Part of the growing trend of how weed, marijuana, the sticky-icky, whatever you want to call it, has moved from what was once something taboo and underground into really, sort of, what some, including us at FRANK are calling one of possibly the next industrial revolutions.
With what’s going on in the space, it has become really commercialized in a sense and now everybody is pretty much waiting for it to go mainstream. We talked to Sturges Karban from Manifest Seven. Manifest Seven seems to be one of the leaders in this space, understanding that this is becoming a mainstream, monetized business.
Sturges, thank you so much for taking the time today and let’s just jump into it. Can you tell us a little bit about Manifest Seven and what your company’s goal is and what you’re doing?
Sure, Manifest Seven is effectively building what you would call the first omni-channel platform solution for the industry, starting in California, which is the largest market in the world. That covers basically two business. Once is a distribution business that is comprised of a licensed infrastructure stretching across the state and providing all the supply chain solutions the industry needs to start operating like any other industry, from an efficiently and functionality point of view.
The other side of our business is a retail component, which covers every available channel from on-demand delivery to Brick and Mortar Dispensary, e-commerce, e-commerce subscription, and the sum total of both of those sides of the business lead up to what we call omni-channel. Which is effectively a platform through which, whether you’re a business or a consumer, any product can be ordered from anywhere and ultimately fulfilled from anywhere. That’s the governing principle in a prime operating position in terms of what we’re building.
Gotcha, and it looks like your team, just a lot of guys you wouldn’t, from the outside looking in, is not what we would think or expect to see of people working in this space. How did you guys decide and how did you get there saying, hey, you know look, this weed or the whole marijuana industry, you know, you look at your board and a bunch of guys in suits is not what you would expect, but I guess this is what you need to build on a large scale, mainstream level.
Yeah, well I think, you’ll probably hear me throughout this conversation compare kinda cyclical evolution of this space we saw with the advent of the internet. It is a very similar kind of emerging market. You saw the same thing there which is effectively a professionalization phase, right?
You got a lot of really great exciting ideas, coming out of garages and then ultimately finding funding in Silicon Valley and then eventually you know, the grown-ups have to take their seat at the table at some point because there’s just so much money at stake. I think that’s ultimately where this industry is headed to. In our case it just happened to grow out organically of the group that founded the business.
We all come from an investment, professional background. I’m a 20 year, sell and buy site investment banker. I’ve built real estate businesses, I’ve advised, I’ve invested. So the genius of the business was very early on right after Colorado went recreational and we started as an investment company, just given the background and principles.
What we saw over the first two or three years of our life cycle as a venture fund where we started, where we pivoted into this model as an operating company, was a lot of systemic challenges that we’re trying to address now as an operating business.
Those were telegraphed to us very early on as we were making investments in the states and really getting an understanding of just how far behind just the infrastructural services, compliance, regulatory, all of the components of every other widget-ized industry wasn’t there. We saw that front and center, really first as investors, early on in the states.
When you’re in this space and what you’re looking for as investors or possibly what you’re looking for as you know, sort of a vertical solution. I would imagine it has got to be a little bit difficult, right? We know a bunch of growers, and some of them probably make people nervous, or it wasn’t that corporate.
What were some of the things that you guys looked for or currently do look for as you move about the space, right? You have the challenge you know, of an emerging market, not federalized, so it’s not the same state to state. So, how do you guys differential or what are some of the key things you’re looking at when you’re partnering with, or taking on clients, or growing the space saying, “Hey, we see something in there.”
Well, you know, it’s interesting because even just as recently as four or five years ago we started, the complexion of the industry was different then, too. You added much more kind of embedded in the gray market, kind of uncertain regulatory structure that it operated in for several years.
We’ve kind of come out of that as the regulations have been enforced, they’ve become clearer, they’ve been more robust, and frankly again, you just have the professionalization coming in from the outside, driving towards that level of compliance.
For us it is a really interesting evolution because, you know, we all started with a very traditional, either venture capital or investment banking background and there’s some basic rules that apply to those disciplines in almost every other state. Like, for example, back the jockey, not the horse.
What we found actually is that, it is really hard to find management teams that can scale a business either, you know, alongside or underneath your umbrella. You find a lack of fiscal discipline, a lack of fiscal transparency and financial reporting.
Compliance is still very much a hop scotch game for a lot of people. That’s improving again, I think more because of the external forces. For us, what we’ve learned is whether we were investing or now as an operator, we don’t make passive investments. We acquire businesses to accrue value.
In both cases, for us it really does come down to what is the fundamental asset that we are buying in the scope of what we have already built and how to integrate it. It’s much less of what I think you see in a lot of other more mature industries, where you’re evaluating these things more holistically, including the management team. A lot of where these businesses have gone is they’ve just hit these glass ceilings where frankly, the macro economic environment of this space is outstripping their ability to keep up with it.
And so in a lot of cases, whether it is a strategic investment, or a full on acquisition, it is generally, “What’s the inventory or assets, what purpose do they serve for our strategy? Can we integrate them with or without human capital that comes along with it?”
