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Cultivating Coachella: CEO Mike King is Committed to Kings Garden’s Desert Roots

Editor’s Note: This story was updated at 4:30 PM EST on 7/22/21

I tend to mistakenly assume that large-scale Riverside County cannabis operations must be in the city of Desert Hot Springs, and did so with Kings Garden, which, I was quickly corrected, is and always has been in Palm Springs, California. “If you get off the 10, Palm Springs is kind of like to the right,” explained co-founder and CEO Mike King during a recent call with CBE. “Same area, just in a different direction. We’ve been here for six or seven years and have developed certain relationships,” he added. “We chose Palm Springs because that’s where it all began.”

Now one of the largest legal cannabis producers in California, with a range of products available throughout the state, the parts that make up Kings Garden came together eight years ago in one of those serendipitous meetings that was apparently meant to be. “My background is finance, real estate, private equity, construction,” said King. “My partner and co-founder, Charlie Kieley, who is actually from Palm Springs, has been in the industry for about 16 years. He was an operator and has done everything from outdoor, greenhouse, light-assist, indoor, retail. I was looking to get into the industry and landed in Palm Springs to finance another license holder’s operation. Charlie was consulting for the same license holder, and we quickly figured out that we didn’t need that guy – we could do it ourselves – so we begin with a small facility, about 10,000 square feet, which was more a proof of concept to make sure that the financial model worked.

Team Kings Garden with Co-Founders Mike King (3rd from right) and Charlie Kieley (4th from left)

“This was a long time ago,” he added. “It was not-for-profit in a medical industry, and there were a lot of question marks, from paperwork to actually taking profit, to how they all get set up. And not being in the industry, I needed to see if it worked and if it made money. So, we were able to successfully put together that first 10,000 square feet, and we quickly realized that if we could build that out at 10,000 square feet, we could put together more operations with the key factor of being a boutique, very high-quality flower at industrial scale, which is always difficult to do as you start expanding operations.”

Fast forward eight years. “Today, we have a quarter of a million square feet, all in the Coachella Valley, and 3400 lights producing just under 50,000 pounds [of flower] a year. We’re currently building out an additional 415,000 square feet, to bring us to 12,000 lights, more than tripling our operational footprint as far as flowering lights.”

Like other such operations I have visited over the years, the build-out process never seems to end. “We started construction in 2015 and haven’t stopped,” said King. “it will continue through 2023, and by then, it should all be done. We should go into 2024 with 665,000 square feet of indoor operations and 12,000 lights, looking to do north of $300 million in revenue per year.”

These days, Kings Garden is decidedly vertical, but in the beginning, it was all about the grow. “It was only cultivation,” said King. “A lot of companies made a mistake by trying to do everything, but we were focused on indoor cultivation because in the state of California, unless you’re the best, unless you have the best quality product that’s on the top shelf, it’s going to be exceedingly difficult to compete. So, that was always our business model, and it hasn’t changed.”

The company’s growth was organic. “We kept growing cultivation from one facility to the next,” said King. “With that, of course, we had processing, or what is licensed as processing today but was not before, because there were different licenses then. We obviously trimmed the product and sold it. Today, we have a centralized processing facility where all the product is brought for processing and distribution. However, we don’t distribute directly to stores. We are working with a partner who takes our packaged product and distributes it to most of the retail locations in the state of California.”

The best way for people to learn about Kings Garden products is to visit their Instagram page, @kingsgarden.ca, said King. “With our flower line, we have grams, pre rolls, which is a three and a half grams pack, eighth jars, which is also three and a half grams, of course, and quarter jars, which are 7 grams,” he added. “We also have a concentrate line, which has sugar, butter, batter, diamonds, and shatter. We have nine SKUs, all of them from us. We don’t outsource any of the trim or anything like that, and we produce all our products from what we cultivate.

“As far as new SKUs,” he continued, “we’re always looking to add to our portfolio, not acquire but maybe perhaps release some new SKUs. We are working on a few things now which I can’t really get into because we have not finalized them, but we’re always looking to produce either a new concentrate or a different form or package of flower, to stay relevant and to keep up with not only demand but what’s trending in the marketplace.”

