The confidence that can only come from years of hands-on experience is in full bloom at Terrapin, the Boulder, Colorado-based privately funded MSO founded in 2009 by CEO Chris Woods as Terrapin Care Station, which is now the brand name of its dispensaries. Terrapin currently operates six stores, four grows, and one lab in Colorado; a wholesale operation in medical-only Pennsylvania with about 96 percent of dispensaries in the state carrying its products; a wholesale operation in Michigan servicing medical and recreational dispensaries across the state with plans to open a storefront in the near future; and a wholesale grow in Kansas City, Missouri, with three stores opening soon in the Kansas City area. Woods and Terrapin Creative Director Demian Kato joined in a call recently with CBE to discuss the company’s progress in established states and its ongoing expansion into new states, all of it sustained by a work ethic that values organic growth that has been ‘built, not bought.”

Terrapin got its start like many companies in the cannabis space, out of a personal ambition that was less materialistic than idealistic. “Money was never really my thing in this,” said Woods. “I saw it as an opportunity to pursue an entrepreneurial spirit that I’ve always had. I grew up on the East Coast outside New York City and went to high school in Philadelphia, but I was born in California in Orange County, in Anaheim. I started Terrapin in the middle of grad school. My dad, who was a real estate developer, passed away in 2007. I was his only child, and I inherited his business, which was kind of a mess. We were able to oversee the real estate developments. I had a little bit of money, and I had some experience in cannabis, but for all intents and purposes, I was a math geek – I was going to be a math professor and a cross country coach.”

Those skills were put to other use. “I launched Terrapin in a small warehouse in Boulder in late 2009, when I was still a PhD student at the University of Colorado, and then in 2010, Colorado came up with the first tightly regulated medical marijuana system, overseen by the Department of Revenue, which forced vertical integration on everyone,” he said. “Terrapin was more of a cultivation-based company initially, and it still is, but the regulations in Colorado required the vertical integration of storefront and cultivation facilities, so, in 2010, I secured a small space that we still operate in, in South Boulder, in the office park; we put a small store there, and I was able to maintain complete control of that and really just grow the company off the cash flow.

“It’s kind of crazy to think about it today,” he added, “but Terrapin was started with $300,000, a modest inheritance that I received and worked for after my dad passed away when I was 24 years old. So, I was pretty young when I started it, and being a self-financed company, I saw the value in companies making money. And I think right now, it seems like a lot of companies are selling for big valuations, but they can’t operate them. There was no safety net in 2010 when I started Terrapin, so money was scarce, but I was able to efficiently run the company and reinvest in the company, and one of the first investments that I made, that Terrapin made, as an organization, was to invest in the campaign to regulate marijuana like alcohol, which is the 2012 amendment 64 campaign that it was later known as. At the time, I was the largest industry contributor, and it was a small amount of money – I think I contributed about $35,000-$40,000 to the campaign, which was primarily funded by Peter Lewis and philanthropists tied to the Marijuana Policy Project – but I think Terrapin did a really good job of bringing awareness within the patient base and the business community around the medical marijuana operators that it was a good idea to at least quietly support the legalization of recreational marijuana in Colorado. Some lawyers we’ve worked with at Vicente Sederberg worked with our friends Mason Tvert and Rob Kampia to start the campaign to regulate marijuana like alcohol.”

The cannabis market in Colorado was very competitive back in the day, and the experience was invaluable for a novice venture. “We were one of the first retailers,” recalled Woods. “We were in the first cohort of state issued licenses in Colorado, and I think the biggest advantage that provided was the ability from a young age of a business to understand how to operate in a highly regulated marketplace, and how to be profitable.”

Terrapin, he said, is first and foremost a business of compliance. “Coming from a lot of non-regulated spaces and financial sectors into a very tightly regulated space, we have experience dealing with different state-regulated markets, and a lot of the states that we’re going into are very similar to Colorado, where they’re just figuring out within their state regulatory structure how to regulate these businesses and have an emerging industry within their states that didn’t exist before. So, there was a lot of competition [in Colorado], but frankly, there was a lot of competition that didn’t understand or value the compliance end of the business, so it became a long war of attrition, where people just sort of fell off. For a lot of people, it was the Wild West, and you saw that in California no doubt, but Terrapin has been a slow and steady operating business. We have not grown exponentially. We’re just trying to grow at more of a linear pace.”

