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The Ubiquity of Bud: Canndescent Refocuses on Flower

Canndescent is a privately held cannabis company of such ubiquity on Golden State dispensary shelves that it long ago achieved the status of anchor brand in a market where precious few exist. Its stand-out orange box denoting the original brand, instantly recognizable in an estimated 55 percent of shops around the state, was introduced in 2015 as an immediate finalist in the nascent category of “luxury” flower. That one brand has since expanded to three distinct, and distinctly marketed, brands created to meet the omnivorous demands of flower lovers no matter where they fall on the quality versus expendable income spectrum – in descending order, Canndescent, goodbrands, and Baker’s Cannabis Co.

CBE, which profiled Canndescent in 2017, recently caught up with its Santa Barbara-based founder and CEO, Adrian Sedlin, to talk about the company’s evolution and its recently reenergized determination to stay true to its original identity as purveyors of the art of flower.

“Our goal is to be the best flower company on the planet; that’s sort of my North Star,” said Sedlin during a 90-minute call. “I want to be clear that I don’t think we’re there yet and we’re not claiming we are the best. But that is the goal, to be the preeminent flower company in the world over time, and we view it as an exceedingly long game. It’s the wheelhouse we are focused on right now, and we will continue to focus on it through ’21 and ‘22.”

Such focus would seem to defy the almost universal prerequisite among industry players to expand into as many states as quickly as possible. “For us, it is less about how we get to this state or that state in the next 18-months, and more about how we can continue to interpret what ‘best’ means for our various brands,” explained Sedlin. “At Canndescent, ‘best flower’ means the most consistent high-end product on the market, so even if we’re competing against someone like an Alien Labs, which focuses on novelty and fresh drops, consistency and fresh drops are different strategies. Whereas with Baker’s, our value brand, the idea is to provide the lowest cost quality entry for the heavy everyday user. So, while each psychographic and demographic requires narrow reinterpretation and getting very product centric against who that audience is, the headline for the strategy question is, how do we be the best in the world at flower?”

Brand awareness in new geographic markets will develop over time, he explained. “You have to balance risks versus rewards. Some people are pursuing the licensing strategy, but I don’t think that’s necessarily appropriate for our brand or our brand’s family at this current juncture. Our goal is not to be first to market in any given marketplace. When you’re first to market, you can lock down lots of loyal customers early on, but my goal as a company is not to be someone’s first experience, but to be their last.

“The Canndescent thought process has always been that if one is the best and then enters a given market maybe four years after it has opened, and brings something that is unique, special, and differentiated, there will always be an opportunity to win significant market share,” he added. “From that perspective, we’re not in a rush to get anywhere, whether it be a new product category or a new state.”

Besides, he reminded me, “California is a big place, with the largest and most competitive cannabis market on the planet. Geographically, we will continue to consolidate our brand presences throughout the state, and we have a lot of work to do to deepen [our offerings] in certain segments of flower that we are not fully participating in right now.

“Our Baker’s brand right now is a pre-ground offering for the value segment,” he added. “But we haven’t opened an outdoor garden yet to really drive the low-end flower offering for that brand. So, that will be an opportunity to bring to market a true low-end flower offering and not just a pre-ground product. That’s a massive segment, by the way. In the first quarter, [value flower] accounted for something like $400 million in the California market.”

It’s a strategy that was almost preordained. “You build strategy against your context, and our context was always California,” said Sedlin. “Had we come out of the East Coast, maybe I’d be pursuing an MSO strategy, but what makes sense for us here is to focus on being great in flower. If we accomplish that, I think the world is our oyster.”

The formula holds firm when Sedlin works the numbers and surveys the competition. “California is 33 percent of the adult use market right now, and about 52 percent of flower and pre rolls. That’s 15 percent of the U.S. market that I’m competing in right now,” he added. “Whoever wins that gets a huge prize, and it has always been our worldview that brands, especially in this category, will be built west to east. I think there are financial powerhouses that are being built east to west, but the way I look at it, when it comes to flower, my goal, to use an analogy, is to build a jungle lion.

“To hack our way through California, we’ve been fighting against two thousand other cultivators and a black market that is twice the size of the legal market,” he elaborated. “My point on becoming a jungle lion is that staying alive here means you have to build real operational excellence in what you do. Think about staying alive in a market where there are still two to three illicit shops for every regulated shop, and God knows how many delivery services that pop up and triangulate when a new store opens. Staying alive with a product offering for a consumer who may not even know if a store is regulated or unregulated, but the product in this store is 40 percent more expensive than in the other store, staying alive in that kind of market requires focus and specialization.

“It’s different than in a state like Florida, where there are no illegal storefronts,” he concluded. “It’s going to be really interesting when jungle lions from California start squaring off against what I call the zoo cats from limited license markets, where you have seven other competitors and you’re just cobbling up the market share. I’m not sure how good you’ve had to get at what you do.”