I mentioned the apparent trend among flower producers to put bargain, mid-level, and premium offerings on the market. “We have a slightly different model,” said King. “I call it the classical model, with maybe the exception of the quality, although Costco has good quality. We produce the highest quality product consistently at tremendous scale, but we do it at a very affordable price for the consumer. So, for example, I believe we were the first company to set an MSRP on our eighth jars. We went to 40 of the busiest retail locations in the state of California, and we told them, ‘Look, we’ll give you discounted jars because you guys do a lot of volume, but you must sell these eighths at $40 or less. MSRP being 40 bucks. Now, this eighth is no different than what was selling at other locations for even slightly higher, but we were able to provide an excellent quality product to consumers at a very affordable price when other eighth jars from other indoor operators were sitting on the same shelf for approximately $60-$65, sometimes even $80 or $85 an eighth. So, we’re not looking at the lower-end products, to hit the lower tier rates. We want to provide to the consumer an excellent product, but at an affordable rate.”

I asked about the state of retail in California. “Look, there are many retail locations, each with their own look and feel – unless it is a chain and they look somewhat similar – but at the end of the day, we want to be Coca Cola, so that no matter which retail store you go to, you know that Kings Garden is available,” said King. “That’s how we build that brand, by having strains which are always available. You know, 60 to 70 percent of strains are strains you could have found for five, six years. There is always going to be new hot stuff, the seasonal stuff, and there’s going to be trendy stuff, or special releases, but for the most part you’re going to find things that you’re accustomed to smoking, that you’ve been smoking, and that you like and that you want. So, for example, according to Pistil Data, last week, we were the number one flower brand as far as sales in retail locations in California.” [Ed Note: this would probably have been for the second week in June.]

The company employs a retail engagement strategy King called “very simple. We have a large sales team, the branding and marketing team, and when we do our presentations to the buyers, to the budtenders, and to store owners, it’s about who are we and what do we want, without saying don’t smoke the other weed. We’re not saying don’t show other brands; we’re saying, try King’s Garden and then go try other brands so that you have something to compare it to.

“Our goal is to be every new smoker’s first experience,” he added. “That’s how we try to educate the budtenders. Go try out something else. Sometimes I’ll have a Diet Coke, sometimes I’ll have a Pepsi, but there’s always one that I’m going to come back to. There’s lots of products, lots of great companies; try them all, but try us first, so then you can gauge the other companies by your first experience. And then of course, you have to provide a variety to the consumer. We have a tremendous R&D department that has worked around the clock for many, many years to make sure we’re able to provide the same consistent products over and over and over again.”

To get that consistency, Kings Garden employs a proprietary cultivation process, which King described in broad terms. “It’s everything from genetics, to cloning, to how we keep the moms to clone them to have the veg, to our flower cycle, our nutrient schedule, our watering schedule, the temperatures, the harvest process, the drying process, the curing process, the trimming process, how we package the product, our storage of the packaged product, all the way down to distribution to the consumer. We’re not the only ones producing great products, and you could do it different ways, but that’s how we do it and the reason why we’re so successful.”

They take a long view with their genetics, as well. “Some of the strains we have had for many, many years,” said King. “For example, our Banana OG for about 15 years, an extremely popular strain. We produce some strains ourselves in our R&D department, and with others we will acquire some seeds based on what we think may be hot at the time. It’s a long process, but we’ll bring seeds in. It’s really a never-ending process. We have about 160 strains in our bank, but you will only see anywhere from eight to 16 strains in circulation at one time.”

I asked about the long game growing cannabis in the desert, and whether the cost of energy will be sustainable over time. I have been told more than once that in the future no one will be growing cannabis commercially in the desert because of the cost, especially when compared with other more amenable environments. “I disagree with that statement,” said King. “At the end of the day, if you are an indoor grower, you’re going to have an indoor environment, and indoor environments may differ from the desert to Massachusetts, let’s say, because there are different external factors – extreme cold weather versus extreme heat. But if you compare, for example, an operator in Palm Springs, like we are, to somebody in Los Angeles, there is not that much difference. Different cities have their own costs, but it is so minimal and so fractional. We have approximately 30 percent EBITDA, and pride ourselves on our operational excellence, keeping costs down. So, while electricity may float a little bit more in the summer, it’s not going to be something that is a determining factor for putting us out of business. It’s about having lean operations and being cash flow positive. But like I said, if you look at L.A. or Santa Rosa or Palm Springs, it’s not really that big of a difference when you compare our bills at the end of the year.”

That said, the company is planning on converting to more energy efficient LED lighting by the end of next year. In a recent editorial in the Sacramento Bee, co-founder Kieley wrote, “Kings Garden expects to have the ability to begin transitioning to LED in 2021, installing the first lights before the end of the year. We have targeted a full transition before the close of 2022, ahead of the [California Energy Commission’s] planned deadline of January 2023 to start the process. We fully expect to make the transition profitable by developing techniques to continue producing premium products.”

