82: Diversification of a Cannabis MSO ft. Gary Santo CEO of Tilt Holding – Transcript

Editors’ Note: This is the transcript version of the podcast. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below if you need any clarification. We hope you enjoy!

For Gary Santo, cannabis is all about collaboration and camaraderie which is why he focuses his business model on partnership versus competition. Tilt Holdings is setting up partnerships with the Shinnecock Nation in New York state. Passionate about social equity, CEO Gary Santo is setting indigenous entrepreneurs up for success with training, resources, and business networking.

Listen to today’s episode to hear:

Partnering with brands expand East

Cannabis relationship with Shinnecock tribe

Investing in your employees

Gary Santo is the CEO of Tilt Holdings. He brings more than 25 years of experience leading lean, high-performance teams in Consumer Credit, Financial Services, Gaming and Technology, Higher Education and Specialty-Pharma. Mr. Santo holds an Investor Relations Charter® certification from the National Investor Relations Institute as well as a degree in Political Science from Boston University.

Reach out to Gary Santo through Linked In: www.linkedin.com/in/garysanto/

About TlLT Holding: TILT is a combination of leading cannabis companies that deliver products and services to businesses operating in the cannabis industry.

https://www.tiltholdings.com/


[00:00:00] Bryan Fields: This is the dime, dive into the cannabis and hemp industry through trends, insights, predictions, and tangents.

[00:00:11] What’s up guys. Welcome back to the episode of the dime I’m Brian Fields of with me as always is my right-hand man Kellen Finney. And this week we’ve got a very special guest Gary Santos, CEO of tilts holdings.

[00:00:22] Thanks for taking the time Gary, how you doing today?

[00:00:25] Gary Santo: Thanks for having me on

[00:00:26] Bryan Fields: we’re excited to dive in, Kellan how you doin?

[00:00:27] Kellan Finney: I’m doing well. I’m looking forward to the holiday season and another really good conversation

[00:00:32] Bryan Fields: I’m doing well. And just for the record, Gary, you’re currently located in what state

[00:00:37] Gary Santo: I’m sitting in Massachusetts. These days. I live in Salem, just north of Boston. And that’s where we have our biggest flagship facility. They’re not in Salem obviously, but in Massachusetts.

[00:00:47] Bryan Fields: Awesome. I’m excited to dive into that and it’s pretty cool that another east coast coaster joins and makes an appearance. Caitlin. So a talk another one down.

[00:00:55] It’s about time. So Gary, before we dive into tilt, we’d love the listeners to know a little bit [00:01:00] about your background, how you got into the cannabis

[00:01:01] Gary Santo: space. So I’ve worked in finance for the better part of 25, some odd years, mostly at startup companies, a lot of different industries. So it’d be, we’re just getting ready to go IPO, or maybe you’re already gone public and you’re looking to do some kind of some transformative MNA or something along those lines.

[00:01:17] That’s usually where I would slot in on you, the finance or the operation side. Well, I think it’s been interesting is through all of that, whether it’s in finance, whether it’s being a casino, gaming equipment, whether it’s been life sciences, they all had sort of similar talk tracks by very complex.

[00:01:31] Nobody can understand barriers to entry, but at the end of the day, businesses. So a friend approached me about cannabis about two or three years ago. I’ve been on the periphery. My, my father uses some CBD and THC cream for some joint pain. And it became pretty clear that there was a lack of operational experience.

[00:01:48] There are a lot of guys who had to raise money. A lot of people who had a passion for the plant, but marrying those two together were an issue. So I jumped in with both feet. I was lucky to start at a company Columbia care that really showed me that you can. A [00:02:00] pragmatic operator. You don’t have to be all flash and sparkle.

[00:02:04] And then I went from there to till where, you know, the, the clear turnaround story was in midstream at that point. So it was a great challenge and it’s been great to dust off things that I’ve done throughout my career and had people look at me and say, wow, you’re from the future. So, you know, I think that that’s been fun and gratifying all at the

[00:02:18] Bryan Fields: same time.

[00:02:19] So I’d love to know. Let’s, let’s go back to the origin before you got into cannabis. Was there any hesitation to kind of dive into the industry, obviously cannabis, as you were said, comes with all these challenges and sometimes some stigmas. So was there any hesitation from your part to kind of dive in head first and, and join the cannabis industry?

[00:02:34] Gary Santo: The industry now, I mean, again, having worked in casino gaming, it’s hard to sit there and talk about bias, you know, not thinking about that. And even when I was working in fine. Obviously, you know, the company I work we’re focused on student loans. So I think along those lines, I think there’s always a use case.

[00:02:49] The question is how sustainable is it? What’s the total addressable market. But most importantly, what are the bones of the companies that you’re looking at? You know, whatever industry it’s in. So I looked long and hard at Columbia care that very [00:03:00] strong. Similarly, I looked at tilt and while certainly their balance sheet wasn’t as.

[00:03:04] When I looked at the underlying businesses, I got really excited and I saw that while they haven’t really been leaning into them. So if we could just get them focused and really get a good core strategy out into the market, this thing could take off. And, you know, I think from that perspective, we, if there wasn’t any hesitation, it’s just understanding how the Canadian capital markets were nothing, a little different.

[00:03:23] Don’t get me wrong. I’d love to be back in the U S trading in the U S but you know, I think like anything else, if you’ve got a good stock and a good story and can cultivate a good investor. You can do some good things. You know, I think right now we’re all just struggling because we are, we’re missing one key piece of our pop, our investor base, the institutions, you know, they are scarcely, but no, one’s there in size.

[00:03:41] We saw. I think you’ll see a much different industry in

[00:03:44] Bryan Fields: 2022. Yeah, completely great. So I’d love for our listeners who may be a little unfamiliar about till tolding to kind of get a little more insight into some of the strategy and some of the core businesses that you discussed prior. Yeah.

[00:03:56] Gary Santo: So we’re a little bit of a different cat when it comes to being a multi-state operator.

[00:03:59] [00:04:00] About half of our operations do not touch the plant. So that’s our inhalation technology and accessories business, which really is based out of Arizona. And the primary focus is on vaping heart. So we’re one of five distributors of Cecil technology, ceramic center coil. But we were the entity that helped smore, who was the Chinese shop that actually owns the IP, migrate that technology from tobacco, where they had been doing substantial amount of work into the cannabis space.

[00:04:26] So we are the largest diesel distributor. I think about 50% of CCL distributed comes through. It’s really a business to business play. So they are, we’re not selling directly to end consumers. We’re selling to brands. MSO is LPs throughout the country and abroad that’s one half of the business.

[00:04:43] Then the other half of the business is your more traditional MSO. So we’re in Massachusetts, Pennsylvania, Ohio, and recently signed a partnership to enter. And they are, we have vertical operations, fully vertical in Massachusetts, where we had a retail cultivation, manufacturing, Pennsylvania it’s cultivation and [00:05:00] manufacturing, Ohio, which is manufacturing.

