Most CEOs have their plates full running one company. Thom Brodeur runs two companies without seeming to break a sweat, a feat he’d be the first to say does not reflect the years of transformative work he has overseen since taking the reins in 2019 of Scottsdale, Arizona-based Sky Wellness, a producer of hemp-derived CBD products, and in 2021 adding Twin Falls, Idaho-based N2 Packaging Systems, makers (indeed, inventors) of the instantly recognizable nitrogen-infused cans, or 2Cans, that N2 has marketed to the cannabis industry for almost a decade. CBE caught up with Brodeur for a brief chat at the N2 booth during the recent MJBizCon in Las Vegas and followed up by phone a few weeks after the show to talk about his experience taking over the operations of two companies that basically have nothing in common.

“I am the only shared resource between Sky Wellness and N2,” said Brodeur of the arrangement. “Completely different legal entities, completely separate operating teams, operating budgets, separate investor groups, but there is a little bit of overlap between investors. There are investors that participate in Sky Wellness that also participate in N2. The cap tables for each company are relatively independent with the exception of those overlapping investors, but [they] overlap into other businesses inside of the bigger and broader portfolio as well. The operating teams, the legal structures, financial structures, and all the rest are completely independent of one another.”

They are also totally different business models. “Sky Wellness is a CPG company in the CBD space and N2 is a cannabis packaging company, entirely different businesses,” he added. “One is a b2b business, N2 sells to procurement and finance and packaging leaders, and Sky Wellness builds products in the CBD space and sells those via mass retail.”

How this dual-stewardship came to be is its own story. “I started at Sky Wellness in mid-2019,” explained Brodeur, “and led it for about two-and-a-half years before the common shareholders between Sky Wellness and N2 had a discussion with the other shareholders at N2. They said, ‘You’ve been asking for leadership help on the N2 side. We think our guy, who has been leading the Sky Wellness business for the last several years, may have a point of view and some opportunity to bring that might help shape the future of N2’s growth. Are you interested?’

“The founder of N2 (Scott Martin) raised both hands,” continued Brodeur, “and said, ‘Yes, we need support and help because we’re starting to scale up, and we’re starting to think about other adjacencies in the market that live outside of the pure cannabis packaging space. And we’d like to know what those thoughts and ideas are. On top of that, we could use some support just moving from a founder-based company to a more institutional operation that needs to button up its standard operating procedures and the infrastructure that the business needs in order to scale.’

“And that’s what I do,” concluded Brodeur. “There was unanimous agreement that I should join the company and help shape the team, the strategy, and an executable plan for the business for the next number of years, and so I started in earnest in late July of 2021 on the N2 side.”

Sky Wellness products are available in thousands of locations, including mass retailers such as Albertsons, Safeway, and Circle K. Product forms include gummies and soft gels, CBD oil, vapes, and topicals, and all formulations are THC-free and hemp-derived.

“Sky Wellness fulfillment comes out of a 3PL (third-party logistics) in Tucson, Arizona, so all our pick, pack and ship gets done south of where our offices are headquartered,” said Brodeur.

The N2 Difference

The foundation of N2’s value proposition is contained in its safety, preservation, profitability, and sustainability. Safety is assured via its patented lid system, which “has been tested and certified as both child-resistant and senior-accessible,” per the company. Preservation is enabled via “the patented process which uses nitrogen to eliminate the enemies of freshness-light and oxygen-hermetically sealing cannabis in a food-grade container. Strategic thinking “about this critical component of the packaged goods ecosystem’ is an essential component of profitability, and on the sustainability front, “all of N2’s products are sourced and made from recycled or recyclable materials.”

Brodeur said the product fulfills several specific customer needs. “What we’re finding is that there are three things that our existing customers and prospects are responding to,” he explained. “Product freshness and extension of shelf life for sure. And then net weight mass retention, or net weight loss reduction or elimination is second. The third piece – which always and consistently has been in everything we do – is products sourced from sustainable, recyclable, repurposed, double reusable, raw materials.

“As brands are starting to lean into the consumer types or cohorts that they want to work with, sell to, and market to, ” he continued, “they have decided they’re going to listen to those consumers, and if those consumers have a bias for sustainability and recyclability – whether it’s upstream, downstream, both, or somewhere in between – we tend to bubble up to the top of those discussions because of the bias that we have for building products that are sourced and made from recycled materials, and then are infinitely more recyclable, compostable, and biodegradable than the alternatives.”

The process can also be used for products other than flower. “The 2Can with nitrogen infusion can be used with CBD gummies and edibles just like it can be, and is used, for cannabis, edible, and smokeable products,” said Brodeur. “We’re just starting to get into business development around the CBD sector for the 2Can product.”

