Canadians have quickly gotten used to seeing shops selling cannabis on high streets across the country (excuse the pun) but how does that industry work and perform?
For the 57th episode of the StartWell Podcast, we met with a couple of consultants (Michael Lanzalone & Rahul Rajan from Wellcann) that help birth new cannabis brands who also have experience owning/running a cannabis production facility in Ontario. We were also joined at the end of the conversation by a grower colleague of theirs – Darryl Rosalin.
In a rush? Here are some highlights from this conversation
- The cannabis industry in Ontario, Canada. (0:00)
- Cannabis industry experience and knowledge sharing. (1:48)
- Cannabis manufacturing and product development. (7:47)
- Challenges in the cannabis industry, including regulations and inexperienced operators. (11:13)
- The challenges of running a cannabis dispensary in Ontario. (16:48)
- Cannabis retail and branding in Canada. (22:18)
- Brand loyalty in the cannabis industry. (25:33)
- Cannabis industry challenges in Ontario. (30:27)
- Cannabis consumption methods and preferences. (36:59)
- Cannabis edibles and their effects. (39:08)
- Cannabis cultivation, automation, and profitability. (45:08)
Spend time with this conversation - here's the full transcript
Qasim Virjee 0:00
So How come everyone in the industry says flower? And, like, no one like,
Michael Lanzalone 0:05
no one? Like, stickers. Exactly. Marijuana anymore. They've changed the canon. Yeah, notice
Rahul Rajan 0:14
just a stigma
Michael Lanzalone 0:16
when it first came out with the first 25 licenses, people were making millions, right? I remember someone saying, Oh, we were doing $100,000 A Day, everybody saw that and everybody jumped in. And then Ontario regulation said, Oh, we're going to just open up to everybody. We went from 25 locations to 1500 locations in frickin Ontario. It was great in the beginning, and then all of a sudden, it turned out pretty bad that a lot of dispensaries have shut down. It's still a struggling business for a lot of people. Like if you overpriced by $1 or two, the velocity of the sale decreases significant significantly.
Rahul Rajan 0:52
And if your product isn't consistent, then you can basically forget that your brand is gonna survive more than six seven.
Qasim Virjee 1:01
Founded in 2017 Start well is Toronto's independent hub for innovators to collaborate. Our podcasts relate perspectives from the world's most diverse urban population to reflect unique insights into global business, Media and Culture. Alright, guys, well, welcome to the stairwell Podcast. I'm excited for this session because it's been a while since I talked to anyone about cannabis here on the start. Well, podcast. Last time, I think it was Jay Rosenthal, who was running a publication called the business of cannabis, which then got sold and moved on to other things. And I haven't really surveyed and I don't think our audience has really seen a survey of kind of the industry in a while. So I'm really excited to firstly jump in with an introduction. I'll let you guys introduce yourselves, because I know Off mic right now we were talking about the the myriad ways that you found yourself into this industry. So started
Michael Lanzalone 1:56
with a minister app, I can go Yeah,
Rahul Rajan 1:59
so this is Rahul. I started in a regulated space in 2014. That was with any HP consulting, we did pharmaceuticals, cosmetics, you know, medical devices. And then boom, healthcare drops it at the end of 2013 that hey, cannabis is going to be legal. So we had few companies Aurora, Terry booth initially reached out canopy guys reached out hey, can you help us because we work with Health Canada and other regulated spaces, right. So it was an easier transition for us to from consulting perspective, go from pharmaceutical cosmetics into cannabis. We however, did not think industry was real. And we didn't take on any of these glides. We legit missed the bus or the first 14 licenses that came into the industry. When they came we thought they're gonna get shut down. Like there's no frickin way a g7 country is going to, you know, see through legalized. Exactly, you know, so
Qasim Virjee 3:00
recently legalized
Rahul Rajan 3:02
recreational and wasn't even a question back then it was just strictly medical, we were just coming out of those, you know, individual growers growing in their backyard into a bigger space for the proper patients, we had about 400 Some 1000 patients back then. Now the numbers have dropped on the medical side. But once we got into the cannabis, it sort of took off. We saw, you know, every random person that ever smoked it, or thought about it, like, you know what, this is a golden chance green gold, right. You know, they're putting their homes on mortgages, and you know, remortgaging or selling a try to get a license. Nobody had an idea that he's going to take three, four years to get a license, and you have to keep paying your, you know, operational expenses while you're doing it. So it was interesting initially, but you know, when we got into the game, it got so big for us. Within six months, we had to create a brand new company called cannabis compliance. That was the biggest and the first full service, cannabis consulting firm in the world. We had clients all over we opened up Australia market first. We did licensing in Colombia, we had a zoo, too. We had German tenders. Like we were everywhere, cannabis related. And that company was bought out by Deloitte, you know, so interesting. Yeah. So, you know, it was a great business. Initially, the idea was to be in a hammer and the chisel game, right? You don't want to be a gold miner, right? Yeah. So it's been 10 years now, man. Yeah, crazy feud, like haven't learned she's still learning. Every day. Yeah, this industry is amazing. for that.
Qasim Virjee 4:44
I'm excited for you to share some knowledge, drop some knowledge from this experience of the last decade in this industry. So Mike, with us. Yeah. So tell us a little bit about yourself. Introduce yourself. So
Michael Lanzalone 4:54
I was in advertising sales for 10 But more than that, I was with Patterson outdoor for 12 years at the time, I had been with Zoom media a couple years before that, and the pandemic hit and out of home advertising winter. Yeah, so pretty much I was driving anymore. And so, you know, six months into it, I got packaged up for my company. And I decided, hey, you know what, it's time to get out of Canada for a little bit. So I went to Costa Rica for five months while I was. Yeah. And while I was down there, myself and Raul hooked up, I decided to get into brokering a little bit of cannabis. And so, you know, we were chatting and doing deals together and an opportunity came up where I was looking to get a license and to be able to do better broker deals. And an opportunity came up that a company in Mississauga that had a processing facility was looking for investors to come in. So we decided, hey, you know what, why not? Let's let's give it a shot. So, we bought a company called green gold in Mississauga. And we picked up a couple of really good clients right off the bat, we picked up
Rahul Rajan 6:05
goats drops, cookies, you know, seven leaf,
Michael Lanzalone 6:08
yeah, yeah. So these
Qasim Virjee 6:10
are all sorry, the function of this facility was processing. So that means you buy from the grower, and then you create the product ties,
Michael Lanzalone 6:18
right? We just turned it into either flour packaging or pre rolls. That was really what we're doing. We were packaging, three and a half gram flour bags, and we're doing 1000s of pre rolls.
