Episode #

Shareef El-Sissi shares wisdom around scaling cannabis businesses and the future of California Cannabis


Blaine: Hello everyone, welcome to the Distru podcast, excited to have Shareef as our guest today. He is a co-founder of TREEZ one of the leading software POS platforms in the industry as well as the CEO of Garden of Eden, which does is a dispensary as well as they make their own product lines, and he's a general mover and shaker in the cannabis industry I would say. Welcome to the podcast, Shareef.

Shareef: Well, thank you Blaine. I’m happy to be here tonight with you and talk about what's going on in Industry. 2020 has been a hell of a year. It started to separate the people that have experienced from those who lack the tenacity to kind of survive. We’re blessed to be here and to have the time to talk to you today. Thank you for having me. Looking forward to our chat.

Blaine: And on that note buddy, how are you doing? How are things in the world of Corona and all of that? Are you holding up?

Shareef: We can rewind back to I don’t know, February-March where we were basically faced with … well the industry was almost faced with… the retail industry specifically was going to be faced with kind of extinction level determination and we were lucky enough to be deemed essential at the state level and then subsequently at the county level that allowed us to continue operating. I mean, there was a point in time where we were having meetings about what the furlough plan was going to look like what the layoffs were going to look like and how and it started developing the rhetoric with our landlords and how we were going to have to restructure and recalibrate how we were operating a business. We're blessed to have been deemed essential. We responded like the only way we know how through Innovation, we kind of modified our workflows. We kind of move to all online pre-orders system we introduced. I think we're probably the first in the state to meaningfully introduce an ACH solution that allows customers to prepay online.

We grab the bull by the horns, business was great during that period I mean, I don't like to enjoy the fruits of panic buying but panic buying was good for business and things have subsequently mellowed out then we’ve gotten in the last few weeks a new wave of challenges.

But our challenges are apparent when compare to challenges that people have been facing In this country for a long time. There is very slim chance this has been a problem across this country and across the globe for a long time and I think the cannabis industry was faced with some looting as a by-product but the system is broken and the people are mad and we were operating in this kind of powder keg and after being cooped up for months giving people an opportunity to kind of express themselves and express their frustrations. I think that we all kind of watched what happened on the news and we're still kind of watching as 2020 take shape.

I think that people in businesses are finding ways to take crisis and turn them into the catalyst for change. I know that we did that in our business and I think that we're seeing society do that on a holistic platform and I think the world would be a better place after 2020 kind of settles down.

Blaine: There’s a lot going on, but I don't like to forget that what we have going on in the cannabis industry and the movement that we're apart of is still a long-term very important day not like I get all the other things going on around us but it’s the cannabis industry that excites me and I think that in relation to what's going on right now. It's like, I think that you're already in my eyes speaking of what it looks like to be a minority leader, which is what I think we need to our up right now. I think we need more minority leadership and I I’m excited to do is to understand you more and what got you to Chita. I think that your full background is fascinating and letting us know through all this, the software, the dispensary, the cannabis industry, what brings you have peace and joy?

Shareef: That's a good one. I think it over time I've kind of found myself most enjoying innovation. Taking an idea and seeing the idea through execution and that comes in many flavors. It's manifested itself in the development of the Treez point of sale software. It's now manifested itself in our I think best-in-class retail operation. It's manifesting itself in a half drive terpene business that we have been quietly working on for a few years now and it's just coming to scale. Doing this thing that others aren't thinking about right, looking at problems sideways, trying to not follow the trend. Trying to set the trends to innovate, to blaze the trail, to do the things and make the investments and to make the bets and believe in ourselves and to see ideas through the execution, that is exciting. That is very rewarding and it's not just rewarding for one individual it’s rewarding for whole organizations, right? You get people to rally around an idea or belief and to go from where we are today to the executing of the believe gets everybody to participate.