[00:05:02] New York will be full vertical. So for us, what made it different was we wanted to take that B2B play that was happening in. But bring it to plant touching where we own so much more of the supply chain. So Jupiter is a distributor. They don’t really own the manufacturing. They don’t own the ID. I think they do have the ability or we have to have the ability to change that paradigm a bit because we do have a full-blown built out lab and we’re constantly innovating.

[00:05:26] So I could see a future where we start creating some of our own products, maybe away from seasonal a little bit and broaden the reach a little bit. I’m looking on the plant touching side we saw between the wholesale business we had in Massachusetts, already. The wholesale business we have in Pennsylvania.

[00:05:42] We saw a really strong operation. To, to be that B2B provider, the trick was how do you do that and not compete. And that’s where our brand strategy came in. So we don’t want to own brands have become a house of brands because now we’re competing again. We wanted to partner with the brands that want to come east.

[00:05:58] They might be really strong in California [00:06:00] or Washington state or Colorado, but it means something totally different to try to scale that and bring it. Each the regs are different. The form package formulations. So finding a true partner who understands that and wants to work with you to maintain your brand fidelity and also share the economics that think is a different animal altogether.

[00:06:17] And we’ve been really excited by, I think the amount of uptake. I think we had to make a lot of cold calls at the beginning of the year when we announced the strategy at M J D is we, we had any number of meetings. I had to run up and down the strip that much without someone Jason me so we probably had about two dozen meetings with brands and NSO was really looking to figure out how we can

[00:06:36] Kellan Finney: work.

[00:06:37] Bryan Fields: I think that’s really well said. And Kellen, I want you to dive into that strategy. We’ve talked to a ton of operators out there, and this one’s different than, than some of the other sides we’ve talked about. Can you kind of share a little bit about that?

[00:06:46] Kellan Finney: No, I think it is very different. Honestly, the vapor industry, like vaping, I think is going to be one of the larger product categories moving forward.

[00:06:55] And I think the early on in the manufacturing [00:07:00] and production of vape pens, I think there was a lot of issues with the hardware, which kind of put a bad taste if you will. And a lot of consumers mouse, right? They’d go buy a vape pen. It would leak. And so when Jupiter actually came on to the scene, maybe like three, four years ago is when they really started taking off the CCL technology.

[00:07:16] It was like the first reliable. Vape pen I had seen in the market from a user’s perspective, not, I mean, it’s manufactured much differently than the first-generation bay pens, where I’ve just heard stories about how clean and pristine Jupiter’s manufacturing facility is over in China. I heard it’s like comparable to Qualcomm is what I’ve heard almost.

[00:07:38] What was the key kind of factor that motivated you Gary, to kind of pursue acquiring Jupiter? Is there like a moment where you guys were like, okay, we really need to kind of double down on this technology because you saw the value. Could you kind of walk our listeners through that, that thought process?

[00:07:55] Gary Santo: So that definitely predated me. So I think the original team that. So public, [00:08:00] if you looked at their mandate, it was as wide as pretty much everybody else’s mandating Canada’s back in circuit 2018, they were going to be technology hardware, software services, vertical integration, financing, management, distribution, you name it.

[00:08:13] They were going to do it, but you can never do all of those. What they were good at was spotting very interesting assets. So they saw Jupiter and Jupiter to them was intriguing because he didn’t touch the plant. So it added the question. Could you eventually uplift onto the, you know, in the U S and if you only did that?

[00:08:29] Sure. You probably could, but I think B the fact that it’s been profitable since day one, because it went this B2B. Instead of building out this massive marketing infrastructure to maintain its own brand. It shows to sit one step behind the brands and just connect basically the hardware together with the brands and act as that intermediary.

[00:08:47] And that meant we had to be really good at supply chain management and make sure that you can get product from point a to point B, but also had those QC and QA teams on the ground in China. So that even though the factory might not be. Yeah, we are in [00:09:00] there all the time. We’re looking at the standards, we’re doing the testing and then we do regular testing in our lab in Arizona.

[00:09:05] So I think it struck us as a completely different animal than just a pure distributor. I think those that just distribute, you have to look at the relationship and say, okay, there’s some value there, but you’re truly balled into somebody’s. Here while we might not have that true manufacturing, the fact that we have the R and D and the QC means that if we did decide to do something away from Seesaw, for example, it’s going to come with the same quality, the same intent, you know, the same prowess, if you will you know, whenever we decided to roll out.

[00:09:32] So, but that’s, that’s what made it interesting. And I have to assume that’s what attracted the pilot leadership team. They also got a few clunkers in there too. So I can’t say they, I wouldn’t be here today. So

[00:09:42] Kellan Finney: as that helps you guys is networking with brands. Jupiter doesn’t have the same regulations cause it doesn’t touch the plant.

[00:09:48] So you can travel interstate commerce, all those kind of normal manufacturing things. But as it significantly helped your guys it’s like networking with brands and, and those kinds of conversations.

[00:09:57] Gary Santo: Absolutely. You know, we started this [00:10:00] year with about 15, 20% of our revenue coming from people who touch about the plant touching non plant touching side, and it was purely coincidence.

[00:10:07] Nobody was trying to connect those. Now that we’ve gone intentionally after that cross zone, the brand strategy, suddenly now we’re up to about 40% of our revenue just in the nine months since we rolled out, the, the plan is now attributed to people who cross both lines. And I think it’s given us an opportunity to have conversations where maybe we wouldn’t have had them otherwise.

[00:10:26] And then really even just introducing them again to who tilt is, there’s been a couple of those aha. Like when Aero was one of Jupiter’s oldest customers, we’re saying, Hey, we want to get into Pennsylvania. You know, anybody who’s doing anything in Pennsylvania? It’s like, yeah, guys, So yeah, a lot easier to do so I look forward to a lot of those ongoing conversations and look, we try to make sure when we make these arrangements, especially in the brand side, we don’t want brands overlapping each other, if we can avoid it.

[00:10:52] So we don’t want to become just a pure contract manufacturer. We’re trying to fill out what we think is a good curated portfolio that goes [00:11:00] after that 30% of the MSL shelf space that they dedicate to third party. So come to us, we’re like the Frito-Lay drop. We’re rolling. You grab what you need and we move on.

[00:11:08] So that’s the whole,

[00:11:10] Bryan Fields: how challenging. I mean, obviously everybody already know the answer. It’s got to be extremely challenging, but for a company that’s operating vertically integrated, who has operations in multiple states with all the challenges that go in just that area now to add on the technology side as well, from a day-to-day standpoint, are you being pulled in multiple directions from different conceptual thoughts?

[00:11:28] Like, can you kind of share some insights and how that. I mean, it’s easy to get

[00:11:31] Gary Santo: distracted and mean too much on one side of the business, the other. And I think putting together a really solid team and making sure they understand. Exactly what the mission is and what we’re trying to accomplish has been extremely helpful.

[00:11:43] The team I had and now you know, I think all the, all the big hiring’s done, I’ve got all the right people in all the right places. They’re handpicked and look, many of them have carried through from prior years. This wasn’t just a blowout of the team. I think getting them to understand how we need to treat our partners brands as if they were our own and not getting into these [00:12:00] arguments is a key component.