Qasim Virjee 6:29
I gotta pause you there. So How come everyone in the industry says flour and not wheat? Like, how come no one like no one who legally said I think it's like, is it a stick? Is it a call? Yeah, exactly. Or is it
Michael Lanzalone 6:42
a legal marijuana anymore? They've changed the cannabis.
Rahul Rajan 6:46
Nobody's just a stigma is they're trying to de stigmatize, you know, like, UFOs. Nobody wants to say UFOs they're trying to say UAPs. Now it doesn't sound
Qasim Virjee 6:54
as though that Congress
Rahul Rajan 6:56
same thing with wheat bread. Nobody wants to say dog grass. You know, yeah, rebrand. So I'll
Qasim Virjee 7:02
say I'll say weed forever. And then forgive me if I drop that word.
Michael Lanzalone 7:07
So we were in Greenville for about two years. And it was like, it was crazy, because we had never had an operations background. We went
Qasim Virjee 7:14
from where you guys out there in Mississauga at the fact Yeah, we were literally like
Michael Lanzalone 7:18
the first couple of days, we were doing the actual pre roll and you guys had to hear a lot lab coats on. And at one point, we had probably 15 to 17 full time employees. And then we had a temp agency that we would bring in as needed another 15 employees, and we were putting out a ton of product. But
Rahul Rajan 7:40
a good quality product. I think that was the key part for us that we learned. Not everybody has same standards in the industry. So every company that you work with will have a different standard. Sure. We just got lucky in a sense, or unluckiness, as our clients were following military standards are the highest standards for manufacturing anywhere. So we have to learn really fast how to produce at a highest level,
Qasim Virjee 8:01
how does regulation work for this kind of thing? Was it was there a dude that came around on Friday, like, let everyone pee in a cup.
Michael Lanzalone 8:08
You could smoke as much cannabis as you wanted. But if we if, you know, unfortunately, people that typically are smoking weed, while their work are not that efficient. And so we you know, we had numbers that we had to hit on a regular basis. And if we weren't doing that we weren't able to hit the market to actually get product into the actual dispensaries. And you would lose your clients that way. So we had to be on top of the
Rahul Rajan 8:35
manufacturing KPI is very, very important, right? There were three rooms always filled different projects, different strains, different clients work being done. Yeah, that was interesting. Yeah, that was a learning curve to the Mac. So
Qasim Virjee 8:49
let's let's talk about the product line that you guys were that you inherited, which took it over and then how things change while you were there? Well, I'm
Michael Lanzalone 8:58
a product line that we inherited. We didn't really inherit any problem. Is
Qasim Virjee 9:02
it functional?
Michael Lanzalone 9:03
It was no, it was zero sales. There was nothing going on. The guy had no business model. He had just he had the lab set up that we could do a number of different things. And we decided, you know, Rahul, and our other business partner, John had been in the space for a while they saw where the actual opportunities were. CO packing was a good opportunity. Yeah, well, so co packing so we were like white labeling in a sense for other clients and they were using our license to be able to produce excise and then ship it to OCS or, or province it's, you're
Qasim Virjee 9:34
an OEM producer. Yes. Yeah. But what Sorry, what again, product what different skews or product lines, just basic regular into?
Rahul Rajan 9:43
Yeah, different sizes of joints, right. And then different sizes of jars or, you know, flower bags that you pick up, you know, three and a half gram, seven gram, 14 gram, but we stuck to that dry flour processing, okay, because that's where we it was easier to get It was easier to you
Qasim Virjee 10:01
literally by the like the wet leaves, whatever the plants pulled out of the ground, you have to like, clean them cut them. No,
Michael Lanzalone 10:08
we get it packaged ready to go, it's already been trimmed. And then we take it and we either separate it and we weigh it, and then put it into a packaging and everything needs to be compliant with the labeling, or we grind it down and we turn it into pre rolls,
Rahul Rajan 10:24
we get the finished product, then we have to convert that into a finished product for consumers. So that was our only step.
Qasim Virjee 10:33
And did you for the rolling side of things was like all machined, done, or did you have like a bunch of dudes? Yeah,
Michael Lanzalone 10:39
it was well, it's like it's it's a machine, we had a rocket box at the time, which is like a vibrating machine that you have all these cones that you drop in 100 cones, and then you would pour the grinded cannabis over top and shake it to a certain point and then so that way it exactly and and you know, you have a variation of, you know, 5% is it 5% on your side.
Rahul Rajan 11:02
Yeah. So you know, if you have a half gram joined, you can have 5% variation on the downwind and upwind.
Michael Lanzalone 11:10
So you had to be precise, and this was a thing. So speed was was key in here. And just making sure that somebody that was actually pouring the cannabis in there was effective and efficient at doing it so that the first hopefully the first round that you pull out, was this close to the weight, otherwise, you got to keep adding to it and would slow everything down, right. But we quickly realize that our operations skills were just not there, we had an operation manager, she was great. But in order to actually scale, the only way we could scale was add more employees to that. So then we ended up bringing in these two guys from the company that we're with right now. And these guys had confectionery background and operations and excellent brought them in and showed them our processes and asked them, you know, what can we do to become more efficient here?