I asked if being forced to go vertical at first turned out to be an advantage. “100 percent,” replied Woods. “Because I think a lot of what’s going on in the current state of cannabis is that there is not a lot of institutional knowledge. So absolutely, to be able to touch every aspect from seed to sale, from retailing to manufacturing to cultivation, to the processing and distribution, we’ve had to do it now for the last dozen or so years. And we understand that what we knew 12 years ago is nothing compared to what we know now, and that that experience was very helpful when you’re at an early age. We had that experience as a company, and we’re still learning every year. People that are just now getting into the space, say from private equity, do not necessarily have the same experience. Obviously, you have some entrants into the market that are coming in from beverage distribution or from pharmaceuticals or tobacco, where they’re dealing with highly regulated industries, but for people who don’t have that experience, it’s a real competitive disadvantage if you haven’t worked in a tightly regulated market.”

I noted a recent article about the company’s expansion plans in Pennsylvania, where they will raise their employee count to about 180, and I asked how Terrapin decides to either increase its footprint in a state or move into a new state. “Pennsylvania was the first successful out-of-state expansion for Terrapin,” said Woods. “We’ve been there since 2016, and in 2017, we got one of the first 12 grower/processor licenses. I grew up in Pennsylvania, and I’ve got a special place in my heart for Pennsylvania. In terms of the 180 employees that you read about, that’s to meet market demand. We’re not running any sort of post-federal legalization plans, but we are looking at the regional significance of markets, we’re looking at the quality of the investment, and the regulation of the state to see if we can actually make money there. And we want to fund as little as we can in terms of the capital that is required to get a footprint in the state, and then let the business itself kind of grow itself organically. So, initially, we put 50,000 square feet of cultivation and manufacturing space in Pennsylvania, and subsequently we’ve put another 50,000 square feet of cultivation space there. That brought us up over 100 employees in Pennsylvania plus a veteran-owned security company, and we’re doing another 100,000 square foot expansion as we speak.”

As far as entering new states, “We’re looking at what the market demand is,” said Woods. “We’re also looking at what the regulations are to make sure it’s a business-friendly environment, that we could do business in the space, and being a self-financed company – dealing with friends and family as investors – we’re also looking at how we can return capital to investors and ownership to go recapitalize other markets within the region or in other strategic regions.

“Regionally,” he added, “we’ve been involved in the licensing process in New Jersey for the last several years. It’s gone really slowly in New Jersey, so while there’s no regional significance to [being in] Pennsylvania, we have grown our brand in the Northeast, where we’re becoming recognized, and we have pipeline projects in New Jersey and New York. We’ve also since gone to Grand Rapids, Michigan, which has the second largest consumption base behind California and a similar-sized population to Pennsylvania; it’s recreational, and we were able to get our foot in the door there and then grow the business. We also have five licenses that we’ve acquired; one in Missouri, in the Kansas City area, where we have about 50,000 square feet of cultivation and manufacturing space, and three retail stores, and we’re taking the money and reinvesting in new projects that we think are good expansion opportunities for Terrapin. And we’re moving back to the West Coast, where we’re targeting a license in Arizona for cultivation and distribution – a limited license right next to California.”

Brand Play

In the states where Terrapin does wholesale cultivation and distribution, its branded products are for sale in retail shops it does not own or operate. “It becomes a brand game,” said Woods,” and we’re fortunate to have crack creative talent like Demian helping to penetrate that brand, having that brand ecosystem, and having Terrapin become a recognizable national brand. We have a portfolio of brands, we sell those products, and my thought is that there’s no sense in having your product in a store or a handful of stores when you can have it in every store. Where I would like to see Terrapin go is to become the Sierra Nevada of cannabis, where people are not necessarily concerned about where they’re going to buy it, because they recognize and trust the Sierra Nevada [or, in this case, Terrapin] brand.”

The company currently has around 100 SKUs covering the main categories of cannabis products. “We have Terrapin Care Station, which is our portfolio of retail outlets throughout the country,” said Woods. “Terrapin is our core flower line. Double Dear is a concentrate line that we have, with your respective oils and concentrates, and we have a topical line called Resolute Remedy. Then we have a reserve line of cannabis flower called The Woods, which is a sort of boutique product.” The company produces all of its own products with the exception of edibles, which it does not in fact currently produce. Edibles, of course, come with their own spate of regulations.