Also, a pretty stark difference to the rest of the way the world works. It’s very often you could have a cure for cancer but if you don’t have the right management team, I’m not going to touch it. Here it is, that’s a really core asset that fits perfectly, that’s complimentary to what we do, but we really need to de-risk by making sure that the people managing that asset in the scope of our operation are our people where we can impose our controls, our regulatory standards, our operational standards and our financial standards.
It is almost an inversion of how you would typically look at almost all of these situations in any other space.
Gotcha. So, right now you guys are anchored in California, but do you see expanding across states? If you do, what are some of the challenges or how will you guys sort of maintain like a quality control? That’s one of the things that we at Frank talk about because there’s certain brands that we’ve bought, different states that have always been great brands. And we know are, there’s something, there’s a mechanism that has to be in place that’s ensuring the standardization and a certain level of quality.
How are you guys thinking about that right? Right now you can’t do this across state lines but eventually we’re all hoping, and that’ll be my next question, what do you betting on when that time is really here? How are you guys looking at that? Is that part of the process?
Oh no, absolutely, looking at national rollout is absolutely. We have a long term time horizon on the enterprise we’re building. We believe there is a general wealth creation of opportunity here and it is going to take some time to build something that’s institutional grade, but we’ll get there. The industry will get there too. I guess an answer to the question I’d give you two, kind of, somewhat cheap but really appropriate aphoristic quotes. One is San Tzu, which is, “Every battle is won before it’s fought.” Right?
That’s kind of our approach to the rest of the country. The truth is, that there’s a lot of attention right now on, particularly up in Canada with US companies going to raise money there and go public. There’s multi-state operator kind of play where like, I want to put as many pins in the map and in the deck as I can to show investors.
That’s great, but for us, you know California is not just the biggest market, it is the most fragmented and it is the most commercially dysfunctional. One could argue before we even get into the cannabis fragmentation, you already have two states here, just that someone that lives in San Francisco, what they think of L.A. right?
My point is, if you can make a systemic solution, you know, work in not just the biggest market but the one that needs the most help. That’s the perfect crucible to provide a proof of concept for the rest of the market. And the truth is, if you add up all the other legal states, they don’t even touch California. So our focus is first California, not just because it’s the biggest but because we know if we can make this work here, it’s going to be much more cost effective, much faster, and much easier to install it or export it into a national rollout, which is the plan for next year. So that’s kind of the first thing.
The second is, I like the phrase and the space quite a bit, “Its better to be first to be second sometimes.” And you know, when you talk about…
We’re big understandings of that. Sometimes even when you’re first it is better to be second. So we’re with you on that.
I think, in terms of what we’ve done with omni-channel, even as simple as distribution, we’ve been a first and we were there but there are other things where, I really, like your point about the product portfolio and the product pipeline in this industry is a perfect one.
It is so fragmented to try to make a bet on anything like that right now. It’s like trying to decide, back in ’97 which one was going to win, DSL or cable. There were a lot of people that lost on that binary bet and here you have that kinda of kaleidoscopically broken out all over the place. So consistency for us really is about waiting to see what happens in the rest of the market while we build out California. There’s enough time there to make that happen so we can start using some real marketed elements and again it goes back to California being the right Petri dish or the right lab for this, because all of the innovation from a product perspective is really happening here. It’s the best test market in the world for everywhere else. So once you establish a distribution hold and have sight of all that product here, it’s going to be a much, I don’t know, it’s an easier managed landing in terms of ensuring consistency and uniformity across everywhere else we go.
So again, it comes back to doing it right and developing a main expertise first here and then leveraging that in the right way in allowing the market a little bit while it happens to catch up so we’re not making bets, we’re making educated guesses.
Gotcha. It makes sense, it’s like the John Wayne theory, if you can be the sheriff of the worst town in the west, then fixing some of the newer, more conservative towns isn’t really that hard of a job.
So I want to shift the focus for a second to the question about one is, are you guys or is part of your model, we’re hearing a lot of people developing and creating propitiatory strains, and then trying to patent these strains to license out. Is that something you guys are looking at or have heard about as well?
As you’ve heard, we are totally product agnostic, and that’s the whole virtue of our model. We will distribute and sell, what distributes and sells. To some extent, we’ve constructed the business in a way that our retail universe or ecosystem provides real time market intelligence on what to distribute, and so we have that sense. But we very intentionally stayed away from anything that involves ownership so to speak other than inventory basis of a product.
Whether that’s actually growing it at source on the cultivation side, through manufacturing or designing or owning brands who are not there yet. I think at some point, we’ll start to get into those businesses but not to vertically integrate, which is what everybody else is doing, more to control supply as a distributor to make sure we can meet the types of commitments across the entire industry. That’s, I think, where we all want to get to, is where there’s enough regularity around those things.
To focus on owning and promoting our own brand right now is probably premature. Once we have that structure and that machine really humming its scale, then it makes more sense to look at those things strategically, controlling supply on the grow side, or having a portfolio of proprietary products and margin support internally.
