Listen: New Opportunities in the Cannabis Business

July 3, 2019 15+ min read

Jon: Tell us a little bit about your background and how you got into cannabis specifically.

Ryan: Sure. I have an odd background, but it’s been a fun journey to date. I started a film production company in my early teens, which gave me a great education all over the world making videos for nonprofits and then teaching photography and journalism in 13 countries for a number of years.

That then brought me to West Africa, where when I wanted to get married, I went to get my own diamond and ended up helping to start a company called Clarity Project.

Jon: Wait, wait, wait. You wanted to get married, so you went and tried to find your own diamond? What do you mean by that?

Ryan: I had spent a lot of time in West Africa and didn’t believe in the supply chain of diamonds. When I offered my now-wife an engagement painting, she wanted something that still fit on her hand.

Jon: Didn’t like the painting. Wanted more than the painting.

Ryan: Yeah. I’m always up for an adventure, so I halfway jokingly said, “All right, I’ll go and mine a diamond.” She laughed at me. A couple of months later, I was in Sierra Leone learning how to start a diamond mine.

When I shared with people that that’s what I was doing, a lot of my friends and colleagues through a different business I was president of called Family Office Association said, “Oh my goodness, I would pay anything to go and mine my own diamond. That sounds like such an incredible story and such a better way to offer someone these luxuries.” So we put together this opportunity for people to come to Sierra Leona and find stones.

Unfortunately, the Ebola crisis really interrupted that business plan, but we did bring some people over to do it, and it was fun and successful, and the diamond mine was real. It was an amazing thing.

Jon: So, unfortunately, the Ebola crisis drove you out of Africa.

Ryan: Yeah. For the moment, drove me out of Africa. I had always pledged to come back to Fitchburg, Massachusetts, where I had gone to elementary school, to create jobs out there. I had grown up in one of the old shoe factories in this mill town because my family was involved in the shoe industry.

I, unfortunately, had a front row seat to watching the demise of this town, Fitchburg, after the post-industrialization boom. When all manufacturing moved over to China, this and many other towns really spiraled downward. Having watched that, I always wanted to come back and rectify it.

When I left West Africa, I started investigating vertical farming and aquaponics and hydroponics and thought Fitchburg would be a perfect place to do that. So I flew out industry experts, and they all told me that I was wrong, but that the medicinal marijuana world in Massachusetts was just starting up (it was 2014-2015) and I might want to investigate that.

I’d had a slight background in the industry; I’d just started to invest in the tech side of the space, some of the data platforms and the e-commerce platforms. Prior to that, my family and I had been donating on the philanthropic side to the Drug Policy Alliance and other organizations that were changing the face of cannabis from a social justice lens. That was always really, really important to me and to the family.

Related: Podcast: Cannabis Investing Tips for Non-Millionaires

So when people would ask, “Is your family okay with all you’re doing in cannabis?”, I’ve been proud to tell them that it was not an uphill battle there at all. We’ve seen this for now three generations as a necessity to change. I’m excited to be doing it now.

Jon: That’s interesting. What did that come from, that social justice? It sounds like your family was a big employer of people in the area. Where did the social justice gene come from?

Ryan: I think it’s been around for now as many generations as I’ve heard stories of. My grandfather was a local politician in Massachusetts, local businessman. He was one of the first openly gay politicians in the country. He’s always been a big advocate, and therefore we’ve always been big advocates, for human rights and for equal rights and equal justice for all.

I remember very early on in my life hearing him talk about the illegality of cannabis leading to people’s incarceration and their inability to get student loans, inability to buy a car, to lease an apartment, and how the butterfly effect of these small challenges can create an overwhelming situation and really end up harming people’s lives. That was always a big part of our dinner table conversation, whether it was cannabis or any other injustice.

To now be on the commercial side and helping to show that this industry can be brought into the light in a really responsible way – and I’m far from the only person doing this. There are many, many folks doing it right, and I’m glad to be a small piece of this very big pie.

Jon: So you arrive in Fitchburg, and what were some of your first moves?

Ryan: My first move was to stop my first plan. My first plan was to grow strawberries and leafy greens, microgreens, as those were the most profitable legal herbs and legal fruits per square foot in these types of areas.