[00:12:02] And also never forgetting where you fit in that value proposition. Right? So if you’re not growing good flour and you’re not processing efficiently, and you’re not managing your supply chain or that, you’re just a good story who can’t seem to execute. And, you know, I’m lucky to have such a strong team around me that we can focus on these.

[00:12:18] We just came back from four straight days, our annual planning and budget sessions. And, you know, I could very easily get pulled in a lot of directions, but with the team I have, I could just as easily not. So I’m excited for what comes forward. It doesn’t mean I, you know, I, now can’t spend a little more time focusing on some, maybe extra ordinary things out there.

[00:12:35] Now a lot of our growth has been organic. I know that in 20, 23 and beyond, we’re going to have to think a little bit wider, a little bit bigger, and that takes some time and some focus on glad to have that availability because the day-to-day stuff, I think isn’t great.

[00:12:47] Bryan Fields: It’s really well said. So from a 20, 23 standpoint, obviously you can’t see a crystal ball into the future.

[00:12:53] And obviously a state’s kind of take a little longer looking at it in New York to kind of get their things together. How, how do you [00:13:00] prioritize, let’s say growth, growth versus optimization when it comes to budgetary versus resources, because. You don’t have capital to deploy in all the different areas.

[00:13:08] You have to be pretty strategic with which direction you want to go. And if you start deploying heavy capital assets into one area, and it takes a little longer, that might kind of tie up resources and other directions. So how does that work?

[00:13:19] Gary Santo: So, I mean, we’re not big fans of growth at any cost. I think we’ve seen that where people just went crazy growing top line revenue, and then you looked at their margins and there just, wasn’t a compelling story.

[00:13:28] And I think a lot of the larger operators starting to come through that a little bit more as the MNA has slowed down. I think for us, it’s the same thing. We’re constantly optimized. I don’t ever want to be in a situation where I know I could be doing something better, but I’m not because there’s something shiny over here to go stare at.

[00:13:43] So there’s a team that just focuses on that. At the same time, when we look at new opportunities, we acknowledge that, you know, it would be great to write checks, but frankly, just because you can doesn’t mean you should. So we looked at New York and that’s a great example. I mean, we saw our competitors, you know, taking on 75, 900 that are writing checks for [00:14:00] 45 million, you know, for us a partnership where we put a lot less money up front.

[00:14:04] So 700,000 total to partner and Intuit, the Shinnecock of which half was stock meant that every dollar we deploy is towards building a facility that will then start generating revenue that will make money for everybody. Right. So coming up with unique opportunities to do that takes a little while. But I think what we’re finding is there’s a lot of really good partners who just haven’t really understood that there are other people who are willing to partner, you know, I think reasonably, and not just take 80 or 90% of the economics.

[00:14:31] So it might mean we have to do a few more of those partnerships then, you know, if we just want for every last basis point, but I’d rather do that because that’s the definition of diversification. And if we’re building this to last, we need good strong partnerships, good diversification and rational margin, because those three things will process.

[00:14:48] Kellan Finney: I was just curious, how long do you, is it a lot longer from a betting standpoint and a due diligence standpoint to find those like the correct partner that’s willing to kind of sit down at the table with you guys.

[00:14:59] Gary Santo: It’s not as hard as [00:15:00] you think, because I think those people stand out. So the Shinnecock are a great example, right?

[00:15:04] A lot of people just want to get into cannabis and they’re not sure why, how, or. Whether this is going to work in a what level? I think they had such a realistic view of what they needed the industry to do for them. So they had, they wanted it to be an ongoing economic engine that will be sustainable over time.

[00:15:20] So this wasn’t a quick hit to clip as much coupons you possibly can then get out again. Right. So I think finding folks like that and who really thought it through, when you looked at the regulations, for example, that they drafted, they mimic New York state because they understand the future is working hand in glove with New York.

[00:15:36] Those people really jumped off the page. People like, you know, say this 2018 cannabis folks, which is like buy everything, make a lot of big splash. Those folks really stand out. Now it’s kind of pariahs. So I think, I think it’s easy to get past that first round and you have to take a look at well, what have you been doing in the meantime now, if you’re just a concept, which what Shinnecock was, it’s a lot easier, right?

[00:15:55] There’s not a lot of things to unwind. There are some other folks out there who’ve gotten a little over the tips of their [00:16:00] skis. I think they present a tremendous opportunity. But you do have to dig in deeper to make sure there’s no aha moments because how people achieve financing and some of the deals they signed, it’s kind of remarkable.

[00:16:10] Some of the things that have been out there in the industry that has to be unwound or contemplated. So that, that part takes a little longer. If it’s a more established. But the newer players, I think it’s an easier process because we know what we’re looking for.

[00:16:22] Kellan Finney: So you guys don’t have to, like with the established players, you probably have to do more due diligence in terms of how their supply chain is actually connected.

[00:16:28] And if it fits well with your guys’s current business model and those kinds of those kinds of conversations, if you will.

[00:16:33] Gary Santo: Yeah. It’s more just getting into their financing, how much not they encumbered of their assets already? How leveraged are they along those lines? You know, how much, how much our friends and family are involved and what are the expectations.

[00:16:44] And I think the other piece for existence shops is you have investors. Where really they’re doing, just because everybody’s wants to tap out. They pad all of those things are, are issues. I would never say I walk away from that because I look at that as opportunities to get good deals at the end of the day, [00:17:00] everything was shiny and bit a hundred miles an hour, and they’d all be expensive.

[00:17:03] Right. So Ben scratch never heard it. As long as you’re smart about it, you know? And I think that’s where taking the time to really dig into those details. And I’m lucky that, you know, a lot of the folks that I have I’ve worked with before in cap markets on very complex, structured finance deals, they all know how to read contracts.

[00:17:18] They all know how to break all that stuff down. So it makes the job a lot easier.

[00:17:22] Bryan Fields: I want to talk more about the Shinnecock partnership. So when you guys link up. Deployment of assets onto their site to help them kind of get started. Are you kind of more of a secondary approach from like a managerial perspective saying like here, this is some guidance, you know, what type of a partnership approach is it?

[00:17:37] Is it hands-on or is it more kind of top-level I think

[00:17:40] Gary Santo: initially it’s going to be extremely hands-on. So obviously we’re providing the financing and then also all the design and construction. So we’re, we’re designing what the facility is going to look. We’re managing the entire build out of that facility.

[00:17:52] And then we acknowledge that while they have a passion for the plant and they have a long legacy of living with the plant going from that to being able to produce it at a [00:18:00] 60,000 square foot facility is a much different animal, right? Everybody who’s ever grown in their basement can tell you that. So I think from that perspective, we’ll start off providing expertise, but.

[00:18:08] Our goal Is to hire as many of the natives, you know, live on, on sovereign land as possible and train them up. Now, obviously they’re not going to step right into senior level positions on day one, but there’s no reason why they can’t have a career progression much in the same way. We do our own leadership training throughout tilt.