It is doing what other people are doing. It’s great and you can be successful and you could figure out, operate and be competitive and find your way into already saturated markets, but getting into markets first, innovating, doing things that other people are doing whether it's releasing minor cannabinoid products are libraries and pens back in 2013 or whatever it may be, whatever the flavor of the time to add onto our business, right? We're fortunate that we have this 16 year of foundation in the industry. Cannabis being opened in 2003 to have this corner stone and brick laid foundation and to be able to build on top of it and to innovate and to grow as been super rewarding. Yeah, I'm fortunate to be in this position. I'm grateful for it every day and I'm grateful for the people that work with us. I feel like I've gotten to pick the all-madden team over the years and pulled in some great talent and I really enjoy getting the team together and looking at things sideways and looking at things upside down and turning over stones figuring out where we going to go that other people haven't gone before.

Blaine: Yes. I’ll say you’ve a very conscious team too. And so that's crazy starts in 2003. How did it start, who was the starting team? How do you get involved in that?

Shareef: My partner Sufjan Abdulakmedhi is a Palestinian-American. He was working in a dispensary in 1999, the Hayward Hempery and he identified that the cannabis businesses, the medical Cannabis businesses that were serving the community were really poorly run. After working there at Hayward Hempery for some period in 2001. He opened up his first dispensary out in Hayward called Main Street Resting Companies coffee in front, cannabis in back all the Amsterdam model. Hayward had some ups and downs in 2003. He opened up Garden of Eden and unincorporated Alameda County and basically fought the good fight. Dealt that with law enforcement. Dealt with incursion from the BLE, from the IRS, from the DEA, and remained agile, adaptable, smart was able to kind of navigate through all the challenges and after being closed down, the post DEA raid in 2007 me and him basically begin working closely together and reopen the store 2009.

I went through every motion then a budtender up in a Boi-Tech. I've done every job that there is in this company from cutting clones to filling patterns to … and over the years, we've grown the business. I think we’re potentially if not the busiest but one of the busiest dispensaries in the state of California, and we've got a portfolio of complementary businesses that we operate under in enterprises and we're growing in a calculated fashion. I think that we probably missed some window to raise capital when the markets were hard I think that there's some economic headwinds facing a lot of cannabis businesses. We're fortunate to be able to stand up our own operations and continue to solve fund projects as necessary.

But the next few years are going to be quite interesting. I think that we've seen some of the successful multi-state operators really being single state Focus. I think that we've seen that it's not good enough to be a finite in investment vehicle for people wanting to get into cannabis you actually have to have the O in MSO and if you like lack the ability to operate I think you're going to face challenges. Some of the biggest and best companies like MedMen have taken a dive and even the people that kind of picked up the smoking, smolderingashes are also getting burned.

The industry is changing and I think that there are a lot of successful kind of owner operators and single state operations that whether it's the live wells, the native roots, the ground works that are going to continue to grow and be successful and may change the way that the investment community looks at cannabis businesses the next time a flurry of activity comes around. Maybe we could save banking, maybe we get access to capital markets in the U.S. but this is … we're just getting off the gates. Things are going to continue changing and we’re looking at ways to take California and export it.

We have this firm belief that California is the biggest brand in cannabis as soon as you leave the state borders. People want anything and everything that's related to this state. We've unlocked the potential to do interstate commerce and international commerce through that terpene business that I was telling you about earlier and we're looking to attack and fight back against 280E in new and novel ways.

Being the best most successful cannabis businesses, still being that being the tallest midget. It's accrued saying, but businesses are getting handicapped. Successful business or being handicapped by draconian tax rules and it's inappropriate that the federal government is continue these incursions. We're looking at leveraging as many opportunities to fight back against, how they’re going to have effective tax rate in the 70-80 percent range. We've diversified our businesses. We've gone deeper into vertical integration. We've moved into non-cannabis revenues and Hemp in like they’ve done. We want to continue promoting the inclusion of cannabis and hemp as a single track. I know that cannabis folks have their opinions about hemp’s ability to navigate into less burdened regulatory environment and the hemp folks feel that they're also handicapped by federal regulations that don't allow the utilization of the cannabinoids that they produce in products legally. All of this kind of jumbled up together is probably better suited to solve the problems that is kind of blown off single-track approach that we've been seeing where cannabis is protecting cannabis interest and hemp is protecting hemp interest. I think that forcing federal regulators to deal with both at once is probably better.