But when I was told it was a terrible idea because the ceilings weren’t high enough and it was not close enough to the highway, all of these different reasons that it didn’t work for fruits and vegetables, and told that it was perfect for cannabis, the next move was to find the right partner. I hadn’t grown anything; I had never built a big building. I was looking at this 250,000 square foot pile of bricks thinking just clogged drainage pipes could break me.

So I went through the process of triangulating trust, really, as I’ve done in many other businesses, bringing networks together and cross-referencing who are getting involved. Between the family office world and the social justice and cannabis world, I was able to find six different family offices that each wanted to come to Massachusetts and needed the right real estate, and we ended up partnering up. I partnered with my now co-founder, Bob. I think he was 78 at the time, so a 50-year gap between us.

We bought the building in February of 2016. The day after we bought it, trucks came to start the demo, and 4 months later we started construction – without a license, actually. Took a big risk that we would get the license, and we wanted to be ahead of the game, so we started construction prior. And we’ve not really slept more than a few hours a night since.

Jon: And the end result was…?

Ryan: It’s called Revolutionary Clinics and Revolutionary Farms. Our operating company is here in Massachusetts. We’re honored that almost every multistate operator has looked at us and wanted to hire us. But we really like being deeply rooted in Massachusetts and believe from a business standpoint that being deeply entrenched in the fabric of the industry, not just being susceptible to market winds – which can croak you, frankly, if you don’t see them coming – we feel and felt that that was going to continue to be absolutely critical.

So we’ve stayed independent to date. We have groups that want to not necessarily take us out from an MSO (multistate operator) standpoint, but merge with us. We like finding other people that are deeply entrenched in their communities, brilliant from a business standpoint, as well as really productive in helping the people and the groups around them in their own state.

Revolutionary will always have the deepest roots here in Massachusetts, but we’re excited to start looking elsewhere as well.

Jon: As far as social justice goes, how are you dealing with that issue now that you have this business up and running?

Ryan: We continue to donate philanthropically. To the degree that we can, we’re hiring people that have been harmed unduly by this industry in the past. This isn’t a social justice element, but it’s something we’re really proud of; we’re very active in hiring veterans. Also, my CMO and Head of Patient Outcomes were involved in creating a not-for-profit that’s dedicated to research of cannabinoids specifically for PTSD for veterans. So really active on that side of the community, and again, hiring local and hiring a very diverse group of individuals has been thrilling for us.

Jon: Meanwhile, you have this business that you’re running, but you also have a fund?

Ryan: Yeah. To be clear, I am thrilled not to be running the company. I’m Chief Strategy Officer, Co-founder and Board Member of Revolutionary. This takes up about 10 or so hours a day, so think about 70 hours a week on the operating side.

The two other hats I wear in the cannabis industry, I invest privately out of my own portfolio, both directly and into funds. There are certainly waves of times where I just don’t have the bandwidth to keep diligence in all of these deals, as they’re multiplying on a weekly and monthly basis, so I participate in some funds.

But then yeah, I’m also GP of a private equity fund out of Hong Kong that’s dedicated to the cannabis industry. That has been a real blast for me. And then I advise a debt fund as well.

The way my day and my life is structured and the strategy in the cannabis industry specifically is spend my 10 hours a day making sure that all of my responsibilities are attended to at Revolutionary, and then with my small checks I help seed companies into A1 bridge rounds. My small checks quickly get exhausted, and then those deals for A rounds and B rounds are brought to friends and family as well as our fund called Put Lock [sp] out of Hong Kong.

As those companies continue to age, continue to grow, they often transition into needing debt, so I advise this infrastructure debt fund and help people find lower interest debt than what is typically found in this industry because of the prevention of banks getting involved.

Jon: So you’re a busy guy, basically. [laughs] You had mentioned to me when we first met at the Cannabis Dealmaker Summit in San Diego that of the businesses you’ve been in, cannabis is the hardest business that you’ve ever been in.

Ryan: Without question.

Jon: Yeah, and this is including opening a diamond mine in Sierra Leone. [laughs] Tell me a little bit about why that is the case.

Ryan: It’s hard for a number of reasons, and it all depends on which aspect of the industry you’re approaching as an entrepreneur. But it starts with the federal illegality. That layer is an element of complexity that no one else has really dealt with.