California is hardly at full cannabis capacity yet, legally speaking, and I wondered how much of the Cali pie Kings Garden wants to bite off. “Great question,” said King. “Look, like I said, we’re upgrading a quarter million square feet, 3400 lights, we are currently building and developing an additional 415,000 square feet, so we’ll be sitting at 12,000 lights going into 2024. I think for the most part that is going to be our footprint as far as cultivation and production go, putting us at approximately 140,000-150,000 pounds of finished cannabis per year, plus concentrates.

“We want to be in the sweet spot of somewhere about five to seven percent of total operations,” he clarified. “If you get too big, you start to lose efficiency, and we don’t want 15-20 percent of the market, because that’s just too much to stay in that sweet spot. But at about seven percent of market demand, I think we nail it.”

As the California market gets bigger, won’t that larger pie demand more growth from Kings Garden? “Of course, so we’re growing with demand,” said King. “As [California is] opening, we’re building, and growing with the economy. But at a certain point, just because there are going to be more dispensaries does not mean there is going to be more sales. At some point, the [sales] numbers reach the number they’re going to be, plus or minus.”

Is California nearing saturation? “No, because we’re still growing, with more cities and more retail location coming online,” he said. “The limited retail locations available in various cities are expanding, so we’re still going to grow for the next 2, 3, 4 or five years. The way we set up our construction schedule is to meet that demand, so as the economy is growing, we’re growing with it. I don’t think we’re going to be extending cultivation past 2024, but we are looking to acquire several strategic retail locations. We’re don’t have any retail right now, but it would be nice to have a few locations in key areas, like San Diego, Los Angeles, or maybe San Francisco.”

I noted that flower brand Wonderbrett had just opened a new store, a seeming trend among some cannabis brands. “It’s like when you go to Vegas and they have a Coca-Cola store,” said King. “I don’t want to say that we’re going to be heavy in the retail game, but just to have a couple of key locations where we can meet with people, or people can visit us and buy some merch and things like that. It’s not our top priority, but it would be nice to have in the next three to five years.”

It all sounds good, but after all the work developing a quality brand in the biggest cannabis state, isn’t it inevitable to want to expand beyond California? “We’ve seen many companies make this mistake before,” replied King. “Let’s go do this, let’s go do that, let’s go to 25 different states, and at the end of the day, you’re stuck with everything. If we were maxed out in California and there was nowhere else to go, of course, we’re going to look to expand to Arizona, New York, Florida, but right now we have so much more to do inside the state. So, what’s the difference if I have 100,000 square feet more in California or if I have 100,000 square feet in New York? It’s just more travel, right? Right now, we still have work to do.

“However,” he added, emphasizing the however, “we do of course want to be in all the important states, and there are about six or seven of them where we want to have a presence. But it’s very important not to run before you can walk, because that’s where mistakes happen. So, at the right time, we will make that move. We’ve been very diligent about not making that mistake. And unfortunately, we’ve seen some bad press with Cookies. And we have tremendous respect for Cookies, but because they tried to go into this market and that market, they got all these different growers, and suddenly, the product suffers, and that hurts the brand. So, we’ve been very careful not to do that. We will go at the right time, and we’re always discussing different opportunities, seeing how and what we should do.”

Regarding federal legalization and how that might impact their plans, King said that the company is ready no matter how or when it takes place. “The reason why we built all of our operations in the Coachella Valley is so that it will be a centralized hub,” he explained. “I believe that once federal law changes – and when that is nobody knows – we’ll be able to take our product in California and ship it across the U.S. And then, what’s the point of having small operations in different states when you can have a huge hub in one place that supplies the rest of the country? I don’t know if that’s going to happen, and I don’t know when that’s going to happen. If it does, fine. If it doesn’t, that’s also fine, because we’re building our operations for California, and if something comes along, we’ll entertain it. We would love to be in a key state, and we have tremendous support and love for the brand, but if it doesn’t happen, we’re okay. We just don’t want to ruin the brand, ruin the name, which is why we are very diligent in everything we do.”