“Honestly, that was one of the reasons why edibles were always going to be last,” commented Woods, “because the one thing I’ve recognized about self-financing a company and just being one person is that there is only so much time and energy that you have in the world, and you could very easily go down a rabbit hole.

“We’ll probably start with some sort of a gummy line,” he said on the subject of edibles, and added, “We also have a friend who works with a brewing company in Michigan that we’re going to start a licensing agreement with. That’s one thing you need to be myopic about: what you’re good at and not good at. In specific niches like beverage, I’d rather work with my friend’s company, which has been doing it for 10 or 12 years; they will infuse our oil, and we’ll have a copacker facility where we can do that.”

I noted that Terrapin is a sort of hybrid company, somewhere between a vertical MSO and a product-based MSO and wondered if the plan is to create really powerful brand penetration and then go from there, into retail or wherever.

“That’s exactly correct,” said Woods. “Colorado is well known for its brewery scene, and kind of became famous nationally for that, and you’ll see a company like Avery Brewery or Oskar Blues have some outlets where you could go in and buy the Oskar Blues or Avery products, but the focus is on the brand. So, dissimilar to what I guess a company like Cookies is doing, we’re not just a marketing company. We want to ensure the quality and the integrity of the brand, and we want to control it; we want to own it from seed to package to sale, because it’s good to be able to have all these licensing agreements, but if you don’t control the product…we’re constantly doing research and development to build the best quality product, and we want to control price point, too. We understand that this is a price sensitive ecosystem that we’re dealing with, and we want Terrapin consumers to understand that they have the most value and the most trusted confidence in the Terrapin brand.”

Repeating my refrain about the difficulty cannabis brands have differentiating their CPG from the competition in a marketplace where retailers often sell the same products to the same people, I also noted that Terrapin conveys an affinity for small batch cultivation. “In terms of our approach to small batch and the production output we have,” said Woods, “I can tell you that the person that runs our cultivation facilities has worked for me for the last 12 years, since we were 18 years old. At our core, we are a culture of growers; we care about quality cannabis. We’ve been running seed banks and breeding programs throughout the last decades. We live and breathe and sleep the quality of our product. I mean, the chemists we’ve brought in to run the manufactured products are all cannabis geeks. They come in and the quality control … that’s why we’ll never license out our brand to someone that isn’t us. We are that meticulous and insane about making sure that the quality of the product is there. In terms of the ecosystem and the message to the marketplace, and into the stores, I’ll let Demian give his two cents on that.”

“To build on what Chris was saying,” continued Kato, “and to acknowledge your question about our differentiator, I think Terrapin deeply recognizes the power of really good branding, because branding really is that fulfillment of a brand promise based on an emotional connection, and we recognize that what’s interesting about the cannabis industry broadly is that the consumer base gets savvier as it expands, they have more opinions about it, they have more of a desire for an emotional connection to an actual brand. As Chris said, we have a responsibility to not only fulfill the promise of the quality of the cannabis that we’re outputting, but also to fulfill the brand promise that there is that emotional connection, that we are a brand that has social responsibility in mind, that we are a brand that has culture in mind with regard to cannabis culture, but also the arts, and music, and things that really bring other emotional connections to people, and how they use cannabis to connect with those cultures. We use that as our North Star for our branding to make sure that not only are we delivering quality cannabis, but that emotional connection is something that is really the cornerstone of everything that we’re doing in communications.”

I appreciate consistency too, but I wondered if it might also be appropriate to think about cannabis as an agricultural product like wine, not just for marketing purposes, but also because some vintages might be better than others, which also brings up the question of genetics.

“I think wine is a good comparison, but maybe not the best comparison,” said Woods. “I mean, the root aphid nearly took out the entire Italian wine industry at one point, so we are constantly making sure that we have mold-resistant genetics, pest-resistant genetics, and we have good integrated pest management. Also, Terrapin is growing right now in indoor spaces or climate-controlled greenhouses, which means I’ve got a little bit more control [than outdoor grows]. At this point, we’re trying to prepare for federal legalization and come up with GMP standards, and  ISO standards, so that we can replicate what we’re doing in different places, and it can be exactly the same. Using reverse osmosis processes, having standardized curing systems, we’re always pushing the edge of technology.