In addition to its lids, the company also manufactures “N2 cans [that] are lined to protect terpenes and to prevent leaching. The type of can used for packaging is important to the quality of the product. N2 recommends food-grade lined cans for the packaging process.”

The upshot of all this for N2 customers (as well as the consumer) is apparent when one opens a can and is greeted with flower as fresh as the day it was put there, but the company is somewhat restricted in what it can claim. “If we could legally and from a regulatory perspective provide a guarantee, we would,” stated Brodeur. “I don’t think it will always be that way, but you can’t make a promise like x or y. Quite frankly, it’s not dissimilar in the CBD business, where you’re not allowed to make claims around certain things like this will do X or Y or Z for you. The same holds true in cannabis packaging. You can’t guarantee a thing that you can’t guarantee 100 percent.

“What we are able to claim for certain because of independent third-party testing that has been done is that flower or bud product that is in an N2 can that is nitrogen infused has up to a two-year shelf life,” he added. “That we can say, so the preservation and freshness claim is defensible. What we point our customers to around the net weight mass retention or mitigation of loss is everything in the market that shows light does this to cannabis product over X, Y and Z period of time, external or exterior moisture does this over X, Y, Z period of time, and will reduce mass by A to B to C. It just depends on what the packaging device is.

“So, while we can point to those two things,” continued Brodeur, “what we have never been bold enough to proclaim – because I don’t believe in PT Barnum marketing, but in delivering value and letting the brand prove itself – is that that you will have 85 percent fresher flower after the first open.” He also clarified that, unlike the company’s patented child-resistant lid device, “nitrogen infusion is not a patentable process, because it’s existed forever in the food and beverage industry.”

What about cannabinoid degradation? People are getting sued for mislabeling THC percentages. “Cannabinoid and terpene preservation are hallmarks of the nitrogen hermetically sealing process that goes through our packaging solution,” said Brodeur. “But the preservation piece is just one part of it. The other part, and what a lot of people don’t understand, is that if terpenes or certain cannabinoids leach into plastic – either plastic-coated or plastic-created products – it creates noxious gas that ultimately can be harmful to a consumer.

“We sort of killed, no pun intended, both birds with one stone,” he added. “The nitrogen infusion process protects the cannabinoid and terpene profile of the product, and because it’s doing that and because we don’t use toxic plastic-based materials inside of our products, it reduces the components of light exposure or oxygen exposure that create that toxicity. Both of those are important, but what we’re finding is that it’s a little bit harder of an educational process, and it’s still a concept that many of our customers are still getting their heads wrapped around: ‘Wait, you’re also protecting against health risk inside of the packaging device?’”

More Than a Lid

The lid alone offers a formidable and evolving technology, assured Brodeur. “Where we are protected from an IP perspective is we’ve spent north of seven figures over eight years to perfect child-resistant lid technology that does all the protection and preserving of the product that we’ve talked about,” he said. “But we’ve leaned most heavily in that CR lid IP protection into the child-resistant, senior-accessible technology. How do we make it hard for kids but easy for dexterity challenged hands to utilize this packaging device compared to a twist-top off of a jar?”

The lid is an ongoing area of focus that will see additional improvements. “There’s so much that wouldn’t be wise to disclose in a public forum yet,” said Brodeur, who added when prodded, “I will say this. The technology that we have patented globally is a two-piece CR lid. We have just gotten through CR lid verification and certification on a one-piece resealable, which we think is a game-changer in the market. We will likely announce it early next year.

“That’s one surprise,” he said, “but the other surprises coming down the pike line-up around two things. One is how do we take the nitrogen and fusion process with a child-resistant, senior-accessible lid apparatus, whether it’s a two-piece or it’s a one-piece, and how do we think about applying that process to other packaging types, i.e., glass jars, which happen to be super popular in this space, or biodegradable composite-based, not plastic, cups, and other types of devices that might be interesting to our customers who aren’t just interested in tinplate-cans. ”

A more recent upgrade rendered flower in a 2Can visible to the consumer, a major improvement for the discerning smoker. “It’s the reason why we’ve transitioned 90 percent of our customers to our clear, biodegradable, bio-compostable pull-tab,” agreed Brodeur. “It’s actually as clear as glass. You can twist the lid off and still see the product before you decide.”

I observed that the N2 product may finally be coming into its own after more than eight years because of the generally longer time spans from harvest to sale, but for other reasons as well as the industry matures.

