By Rob Meagher
A member of the Cannabis Business Executive Convention (CBEC 2018) Strategic Advisory Board and programming vetting committees, as well as a successful cannabis entrepreneur and business executive, Chris Boudreau, suggested I talk to Canndescent, a relatively late-comer to the California producer/cultivator scene that is pursuing a unique business strategy. CBE caught up with Canndescent CEO, Adrian Sedlin, a couple of weeks ago, and he shared their story with CBE.
Sedlin, who grew up in New York City, is a Harvard MBA and a graduate of Georgetown University. He told CBE that a call in 2015 from his brother-in-law, Randy Patten, a California co-operative grower, about buying a building for an indoor grow got the ball rolling. The call appealed to Sedlin’s libertarian leanings, (he had been retired for the last three years after a lucrative career of turning around and building businesses) and set him on a path of self-education that led him to learn not only the science behind the plant, but the legal cannabis investment opportunities. The facts that he discovered convinced him to develop a strong producer/cultivator business plan focused on branded, ultra-premium, cannabis flower serving the adult use market.
So, in 2015, with the blessing of his wife of 16 years (she was concerned about the current scheduling and the scary thought that the Feds could come in and confiscate their hard-earned assets) and three kids (the kids thought it was cool, very lucrative and trusted their dad), Sedlin decided that being at the top of the supply chain made the most sense. He began the process of becoming a co-op producer in the great state of California. Prior to raising what may turn out to be the largest seed round of any cultivator in history by March, 2016 – some $6.5 million – Sedlin invested $700,000 of his own money developing assets, leasing a building, filing for a conditional use permit in the city of Desert Hot Springs, and researching other aspects of the company’s go-to-market strategy.
After declaring a fiscal emergency in 2014, the city council of Desert Hot Springs voted to legalize dispensaries and cultivation. According to the L.A. Times, zones where growing was permitted were established. The city has approved and issued multiple licenses since then. Real estate prices in the town, which is located a little over 100 miles east of downtown Los Angeles, have since soared, along with the need to expand the city’s infrastructure to meet the needs of resource-hungry cannabis operations. Canndescent became one of the first municipally-permitted facilities in California.
Sedlin’s strategy for Canndescent focused on the consumer and was designed to solve some of the problems he saw in the market. He observed confusion and lack of consistency in the marketplace. From one store to the next, Blue Dream, Purple Kush, Train Wreck or OG Kush never quite tasted the same and varied greatly in both quality and consistency. In his eyes, strain-naming conventions alienated mainstream users, interfered with consumer adoption, and caused confusion. Hundreds of growers can produce Gorilla Glue in hundreds of different ways. Sedlin also believed that cannabis marketing was overly confusing and overly technical, requiring users to learn about cannabinoids and terpenes. He also questioned whether the celebrity brands had the operating rigor to scale consistently from state t0 state.
In his research, Sedlin also concluded that boutique, top-shelf flower was not a commodity, but rather a product that the distribution channel would embrace if Canndescent could consistently deliver. Ultimately, the Canndescent team devised a strategy to abandon strain names and curate the category for users, inviting them to choose one of their five effects—calm, cruise, create, connect, and charge. The company calls this curation, “The Art of Flower,” and the company provides detailed, effects-based tasting notes about each of its strains, so consumers know exactly what they’re signing up for. Canndescent, through its branding and packaging, works to simplify the purchasing experience while delivering clarity, consistency and a top-shelf product.
Canndescent opened its first 11,000-square-foot grow facility in September of 2016 and began executing their plan. In January, 2017, the company started delivering 200 pounds of cannabis flower to the market each month through approximately 40 hand-selected retailers and delivery services in southern California.
Candescent best practices
From the outset, Sedlin’s distribution philosophy and strategy was based on building a long-term relationship with retailers and their customer/patients.
All of the selected dispensaries were prequalified based on the following requirements. They had to have:
- A municipal certificate/permit
- Been registered with the Board of Equalization
- An established collective with verified registered patient cards to their collective
One of the areas where the company has most distinguished itself is in presenting its brand to dispensaries and the public. It’s packaging is distinctly high-end, down to the leathery orange, magnetic box. The box also contains rolling papers, hemp wick, matches and crutches so the consumer has everything he needs when he needs it. Again, the company’s goal was to simplify. The premium package retails for $60-$65 (Sedlin believes it has a perceived value closer to $100).
On Canndescent’s end, to deal with the immature California supply chain (Sedlin described his competitor out of the gate as a guy with a backpack!) and to build business advantage, he imposed the following self-regulatory guidelines:
- All product was and is tracked and tested
- All product is professionally packaged and hermetically sealed
- There would be fresh harvest every 10 days
- The company wouldn’t and hasn’t marked up prices when supply is tight (the backpacks guys do exactly that)
- They would maintain a consistent supply.
To maintain consistency and reliability, Canndescent’s next move will be moving into a tissue culture lab-based approach. Sedlin pointed out that clones wear out over time, and the effects that the plant gives the consumer can change based on that method of reproduction.
Looking forward, Canndescent will quadruple its capacity in September, 2017, adding a 32,000-square-foot greenhouse to its production mix. The company also recently received approval for an 86,000-square-foot indoor project in Desert Hot Springs that will bring its total production space to 129,000 square feet. When the greenhouse opens, the company will produce 10,000 pounds of cannabis per year; the addition of the indoor facility will move them to 25,000 pounds per year.
When it’s all said and done, Canndescent will have raised over $25 million to fund its expansion strategy.
Although there is no guarantee of the ultimate Holy Grail – multiple, state issued, California licenses – Sedlin believes their best practices will lead the way. Applicants must have a municipal license like they do (he estimates there are only about 30 currently licensed grows in southern California that can meet that application criteria). Canndescent currently meets and exceeds U.S. Department of Agriculture standards. That all bodes well for them.
With projected 2017 revenues in excess of $4.5 million and a large increase of supply coming soon, CBE believes that Canndescent is well-positioned to become exactly what they have set out to be – a large capacity, boutique brand serving the world’s 6th largest economy.
Cannabis Business Executive Background Information
Company Name: Canndescent
Year Founded: 2015
Ownership structure/operating entities: Two companies, LLC and MB
Headquarters: Santa Barbara
Number of Licenses by State: 2 licenses within California
Industry Segment/Category: Cultivation
Current Markets/States Served: CA Only
Current Number of employees: 43
Projected 2017 Revenues: >$4.5 million
Market Strategy/Goal: Provide Adult Use, Ultra-premium flower
Expansion Plans: Increase from 11,000 square feet to 129,000 square feet in next 18 months
Financing strategy: Primarily equity