Blaine: I totally agree. I think this is the next stage of the industry. It's getting all the crap companies like the MS none Os out. Getting the MSOs actually in getting the companies to diversify vertical eyes and starting to talk about this 280E conversation instead of who can make best gummy in California or whatever. I think the 280E touches on is also probably the most under discuss but impactful thing that happened. As soon as we come to accept that it’s wise but it's like this cannabis companies that are small businesses are operating with this ridiculous level of taxation. Its crippling in a way that it is under appreciated.

Shareef: And I actually don't know that every new cannabis business has been successful enough or had substantial enough revenues to draw the attention of the auditors in their specific region. I could tell you from my experience here in California that if you're successful, you've been audited and if you've been audited, you carry a ball and chain. If you carry a ball and chain, they’re handicapping your cash flow, right? It's just the nature of where the industry is at, California because of its long history with federal criminal prosecution carried a unique set of challenges where businesses weren’t suited to defend themselves against 280E. Luckily for us we have good tax attorney in Henry Witkowski and Chris Wood out of Henry's office. But most businesses are just wearing the ropes are getting kicked in the teeth for the first time. you start layering all of these burdens to COVID, 280E, redo sales exposure. Lack of access to capital. Lack of access to banking. it's a tough industry to operate in and I think that we're seeing businesses drop-off in 2020 and I think we're going to continue to see a shakeout.

Blaine: Yes, I agree. That’s just naturally happening. And a kind of backup because I think we're all aware of that mystique in issues where it's going, cannabis is natural thing. I love to digging in somethings that you’ve really unique ones into because you … I’d say you've gone down the dispenser men, the software companies and you’re doing Terpenes and Hemp, in this crazy stuff, you done bootstraps funding and you done fundraising along this path. I'm curious from your perspective, what have you learned through both options as a cannabis operator and what was better for you?

Shareef: Let's see. I think that it is of the utmost important that you carry a very strong relationship with your legal counsel, I think that you need to trust their advice and they need to believe in you. If you do not have a legal support system that actually believes in you as a person and as a business, and you don't carry a personal relationship with, I suggest you move to find better counsel who's going to treat your business as if it's his own. I think that capital can be like steroids, right? Your business may not be mature enough for a capital, right? If you want to bring on capital, you need to realize the impact that it's going to have if you have cracks and flaws of your operation or your plan those cracks and flaws or going to widen and surface with the injection of capital, right? You need to … this is a cliché, but you can't rely on anybody else to take care of your own business. You need to make sure that you're the one that's reading through the contracts and if you don't understand them find somebody who can help you understand that. This is not trivial.

I have seen a lot of bad deals in cannabis. I've seen a lot of re-trading of deals in cannabis. You either have a financial background or you're going to need to quickly educate yourself on the kind of transactional level. Details that are necessary to operate in a business in this climate. I think that small business and these larger kind of MSO, financial vehicles … small business needs to treat other people's money with respect, right? I think you see that you’ve these big MSOs are spending money like it's coming out of a waterfall and they don't have any care for OPM and I think that it's important as a kind of owner operator entrepreneur that you have stronger relationships with your investors and you have people to believe in you and you have to make sure that you take care of their money and set the right expectations. Every business has its challenges, right? Having a real open honest dialogue about the business and how its performing enables you to build that trust and when you need additional capital you can go back to the same group of investors instead of having to run from state to state or from town to town looking for….

Blaine: Yes, I mean you catch it perfectly, people, make sure you’ve people in your camp that actually care about you. Yes, I could agree with that message. Since a lot of, it comes out, I’ll say that multi state operator things that where it's like a lot of MSO Investment Holdings Company that don't have your best interest in mind and it's a lot going on there.

Shareef: Yes, but for bootstrapping, not everybody can bootstrap. There are very few businesses that are really generating meaningful cash flow, right? Not every cultivator is connected or kings guard it or that has the ability to kind of grow their business. Not every retail group is like the Barbary group out of San Francisco who has operative five successful dispensaries, right? These are unique and what a lot of those kind of story lines have in common here in California specifically is history, right? These guys have … these guys have their weathered, their seasoned, right? They know how to-- they've been doing it for long enough. They've been through ups and downs they face, every Challenge and every obstacle and they are no longer teenagers. These are mature businesses and they will continue to find ways to navigate through the next phases of their growth and I got to give it up to their businesses.