Qasim Virjee 11:56
Laughter. You get out of here.
Michael Lanzalone 12:00
That's right. And so in the you know, and when we bought the company, in a sense, we were buying it to flip it real
Rahul Rajan 12:08
flip it really quick idea was, you know, myself and John, we've been in the industry 10 years that we could bring in people that are interested in looking to purchase, which we had great interest in the first year. However, we learned very quickly, the deals in cannabis industry are so hard to close. There's so many different variations on regulation, compliance, your, you know, working capital, there's operational stuff, there's so much to look at. It takes lawyers months to prepare frickin agreement. And then you go back and forth. So that was a
Qasim Virjee 12:43
So wait, how much of that is just business versus new operators involving themselves in business versus regulatory restrictions? I
Rahul Rajan 12:55
would say regulatory restrictions are about 40%. But that I would say another 40% is the new people that are coming in that have they're
Qasim Virjee 13:03
like, they're not sure they've got some money, because they're from some other industry. Yeah. And they want to invest their investors, but they're actually active investors for the first time.
Rahul Rajan 13:11
That's the idea there is good, you know, you invest money, you get involved, you spend it properly, right. But people that have no idea running an operation, they could cost a lot of money very, very quick, right? One simple mistake could shut you down for months. Right. That's where the issue with the industry in generality is because not every operator is a good operator, there's very few handful of companies that actually fantastic, and they're making money. Like they're legit profitable companies that we don't hear about in cannabis industry.
Qasim Virjee 13:45
What happened then?
Michael Lanzalone 13:46
So we, you know, we sold the company, okay. We, we had one of our clients that purchased the company, and it took us probably about a year and a bit like we had we had a while yeah, they had they kind of drag this along a little bit here and there. And, you know, they had come to us, I think it January probably was and said, Oh, yeah, we're gonna buy the company. And, you know, number of factors slowed things down. And so it took us yeah, probably about a year to close it. Yeah. Wow. Yeah. And but it was operational. And yeah, it was operational. It was it was a great learning experience. And then from there, you know, then we moved over to Wildcat when we moved over to to some operators that actually knew how to run the operations a lot more effective and efficiently that we were Yeah, and we came on as the business development arm which was what we were good at. Right. And so So what
Qasim Virjee 14:40
was Well Ken at that point, as a company, so
Rahul Rajan 14:42
Well, Ken was a client of mine and Johnny so we got them their license so we knew what they were doing. Their idea was very innovative and unique product which was THC, chewing them. Nobody has a chewing gum in Canada. Yeah, we have no traditional chewing gum manufacturer in Canada, let alone to you See, we are the only company that actually manufacture CBD Intuit THC gums in North America. Wow. Yeah. So you know, there's no equipment in Canada. So they have to brought everything from Europe, all of our gum base and everything is coming from Europe because nobody has anything available here. Right. So that was their unique IDs. That was the only product that they had in mind when we got them their license. While we were doing the license, he's like, listen, you've been in the industry, would you be our sales arm? And that was back in 2018 that we had this conversation. Okay. So once we sold a green gold, and we were looking at like, what are we going to do next? We liked the industry, you want to stick around, right? Well, Ken came up again, like let's go have a chat with them. And they were great. Like, listen, we know what our lane is. We are operators, we optimize our processes. That's what we're good at. We don't want to do sales. That's your job. You guys know everybody go get business. Right? So finding a partner who knows their lane very clear. That's where we're finding success this time around because not a single partner crosses over into anybody else's lane, you know?
Qasim Virjee 16:08
Yeah, I mean in any business as difficult right? Is to try and like move from that kind of we're doing everything owner operator kind of approach to like really getting you know, niche down Yeah. niche down.
Michael Lanzalone 16:24
And then and then we just we wanted to get away from just co packing and we decided okay, we're gonna start launching brands. So we had one guy by the name is Mike as well, and he had owned a bunch of dispensaries and had sold them and wanted to
Qasim Virjee 16:39
when you say a dispensary You mean like he owned a
Michael Lanzalone 16:41
legal or leaving. You had like four Tokio smokes that he had owned. Yeah, I didn't even know
Qasim Virjee 16:48
those were franchise. Yeah.
Rahul Rajan 16:51
No, no. Initially, when they first came into Ontario from BC, they were a corporate store. But as soon as they open up the retail channel. Yeah, they were initially franchised. Now, that was a coffee shop. It
Qasim Virjee 17:04
was a franchise. It was a coffee shop. It
Rahul Rajan 17:06
was a corporate store. Okay. Yeah. Because they were only at two stores here back then. And I think they only had four in BC. But as soon as they got into the cannabis retail Yeah. They're franchised. Yeah,
Michael Lanzalone 17:16
the dispensary model it was you know, when it when it first came out with the first 25 licenses, people were making millions, right? I remember someone saying oh, we were doing $100,000 A day everybody saw that and everybody jumped in. And then Ontario regulation said oh, we're gonna just open up to everybody. And you know, didn't put any restrictions on how close you needed to be to another dispensary. And so all of a sudden, we went from 25 locations to 1500 locations. Freaking Ontario. Let's
Qasim Virjee 17:45
spell that out a little bit for our people out of province and out of country. In Canada, there was this race to legalization then all of a sudden what 2017 Maybe 2018 October okay, then all of a sudden you know people start like you said there in Ontario there was a lottery system which you applied to and then you got awarded your license and there was like that What 25 five original and that's across the whole province, we've got a big province and so there was this appetite from the consumers side to purchase at retail and there was an under supply and then all of a sudden they opened it up and the pandemic hits and you have all of these like retail locations that were like had gone belly up and half of the city in Toronto at least was like dead retail. Yeah, so perhaps impetus for people to say okay great let's let's sell we sell weed and then down at least Queen Street a street just not far from here for like, you know, for people that are out of out of the city. This is like a major east west artery typically old school retail funky shops, fashion cosmetics, whatever. Suddenly all became weed like every single store Yeah.