“And that’s really what Terrapin is, a think tank,” he added. “In terms of genetics, in medical states we’re looking at the medicinal properties [of cannabis] as a plant. We also have patients in Pennsylvania that are kids with epilepsy or autism, and we are looking to find certain genetic characteristics that are good for epilepsy. And bringing geneticists into the fold is critical and core to what we’re doing, because the genetics of this product are the machinery. I mean, you can set up the perfect environment, but if you don’t have the correct machines to go pump out the product and the medicine that people need, you really don’t have anything. It doesn’t matter what your brand is, what your environment is, what your sales tax looks like, or how savvy of a businessperson you are, if you don’t have that product, you don’t have anything. Other things are incredibly important, but I think the one thing we haven’t necessarily done a great job with up until the last couple of years is to be able to market and penetrate the vision and passion that we have. And I think in the last 24 to 36 months, Demian and our current marketing team have been really helpful in doing that.”

A Matter of Control

The next big push for Terrapin is into Missouri, where it plans to have three stores open by early 2022,
but the cannabis gods could bring other opportunities to fruition at any time. “We’re leading our brand in Missouri, distributing Terrapin branded products and all of our portfolio products in Kansas City,” said Woods. “We want to make sure that the quality of the products is there, but we will have three stores opening the beginning of next year in Kansas City, and we also prospectively have a Terrapin Care Station opening outside of Manhattan in Hoboken, New Jersey.”

According to a recent MJBiz.com article, “Terrapin secured its Hoboken location, near the PATH train to Manhattan, in 2019 through a local partner who owns the property. For cultivation and processing, that Hoboken partner helped Terrapin scout a southern New Jersey location near the Pennsylvania border.”

I asked Woods if Terrapin prefers to own or lease its property. “We’re primarily a real estate company,” he replied. “It’s definitely an arm. We tend to own as much real estate as we can if it makes sense. So, Terrapin has a lot of its own properties either directly through the corporation in that state or through related entities that we lease back. We always want to control our destiny as much as possible. Real estate is in my blood. My grandparents owned 50 rental properties in Southern California. So, we try to own the real estate to have that control; that generally speaking is how we like to approach our real estate holdings.”

I wondered what sort of qualities Woods seeks in partners and asked him how people work with Terrapin. “How do people work with me?” he repeated, thinking for a second. “We need to have co-aligned interests. We have local partners in the different markets that we work in, but one of the easy – and difficult – things about working with Terrapin is that I’m going to do everything. I mean, I have full control over everything, but if our partners can provide value to us in either real estate or construction services, understanding local government, or being able to block and tackle in that capacity, we’re always interested in talking to people like that. But what we’re not interested in is working with people that have opinions in terms of how we should or should not run our business. For better for worse, it’s been running the way that it’s been running for the last 13 years, and I think it’s been pretty successful. We’ve been able to pay investors back in, say, Pennsylvania, multiple times over.

“The thing about Terrapin,” he added, “is that everything is done in-house, from marketing, to construction, to communications, to design, to maintaining facilities, to accounting, to anything you could possibly imagine.”

You must have 1000 employees, I joked. “We have about 500 right now,” said Woods. “Terrapin is built, not bought.”

I asked if that level of control also extends to sales. “We control everything,” said Woods. “If you’re interested in going to your mailbox and getting money and shutting up, then I’m interested in working with you. If you’re not interested in that, then I’m not really interested in working with you all that much.”

Kato interjected, “We’ve had a saying at Terrapin for quite some time that, this being Terrapin, the tortoise does indeed win the race. We have been very deliberate and very specific about our growth over the years, and that is because Chris has been able to maintain control over the direction and operations. I think when you have investors, they want you to expand as quickly as possible, and the reason why is they’re just trying to create footprints that one day sell. That is not Terrapin’s direction. Terrapin’s direction is to take control over our operation so that we own it, so that we go in the right direction, and that long term we build our brand. It’s not about build-to-flip; it’s about build-to-last.”

But aren’t all companies for sale? Isn’t Terrapin’s destiny to one day be acquired by some ginormous entity? “I can tell you this right now,” replied Woods. “Terrapin is never selling. You could offer me $100 trillion. I’m not selling.”