[00:18:26] We want to extend that program to the Shinnecock nation as well. And for all those who raise their hand and want to be. involved There will be a career path for them. Obviously the general manager of that operation, Shanae, Bullock she has a Shinnecock member, so she will be front and center as the base of that organization and be overall manager of the organization.

[00:18:45] But we’ll be providing a lot of that structural input along the way and train them up. So it’s one of those where it’s a nine-year contract. I think if we do our job, well, we should have no trouble renewing that. And, you know, both parties, they get a significant amount of the capital out of this. I think they get about [00:19:00] 75% of the free cash flow will flow to the Shinnecock nation.

[00:19:03] So, you know, we figure a well-constructed partnership like that. As long as we both parties deliver, we shouldn’t be in business for quite some time.

[00:19:10] Bryan Fields: Yeah. And it sounds great. And Kellen, I want to kind of lean into you there because what Gary’s describing about educating them and helping them, putting them in position to seed is so crucial because as we’ve talked about a bunch of times in this.

[00:19:20] The industry’s hard and cultivation is challenging and there’s all these complex issues that go with it from a day-to-day standpoint. So having experienced individuals like Gary’s team come in and kind of assist in the process and then educate them to be able to kind of fly on their own. So,

[00:19:34] Kellan Finney: yeah, I think it’s honestly, it’s the only way not to spend a significant amount of capital learning.

[00:19:39] You know what I mean? I think that scale scalability is probably the. Hardest aspect of bringing the knowledge from the legacy market into a regulated industry, right? Like he just said, Gary linker growing in your basement is a lot different than growing a 60,000 square foot [00:20:00] warehouse that is taught the line.

[00:20:02] You know what I mean? Or state of the art. So I think that educating your employees. It’s the highest return on an investment. I think a company can make right now, especially when they’re just kind of getting their feet off the ground in a new state, people are your organization. Right? I

[00:20:16] Bryan Fields: think

[00:20:16] Kellan Finney: that the better people you have on staff is going to just create a better business.

[00:20:20] So I think that. When you invest into training and education of your employees, you’re investing into the company in the long, long run. And so what kind of resources are you guys going to deploy as far as, are you going to send multiple people from like your leadership team or management team from Massachusetts?

[00:20:38] Are they going to then go down to New York and spent years there? Are you guys gonna try to do it remotely? Like, what is that process gonna look like?

[00:20:45] Gary Santo: So I think it’ll come in stages. And initially, while we’re doing the build-out, we could easily identify those. We can do a hiring fair and identify those people that are very interested in learning the business and bring them up into Massachusetts and work at our Taunton facility and train with our [00:21:00] supervisors there.

[00:21:00] So that’ll be a good way to get it off the ground while we’re still building. As we go down the pipe, I would expect that we would start to hire some folks who would be positioned in. Obviously when all of a sudden they start to roll off, we can bring them back, but the expectation would be to have boots on the ground in New York as well, especially in those supervisory roles, because, you know, I think it’s one thing to sort of have a leadership training program.

[00:21:22] It’s the day-to-day reinforcement, a lot of those principles that really. And getting people to understand how important things like risk and compliance can truly be and how you have to run a certain type of facility, especially if you’re hoping to trade your product in the greater New York state area.

[00:21:35] So it will be involved how you anticipate us adding at least two dozen or so employees probably on our end, as we get closer to. And then also seeing what the uptake is on the Shinnecock Simon land. I mean, if there’s not as many people that are interested in working, we’ll give them all the first, first mover advantage, but we do still have to staff them.

[00:21:53] So we’ll see what we can do the highest in the surrounding area as well. It’ll be on a overtime and we’ve got a really great head of [00:22:00] SP at SVP of human resource who has done this for Lowe’s. So I’m pretty excited about what that will do for us as we try to roll this out. And I think it also gets the larger question of social equity right across.

[00:22:12] Easiest way to achieve social equality Please make sure people are appropriately trained and get true equal opportunity Not just Here’s a license and here’s a few dollars go have fun and build a business. It’s how do we train them to succeed? And I think it’s incumbent on all the first movers I’m going to count tilt in that first mover pile, the original MSO’s You should be trying to make this a better industry for the next round. It’s going to be more. sustainable At some point, these 60, 70, 80% margins will die away. As the, as the industry matures, you’ve got to have that next wave to take it, you know, make it one step better. And I, I feel that that’s an important mission for us.

[00:22:45] I can’t say that everybody agrees with that. I think you need a special board who would willingly say, yeah, go ahead and give away 75% of the free cash flow, but they get the joke that that’s how you build a sustainable business versus one that just has astronomical climb and.

[00:22:59] Kellan Finney: [00:23:00] I have a question. So the Shinnecock nation is indigenous people, right?

[00:23:03] So they live on sovereign land. Do they have to follow the

[00:23:06] Bryan Fields: same state guidelines as

[00:23:09] Kellan Finney: New York is setting out the state of New York because it is a sovereign nation. How does that play with each other? From a regulatory standpoint,

[00:23:16] Gary Santo: they do have their own cannabis control commission. So for example, they have already approved adult use sales on, on sovereign ground, along with medical.

[00:23:24] So if we had that dispensary up and running right now, we would be the only operating dispensary selling both medical and adult. I think the way they’ve chosen to build their program though, is they’re mimicking a lot of what New York state is doing, because they know that across state lines, you’re going to have to be somewhere in that range.

[00:23:40] Right. So, you know, whether it’s the products themselves, whether it’s, you know, what the form factors might be, they’re going to do everything they can to mimic as best possible. Right now. It’s true. You could go on the sovereign ground and if you could buy adult use, you could leave with, I think it’s up to three ounces based on New York state regularly.

[00:23:56] But, you know, I think they are, we’re going to encourage them to continue to make [00:24:00] everything you can from New York state. So when that moment comes for us, the holy grail is I’m wholesaling. It’s not that it won’t be a viable business, just selling through one dispensary out in the Hamptons, but if we can wholesale it to the rest of us, That’s it’d be a windfall

[00:24:14] Bryan Fields: for the truck.

[00:24:15] I know a lot of our long island listeners are very eager to hear you open that up so they can all get in the car pretty quickly after and make the trip including myself. So fingers crossed and that things go quick. So continuing on that path a little bit different. So I read on your website. Limited licensed states for east coast markets with operations in Massachusetts, Pennsylvania, Ohio, and New York.

[00:24:36] Can you share a little bit more, is it specifically approaching the limited license that it’s attractive and east coast or they kind of independent strategy? Can you kind of break that

[00:24:44] Gary Santo: down a little bit? I mean, I’ve talked before about having this concept of a Northeast corridor, right? So you think about New York, New Jersey, Connecticut, Rhode Island, Pennsylvania, Ohio, all kind of clumped together.

[00:24:54] And one of the rationales behind that is in a fully legalized. I like having all of my [00:25:00] cannabis assets within a few hundred miles of each other. So I can literally put my head of cannabis ops in the car and he can drive each of those realistically each day. It also means that we could be tactical. So we have greenhouse bro and our high tax to use the word green and.