Michael Lanzalone 18:58
It gets stolen anywhere you want it on the street at any time. Yeah. You'd see a new dispensary pop up Yeah. And so you know that it was it was great in the beginning and then all of a sudden it turned pretty bad that that dispensaries were losing money as opposed to making money. Yep. And now I think we're at the point where you know, a lot of dispensaries have shut down and the strong are are are sticking around and you know, you've got bigger chains that have kind of merged together and so it's it's it still looks like a struggling business for a lot of people and I think you know
Qasim Virjee 19:42
the let's break down that business model for a second. Okay, let's do the the napkin math on it. So if I open a dispensary obviously I have my fixed costs for operations. If it's a coffee shop, whatever it is labor, I've got my utilities have route my rent, all that stuff, right? So let's say running costs 4000 square foot on the cheap is let's call it even as low as 10. Grand. Yeah, a month. Yeah, leave aside my capex, which is my build out costs. Okay? I'm taking over an old whatever shop, I'm just selling weed in it and I'm not painting it. Well,
Rahul Rajan 20:13
let's not forget the inventory purchase, inventory purchase. That's a big chunk. Okay, so
Qasim Virjee 20:19
let's let's for again, people that don't know how this works, because it's a regulated industry with this weird OCS thing the Ontario cannabis store store. Yeah, so provincially owned body. Yeah, that acts as the single first purchaser of products to then redistributed to end customers. Yes, just like LCBO. So they have their markup on the product. massive market, yes, massive, massive markup. So they markup minimum 23% from what they pay us, and what they sell to the retailer. So they're already making that it's normally
Michael Lanzalone 20:54
I would like, you know, 25 to 30% right off the bat for the distribution. So
Qasim Virjee 21:00
even the end retailer who's now opened up their shop that's costing them 10,000 bucks a month, minimum, they have to pay a premium on the product that they're buying to sell to customer in that same customer. Am I correct in saying can buy online from the supplier? Yeah. And save that? 23? Well,
Michael Lanzalone 21:15
no, that what happens is the OCS marks it up to the dispensaries and then they mark it up to their own online store as well. Okay. But yeah, they're depending on percentage.
Qasim Virjee 21:27
More, okay, because so they're giving an advantage to retailers even
Rahul Rajan 21:32
trying to Yeah, that, hey, we can come close to what you guys sell at your store that we're not going to undercut you by five bucks. Okay, now, because they weren't taking a lot of the chunk out of it. So
Qasim Virjee 21:42
as people as end customers are not too fussed, let's say with, especially if they're repeat regular buyers with walking to a store and you know, wasted time and all that drama of buying retail, and they want the convenience of online. How do retailers compete with OCS for online purchase? Well,
Michael Lanzalone 21:59
yeah, initially, you couldn't do the online purchase that actually happened that you could actually buy it from the actual dispensaries and have it shipped to you. About halfway through the pandemic. Yeah. So originally, it was originally wheat. And now it does. Yeah, over delivers wheat. It does now in Ontario. Yeah. And I don't know how many locations are doing it. But when I went when I
Rahul Rajan 22:22
Hamilton, we know for sure I have and
Michael Lanzalone 22:24
then they've got an I've ordered it in a tobacco in Toronto. So you know, the convenience is definitely there. Yeah. But yeah, at one point in time, OCS was the only one that could actually order weed to your house. Yeah.
Qasim Virjee 22:36
So let's talk about the branding piece. Okay. And also for the customer model, or the retailer model that we kind of like paused on. I think what we established is that there's like this startup costs than there's historically costs and return costs. I guess what I was getting towards is, what's the like, the actual room for margin in that business model? Because do you have to sell? You know, how do you like, Okay, well, I guess the per unit cost is going to be about 10 bucks that you're selling, let's say and it all depends
Rahul Rajan 23:04
upon the format of cannabis you're taking, right? So
Qasim Virjee 23:08
your average purchase price,
Michael Lanzalone 23:09
let's just say just let's just say we sell to the OCS for 10 bucks, then they mark it up another 25%. So what is that 12, a full 50. And then the retailer's probably marking it up between 30 to 50%, depending on what the product is, and what store you're in. And you know, what the brand is that they're putting out there. So it's probably between the 30 to 50% is what the average is for the dispensaries to make on the product that they've purchased from the OCS. So
Qasim Virjee 23:38
they're in a volume business at retail, like they need.
Rahul Rajan 23:40
They need to manage it. Yeah, yeah. And especially if somebody doesn't own the property, and there's lease and rent on it, then yeah, you need to be selling a lot. And that's where retail is tricky, because if you go into any dispensary 90% of products are exactly the same. Yeah.
Qasim Virjee 23:57
And at the same time, I've been in a couple of them. And I'm always shocked with how the retail experience is limited to interior design. That's it like and I think that is that a regulatory restrictions, I can't have an espresso bar we chopped, right, you
Rahul Rajan 24:11
can't even have a window without a covering to open a retail store for cash selling
Qasim Virjee 24:17
to the street, but no one from the street can see what you're selling Exactly. Which is antithetical to the retail experience. Are you allowed to have if nothing else, like if not consumption on the spot, like a place for people to sit and read magazines?
Rahul Rajan 24:29
You could but again, is their ROI on you're gonna have to add an additional 500 square foot that you will not get paid on. And they're just people sitting there. And if any consumer isn't the right consumer for you, I could drive away customers. That's what I
Qasim Virjee 24:45
haven't seen the Genius Bar for weed. Like I haven't seen someone take that Apple model where you're not. You might go and look at the product like in an Apple Store. It's a showroom, right? Yeah. And then it's a warehouse in the back. It's not really that like old school retail where everything's stacked. On the shelf and you take one anymore, except for accessories, yeah, but I haven't seen anyone do that with can and can't really
Michael Lanzalone 25:06
touch the cannabis until you bought it. So you're really hoping that the brand has put some good product in there for the most part and lying on your, you know, the brand equity or the so let's
Qasim Virjee 25:18
talk about that. What what what latitude do brands have to build equity?