Until we get to that point, we’re staying out of that business and its all third party.
Gotcha. You spoke a little bit about market intelligence. Can you talk more about marketing and branding? I think one of the questions that a lot of our world and our market, comes across as even Frank has an agency side where we help people develop brands. What’s, how are you guys collecting market intelligence on such a relatively new and emerging market?
Are you using traditional metrics that exist in the industry when it comes to brand positioning and developing brand archetypes? How are you guys approaching the whole branding the bud sort of discussion?
We offer that as an up-sell to all of our core distribution services. We do logistics and transport and brokerage and wholesale and packing and co packing, labeling, bottling, infusing and all of that. We do all the mandated state services like tax collection and remittance and independent testing.
The fun stuff.
One of the things that we upsell, yeah the fun stuff, the bread and butter stuff, right? As one of the things that we upsell as part of that, is a suite of professional services because we find the operators need them. So compliance advisory, outsource, CFO and financial services and then being as an upsell to the core distribution business which is really as much about helping clients commercialize their products, as it is move or transport them at the end of the day.
We have a brand and marketing support component as well as part of that professional services suite. So we get very involved because ultimately, what we’re trying to do is integrate movement of mass quantities of product with packaging and labeling and then putting it back on the bottle and back in the truck as well.
So all of feeds into an integrated value proposition for us. Where it starts to be honest in terms of the data and the market intelligence is actually on the other side of the business. I think we understand that in a lot of ways, that is a man-driven business. It certainly will increasingly be so as new adopters as millennials, and seniors, and women, really start to emerge in to the market. We understand that that customer base is segmenting.
For us the market intelligence is really about what the customer is doing and buying and that’s part of the reason we got into our retail business. If you take the sum total, and this is something no other distribution company in California can say. If you take the sum total of everything we’re doing in our retail platform, from delivery to subscription where we ship thousands of boxes directly to consumers a day, to an e-commerce platform, to all of the hundreds of driver cars that we have in our delivery business up and down the state. All of those are touch points that create data for us, on a retail on a propitiatory side of our business where we understand much more clearly that any other distributor that how that customer base is segmenting, where its preferences are going where the trends are heading, because we’re directly in that business and they’re not.
Just as an example of that, we’ve started on the ground in the retail side, outside of THC, we actually started with the ancillary business with lighters and rolling papers and grinders and consumables and accessories because there’s literally millions of addressable customers there. There are no restrictions on those product categories but all of those people are buying lighters and rolling papers for a reason.
So we just kinda Trojan horsed into hundreds of thousands of customers to start, knowing they weren’t direct “THC customers”, but understanding just part of what they do in that side of their lifestyle really gave us an understanding of how we should focus our attention and distribution on THC products.
So it’s all about volume, it’s all about access to and proximity to the end user. Once you have a big enough universe like that, you can dictate, to a large extent, where the market goes on the BTB, or the distribution side, because you understand the customer much better than anyone else. That’s how we’re doing it.
Gotcha. Well it’s a completely, I think eye opening in a new way to look at an industry that I guess you can equate it to prohibition on a certain level, where we had a very large underground culture and a very large amount of commerce being conducted in the shadows that are now being brought into the mainstream. The question is that where is it going to end up and I think we’re all excited to find out, whether it’s for the medicinal side with the incredible values that it brings to the table to the recreational side. Just literally how we’re going to generate a lot of revenue for these states across the board, when we’re able to package and distribute accordingly and I think that’s something each state at a certain level globally, everyone is eager to watch and watch it grow. No pun intended.
Listen, I appreciate the time and then we ask everybody that we interview, and there’s no right or wrong. If there was one statement, if you have to be FRANK about your company in just one sentence, what would you say about Manifest Seven?
That’s a really good question, I would say, actually not to be glib and pissy but I would say…
Please do, you’d be surprised at some of the answers we’ve gotten from rappers, pro skaters, and a couple of growers so there is no right or wrong answer. It’s just that we interview people that we feel are on one side or other, affecting the culture we live in. We think Manifest Seven is on the other side of the spectrum that a lot of our readers and a lot of people as a whole may not have known about or may not understand because they’re coming from the street side.
Yeah, I think that no one is going to see us coming and we’re going to surprise a lot of people.
I love that (laugh).
I think that’s really true actually.
That’s great, and you know what? That’s very in line with what we do here at Frank. Day one guy and a lot of people don’t even know we’ve been there from day one and then they turn around and they’re like yeah, I saw that at Frank. I have a feeling there’s going to be a whole part of a world in our culture when they start talking about the business of cannabis as a whole, the dialogue will start reaching more of a mainstream level and as people have that conversation someone is going to turn around and say yeah, I know all about Manifest Seven. We heard about them at Frank, we’re cool.
There we go.
Again we appreciate the time. We’d love to continue the dialogue as you guys continue to grow. I think it’s great, being able to show both sides, of the bud, so. Again thank you for your time, and we’ll circle back with you shortly.
That sounds great. Thanks so much and I appreciate it.