It also creates opportunity, which we can circle back to. I often talk about the fact that this is the only industry when you consider biotech and dot-com boom and tech boom, that small investors like myself have had a prayer in the space, because generally institutional capital comes in and just blows small guys out of the water.

So the federal illegality is a double-edged sword, but federal illegality makes it very difficult. The constantly changing and evolving regulatory landscape makes it very difficult. The nature of creating little submarkets from state to state, each of which have very different approaches to this industry – you couldn’t see two states – Massachusetts versus Oregon, let’s say – that could be more different in the outcomes of their regulatory frameworks. I can double-click on any of that as you’d like.

Jon: Yeah, tell me what you mean. From my very limited understanding, because I don’t live in Oregon, Oregon has overproduced cannabis to the point where it’s lost a lot of value.

Ryan: Yeah. A number of friends of mine are operating, some successfully, some unsuccessfully, out there. What they often say to me when I make sure that our company is going to remain safe and we’re making the right decisions for now and for the future, they often ask me, “Ryan, how many great wineries are there in Massachusetts?” I tell them that there really aren’t any. They say, “Exactly. We have amazing soil, we have amazing climate. It’s so easy to grow.”

The combination of the environmental climate plus a very relaxed regulatory system created a scenario where everybody could get involved in this space, and there was an absolute race to the bottom. I’ve often joked with people out there that in Oregon, Washington, and some parts of California, they should have a real Burning Man. Put all of their excess biomass in a big pile, burn it all, and start from zero again and build a more controlled, stable business out there, because there’s just so much product.

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Now again, that creates an op because if you look forward into this industry, eventually every cannabinoid just becomes an ingredient. There certainly are different qualities of flower, different levels, different cannabinoids and terpene profiles within each flower, so there can be differentiation. When you look further out, when all of these things outside of maybe 20-30% of sales continue to be flower in the future, you’re using this just like you would use sugar in a recipe.

So there are companies that have really leveraged that, and they have very cheap costs of goods and they can get creative. There’s a company right now called LeafGoods which has an extraordinary level of IP and a great management team. Very controlled, very conservative. They’re creating a nice differentiated business within an ecosystem that’s very hard to do that.

Jon: We’re talking about in Oregon?

Ryan: In Oregon, that’s right. But then on the other side of the spectrum in Massachusetts, we have horrible weather. Even when it’s nice out to go and walk around in, it’s still a terrible climate to grow in because of the humidity. The density and the size of your buds actually have a diminishing value because they have a higher and higher likelihood of getting mold.

In Massachusetts you also can’t use any pesticides, whether they’re organic or not, so you can’t battle that other than just hoping and praying for the right timing and the right environment.

Meanwhile, it is so expensive to get started in Massachusetts and you were forced originally to be a not-for-profit, which created all kinds of other financial complexities that I can talk about. Only about 5 percent of the entrepreneurs who started going after licenses in 2014 have made it to the finish line at this point.

Jon: It’s a very difficult business, but you still feel like it’s ripe with opportunity. Tell me why you feel that way.

Ryan: The biggest reason is this market exists. The product is largely beneficial. I won’t say that it’s the cure-all that people are often expressing. 90 percent + of claims on CBD have been scientifically invalidated. So it’s certainly not, to me, this absolute miracle plant that’s going to cure everything from sleeplessness to wakefulness or alertness and everything in between. To me, it needs much, much greater study in order to start making those claims and people need to bring more science and more specificity into it to do that.

But the fact from just a macro standpoint that this touches the medicinal world, the wellness world – which I consider nutraceutical versus pharmacological or biopharma – and then there are so many other elements, even down to using the hemp fibers for clothing, using CBD for whatever people are using CBD for – there are a million different ways that this plant can create commerce.

If you just start with what the illicit market is coming into the light, what that market opportunity is, there’s a lot of money to be made responsibly. There’s a huge number of jobs to be created responsibly. In each of the macro trends – cultivation, vertical integration, branding, technology – in each of those verticals, there are 100 pain points that are being explored or have not yet been explored that can be professionalized.

I use that word hesitantly because I don’t want to say that anyone that was in this industry before the legal market came up, that they weren’t professional or good at what they’re doing. But you can take tools that are B1, the first minimum viable product for some of these tools, and you can continue to make them better and better and better and really optimize each operation, and over time optimize the industry.