Rahul Rajan 25:23
You know what I can say this in the last 10 years? Yeah, in the medical and then last five years almost in recreational. I don't think there's a single brand that has captured loyalty of the consumers. Yeah, there's so many products out there too. There's 1000s and 1000s of SKUs on the same category, right. So which is a good and a bad thing. Bad thing is we've spent millions and billions and I'm in canopy and Aurora and tundra burned like $30 billion altogether. Right? And nobody's nobody can say who what can be has in terms of brands, right? Right. Nobody knows how many brands they got Aurora, they just launched a brand new brand. So again, nobody has a brand loyalty. So when we were looking at Brands ourselves, like what would connect, I think all the 70s and 80s Puns on the weed and marijuana has been taken, you know, all the Tommy John's and all. They were all gone. All the celebrities have come in and failed. So for us, we learn from other people's mistakes. We know. Okay, there's no brand loyalty, all about the names. It's all about the looks something that connects right. Yeah. So DOM Jackson brand when that was our first brand, Tom Jackson Jackson,
Michael Lanzalone 26:39
he's got the purple gas mask is what his logo is.
Qasim Virjee 26:44
But did it would buyers know him? Well, or the
Michael Lanzalone 26:47
printer? No, no, they just the guy that owned the for Tokyo smokes that decided to get into the space. And he was our first client as a brand coming. So
Qasim Virjee 26:55
it was literally like a graphic design exercise pretty much
Michael Lanzalone 27:00
and the product and finding exercise. And really, it really comes down to what we're putting in there. Like how nails on
Qasim Virjee 27:06
YouTube, you know? Yeah, in a way, that's what it's become. It's like, how do you make that purchase of everything looks the same. And you can't smell it taste? Right?
Rahul Rajan 27:13
Everything's just on your computer screen to make a decision out of right. So what we learned from Don Jackson being launched into the market is people didn't know the company name, but they recognize the logo. You're like, oh, shit, oh, you're the gas guy. And people are stopping him in the street when he wears his merch, right? Oh, really? That's where we're like, okay,
Qasim Virjee 27:36
it's the little is his name the brand?
Michael Lanzalone 27:39
No, Tom Jackson is just a fictitious guy that rolls around looking for good weed. Yeah, but, but this, you know, because of that the bud tenders at these dispensaries are our biggest sales arm in a sense. So, you know, we are able to sample to the industry. So you know, we'll set up events, sometimes we'll bring them to our growth facility, we'll show them, you know, how we're growing, what the strains are, get them to sample it, and then hope that they're going to relay that information to a cannabis user that comes in looking for specific products,
Qasim Virjee 28:14
who are bud tenders.
Rahul Rajan 28:17
They're the bartenders. They're the people recommending, hey, this is a new cool product that I've tried, you should try it type thing, because
Qasim Virjee 28:26
then essentially, they're the people at the counter when you go in. Yeah,
Michael Lanzalone 28:28
exactly. That's who you're gonna go to as a consumer, especially a new consumer and probably ask for their advice there.
Qasim Virjee 28:35
Okay, and I get this, I don't want to be like, it's kind of interesting, because it's just like your barista at an espresso bar and you go to a third wave espresso shop, and you ask them about a bean. And they're gonna tell you all this crazy stuff, but where they've been came from, right? That's not to say that they're earning like $150,000 to be special specialized knowledge, right? It's not tied to a salary situation. No, however, typically with baristas, you're thinking they're going to be very passionate about coffee to be able to share that knowledge. Have the knowledge be interested in acquiring the knowledge to share it? Yeah. So it's like that kind of interests drives their efficacy in the job. Is that the same thing with vendors? I really care about weed?
Michael Lanzalone 29:17
Yeah, well, most of them do.
Rahul Rajan 29:18
I would say the whole industry in cannabis like when you look at people the passion is unbelievable. I have never seen this type of passion like nutraceuticals natural health product industry had similar passion because everybody's learning from their personal experience and trying to create a product that could sell like solve a lot of the issues.
Qasim Virjee 29:39
You're talking about like creatine and stuff could
Rahul Rajan 29:42
be anything it could be mushroom teas could be Chaga mushrooms is great, right? I mean, people learn from their mistakes like I know Chaga teas, we got a lot of ambience for because pregnant woman they don't want to have caffeine when they're, you know, ovulating and all that like or when they're lactating. They want mushroom teas it works well for them, right? All of the listings coming from personal stuff. You see that in cannabis as well. So supposed to be a lot of knowledge and care about products that you recommend. What we are finding there's a lot of turnover on the retail. So the bud tenders that you really want just psyching very, very quick.
Qasim Virjee 30:19
What are they moving between different retailers are going for bore their details.
Michael Lanzalone 30:22
They're just coming into the market, realizing it's, you know, not what they're looking for. And they get out. Yeah, and and the other issue, especially here in Ontario is, there's 5000 OCS wants to put 5000 products on the shelf. I think last three, four months ago, it was at 3000. And they're trying to push it up to 2000. Are they trying to diversify? I think they're just trying to make the experience for the actual consumer to be able to get as much product as they want.
Qasim Virjee 30:49
Because a little while ago, I was hearing this maybe from you guys, but like this story of of also supply being a problem from the brands that are stocked like, yeah, brands not being able to or products, product companies not being able to supply enough product to the OCS and then also consistency issues. So the consumer gets very even more frazzled with what's available, what do they actually want to rely on? Right, and they rely on.
