get really excited about something I might push on them a little bit.
00:45:12.800 --> 00:45:25.679
And you know New York is probably that example where I just see such a lack of indoor flower canopy in the regulated market in the state of New York that it was, hey, like this is one I really, you know, we're gonna we're gonna lock in and find our way into the state.
00:45:25.760 --> 00:45:27.440
Like we belong in the state.
00:45:27.920 --> 00:46:08.079
Yeah and interestingly with New York that came along with it came retail the four stars and I know Josh you were mentioning that was that was that intentional that you that grown rogue is changing that you want to start doing more retail or was this just such a an attractive cultivation setup that you're like we're gonna we'll still make retail work but this is not a broader change just kind of curious you know with that passed up yeah much more the latter than the former so for us it was the wholesale market development opportunity for grown rogue that drove the excitement drove the the business but you know to be you know the the registered organization license class in New York can can grow up to 100,000 square feet of canopy.
00:46:08.320 --> 00:46:15.360
And in order to to have that license and renew that license you have to have four medical stores open under that same license class.
00:46:15.519 --> 00:46:26.400
And so like just from a sustainability standpoint you've got to have those four doors and over you know over time three of them can be converted to medical and adult use.
00:46:27.199 --> 00:46:32.000
But for us for the integrity the license having the stores was a need.
00:46:32.880 --> 00:46:35.280
Yeah we have some degrees of freedom as we go forward.
00:46:35.440 --> 00:46:58.480
I mean there are ways to you know bring in others to help manage things if we feel like we it's kind of beyond us we don't feel that way we we're pretty excited about taking on retail and we've got you know we've we have plenty of folks on our network uh to kind of lean into that um but it was not a intentional grown rogue now going vertical expanding yeah we're not out hunting for a bunch of stores in Illinois we're not out hunting to be a vertical player.
00:46:58.960 --> 00:47:02.000
So so you're not you're not gonna MSA those Josh you're gonna run those yourself?
00:47:02.320 --> 00:47:08.800
To start with we're gonna yeah I mean we're still in integrate like heavy duty integration learning mode right this moment.
00:47:09.280 --> 00:47:18.400
So just you have a I yeah I think it was it was rough for I mean there weren't new plants planted in that in the growth in the cultivation facility for like really since late March.
00:47:18.639 --> 00:47:23.199
And so the first party supply that was working through those stores is winding down.
00:47:23.360 --> 00:47:27.840
We've got some transition issues just very naturally to deal with on its own from a supply standpoint.
00:47:28.000 --> 00:47:38.000
And so we're kind of collectively with the pharmacan team which is a strong retail team on the ground already just collectively managing the supply chain disruption that was going to be happening to them regardless.
00:47:38.480 --> 00:47:45.119
So we're taking that on ourselves um but yeah TVD like there's just there's a lot of flexibility attached to it.
00:47:45.519 --> 00:47:46.000
Yeah.
00:47:46.320 --> 00:48:12.800
And while we're living in this regulatory limbo medical enjoys the benefit of not having two ADE in adult use still does is that a benefit is that a factor when you're with Illinois and and New York or was that just kind of just I mean I'm sure this all happened before these things were going on but I guess how are you thinking about medical versus adult use in in these two more recent markets?
00:48:13.360 --> 00:48:26.880
Yeah really from a I'm a more of a long-term thinker and long-term planner with regarding with regard to underrating et cetera so we do some handicapping about what might come but I find a lot of a lot of those points to be really dynamic to be conclusive on.
00:48:27.119 --> 00:48:41.920
And so like you know for instance you know we're not an organization that went out and you know press released the fact that we did the DEA paperwork with where we've got medical but like yeah we do the work um but we're not particularly certain about what comes next or how it comes.
00:48:42.400 --> 00:48:52.880
And so for us we've got such a core focus on our fundamental business that we don't spend a lot of time thinking through those dynamics until they're more certain.
00:48:53.039 --> 00:49:21.119
And obviously we're waiting for you know adult use schedule three news um like it just it feels premature to make some stronger strategic conclusions for us then doesn't mean probably like Jesse's business that we're not thinking man we we need to make sure we're ready for some version of interstate commerce or we actually think probably international export comes before interstate commerce in most realms at least probably probabilistically in our world we think that but don't know if we're right.