“There’s 100 percent truth to that,” he responded. “One of the things that I admire about [Scott Martin] is his pioneering spirit, sort of a, I’ll leap when others are more cautious or fear-driven or subscribe to the inherent restrictions that exist in an ‘it’s not been done before’ kind of environment. The other thing I admire about him is that his brain functions a step ahead of innovation in the packaging category specifically and also how it relates to regulatory and compliance requirements that are evolving over time in the cannabis industry. So, I would 100 percent agree that it was an idea that was early and now is just now coming into, I won’t say into any kind of maturity because there is still so much immaturity inherent in the cannabis industry both medical and recreational. There’s just so much growth still to have.

“In our case,” he added, “after the steady drip of communication in the market over the eight years preceding my arrival, people are starting to better understand why [N2] works like this, this is what it does for you, and, as states continue to get tighter on their packaging restrictions and regulations, here’s why this kind of packaging solves the problem for you that a Mylar bag does not or that a glass jar cannot or that a paper pop-top will never meet. Nothing in this industry is easy, but it’s easier to have a thoughtful discussion now with prospects and with customers who have been with us for years and are evolving to meet the challenges or the headwinds that the market is facing.”

The Keurig Coffee Company of Cannabis.

I mentioned my assumption that larger companies would be the ones most likely to be able to afford N2, which includes investing in the machinery needed to produce a sealed, nitrogen-infused can. “I’m glad you brought that up, because there’s a mythology around the affordability of this solution,” said Brodeur. “What we found is with smaller, single-state, or single-site operators, or even single, dual, or triple store dispensary types, or small craft brand houses, the vast majority of our customer base is small to midsize companies. We don’t currently serve the largest MSOs in the country, and so we have seen that middle- to lower-middle and below-market as our market. The reason for that is that we are able to provide equipment solutions on the production side. We don’t touch the plant. We’re the Keurig coffee company of cannabis. Here is your machine, and here are the K-cups that go into it, or in our case, the 2Cans with the lids and the pull tab apparatus.”

Brodeur further explained, “We’ve put together what I would call small footprints, small-batch, semi-automated solutions as well, that takes the equipment cost down materially where folks can take two or three of the pieces of equipment as opposed to the full array of five or more pieces of the equipment to get started. And then as they grow – and this has been the pattern that I’ve seen in the year-and-a-half that I’ve been leading this company – as those businesses volume grows in the market, they add on other equipment that helps them migrate into a fully automated line.

“And we need to expand,” he added, “so we give them the ability to start where they are, and benefit from what bigger companies can afford to do all at once, and sort of grow into it over time. In many ways, it’s like a software licensing model. You start with the five seats that you need, and as your employee base grows, you add the 10, 20, 30, 100, until you get to whatever the mass looks like. Because of my background in tech, my brain thinks like that operationally; from a consumer-facing perspective, how do we get you into this process and then grow with you as you grow through the process and find your way in the market?”

Are there ways to expand the licensing model to include, for instance, regional packaging companies that could then bring on a number of cannabis clients to package for them?

“The licensing model is one that we intend to execute in 2023,” replied Brodeur. “In fairness, I got here and got my hands dirty last August, and I needed the four months of last year to just get my brain wrapped. I needed the data dump from Scott Martin, our founder, the data dump from our customers, with whom we were very successful, the data dump from the customers we were having challenges with. I had to get through all of that, and at the same time, I was the one that executed the agreements to move all of our manufacturing away from China and bring it to North America.

“Operationally, there was a lot to do in this business last year,” he added, “not the least of which included standardizing a true marketing-supported sales and business development effort that was strategic in the business, as opposed to let’s just shotgun spray and hope we land things. Instead, it was, ‘Here is where we are winning, here are look-alikes for where we’re winning; let’s fish where those fish exist and spend more time building the back hole market presence and position with the company so that I could take this year to look at how we can help other packaging companies in the states where they operate. Since you can’t do interstate commerce on some things related to cannabis – like shipping cannabis products – how could we be helpful, and we’ve spent a fair amount of time just in the last 60 days building out a licensing strategy that will allow other companies to take advantage of what we do in the markets they serve.”

N2 has added customers since Brodeur’s arrival. “When I got here, we had 33 or 34 customers, out of which I would say about 12 to 13 were regularly recurring purchasers, and the others were sporadic purchasers.” The recurring purchases (of cans and nitrogen) are either quarterly or monthly, he added, “whereas the sporadic customer might be two time a year?”