Rahul Rajan 31:14
That's it. So you again, you know, there's 5000 skews, and they're like 800 new brands, because of that reason, companies bring out a brand they feel added miserably, you know, they get bad reviews, and they just changed the name in the new listing process, which is three months down the line, and they just come right back up again with something else, right. But it's the same shit products. That's where consumers are like, they don't know what to follow, they don't know what to buy, right. So I think when we were choosing to create our brands, I think we've finally sort of agree that, you know, we're not going to showcase the growing side of it means nothing to the consumer, right? All they want is that when they open the jar, it's a good product that they enjoy, and they get happy with. Right? So our focus with our most of our brands is consumer side, which isn't really allowed. So it's more of the education, the the communication, how are we going to tell our story better, right?
Michael Lanzalone 32:07
Yeah, and we're obviously making sure that the grower and the input material that we're buying is at a at a highest level as possible, we just do craft cannabis as well. And craft cannabis being like, you know, small, typically, it's about 1000 square foot room, all indoor. And you're getting, you know, really good strains from breeders that have been doing this for a long time. And so, yeah, though, we focus on the end consumer from a marketing standpoint, we got to make sure that the product that we're putting into the actual flower package or pre roll is premium, and it's priced properly as well, like that's one of the biggest factors in cannabis is like, if you overpriced by $1 or two, the velocity of the sale decreases significant significantly.
Rahul Rajan 32:57
And if your product isn't consistent, then you can basically forget that your brand is gonna survive more than six, seven months, right.
Michael Lanzalone 33:04
And right now the biggest driver or at up until maybe the last couple of months, THC has been the biggest driver. So when customers walk in, and they're like, give me the highest THC product or the lowest price. So you know, then now all of a sudden, it's a
Qasim Virjee 33:20
whole different consumer, you know, profile or like the recreational I want to try something that's a little bit strawberry flavor like, yeah,
Rahul Rajan 33:26
right. And I guess I blame in the sense OCS or other provincial bodies that are purchasing or bringing these new skews into the market to be pushing that agenda in the sense that you could bring in 14% thc product OCS has full say on it. Consumers see it, they might buy it, but they only see the higher THC products with basswood, they're sort of training the market to ask for. Right. Okay,
Qasim Virjee 33:54
so on that note is very interesting. I've been confused a little bit about this. How come? We're not seeing with legalization now being five years? Right in the rearview? We haven't seen any kind of provincial LED or federal lead education around this
Michael Lanzalone 34:15
product. Yeah, they've just started OCS just started to I've seen like, one or two outdoor advertisements talking about
Rahul Rajan 34:25
Yeah, I guess get to know Canada. Yeah, that's a campaign right now. Because
Qasim Virjee 34:29
it's been treated almost similarly, like the rollout in Ontario to liquor right. So it's kind of like, you don't know it until you learn about it in your own way. Yeah. And there's this weird kind of like stigma about it culturally or historically. So it's not part of like we'll legalize this thing, but we're not going to really talk about it becomes this biased. stigmatic. Yeah assumption pattern
Michael Lanzalone 34:53
and because of that, the gray market black market, whatever you want to cry as drive. Yeah, because they're out there average. tising it all over the place. Right? So and you know, if you advertise it as a regulated brand, you're getting your, your wrist strap
Qasim Virjee 35:09
on slap on the wrist fair competition from the black market who would have found ways to be like literally retail, like here in Toronto for our non Toronto people listening to this Washington, we have stores across the city that I've seen that are, you know, they say, Mississauga is of the credit, which is a community of people that were here as First Nations, you know, in this region, saying we're exercising our Southern Right yeah. And they're selling weed and I don't know where that week comes from, but it's definitely cheaper than probably what you'd see. And they have discounts in there that you know, it's like hey, it's weed Wednesday. Yeah, and they got DJs on the street you know, pumping tunes and it's like, how do you compete with that if you're like this, you know, it's hard man brand on an online site by the government. It
Rahul Rajan 35:59
really is hard man. And again, they are exercising their rights they can see it they grow outdoors they have enough you know, land to grow this on, which they utilize so you can buy a lot of cheap products, native reserves for sure. What I see though I think good products do sell well. Like Carmel I will say is one brand that blows it out like we're looking at their frickin numbers in Ontario for the year and they're already past 35 mil so
Qasim Virjee 36:27
this is a really good product that people actually can trust and believe in they can
Rahul Rajan 36:32
trust and the consistency has been there now is the quality same that it was the first time no it's not of course has gone downhill massively however, still delight the consumer at the same price level at the same consistency level. That tells us people don't really care about at least in my opinion, those novel new innovative products where you know some flavor profile or you know you have a gassy strain but I'll throw in some strawberry flavoring. That doesn't work. Cannabis again is more is more of ritualistic experience of consuming cannabis. Yeah, like if I like my pre rolls the way I roll it I wouldn't smoke a Prieto I'm gonna grind it myself. Right. That's the ritual of it. I think most people are gonna go back to that basic stuff.
Qasim Virjee 37:17
But now you mentioned GM and let's talk about this kind of like alternate kind of delivery mechanisms. confection confections and stuff like you know chew gummies and gums and drinks like sodas and stuff. Yeah. Are they selling relative to weed to smoke?