00:49:21.199 --> 00:49:51.360
Like that stuff is still in my view you know speculative as opposed to certain and what I'm certain about is what we can go execute on in these regulated markets, whether medical or adult use, and just deliver the you know deliver the the product quality and then what I'm also I'll call it speculative but also certain about is that skill set the production of indoor flour high quality indoor flour at a great cost that skill set is transferable internationally that skill set is trans if you have it that skill set is transferable.
00:49:51.519 --> 00:49:55.440
It's not just an asset in Illinois now and an asset in New York now.
00:49:56.320 --> 00:50:04.320
It's something that can be applied now we only have so much bandwidth to apply it and you probably hear you know Obi talk about yeah there's gonna be a lot more distress.
00:50:04.719 --> 00:50:06.480
We we've got a lot to digest at the moment.
00:50:06.719 --> 00:50:28.559
I don't think you're gonna see a lot of you know we might look for ways to get deeper places and and you know do better in markets but I don't think you're gonna see us try to be in 12 markets in 2027 for instance yeah I one thing to add to that I mean don't forget we're I mean home for us is in one of the best production areas in the US for outdoor flour.
00:50:28.880 --> 00:51:18.559
And people talk about in indoors generally the best, you know, greenhouse but like you know you think about pre-rolls or infusion I mean Jesse it's kind of how Leaf is building some of your kind of story and the opportunity that sits in front of that business but like you know interstate and regulatory change for us like we're really really well hedged not only because we sit in an area where you could spin up you know we probably do 10 000 pounds of outdoor like whole flour 15 to 1800 pounds a year of total biomass but like like this is an agricultural region and to spin that up to a hundred thousand you know there'd be challenges within that but like there's an ability to have a significantly larger um kind of footprint of production coming out of the state what I think a lot of people miss is the importance of brand and the relationships you build.
00:51:18.719 --> 00:51:30.159
And so people have always asked like why are you expanding if you think interstate's coming I'm like well because A, we don't know if it's coming and we're building a business that'll be successful today not waiting on something that may happen in the future.
00:51:30.400 --> 00:51:40.719
But two, and we've learned this like you don't just show up I mean even Jersey undersupplied high pricing it's not like we showed up and everyone's like thank God growing rope's here with good flour.
00:51:41.360 --> 00:51:41.599
Right?
00:51:41.760 --> 00:52:20.639
You have to earn that trust you have to earn that business not only with your retail partners but also with the consumers and so to expand that brand and that presence across these markets and set up these hubs I think it sets us up for interstate in a much more demonstrable way than people that are sitting on the West Coast waiting for that opportunity because brand is important, relationships are important and you don't build those overnight and so us kind of getting that national expansion coupled with the backbone of having production capability to come out of the West Coast I think we've hedged kind of the opportunity in both sets of kind of regulatory environments in a very healthy way.
00:52:21.840 --> 00:52:27.440
Yeah I feel like you have an obligation Obi to jump in and say something I'm sure you'll agree with which is outdoor could be fire too.
00:52:27.599 --> 00:52:42.639
Like everyone wants to create this everyone wants to create this good better best category thing where indoor sits on the top greenhouse sits in the middle outdoor sits at the bottom that works in in terms of pricing but I don't know if you'd agree Obi but in terms of quality I think the depths and the straight outdoor can be super fire as well.
00:52:43.039 --> 00:52:47.199
Back when I was a heavy consumer that's all I smoked was outdoor.
00:52:47.360 --> 00:52:47.679
Yeah.
00:52:48.000 --> 00:53:09.119
Our our GM in Oregon just migrated from running outdoor to to because our Oregon VM moved to be a Minnesota GM so promoted internally and our it came from the outdoor and I was just with him recently and he was just actually and the first time I met spent time with Obi in person I got the Interstate Commerce pitch back in 2021 from Obi which I still tease him about.
00:53:09.679 --> 00:53:29.199
But uh but along those lines yeah Seth Seth um Seth Seth is his gentleman's name and he was like Josh he's like I can't wait for Interstate Commerce just because particularly if you can take it out of the out of the jar like outdoor pre-rolls are better than every other pre-roll like that is it's a better smoke.