In each of those verticals, there is that opportunity, and that to me is what’s really exciting. If you find, as an entrepreneur, your one focus, or if you find as an investor the set of entrepreneurs for each of the different verticals that you’re interested in who have that laser focus, you can do really well.

We’ll double-click on all these things, but what I discourage is trying to be everything to everyone, everywhere. That’s something I simply won’t invest in because there are really good people that are laser-focused on every element of this industry, and if you’re trying to just create blanket solutions for the entire industry, you’re going to be defeated by the guys and gals that are doing one thing really well.

Jon: So much to unpack in what you just said, but one of the things you said is to identify, in all the different verticals and the sub-verticals, the pain points, some of which have been identified, some of which aren’t even known yet. How does one figure that out as an entrepreneur? I feel like a lot of people are coming at it from the wrong angle. They’re saying, “CBD Is all the rage. We’ve got to get into the CBD business,” without thinking what’s the pain point. What’s your advice to people about finding pain points?

Related: Podcast: One Company’s Quest to be the 23andMe of Cannabis

Ryan: The first answer I’d give is I often advise people not to jump right into being entrepreneurs. Being an entrepreneur is incredibly risky. It carries a far greater opportunity cost than I think most people give it credit for.

If you’re smart enough to build and grow a company that’s going to sell for tens or hundreds of millions of dollars, then you’re absolutely smart enough to be hired by big, meaningful companies who will pay you really well in cash and stock to help get their job done. And possibly, very likely at this pace and this nascence of our industry, you can get your vision done as well. You can go to your vision as well, as an intrapreneur.

I generally caution people not to jump right into what they think is the right concept and to spend time in the industry and really investigate that to start. How do you find pain points? Spend a day with me in operations and you’ll see that we have what we refer to, in jest, called “the daily dilemma.” We’re a great operating team, we have a fantastic staff, but when you’re growing quickly, you’re always going to have bottlenecks and pain points. They will show themselves very quickly, and each time you solve one of the bottlenecks, the next one will appear.

So how do you find the pain point? You just experience it. Certainly you can do market research, you can call around to different people in the vertical that you care to assess, but I don’t think there’s anything quite like finding out where the rubber meets the road.

Jon: Right, really getting in there. That’s very interesting. Great advice. Given your own experience, what are you seeing as some of the pain points, a.k.a. opportunities, just in your own business?

Ryan: As an investor, I have a few holy grails that I’m looking for that I haven’t yet found. One, a doctor named Dr. Michael Lynn started a company called Hounds Labs, which I believe is the leader in creating a breathalyzer type machine for cannabis. That’s going to be a massive, massive part of this industry, the regulation. That’s one holy grail that I think is largely untapped. Some people have tried; a lot have failed. I haven’t caught up in a while with Hounds, but I think they’re still one of the leaders.

Figuring out how to force your body to shut down its CB1 and CB2 receptors, to stop binding with cannabinoids so that you have a very specific time function to your use is a holy grail that I’m really looking for the right scientist to figure out. That’s really, really interesting to me. People talk a lot about the uptake and the bioavailability of cannabinoids, but very rarely do people talk about the exit. How quickly do you come down, and with what assurance can you come down? That’s going to relate to driving and how you can keep people safe with regard to cannabis, so that’s really important to me.

Jon: That’s interesting. I’m thinking of the alcohol business; do they have an equivalent? There’s nothing – you basically just have to sober up, right? It’s time.

Ryan: They don’t that I know of. But what’s interesting about alcohol versus cannabis in today’s age is cannabis as a legal product is being turned on state by state overnight. Of course, it takes a long time for lobbyists and for the groups and politicians to enact these laws or to encourage these laws, but when it happens, it’s a light switch from “no” to “yes.”

Then people go out and they try this product, and if they overconsume, it’s kind of a violent reaction. People are really surprised by that. But when people start drinking in their teenage years, when we’re expected to be young and irresponsible, and someone overconsumes and they get drunk and then sick and hungover, it’s just part of the learning experience.

So cannabis versus alcohol is really held to a different standard. If cannabis ever makes you sick, it’s an absolute poison – and yet alcohol will always make you sick to some extent, and it’s just accepted. It’s kind of an interesting dynamic there.