Michael Lanzalone 37:35
No, not even close like there are a small fragment of the beverage
Rahul Rajan 37:40
section is under 2% of the overall market
Michael Lanzalone 37:44
edibles is what may be 10. Now not even known Well, again, the black market thrives in the edibles because of the amount of THC that you can put into an actual package. Here in Ontario, you can only put 10 milligrams per package so and you can go around and buy gray market edibles. 500 milligrams
Rahul Rajan 38:06
that ridiculous. You take a little bite your stone for day gets stolen for a week. You buy the legal legal product that is edible is 10 milligrams and if your digestive system if your absorption rate in your frickin digestive system isn't good. You're not going to feel anything. Yeah. And I don't touch edibles. It does nothing for me, right? Absolutely nothing. I don't like drinks either. i Yeah, he experiments. I'm a flower garden I stick to my prerunner flower I don't even
Qasim Virjee 38:38
So the right you're telling me that the bunk bulk of the industry
Michael Lanzalone 38:41
is 70% is is pre rolls and flower
Qasim Virjee 38:45
70% is people smoking weed
Michael Lanzalone 38:47
smoking weed? Yeah. And yet, they might be smoking it through a bong through a pipe through, like dry, or vapes or Yeah, like a dry may not like the typical cardial oil vape there. Yeah. But yeah, like for myself, I prefer smoking weed over everything. Because if I do an edible, it's kind of like I don't know, I feel
Qasim Virjee 39:12
you're high without the call. Well, it's
Rahul Rajan 39:13
you don't know when you're gonna get high.
Michael Lanzalone 39:15
It's a different high, you don't know when you're gonna get high, you don't know how it's gonna hit you. And then it's like a more of a less lethargic feeling for myself
Rahul Rajan 39:23
does make you tired that there is something with that consumption format that doesn't give you that euphoric feel that most people want from Kansas. Yeah, it's very one trick pony, once you get into these beverages and edibles, but see,
Qasim Virjee 39:36
again, this side of the education on the customer, you know, new customer profiling, or, you know, when they walk into a store for the first time and there's all the stigma, they're not going to ask necessarily all these questions right there, bud tender, and
Michael Lanzalone 39:50
you're probably gonna go you know, if you're just a regular consumer, you're gonna think I'll just grab it out of a drink. Right? And if you know if it's just if you don't
Qasim Virjee 39:57
like it, well it doesn't do it. And that's it. Alright okay let's like
Michael Lanzalone 40:01
distillate which is like you know pure THC in a sense for For myself it kind of just gives me this like airy you know almost stupid feeling of a high like I just don't enjoy it so right that's your first time and you go out and you try a beverage and you feel like that you're never going to come back and try it again.
Rahul Rajan 40:18
Yeah so most part yeah so cannabis to me if it's you isolate those compounds like CBD THC and all the other ones that they have these days. The moment you isolate you're killing the cannabis the way you know it, then you're just going after the EP i which is you know, active pharmaceutical ingredient innocence where you take that one pill that does that one trick, right, right. I think cannabis that forgot it is supposed to give you that overall euphoric feel entourage, entourage effect, right. And you don't get those with the edibles right now. Hopefully it changes, right. There's good companies doing good r&d on the input materials that will have that euphoric feel to it. But we're not there yet. I think us so it's a
Qasim Virjee 41:03
byproduct of the combustion processes what we're saying. Yeah,
Michael Lanzalone 41:07
exactly. The byproduct or the combustion process has that entourage effect that you're not just getting the THC, you're getting all the minor cannabinoids in there. And, and because oil and the terpenes like right now terpenes are, you know, a big factor in what how people purchase? Because certain terpenes give you certain effects. Yeah. And so you can you know, you know, to simplify things, you've got indica and sativa sativa being more of a head high, indica being more of a body high. But really what it comes down to is what terpenes are in that actual cannabis product is what's going to give you the effects of how you feel.
Rahul Rajan 41:42
And terpenes basically is just essential oils. So you know, when you buy those essential oils when you're sniffing you know, that's exact same oils that you have cannabis plant is just when you combust it with THC and other cannabinoids and evolve with it. That's where the effect is. Right.
Qasim Virjee 41:56
Okay, we got just a few more minutes left. Is your farmer here?
Michael Lanzalone 42:01
I don't know where he is. And just to give you some background, Darryl Darryl has been growing. I think since he's 50 years old, he's been growing for 2020 some odd years. Yeah, this
Rahul Rajan 42:13
is a year 20
Michael Lanzalone 42:14
Now 20. And he started out what age
Rahul Rajan 42:16
was 15? Yeah,
Michael Lanzalone 42:19
maybe you could tell us about
Qasim Virjee 42:21
dental. Okay, so as a grower started your you were interested in the stuff when you were a teenager?
Rahul Rajan 42:27
Yeah. You know, honestly, it all started with me wanting to grow my own stuff. Because you know, at at 15 You know, you didn't have the disposable income you did as you do now. And the only way to get it was to grow it really, you know, and that's kind of how my passion that's back when weed was illegal? Yes. Okay, so
Qasim Virjee 42:48
we went legit that in
Rahul Rajan 42:51
the last couple of years, I made the transition over to the legal space. And but before that, it was, it was a gray area. It was a medical license, which, okay, so it was it started in the like, completely, I guess, illegal at the time. And then they had this program called the MMA our program. It was a medical license that they gave people who had, I guess, medical needed a medical license in order to obtain cannabis for medical use. So there was a doctor at the time who you could kind of just go see, and he'd read you the prescription for it. And you'd send your DACA your application to Health Canada, and they would give you a license to grow your own plants. So that's kind of how it all started. Awesome. It Yeah.
Rahul Rajan 43:34
That was the beginning of for MediCal program in Canada back in 2002.
Rahul Rajan 43:39
Yeah, so over the years, it kind of got abused and they they changed the program. It went from the MMA er to like, I think it was like ACM. Well, now it's the acmpr. But I think there was like MMPR MMPR, which was in between, but I still have like, I've been grandfathered my original license. So yeah, it's a it's been an interesting journey for sure. So as a farmer,
Qasim Virjee 44:02
why this particular plant? Um,
Rahul Rajan 44:07
you know, it's, I mean, it was also a very tomatoes and stuff. Also, I do have a home garden. Yeah, with your vegetables and stuff. But it was more. The financial aspect was there was there was more to it, you know, so it was lucrative. That was a big thing for it. So yeah, that's kind of how, before
Qasim Virjee 44:25
you walked in the room, these guys were telling me what a beautiful facility you have. Yeah, so Millcreek
Rahul Rajan 44:28
is really nice facility. Phil, designed this facility I had to build a couple years ago. I came on board with them when they first got licensed to help them ramp up and scale production. And yeah, it's a beautiful facility. Probably one of the I mean, it is the best facility I've ever seen. Oh really?