A few years ago, the company did consider other form factors, a vape line tested in Nevada, and also considered a move into Canada, but all ventures were about-faced. “In late 2019, early 2020, I recentered the company on being fully flower centric, and as a result, I made the exceedingly difficult decision to align the company and not extract resources into the vape categories,” said Sedlin. “We were doing a test launch of [vapes] in the Nevada market and because of choosing to be focused on flower, we decided not to continue with that test into the Nevada market. We also had a conversation about potentially producing against the baseline in Canada but did not go through with it.”

The realignment had less to do with the pandemic than a rough patch for the industry that made financing more difficult to attain. “You and I both know what our industry went through in 2019, and while we’re back to more go-go days, when capital tightens, focus is required,” said Sedlin. “And I would say, when the capital markets really tightened in 2019 for our industry, and you saw the bloodbath that occurred for many players – and many are still cleaning up the messes they made along the way – when that happened, it reminded us of the discipline that would serve us well, which is, we built this company on flower. Let’s continue to add to that as opposed to spreading our efforts too thin. So, less about the pandemic and more about realizing we wanted to be the best in the world at something in 2019.”

The refocus on flower does not mean the company is not eager to enter new markets. “I want to be clear,” explained Sedlin, “we are interested in moving to other states. We will move to other states. But we want to produce flower in the markets that we enter and put our offering toe-to-toe against others. We do not have a production base in Nevada yet, or any other state for that matter. I’d love to but I’m already supply constrained in my mid-market brand because we’ve outgrown what we have. We’re opening our third indoor project in California because of the demand for our products. I still want to do an outdoor project in the California market, so there are lots of opportunity for us here, but we are incredibly open for the right opportunities to enter other markets when appropriate.” Sedlin added they should be able to move plants into the new facility by the end of May. Once fully operational, the facility will provide an 80 percent increase in production of top-of-the-line indoor product.

Another substantial investment in the future of its flower was Canndescent’s decision to turn one of its original Desert Hot Springs cultivation rooms into an R&D center. “Consistent with our flower centric strategy,” said Sedlin, “I’m pleased to announce we’re turning one of those buildings from our first project into a dedicated R&D center for breeding and pheno-hunting. Not a lot of companies have the luxury of a dedicated indoor canopy space that they can use to play with everything from genetics to formulas to room temperature to lots of other ways to push the envelope and bring a better product to the consumer.”

This is in addition to an in-house tissue culture lab the company opened in 2018. “Part of it is having great genetics that you breed, or you get by partnering with breeders,” explained Sedlin. “For us, it’s less about being the breeder and more about partnering with people who do that function well. But the reason we have our own in-house tissue culture lab is because 98 percent of the genetics out in the cannabis marketplace are carrying something. For example, as the industry has accelerated, hop latent viroid (HpLVd) has run rampant. As a result, anyone who is taking cuts from a nursery, even if those plants are tissue-cultured, is probably introducing that into their environment.

“So, to optimize the plant for the consumer and to get rid of any disease that is being carried by so many cuts,” he continued, “we take any genetic we get back through the tissue culture process, clean it, and then have a restocking process where every couple of months we utilize the tissue culture process. The industry doesn’t have seed stabilization, so as a result [of this process] I can always get to the same outcome because we’re always starting with the same basic genetic that’s clean and disease-free.”

Making such investments is not only cost intensive but time intensive. “We will bring in a new genetic, a single plant, an early start taken up from a place where we know it’s not carrying anything, and that’s how we want to introduce it to our environment,” said Sedlin. “Once it’s a proven winner, we push it into our tissue culture program so that the genetic can always be with us. Building out a tissue culture program is a two-year process. You don’t start getting really good results out of it for a long time, because it’s just a long lead time thing. All our stock now is from tissue culture.”

But tissue culture is just the beginning. “Obviously, there’s the traditional approach to genetics, and that’s interesting to me, but I also think when it’s done truly right – and I want to be clear, this industry is not doing it right compared to other industries – it would technically take years and years to produce a stable genetic,” said Sedlin. “What our industry does is we cross genetics. We’ll take Do Si Do and mix it with GMO, cross-pollinate it, and then call it GMO Do. But what’s not happening, and what would normally happen in any other agriculture industry, is that the breeder would take GMO Do and then start backcrossing it with GMO in the parent plant to get it stabilized, or backcrossing it with the other GMO Dos to really bring out a stable, robust, long term, genetic that gets to its full expression. For many categories, that’s a 15-year process, but our industry is basically doing the initial cross and calling it a day. There are other effective ways to get to special, new strains that the industry has not embraced. I won’t get too much into detail, but rest assured Canndescent is walking down that path.”