Jon: Yeah, it’s an unfair standard. But I think that’s so fascinating, this idea of exit take, where it’s like, “okay, I’m going to get high now, but it’s only going to last an hour and then I can carry on with my day.”

One of the concerns I always hear is you don’t know when it’s going to hit, especially when you take an edible, and then you don’t know how long it’s going to last. If you’ve taken too much, then it’s scary and you have these 2-3 hours, sometimes 12 hours – I’ve had 12 hours of being high. I went to sleep and I woke up and I was still high. So yeah, I can see that.

Ryan: As far as finding pain points, the dosing side is a really complex series of issues as well as series of opportunities for entrepreneurs. People talk, as I said, about the bioavailability. You hear often about the nano or microencapsulation of these products. I know a company well called GoFire, which is a dosable vape pen. It’s not like dosist where it’s a timer that then buzzes under your lips; this is an actual dose that allows for a little drip to come out of the machine. Instead of heating the whole cartridge, it just heats up the exact dose that is instructed by the platform to the machine to release.

So finally we’re starting to see some really bright entrepreneurs find strategies, find technologies and patent them that actually have applications far beyond cannabis. To get to that level of dosing and to know what is the bioavailability in your own individual system is really accelerating very, very quickly, all because rolling a joint of flower that you didn’t know where it came from or what it was, that’s on one side of the barbell, and then being on the other side years later, where we are now and looking towards the future, this is a product or series of products that can be taken to be so additive in so many parts of your life. The more we study it, the more specific we can make it, the more beneficial in our lives it will be.

Jon: How about just starting a brand? That seems to be really tricky. I think a lot of people just want to start a cannabis brand. Do you think that is going to be harder and harder as MSOs and big conglomerates come in and start taking up the market, to have a brand that stands out?

Ryan: Branding is fascinating in this industry. I’m really concerned about CBD brands. I don’t invest in them. I think CBD, as I said, has been largely scientifically invalidated. I’m excited for what does come out of it, and I’m so grateful for the scientists that have figured out the applications that it does work for.

I diligenced a CBD flower company that was making cigarettes out of CBD flower recently, and they had me smoke it, and I said, “What is this going to do to me?” They said, “Probably nothing.” I said okay and I smoked it, and nothing happened, and I said, “Nothing happened.” They said, “Perfect. That’s good. We don’t want anything to happen.” Okay, so then what was the point of this and how do you build a brand off of something that doesn’t physiologically make me feel any different?

I have a point that I make often about brands in general, not just CBD. As far as the valuation of brands, I really struggle because of a few points. One that I bring up often: companies like Philip Morris, when they want to launch a new product, they’ll spend a billion dollars or more a year for a number of years – call it 5-7 years – before they really consider a brand fully landed in the ecosystem of its target population or target demographic.

Someone that comes to me with a $200 million valuation, or even higher with some of these better-known groups, and they say, “We’re in 100 stores and so we should be worth this, even though we’ve done $5 million of sales,” I just can’t get there. I’m excited for them and I tell them, “I look forward to visiting you on your yacht; I can’t participate, but I really want to be supportive and I’m excited for you.” But I can’t get there.

So that’s one. Big companies like Philip Morris know how much money they spend, and frankly there’s just not that much cash in the cannabis industry to get there.

Second, when you watch a company like – Chipotle I think was one of them that had a food scare with a very small number of their meals within a month or something. They had a food scare, and they lost a huge amount of their value. You can use north of 50% of your value. And these are very sophisticated companies with centralized distribution and GMP facilities. They’re doing everything right, and just one little slip can make you lose nearly all of your value.

The cannabis industry just isn’t there yet. We have some cleanroom technologies, we have very few companies that are in a full GMP certified environment, but we’re so far from that.

Branding, to me, comes from consistency. Top down, you start with how to create uber-consistent products wherever they are. If you choose not to be in a particular geography, then great. You don’t need to be everywhere. As I said, I don’t invest in people or groups that want to be everything, everywhere to everyone. Stay laser-focused. Stay in the geography or on the path that you can control.

As you can control that, both the consistency of dose, the consistency of experience, and consistency of inventory, then you can start building a company. Eventually your brand will be known. But it’s the company that needs to be built and needs to achieve that level of consistency.