[00:25:13] Greenhouse style grow in Pennsylvania. We’ve got full indoor in Massachusetts. So if I now can build across state lines, I’ll grow my biomass, the greenhouse, my super high-end flower up in Massachusetts and everything is transportable, you know, without having to worry about massive shipping costs. So I think it also presents an interesting corridor for brands that want to come east.

[00:25:33] So if you’re a premium brand or if you’re not, if you just evaluate. Your Target’s probably the whole Northeast area. It’s not to say Florida, isn’t a great spot, but there’s no wholesale down there. So, you know, I think there, it’s kind of created this nice little nexus for us now, do we limit ourselves there?

[00:25:47] Not necessarily on, you know, certainly as we look out, we look at all the same states and all the other MSOE look at, but we don’t want to be spread so thin that we just have a toehold in so many different states, but no, I liked being in that one [00:26:00] area where kind of the demographic starts to look the same and the product suite starts to look the same.

[00:26:04] And yes, we have to work through some regulatory issues with medical markets versus adult use some medical markets, but it’s much easier to navigate the limited license. Also keeps us from having to worry too much about the competition. So in Massachusetts, even though we have to have three stores, Nobody has more than three stores, so we can’t be any bigger.

[00:26:22] So what we’re doing is we’re going to start sharing a lot of our shelf space with our NSO partners. Those that buy a lot from us to put stuff on our shelves. So we’ll extend near store into our store because again, we don’t care so much about our in-house brand, as we do about being a a.

[00:26:35] good partner

[00:26:36] Bryan Fields: Yeah. And there’s a couple of levels to that as well.

[00:26:38] Right? The purchasing behavior of the individuals in a, in a closer geographic region, likely resemble each other where in some, in some operations, California and Florida, the purchasing habits are very different. So having all of your entities kind of in a similar area, you can kind of lock down and understand, all right, 34 to 40 really likes these form factors.

[00:26:56] We can kind of double down here and really start pushing up. Plus with east coast [00:27:00] markets still being really new, the flood gates really haven’t even.

[00:27:03] Gary Santo: No. And you know, it’s, we’ve always felt that CPG is where this is going to go, you know, and there’ll be brands, but they’ll also be formed that are going to be very important.

[00:27:12] And what is interesting is it’s true. The east coast is just getting going. And at times there has been such innovation on the west coast that is much further along than east coast, just because they’d been with the plant that much longer, it’s a different kind of a society out there. So we’ve had to tell some brands know, you can dial it back a little bit if want, because I’m not sure people are going to pay for that extra piece that they don’t even realize they should be.

[00:27:34] So it allows you to have a much longer runway, I think, too, in terms of product development, where you can roll these things out in stages and really start to get the market excited about it. I mean, think about it. I’ve had a lot of residence start out on the west coast. There was too much grows and they had a freeze it, boom.

[00:27:48] Now we have a lot of residents, right. That probably wouldn’t start it on the east coast. Right. So now it’s just those kinds of things, how you can bring the innovation cross and watch how it grows and see what’s worked in the other markets, but frankly, if you can [00:28:00] make any California, which is, you know, clearly hyper competitive race to the bottom market, you’ve got a pretty nice runaway.

[00:28:06] I wonder

[00:28:06] Bryan Fields: in your opinion, Gary, does there need to be a difference in, in messaging between the west coast brands and the east coast, just based on the educational level and the experience between the, I don’t know if it’s

[00:28:15] Gary Santo: messaging or just a little more education, you know, let people know why they should care about a certain form, a certain terpene blend or why they should care about a certain form factor.

[00:28:24] Right? Sometimes it’s going to be obvious more times than not, it’s probably not. They’re just variations on a theme or slight gradations, you know, do you want natural Turkey for not, you want it to use. So I think a little more education I’ve noticed on the vaping side, that’s been an important piece to the Jupiter business.

[00:28:39] Why is CCL what it is? Why are certain things work better with certain concentrate, blends than others? Right. And I think that’s going to continue, especially as we look on the, on that particular side of the business. Emergence of libraries. The RA’s is that the wax shatters traditional bait products are not probably going to work particularly well there.

[00:28:57] So how do you get the fidelity that you had [00:29:00] made with the Cecil with a high viscosity concentrate and bring that over to a Ross? You know, I think those are the kinds of things that we have to work on. I think it’s up and down. I mean, somebody had to figure out why Coke was Coke and Pepsi with Pepsi.

[00:29:12] They ain’t just embedded themselves. So that’s up to us to try to help tell that story, telling your thoughts on

[00:29:17] Kellan Finney: that. I mean, I think he said it perfectly, you know what I mean? I think that as far as the want to go back to like building the Northeast corridor, I think that that is so valuable from a business perspective, because not only are you creating kind of like an incubation hub for brands on the entire east coast, you provided.

[00:29:36] All the resources to help that transition be seamless for them from a brand perspective, they don’t have to come in and look for land and build out this infrastructure that takes, you know, I mean, here’s to build out grows and dispensaries and, and build brand awareness. Instead, they can just come in and do what they do best in terms of just pushing their brand and educating consumers.

[00:29:56] And so was that part of the thought process from [00:30:00] building that Northeast corridor is being able to. Provide these brands who have just been working so hard on the west coast to survive just kind of an easy path, right. To help educate the Northeast corridor from that

[00:30:12] Gary Santo: perspective, that was a big piece of it, you know?

[00:30:14] And, and I think staying lean the way we have and sort of being a Switzerland of brands gives us that luxury, being able to be willing to share those brands. We, when you sign up with an MSO for an exclusive you’re limited to their footprint, right? So again, go back to Massachusetts, you get to be sold in three.

[00:30:29] For us, we saw about 60% of the stores in Massachusetts. In addition to our own in Pennsylvania, I think it’s about 90 or 95% of the stores we sell into. And we’re agnostic. You could be an MSO, you could be an independent mom and pop standalone shop. It doesn’t really matter. So if you think about the legalized world, the better it gets to the point where you can order online and actually get Amazon or somebody to deliver.

[00:30:49] We’re going to be agnostic to work at salt. We’ll make sure. To where it needs to be. So it could be delivered accordingly, but it won’t really matter to us. Whether somebody pops up a big box store, a weed or [00:31:00] not. So it is part and parcel with what we thought we could do for value complex value, jar, supply chain, a complex product structures and branch structures, and do our best to not only manage the chain, but keep that brand fidelity and help them understand how to get the same traction in Massachusetts that they’ve got.

[00:31:17] Kellan Finney: Before

[00:31:17] Bryan Fields: we dive into the supply chain. There’s one aspect you just didn’t expand upon, which is if you see a competitor’s product is flying off the shelf in a form factor that you don’t currently produce, you likely can consider it in the future. Maybe similar to how Amazon done with the batteries. Is that a concept you’ve considered internal?

[00:31:33] In

[00:31:33] Gary Santo: terms of what working with them, or just trying to mimic,

[00:31:36] Bryan Fields: maybe mimic any and saying, Hey, maybe this let the beverage is flying off the shelf. Maybe we should consider investing in a beverage company. We’ve seen, this is really important to the demographic. We’ve locked in. In our stands. Our competitors parts is flying off the shelf.