The people that carry the industry here in California through the medical times and are now successful in the adult you say I like. Those are those are my peers. Those are the people that we in the retail specifically developed software to help right and those are the people that are going to continue driving this kind of idea that California is the brand. When the wall starts coming down, the people that have been successful here are going to be able to make the jump across the country and across the pond in the Europe in a more meaningful successful way than we've seen some of this kind of multi state operatives.

Blaine: Yes, I totally agree. You've a lot of time touching lot of products over these years and you tended on some, like of the expansion of like what products are hot and not and all this stuff. What are some of the product lines that you're most excited for, for the cannabis industry or even hemp or anything, it could be terpenes just product lines that you think are going to be more impactful than people think about right now.

Shareef: I think that as we start applying real science to breeding, we are going to see the rise of custom-tailored genetics that are checking the box for terpenes, checking the box for pass and mildew resistance and also carrying wide arrays of minor cannabinoids and I think that people are just breathing out of the THC CBD mindset and people are starting to look at CBN and Delta18C and THCV and CBG and as people start experimenting with the different combinations of terpenes and cannabinoids, people are going to start figuring out what their perfect fit is. “Hey, this is what I need to go to sleep. This is what I need to destress. This is what I need to go to the gym.” And as cannabis starts applying this cannabis looks like it’s almost medicinal effects in adult use every day regular application, you're going to see the merging of two worlds where I could use cannabis to check every box that medicine has provided for me in the past but I'm doing it without a prescription and I'm doing it in a self-controlled self-medicated fashion so that all of those things culminating and you can culminate in bakes, you can culminate in flower but it's really just about the application of science and how the consumer feedback is going to drive breeding and we're going to wind up with super weed because right now, we're narrow in our approach to breeding.

We've been there for the past two decades in our approach to breeding and minor cannabinoids are emerging and you can generally see demand for those products creating huge pricing spikes for these minors and that just means that more people are going to cultivate. It's going to be premier at the industry and more and more consumers are going to be aware of it. I think that the introduction of minors is going to be very important for us. We have minor Cannabinoids in vapes, we have minor Cannabinoids in gummies and we’re going to continue releasing product that incorporate minor cannabinoids and as we learned, as we capture feedback will continue to modify our products.

But on the Cannabis side, products generally take three to six months to get into the store from the conception to commercialization. I could tell you that I've thought up in contemplated probably 50 software modules and never saw the light of day. Software a lot more challenging then product development in cannabis software, commercializing software and getting it ready for a production environment is no small feat, kudos to you and your team Blaine for delivery high-quality solution which we currently use at our manufacturing and distribution facility. But software is probably the place that its innovation meets challenging obstacle and constraint more than the kind of...

Blaine: I hope to understand it enough how dynamic you are that you went from working at a retail store or shop to co-founding a cannabis POS and not just cofounding but leading the product development. I was like, that takes a very like having being the technical person on the other side, but this is a very rare breed of a person that can talk the talk and actually translate that software. What did you learn on that journey of going from the day you met John the CEO Treez to where you are now?

Shareef: Dream big because I had problems and I understood how to solve those problems. Never in my wildest dreams would I have ever imagined I would meet somebody who can take those concepts and deliver them in software and teach me a lot about software business leadership. I learned a lot from John and I actually learned a great deal about being an entrepreneur and starting your own business through Treez. I think that we made we made a lot of right decisions and we also made a lot of mistakes along the way just like any first-time founder. But that’s invaluable experience that I gained there and I look, I've been lucky to be in this position, right? Blessed to be able to say hey, we have a problem that is related to our systems and if we want to solve this problem, we need to make an investment to be part of a company who's willing to make that type of investment right into software solutions is not common, right and I think that if people are willing to take the time and to be diligent and to hardwork.