Rahul Rajan 44:47
I have seen in the industry over the last 10 years over 120 130 facilities. I haven't seen as good of a facility in Canada.
Qasim Virjee 44:56
Now. When you say that you mean okay in terms of like the me means of production being excellent. But also, I'm going on a lecture. When you go to a vineyard to taste wine. Is that experience there? Like the tasting room? Can you even do that?
Rahul Rajan 45:11
We have licenses that will allow you to do it. I don't know if Millcreek has that right now.
Rahul Rajan 45:17
Do you know so we don't have our our, I guess r&d license consumption license? Not at least yet. Okay. But no, the facility itself beautiful facility, it used to be an equestrian farm, and then it got transformed into this state of the art facility. Beautiful facility, everything's redundant in the facility, super well designed. It's a, it's like the Ferrari of facilities, you know,
Michael Lanzalone 45:43
you've got a like, they've got aI running in there that allows them to be able to be on their cell phone and, you know, see that, oh, the heat might go up to a certain extent or, you know, you can pretty much you can do most of the stuff from a remote
Qasim Virjee 45:58
controlled production environment inside indoor indoor, yes. Interesting. So you take an equestrian farm and build out an indoor production facility, because of the size of the land, I guess. And then also the access to utilities. Exactly. That's fascinating. Because, you know, we've had on a previous episode of this show, we've had someone who does like nutrient dense, cropping, all indoor all AI driven. There's like one person per 10,000 square foot of indoor space kind of thing. To manage this, and the product quality is phenomenal. And even the way that they had their production facility manager setup is the plants once mature, kind of exit the facility on a conveyor belt. I've seen those before to be like packaged and distributed all Oh, the only
Rahul Rajan 46:46
difference there would be we cannot do that with cannabis. Because the moment we do fully automated stuff. It's not a craft cannabis anymore, so that you get a different designation. And that's why we like to touch. Sure. So most of our stuff is handmade hand. Pakis type thing, right? So we want to keep that craft designation.
Qasim Virjee 47:05
So how, like, how much production are you involved with? Like, how big is this,
Rahul Rajan 47:09
so the facility itself is 50,000 square feet, we have nine flowering rooms, they're just under 1000 square feet, each room. So it's, it's really small batch craft, a lot of love goes into the product, you know, at the plants are very well taken care of, you know, the very intimate relationship we kind of have with the plants over their music, and no, we don't play music. But it's, uh, it gets they get a lot of attention. You know, it's I know, it's, a lot of people think they see it in the movies and stuff. It's people like to play music for the plants. We haven't got that guy got to that part yet.
Rahul Rajan 47:45
We do have a lot of growers in Canada that do that, by the way. Yeah.
Qasim Virjee 47:50
Is it a profitable venture? And at what point what size? Does it become profitable? If you're, if you're someone listening or watching this is thinking about getting into the industry from the grower side, especially with automation? And you know, this can like, easier production? If you have the capital investment to set up the facilities? Like what's your minimum square footage to make it a profitable grow up?
Rahul Rajan 48:15
I don't think there's a minimum. I mean, obviously, you need to scale it to a point where the crop sizes are interesting. It depends which avenue you want to take, you know, some people want to start a brand. Some people want to just be in the b2b space. Some people want to do export. So they have a license called the micro cultivation license, which gives you I think it's like 2152 square feet of canopy space. So that's pretty much the entry level, I would say for somebody who wants to get into the space. So the number again, 2152 square feet.
Qasim Virjee 48:48
Nice. Yeah. You basement. Yeah.
Michael Lanzalone 48:53
As long as it hits the compliance regulation, I don't think your bass was going to do that.
Rahul Rajan 48:58
But yeah, usually the property has to be zoned commercial in order to or agricultural to be allowed allowed to have the license. Yeah. Yeah.
Qasim Virjee 49:07
Okay, last couple questions. We're, we're, we're done for time here. But unfortunately, sorry, to cut this short on the growing side. Vertical integration for new brand development. So if you guys are partnering up on the growing side, and you know, obviously, well, Ken is doing the packaging and product stuff. And then you've got this great kind of like access to market, business development side of the business. Is that something that as a system works exclusively to, you know, offer opportunity to brands, honestly,
Rahul Rajan 49:38
at this point absolutely does. We've launched three four brands that have the brand owners have no licenses. They have some inclination, some idea what the industry is, but they just want to try it out. Sure. So when we did it, we partner with the cultivators, we know where the products coming from. We're packaging everything we're sourcing all this applies in everything
Qasim Virjee 50:00
even in terms of designing product from scratch, right? Yeah,
Rahul Rajan 50:03
yeah, absolutely. So this is basically we got the money, we have an idea, can you help us bring this to market? Now, it's the easiest way to get into the market. First of all right least capital intensive asset light model you want to come in, you can try it out for a little bit of money. If it does, well continue on. If it doesn't, you can actually leave.
Qasim Virjee 50:23
So we've all heard of software as a service as a weed as a service. Last,
Michael Lanzalone 50:30
last, go like it. Sorry
Qasim Virjee 50:32
to cut this short, but it was a brilliant time. chatting with you about the whole 360 of the cannabis market in Canada will definitely involve you in future conversations. I think there's a lot more to dig into. And of course, for our audience listening or watching if you have any additional questions about these topics, like feel free to share. There'll be links in the descriptions below wherever this is posted. And we could do a follow up session if our audience is interested in it.
Rahul Rajan 50:58
Great. Yeah. Awesome.
Qasim Virjee 51:00
Awesome. Cheers. Pleasure. All right. A whole cheers like Cassian wicked. Thank you so much. Thanks, guys.