[00:31:49] Maybe this is a good product category to look for in our core location here in the north.

[00:31:53] Gary Santo: Sure. We’re always looking at what’s hot in the market because that helps us decide which brands make sense. Right? So we’re looking for intentional brand [00:32:00] architecture you know, like some of those celebrity endorsed brands where it’s literally the name and there’s no other piece to it.

[00:32:04] That’s not exciting to us, but if you give a real thoughtful piece where there’s a great origin story, and there’s an actual construct to the brand, we love those same thing with the form package. If we see a particular form factor is flying, we really want to understand what is it about it? Is it just a great marketing campaign?

[00:32:20] Because, I mean, we’ve seen some of those where, you know, yesterday super hot edible is today’s. I can’t sell on it at a discount price. So I think trying to find something that’s sustainable to we tend to look at that and that comes down to understanding what is it that end users are looking for, right.

[00:32:34] So is it a form factor? Is it the experience? You know, what, what is it that they need out of that? And then we try to find the right brands that we can match up with that. Now there is no brand that does that. And it’s one of those opportunities where we need to develop it on our own. We do have our in-house brand standard farms.

[00:32:50] So, you know, it’s kind of there to plug the holes where there might be in certain. I have a

[00:32:54] Kellan Finney: question about kind of protecting the brands as they come from the west coast to the east coast. How, [00:33:00] how do you guys, do you have to work really, really closely with the brands from a QA QC standpoint, to make sure that.

[00:33:06] The product that they’re selling in say Oregon or California is identical or as close as you can be from a product standpoint, a QA QC standpoint on the east coast is, is that something where you guys are, your teams are just working really closely together, or that brand actually sends out operators that have kind of implemented their SOP on the west coast to the east coast.

[00:33:27] Could you, could you kind of shed some light on how that process might work to ensure the consistency across the country?

[00:33:34] Gary Santo: Sure. So our preference is always not our team, you know, doing all the labor on. So we want it to be a turnkey operation. You come in with your SLPs, we sit down, we talk about what flowers available.

[00:33:44] We talk about what’s allowable and safe, and then we start to navigate in on, can we truly replicate your product or what’s the best way to get close enough to it. That remains on brand. And that’s what we spend time working. Generally, we’re talking to CEOs. The COO is the highest levels because most of these brands are very handy.[00:34:00]

[00:34:00] And we kind of talked through whether it’s, how to create an existing product or there’s a product we’ve been waiting to create, but they just haven’t had the opportunity. So whole pals, a great example, right? They wanted to do a brownie. They hadn’t done an edible anywhere else. And of course they picked the brownie, which is totally on brand.

[00:34:15] So something as simple as that, while at the same time, trying to look at what kind of flower can get you a similar THC profile and how do we maintain. As, as close as you can get, knowing that I can’t quite get all the same plants from point a to point B. So, you know, I think not perspective, it’s very interactive.

[00:34:31] Our teams have been very good at activating and staying true to the brands and actually raising their hands. And they said, look, this is something new. This is going to be different. I’m not sure you want to go down this path or maybe you don’t want to launch all of these skews. Maybe just a few of these huge, those types of conversations happen pretty much every day between our ops teams and then, you know, the senior level teams over different.

[00:34:50] Bryan Fields: What has surprised you the most for running an NSO wa something that an everyday user of the plan or inter hobbyists of the [00:35:00] industry.

[00:35:01] Gary Santo: Wow. That’s a good one. Yeah. It’s funny. I think from an everyday perspective, I guess it does amaze me how different each harvest can truly be, even if it’s the same.

[00:35:12] Same strain, same lights, same per litigation. And you can just get somewhat different results, especially in the Northeast where you have such wild swings in the temperatures, you know, and I think, you know, the assumption is, Hey, I grow indoors home in pervious. It really not growing in Massachusetts. It’s hard.

[00:35:27] And if you look at the HVAC system we use, for example, it’s not controlling humidity by temperature, it’s controlling temperature through humidity. It’s kind of inverted, right? You have to because the Massachusetts, you get these wild swings of humidity. So I think the level of science that really goes into growing these plants, I never appreciate.

[00:35:45] Anywhere near the level now, I mean, I know soil matters and there are a few different things along the way, but when you go into these grows, it is literally science, you know, every step of the way and everything, they try and document stuff. It’s so much, there’s a field to it. Don’t get me wrong, but [00:36:00] there’s also an awful lot of science that goes into these things and how they bring certain strains together and that the genome hunting and stuff that goes on.

[00:36:07] So I’m much more appreciative of that. And you know, 15, 20 years ago let’s just say the friends I had weren’t quite as sophisticated, well said.

[00:36:15] Bryan Fields: All right. Let’s talk supply chain quickly in cannabis. How does it currently differ from the mainstream CPG? Well, I mean,

[00:36:23] Gary Santo: obviously the biggest issue, which you can’t build your traditional hotspot, right?

[00:36:26] Normally I’d put my grow out somewhere in the middle of nowhere where the temperature is pretty consistent. I’d put my manufacturing, your transportation hub, and I can get out to every state I need to be in. I think here what makes it challenging is not how many states you’re in each state is its own independent.

[00:36:41] He can’t cross the state lines. And as much as we can say, well, we can centralize certain things you can, and you can certainly manage the non plant touching parts of the supply chain. Right? So buying your fertilizer and all your supplies that way, certainly you can do that. Packaging is probably the biggest challenge I’ve seen because so much of it comes from China.

[00:36:57] So that’s the thing that at least for tilt, [00:37:00] we’ve got such tremendous experience with getting our vape products from China. We know all about the challenges of Chinese new year and getting ships to the docks and getting them online. When the air freight versus when to put them on water. So I think the packaging probably is the one that jams people up the most, suddenly working with Mayans.

[00:37:17] They wait to order packaging until they need it. And it’s too late. Next thing you know, you go from a scanner to be factored. It just really annoyed consumers. You know, so I think that’s, that’s probably the biggest challenge that faces most of the plant touching side, short of running these businesses as independent.

[00:37:31] Do you

[00:37:32] Bryan Fields: see it being more data-driven decision-making in the future where instead of being reactive and saying, we’re short on this, now it’s time to reorder kind of avoiding the bulb effect of saying here’s our stocking level. Once it hits here, we place a real. Yeah, it’s,

[00:37:46] Gary Santo: it’s true demand planning. And I think the transition you’re seeing on the east coast is a lot of these states have been supplied constraint, right?

[00:37:52] So to a certain extent, you knew whenever you made, you could bring, you were going to sell through them. And if all you do is look at your former inventory levels and you just keep working off [00:38:00] of those, that’s problematic because you’re not paying attention to where the market is going. So you really got to stay on top of your.

[00:38:06] See, what’s moving. See, what’s sitting on people’s shelves and they’re being forced to discount. And then to your point, as you look at the supplies you need to order in the packaging, you need order, you have to be way out in front of that. So it’s demand planning, which means connecting with each of the shops you sell into to understand what they need, how they tend to order and see what their habits are.