Asked if the new ways include an IP element, Sedlin replied. “There is a massive IP element. I’m just saying that the traditional breeding process is sort of like using an abacus when there’s something called a calculator available.”

Always looking to distinguish itself, the idea of Canndescent operating its own retail stores is not that farfetched an idea, even if the time is not yet right. “I would say in the future at all things are on the table, but you’re going to hear a pretty consistent mantra from me, which is, not unless we can do something special and differentiated,” said Sedlin of the idea, “At Canndescent, our core values are excellence and gratitude. Excellence means something extremely specific to us. What we would want to do if we were to go into retail is to redefine it. I’m not saying we know how to do that, but it would be the Apple standard. [Steve] Jobs redefined what retail would look like, based on Apple. But I do have lots of thoughts on what Canndescent would do if we went retail, because there are some glaring holes in the consumer experience, in my humble opinion.”

Asked to elaborate, Sedlin responded with a question. “Would you describe the average dispensary experience as personal and intimate?” With a firm no in hand, he continued, “I would say that would be an opportunity. I would also say – and you know me, I have a tendency towards hyperbole – that if the cannabis market does not grow 10 times as large as it is right now, most of the people who have spent time in the industry over the last five years will have wasted their time. What that means is that most of the people who will be in this industry as consumers are not even here yet. And I don’t think stores think and do nearly enough from an education standpoint to curate to their audience and educate their audience. There is a lot of stuff that the retailers aren’t performing that in other sectors you would see maybe they would perform.

“I am making these statements about how retail has unfolded in general in our industry,” he added. “All our retailers are our partners, but the reality of the beast is that in a state like California, in many of the categories you have hundreds of brands competing, and they all want to talk to the store buyer. As a result, it’s hard getting the retailers, who have so much to contend with, to move the conversation to a more strategic level where it’s not just about how much they need this week to be in stock. The [strategic] conversations as an industry don’t happen as often as we would like. Of course, it’s not really our role in the industry. We want to be a solutions provider and we make recommendations, but it’s not my job to tell a retailer how to run their business.”

Indeed, as far as Sedlin is concerned, he has enough on his plate trying to meet exacting standards that are never acheivable by design. “You know, to me, excellence is about being perpetually dissatisfied with where you are,” he explained. “Gratitude is about being perpetually satisfied. It’s almost a yin and a yang. And when it comes to that excellence thing, I am never satisfied. We have opportunities everywhere. I want to deepen our retail relationships with people we’re with. It bothers me if I’m not in a legal store we should be in. So yeah, I want to deepen our penetration.”

How hands on does Sedlin need to be to accomplish the task? “I like to think I need to hit the weeds in order to implement the strategy,” he said. “It’s one thing to write the sheet music, it’s another thing to go work with the orchestra to teach them to play. My role as CEO, as the keeper of culture and the standards, is to go there and work with the orchestra. Otherwise, I’m only writing conceptual music. But what gets tracked, gets done. What gets managed against, gets done.

“Certainly, there’s a difference between being a strong manager and a micromanager,” he continued. “I’m surrounded by talent. I have a wonderful SVP of operations, Rick Fisher, who has been with us for five years. He runs our branded wholesale team and a couple of other our special revenue projects. One of my core things is to build the strongest cannabis operating team. My CFO, Mark Vendetti, is wonderful. Esther Song, our CMO, is wonderful. My job is to put functional specialists around me that are stronger in each discipline than I am and then their job is to do the same.

“And then you delegate as much as you can,” he added, “but at the end of the day, the further things get out towards the front lines, the more likely you end up with a game of telephone where the messaging gets lost. So, I think a good leader occasionally, and not just occasionally, must spend some time at the front. I don’t think Patton would have won the war if he hadn’t gotten out to see and work with the troops to understand exactly what was going on with them.”

Of course, girding for battle requires resources. “We’re doing a round [of financing] now,” said Sedlin, who works with his board of directors to deploy capital. “We see plenty of opportunities that require the use of capital. Growing our production base is a use of capital. I think there is plenty of opportunity to do M&A that maxes out against our strategy, and that would require capital. We want to continue to build out our brands, because I think the space will get increasingly focused on segments, so you probably have not seen the last brand out of the brand house of Canndescent.

“There’s no shortage of opportunities in a growth industry for us to use money for it,” he said, adding a caveat, “Someone wiser than me once said the fastest way to bankrupt a company is to grow it. Growth sucks in capital, whether it’s to buy a new indoor garden, build out R&D capabilities in flower, or support a lot of world-class talent. We have plenty of things on our investment path that will plant the seeds today for harvest in the years to come.”

 

 

 

Tom HymesTom Hymes

Tom Hymes

Tom Hymes, CBE Senior Editor, is a Los Angeles-based writer and editor with over 20 years’ experience covering highly regulated industries. He was born and raised in New York City. He can be reached at [email protected].

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