In May, Kings Garden filed a lawsuit against King’s brother, Paul. I asked him if he had any comment to make about the case. “Absolutely,” he said. “We have no secrets and pride ourselves on being open and honest. We have 200 investors, so that’s maybe 800 to 1,000 people, including their families. We have 200 employees, which is another 800 to 1,000 people that we’re feeding. And all of this is public information. So, my brother has a company called Cannafornia in Salinas, and if you just search all the lawsuits and everything that’s happening there, you’ll find that the company is in trouble, and he’s done some things that are not good legally, civilly, and criminally. What happened was, he found himself in a situation where lawsuits started piling on, the government was coming after him for a very big number, and what’s the best place to look to get money but your family? He started asking me for a tremendous amount of money, and basically started extorting us. He said that if I don’t give him money, and if I don’t do this and that, he’s going to post nasty things about me, the company, and the co-founders of the company. It was a very sad situation, but once that happened, we have excellent legal teams in Florida and California, and we filed a lawsuit. We also put out a press release, because what he did was, he made up these lies about me being a felon, about me having arrest warrants out there for the last five years, and he was sending them to every license holder in the state of California, and to cannabis businesses around the world. He was doing these crazy things which would have resulted in no financial gain to him, but he thought that if I give him money, he stops. So, we filed the lawsuit. It’s in the lawyers’ hands now, and just very, very, very sad. I’ve been in some amazing situations in my life, but never in my wildest dreams did I think that something like this would happen. But you know, it just shows you that anything can happen.”

It sounded as though he was given no choice. “That’s what it was,” he said. “I had no choice. And it wasn’t pleasant for us to do that. We don’t like airing our laundry, but this had to be done, because we’re always in discussions with different MSOs, we’re speaking to bankers, and all of a sudden, I’m getting calls and emails from people who know us. ‘Hey, Mike, what’s going on?’ So, that needed to be done to show people that it’s all bullshit, and it’s being taken care of?”

About those MSO talks, are they about mergers, acquisitions, going public?  “Look, we made a very tough decision – which seemed tough at the time but it was really a blessing – not to go public in 2018,” said King. “This was right after MedMen went public and when GTI (Green Thumb Industries) was going public, and just seeing how things are done in Canada, and having a New York and U.S. financial background, and being involved in Wall Street, I knew that it would be terrible and that the company would be destroyed. We were being offered 50 million bucks at the time – this is three years ago – and we made the decision not to go public. Since then, we have spoken to some of the larger MSOs – the list is very small – and we’re always approached by bankers who want to do this and want to do that. But you know, a lot of companies fall into the trap of, ‘Oh, I want to be a public company. Oh, I want to be acquired.’ It’s like a dream. Fortunately, we have very cool and calm heads, and we understand there’s no rush for that. If we stay private, that’s okay with us.

“You know, we pay dividends to our investors, and I believe we are one of the few companies, if not the only one, that does,” added King. “We have paid out five and a half million dollars in cash dividends to date; 3 million bucks last year to our investors. So, we’re taking care of our investors and we will continue to do so, but it doesn’t matter if we go public or not. It’s not going to happen in Canada, and most likely not going to be a merger with an MSO, and the reason why is because they are trading at a handicap multiple compared to the U.S., so they can only pay us a fraction of that multiple in order for their deals to make sense. And I know this because I sat with the biggest ones, we spent time, they looked at the numbers, we looked at the numbers, and it didn’t make sense for us. When the U.S. opens, we’re looking to going public, but whether it happens or not is not how we’re going to measure success. We’re going to measure success by the company, by the brand, by profitability, by how the world perceives us, how the consumer loves us. Investors will always be taken care of, that’s our top priority, and if going public happens, great; I just think people fall in that trap, which we refuse to do.”

Finally, I asked King if, all things considered, he feels he has as much control over his destiny as one can have in the cannabis space. “100 percent,” he replied. “Look, at the end of the day, we’re all under God. A lot of companies have fallen [prey] to a merger or acquisition because they are not making money. They’re in debt, investors are banging on the door, and they need a solution. ‘Come, please, help bail us out. Get us out. I don’t want to deal with this anymore. It’s too much pressure.’ Look, it’s not easy. We’re in cannabis. It’s a hard industry, with the banking, the cash, this and that, the crazy brother. You’ll see a lot of press releases put out over the last year with companies saying they’re looking to profitability, but how was that not their goal when they launched the company? For us, not being profitable was not an option, so if you just do what you do and if you execute, your options are going to be endless.”

Editor’s update:

After publishing this article, CBE received, from Paul King, the attached complaint dated May 26, 2021, that he filed in California Superior Court for the County of Riverside – Palm Springs Division, naming as defendants Michael King, two other named co-founders of Kings Garden, and unspecified John Does. Among other allegations, Paul told CBE he started Kings Garden with his brother. “I invested $200k to help start the company and moved from Florida to San Diego together with him specifically to start the company. I’ve since been excluded from everything and can’t get any kind of financial information.” CBE will keep an eye on how these complaints are adjudicated or otherwise resolved.

 

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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