[00:38:24] I know with our Jupiter division, we do that all the time for budgeting for them. They’ll just call about all hundred of our top a hundred customers and say, okay, what are you planning on? Ordering in? And it’s hard to get some of these shops to think that way. I do not thinking 12 months. So it’s bringing them into that reality.

[00:38:40] And I think more and more are starting to see that. And they’re starting to work with us on more effectively the best

[00:38:45] Kellan Finney: in like analysts and kind of predicted models to help with those decisions. Cause they’re pretty far out, right? Like you don’t, it’s hard to predict what sales are going to be like in next July.

[00:38:54] If you’re an MSO, that’s just trying to get through the Christmas rush right now. You

[00:38:58] Gary Santo: know what I mean? Yeah. I mean, [00:39:00] that’s that’s challenge. So I think internally we have pretty strong finance team. You know, they’ve been working on. The hard part is most models is they’re backwards. And they try to predict the future using variables on past.

[00:39:12] I think that’s the part that becomes funds. The last four days in Arizona, we spent just kind of taking one of those models and turning it on and see or saying, okay, well, if we buy into that assumption, why did I just see this in our ball? And then we start working through what that looks like. So it’s, it’s an iterative process, you know, I don’t think this is one of those ones where you get a bunch of Bain guys to come strolling in and whip out a couple of supermodels and we’ll set you up for a long time.

[00:39:34] It’s gotta be a little more interactive with

[00:39:36] Bryan Fields: it. Cannabis. Wasn’t hard enough of your previous looking models included all COVID. So now you have to reduce that, that variability of understanding that you weren’t going to be locked home. So what are those real numbers? It’s hard to really, really? Yeah. I mean

[00:39:49] Gary Santo: the, the vaping alone, right?

[00:39:50] So you went from the bank press 2019. You had like one good month of 2021, right there, a respiratory pandemic. So you couldn’t throw much more vaping. He did a pretty good job of staying in touch, [00:40:00] watching people work through their. You know, as a result, you probably ended up spending a little more money carrying inventory for your customers.

[00:40:07] So right now we’re probably one of our highest inventory levels and we’ve ever been. But part of that is for supply chain management. Part of it’s because there has been some, you know, erratic behavior in some of the ordering, but we starting to see the bigger players. They’re also starting to centralize a lot of their procurement too, which is helpful before that, you know, if you dealt with a big MSL that was in 18 states, you probably got 18 different phone calls, but at the same MSL, and now they’re starting to send you.

[00:40:31] So it makes it a little bit easier now in the case of hardware, that makes it very easy because that hardware is interchange. It can go across state lines until they fill it. You know, it’s a little different with the plant touching side. Yeah.

[00:40:40] Bryan Fields: You think everyone’s moving closer to those, those centralized locations based on potential for interstate commerce coming down sooner rather than later, or do you think that’s just a strategic decision that they’ve invested in.

[00:40:53] Gary Santo: I mean, they did what they had to do, right. At one point on the sugar cane fields, and then they didn’t have, right. [00:41:00] So I think to a certain extent to operate, you had no choice. So and I wasn’t long-term if you can cross state lines, what does that mean? Probably needs at some point, you’ll see some type of centralization, but we have folks have so much invested in these operations.

[00:41:13] I don’t know if they’ll just quickly flip a switch and go get a big warehouse in the middle of nowhere. Yeah, they’re going to have to manage through that overhead and infrastructure, which is why we’re fighting so hard to stay asset light so that the assets compliment each other, but don’t duplicate necessarily except where absolutely necessary that’s been our approach, but, you know, I would suspect.

[00:41:31] And certainly one of the reasons why we’ve stayed away from that is we don’t want to be the folks sitting there with all these stores and all these different, you know elements here that we have to know suddenly managing figure out what we’re going to do because margins will start to compress.

[00:41:42] Prices will come down and you’re not going to have that first mover advantage. No way

[00:41:47] Bryan Fields: since you’ve been in the cannabinoid industry, what has been the biggest mistake?

[00:41:52] Gary Santo: You know, it’s funny. I think that everybody just wants to get hot. It’s not episodic. There are certainly folks out there who definitely do [00:42:00] purchase that way, depending on the demographic, but the number of use cases.

[00:42:04] The medical aspect I didn’t really fully appreciate. And I sometimes wonder if you discovered this plant today and you showed the medical benefits of it today, you’d probably be buying it down the house with whole foods and so many different form factors, but you got over a hundred years of prohibition.

[00:42:18] You’ve got the toner culture. You’ve got, everybody has a view on Canada’s, right? It’s like the only emerging industry I’ve ever worked in where you don’t really have to educate people about the core product. In fact, you have to an educate them and. Because they all have you know, bizarre view on how you can make money or not make money with cannabis.

[00:42:35] So I think that that’s been probably the biggest eye-opener for me, that there’s so much good that can be done here. If we could just get past some of those other pieces and just to have it on schedule one with the other drugs that are there, it’s like, I get it, some call it a gateway drug, but you look like you look at what this particular drug does.

[00:42:51] If it’s used in the right way. There’s a lot of benefits here that are just being pushed over. You know, when, when they tell us when it comes up on a schedule,

[00:42:59] Bryan Fields: Before [00:43:00] we do predictions, we ask all of our guests, if you can sum up your experience in a main takeaway or lesson learned to pass onto the next generation, what would it be?

[00:43:10] Gary Santo: Business is business. I’ve heard people say to me, Hey, budgets, don’t matter in cannabis productivity, doesn’t matter in cannabis. And most of those people, maybe it didn’t. And they’re probably trying to figure out what their next career move looks like. The reality is. At the end of the day, you’re trying to turn a passion and something that you’re intimately attached to an OD with, into a career, into a business, into an industry.

[00:43:34] So you have to remember that there are some rules of business that do have to apply, and it doesn’t mean that you’re selling out to the man. It doesn’t mean that you’re becoming some big business, you know start shirt on a corporate type. It’s just, you need capital. You need resources to be able to do what you’re going to do.

[00:43:49] And if you truly are. Because you believe in the plant and you’re trying to spread you know, that print plant around as many people, as many form factors, you need those resources. So [00:44:00] never, never convince yourself that the rules don’t apply to you just because you happen to work in cannabis. Well

[00:44:05] Bryan Fields: said, all right, prediction time.

[00:44:07] It’s 2025 for plant touching businesses is vertical integration. The most profitable business model for.

[00:44:17] Gary Santo: Predicated on legalization. I don’t think, I think, I think it starts to become a drain on the market. I think you’re carrying way too much of an infrastructure. And if it’s truly legalized, you don’t want to be carrying 18 independent businesses in 18 different states.

[00:44:31] At some point you’ve got to consolidate and whether you hold on to vertical integration, but just do it from a more central. Location or whether, I mean, you hear a lot of people talk about the grow will get commoditized. I think retail could get commoditized too. People like to go to those big box stores, right.

[00:44:46] They might want to buy online, but that centerpiece that the complex supply chain, right? The complex manufacturing, those things are still going to map. And I think they’ll always be a place for that. So true. Vertical integration probably might become an issue, [00:45:00] but I do think they’ll still be a place to connect some of those dots together and take advantage of the parts of the business that commoditized.