In California, where I hardly invest because it’s really its own world – it’s not that I don’t want to invest; I’d love to, but people know it a lot better than I do. But there’s not brand recognition there because people can’t control their inventory.

When you think of the best vape cart, other than Select brands, who do control their inventory very well and have a huge and smart strategy around that – if I go to pick up the sativa blend or whatever I want in a cartridge out in California and it was very popular so it’s sold out, the next vape cartridge will just show up on the shelf and I’ll go for that one, and then the next one and the next one. There’s very little brand affinity. It’s what’s at the right place at the right time.

Jon: Why is it that people can’t consistently stock a product on the shelves?

Ryan: Everything is expensive. It’s not that they can’t; it’s that there are always a lot of competing priorities. For example, using that instance, if your competing priorities are “we need to get into X number of stores or X number of states and this is the amount of capital that we have for marketing, for inventory, for crops,” then you’re going to spend that and you’re going to optimize for what’s going to increase your valuation, what’s going to create the most expansive territory and the most expensive brand presence.

But that could be in conflict with what is going to allow for consistent inventory control. So it all depends on the competing priorities. Those same types of competing priorities make it very, very difficult for these brands to come from one state to the next state because you’ll always have limited resources in this fast growth environment.

Do you want your limited resources to be put on optimizing across X number of stores within your own state to control that inventory? Or if you’re going to get a boost in valuation to have better future cash flows off of being in the next state, maybe you need to go find a partner in the other state. But even those partners have competing priorities – how to allocate their cannabinoids or which merchandise gets the focus from their sales team, how the bud tenders are incentivized to sell X product over Y product. There are a million competing priorities that make this very complex.

Jon: What are some other opportunities? You mentioned breathalyzer, you mentioned things that can limit.

Ryan: You asked me earlier what entrepreneurs should approach and they should stay away from, and I do want to talk about that from a macro standpoint.

But the last major evolution that I’ll talk about that gets a lot of attention recently is the biosynthesized and chemically synthesized cannabinoids in yeast and algae in order to create the supply of these raw ingredients without the agricultural and horticultural side. That’s becoming a very, very big deal. I think it got a lot more press, a lot more interest when Gotham Green put a huge check into a Boston company here called Ginkgo. Canopy also got involved in the biosynthetic space. So that’s gotten a lot of attention.

I’m really excited about that. Some people look at it as a doomsday scenario for horticultural or vertically integrated enterprises. I think all of these cannabinoids become ingredients, and the more ingredients that we have studied in order to create better and better formulations for our patients and for our customers, that’s a win all the way around

If we can get better access to CBG or CBN or THCV, that changes this game so drastically, to the point where you’re no longer going state by state and saying, what is the illegal market? Okay, in Massachusetts there’s a $2 billion illegal market, so let’s assume over the next 5 years, 80% of that becomes commercialized, so this is a $1.6 billion industry. That will no longer be the calculation.

The calculation will be you have that big of an illegal market coming into the light, plus how much of the sleep market does cannabis now occupy? How much of the alcohol market does cannabis now occupy? How much of the anxiety market? And so on and so on. That becomes very exciting.

And then you need to further investigate – and I’ve talked to co-investors and partners about this – what happens to the pie? What happens to the cannabis commercial pie? When nutraceuticals get involved, when pharma gets involved, what happens to sleep? How much of sleep is going to go into or out of the cannabis pie because of the dynamics of people trusting or not trusting pharmaceuticals? All of these things become very, very interesting very quickly.

Jon: The synthetic revolution, doesn’t that kind of worry you? Don’t you think of GMOs and Monsanto and that kind of thing?

Ryan: I see GMO in general as a double-edged sword as well. While I don’t love the idea that my products are modified, there are millions and millions more people that aren’t starving right now thanks to GMO vegetables. So I don’t have as binary or negative of a view as others do of GMO and other strategies like it.

As it relates to synthetic cannabinoids, I feel somewhat similarly. Right now CBG, for example, is generally grown in sub-1% weight by volume of the oil. So if expanding that capability by using crisper in cannabis genetics or any other way that we can expand our access to CBG in order to help people, I think I’m going to be for that. But I’d need to look at it on a case-by-case basis.