00:53:29.280 --> 00:53:32.239
Like our outdoor product is a better smoke than our indoor product.
00:53:33.199 --> 00:53:42.480
My challenge with that right and this is what no one's solved yet and maybe greenhouse becomes important to this um is aging of the product.
00:53:42.559 --> 00:53:47.679
That's another reason why indoor has such a strong dynamic is you can grow it anywhere.
00:53:49.199 --> 00:53:50.800
And outdoor ages, right?
00:53:50.880 --> 00:53:56.880
So to have like alcohol production you harvest in October that then you're trying to sell in July like it starts to degrade a little bit.
00:53:56.960 --> 00:54:00.000
Now we've been spending some time looking through preservation strategies.
00:54:00.159 --> 00:54:07.440
We found a couple that we really like um but there's a balance I think for all those different kinds of production methods.
00:54:07.679 --> 00:54:35.760
And again why I like outdoor and people that get exposed to it do it like I'll tell you what when you look at indoor quality product and there's still a lot of ego that comes into it especially when it's flour and that's back to the core of our business like for pre-rolls for extracted inputs like you know when flour is no longer the centerfold of your product um indoors hard to beat I mean you look at the best outdoor in the world and then you grow that strain strain in indoors and it's like nine today.
00:54:36.000 --> 00:54:39.840
Like it is it's so controlled right it's so controlled.
00:54:41.119 --> 00:54:48.000
And so I think there'll be a place where all those different products in the flower spectrum um across the board.
00:54:48.159 --> 00:55:14.320
But like you know you think about long term like you know and people say there's different qualities of distillant but like where's distillant going to be going like big fields it's a chemically processed like just it's like a true commodity right it's a certain purity it reminds me of cockle like that should not be grown anywhere other than like big farms in the middle of the country where aggregate maybe California where the weather's right but it's just it's a chemically extracted compound.
00:55:14.719 --> 00:55:16.800
So low cost on that is super critical.
00:55:17.039 --> 00:55:36.719
But as we're learning more and more about consumer behavior like um the essence of the product like full spectrum type experiences whether it's in flour and like live I mean I've been watching Leaf like going more into live resin, live rosin like that's what the customer actually really wants when they get a chance to get exposed to it.
00:55:37.519 --> 00:55:48.559
And I see that as the industry continues to kind of migrate towards you know a better experiential kind of um you know exposure um with the different products that are available.
00:55:48.880 --> 00:56:02.320
Yeah you're speaking about language OV we're seeing in California that uh live resin vapes, eclipsed distillate vapes in terms of uh leading the sales category and so that's probably music to your ears and music to my ears in terms of people getting that getting that whole plan experience.
00:56:02.800 --> 00:56:09.840
Well boys we've got one minute left so we all have to jump to other meetings but I could talk for another hour so we'll have to have you guys back on another time.
00:56:09.920 --> 00:56:10.960
This was super fun.
00:56:11.360 --> 00:56:11.760
Yep.
00:56:12.159 --> 00:56:15.280
Yep thanks for having us for you both really appreciate it.
00:56:16.000 --> 00:56:20.719
No worries and before we get out of here I need to say thank you again to FlowHub for sponsoring today's show.
00:56:20.800 --> 00:56:37.599
Whether you've got four doors like Grown Rogue or you've got 178 like Kira Leaf or maybe just a guy like me who's running a who used to run a single dispensary you need great software behind the counter FlowHub quite simply guys best in the business go to FlowHub.com and book a demo today.
00:56:38.079 --> 00:57:00.159
On the programming front the higher exchanges September to remember continues next week when we are back with Hugo Alvez CEO of Oxley a uh Canadian operator who's really doing well up there and shout out to our friend uh Mark Merritt for the intro there he's been champion championing them on X for a long time so looking forward to digging in so we'll see you back here next week for that show.
00:57:00.400 --> 00:57:12.960
And that's it guys we're out of here see you next week everybody head to your meetings thanks guys the Fuse Express is podcast are provided for informational purposes only nothing we said should be considered research nor recommendation.
00:57:13.119 --> 00:57:17.199
All investing involves risk including the loss of principle.