[00:45:07] Bryan Fields: I

[00:45:07] Kellan Finney: agree with Gary. I think he said earlier on the pod Coca-Cola used to own the sugar fields they don’t anymore. So they moved away from vertical integration to kind of focus on what, what they were good at. Right. Also, I mean, if you look at like other manufacturing or other large. Industries, right?

[00:45:22] Like GE GE is breaking up. Now I’m into three separate entities. Originally. They were completely vertical because everything that they made required electricity. Right. So they could just electrify everything. And now they’ve learned that a hundred years later or so, right. It just doesn’t play well when you’re trying to focus on all of these different businesses.

[00:45:43] And I think you even said it earlier, too, Brian, when you were like, is it challenging diversity of conversations that you’re going to have running a completely vertical company, or you’re going to have agricultural conversations, running an agricultural business, right. You’re going to have chemical manufacturing

[00:45:57] Gary Santo: conversations when

[00:45:59] Kellan Finney: you’re dealing with [00:46:00] derivative products such as live resin, right.

[00:46:01] And then you have CPG conversations from a business perspective. I think. That’s just too much to be successful when you. Say you’re competing against a group that is solely focusing on one business. They’re going to get better at it than you when you’re spreading your resources. That then what do you think, Brian?

[00:46:17] Yeah,

[00:46:17] Bryan Fields: I don’t think the everyday person understands the complexity and the challenges that Gary kind like simplified for them of running 18 different businesses, all wrapped up into one. And within that, each state operates completely differently. It’s not like it’s like, okay, just as a universal standpoint, like New York, Pennsylvania, California.

[00:46:35] Here are the rules. Everyone has their own challenges, their own issues and their own kind of every day surprises for example. But at 2025, I would imagine that some of the bigger players aren’t going to be ready to kind of divest some of their assets because they’ve invested so much to grow, grow, grow, grow, grow.

[00:46:51] You hear Boris Jordan up purely, always just smash the table. Grow, grow, grow, grow, grow. And he’s not going to be wanting to kind of shuffle up his chips back into the [00:47:00] middle to have a more centralized, specific USB. So I think by 2025, Vertical integration still stands for a bunch of companies, but I think as time progresses, they’re going to look to kind of double down on USP’s, but maybe someone ends up trying to own the whole thing.

[00:47:15] And that’s their strategic approach from seed to, to smoke.

[00:47:20] Gary Santo: That’s interesting. You know, cause you certainly, you heard it in some of the earnings call or last couple of weeks that. With some of the demand waning a little bit, and certainly with disposable income being hit with inflation, you figure don’t use markets, probably the most prone to a downturn.

[00:47:36] You know, that they’re starting to focus more internally on their own brands and not having the, I hear that. And I kind of cringe a little bit. It’s like, I get why you’re doing it, but you’re doing it for the wrong reasons if you’re doing it because you have the best brand. And by all means, please go ahead and do it.

[00:47:48] If you’re doing it to protect them. To me, that’s not a long-term strategy, right? Somebody will kind, especially if the world’s going to CPG at some point, you don’t want to be that guy. Who’s trying to own all of it, just to make it squeeze as much out as you possibly [00:48:00] can recognize what the new world looks like and see if your operating model.

[00:48:04] In some way, shape or form. And I think that’s, that’s going to be hard for some of these guys cause they spent a lot of time telling everyone how vertical was so critical and so important and the way to go. And it has been that when it’s not really as important anymore, how are they going to be able to explain what they’re going to do with all these assets that were once value in it?

[00:48:20] You know, millions upon millions of dollars. So. They can’t, they can’t talk quickly. You’re absolutely right. It’s going to be a gradual progression

[00:48:27] Kellan Finney: conversations are going to be tough too with stakeholders, right? Because they were promising these investors, these probably grandiose visions of returns and look at all these assets.

[00:48:36] We now have, this is on the balance sheet and X, Y, Z. And so I think that that’s going to be another challenging conversation that they’re going to have to have from an operational.

[00:48:45] Gary Santo: Well, yeah, but you got to state callers and it’d be possible. You are lacking those institutional investors. I mean, this is a market that this is an industry tailor made for like institutional growth oriented investors that have a three to five-year horizon and understand what that you can have 80, 90% margins.[00:49:00]

[00:49:00] I mean, this is one of the few industries. If you’re growing 30% year over year and your lacquer, that’s like, that’s insane,

[00:49:09] Bryan Fields: Gary, just expand your point real quick. I think it’s so important though. When operators have that north star metric, where they understand all decisions are predicated based on this is what we’re driving towards and not looking inwards and more of a defensive metric, like you said, saying, you know what?

[00:49:22] We’ve got to protect. We’ve got to protect because I think that standpoint in an industry that is growing as fast as. Is going to hinder the long-term success of companies. And I think if you’re making decisions like that, now I can imagine what you’re doing on a day to day, all the way down through the lower level employee who is thinking that same perspective, because as you know, better than anyone, you know, messaging starts up top and everyone else falls through that.

[00:49:44] Yeah. I mean, you never

[00:49:44] Gary Santo: want to sacrifice quality. We pick a lot of people out who complained about coming from other shops where they talk quality, but they don’t practice it because they look at the budget, you know, we’re doing it the other way, because we want to have quality. We can’t attract brands.

[00:49:55] We don’t to try. We don’t have products. So I think from our perspective, we’ve kind of [00:50:00] hitched our wagon onto the fact that. We’ve been in rented space for quite a while, with these crazy high prices that people would pay for a flower and a bat. And that at some point it’s going to mature and just looking at other industries and certainly looking at California and what works there and bringing it to the east seems like a reasonable way to go.

[00:50:16] Now, I’d say the last six months, I’ve sort of proven that out a little bit. We didn’t think it was going to happen as fast. Don’t get me wrong, but we thought it was fall 18 months out. But just in the last six months, you know, we’ve seen that sort of margin company. And people starting to pivot for us, we were one of the few MSLs that had double digit sequential growth.

[00:50:32] I mean, it was, you know, 10%, nothing around home about don’t get me wrong, but it still showed that there is some validation to that model. And it’s a flexible model. As a result. We are not being so asset heavy, we can adjust to the market a little bit easier. So we’re not overly committed one way or.

[00:50:48] Bryan Fields: For those who are looking to get in touch and learn more, where can they reach you and other

[00:50:52] Gary Santo: members of the, sure.

[00:50:53] So obviously eating on our website, www dot till Pauline’s dot com. There you’ll find contact information. You can reach out for [00:51:00] investor relations, general inquiries, pretty much. If we have any jobs posted that’d be a way for you to, to join the firm as well. So that’s a good starting point, pretty much all of our news and all of our events coming up.

[00:51:10] Cool.

[00:51:10] Bryan Fields: We’ll link it all up in the show notes and we’ll be looking forward to the long island operations. So all of our listeners who are out here can get out there, including myself. Thanks so much for your time, [00:51:18] Gary Santo: Gary. Thanks for having me on guys.

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