In 2022, N2 added 18 new customers. “So, aggressive growth in the company in the last 12 months,” noted Brodeur. “And from a forecast perspective, 2023 looks to be about 18 to 22 new customers yet again. Finally, we’ve systematized the way we approach the market, and the value proposition has been tailored to the market that we know we can win, and that we can win-in together. I expect in 2023 we’ll probably see a whale MSO or two that we’ve never serviced before. I see on the horizon one or two of those big names that you would recognize that it’s just taken longer for us to develop the relationship with because we haven’t been targeting that market; we’ve been focused on helping the small to mid-size market grow into premium options that help them compete.”

Incorporating the N2 system is not a quick endeavor, to be sure. “What we do is we sit with the prospect, or the existing customer who’s expanding facilities, growing into another state, or bought licenses in someplace else, or is establishing another facility, and we back into their timeline for commercialization,” said Brodeur. “When do they want to produce the product? What is their timeline for pushing finished packaged goods out of that facility, and then we understand what that time horizon looks like.

“On average,” he added, “whether semi- or fully automated, it takes 10 to 12 weeks once we place the order to get the equipment back through our calibration and tailoring process that’s specific to that customer. And then typically it will take our customer about three to five weeks to fine-tune labor and for us to go in and train the team that’s going to run the equipment. So, in about four months, they’re able to be up and running from the date that they sign their PO.”

Packaging in a Recession

Does the falling price of wholesale cannabis flower impact N2’s business? “To a degree,” said Brodeur. “What we found, and we’ve seen a lot of this in the media recently, is in an inflationary economy, consumer consumption of cannabis has gone up. However, consumers are deal hunting more than they ever were before because there’s more confidence that quality is less of an issue than it used to be, or at least there’s an assumption from consumers that quality issues are fewer and further between. So now they’re deal hunting, which puts pressure on the brand to drop price or run more promos, and brands that are sold through third-party retailers, not brand-owned retailers, I think that is going to continue to be a thing.

“For us,” he added, “what we found with existing customers is when they are facing market pressures – and we’re not seeing pricing pressures as much as we’re seeing saturation pressures; certain markets in the country that have an oversupply of product; where they’re dropping price – we’re being asked to retain and hold their pricing, so that if we wind up instituting a price increase at N2, and we did earlier this year for the first time in four years, we put a price on the cans themselves, because the raw material costs had gone up over time for tinplate.

“Rather than continue to absorb all of that, we went back to our existing customers and said, ‘Within a 90-day period, pricing looks like this and that compared to where you’ve been.’ And then with our top five customers we negotiated on a customer-by-customer basis what would work best for them. In some cases, where we were able to get those customers to was, ‘I’m happy to lock in your price, but the volume of packaging that you have to purchase has to meet this threshold.’ So, there is always a partnering way to accomplish things versus just telling somebody it’s going to cost more and we’re ignoring whatever you’re going through.”

Some production was moved back to the U.S., while other has stayed the same. “The equipment that we sell comes directly to us from the same manufacturing partner that we have always had for equipment over the last 10 years,” said Brodeur. “It always ships to us, and then we tailor and calibrate the settings on that equipment based on the customer’s specific requirement, i.e., we want to be able to produce 50 cans an hour or a period of time; we want to be able to produce 100, 200, whatever the scale looks like based on their need, we calibrate all the machinery in our service and tech group, and then we ship it back out to the customer. It’s very rare that a customer of ours will receive equipment directly FOB from China.

“What I changed was all the cans, pull-tabs, and lids that were being manufactured in China,” he added. “None of that is done in China anymore. We do all of it domestically.”

With many ancillary businesses in the industry struggling, did Brodeur see a similar fate for N2 if the bear market continues and the economy slips into recession? “Do we see a slowdown in the consumption of auxiliary services like ours,” Brodeur answered rhetorically. “You’re always going to see belt-tightening, but we’re seeing that belt-tightening coming from legal, accounting, and other kinds of areas. Packaging is experiencing a little bit of that, but the belt-tightening we’re seeing is in some cases slower volume consumption. ‘We would normally be recurring-order every month, and now we’re going to every six to eight weeks just to allow the accordion of supply-and-demand to meet itself appropriately,’ or, ‘We were going to expand with two additional facilities, but now we’re only expanding with one, or we’re not going to expand until next calendar and fiscal year.’’ We’re seeing those kinds of impacts, but materially we’re not seeing a big drop in the volume forecasts that our customers are working with us to set and their ability to meet those. They’re still meeting them, but in some cases it might be spread a little bit further over a longer period of time.”

Brodeur also spoke hopefully about passage of the SAFE Banking Act during the lame duck congressional session, but our conversation took place just before the door was shut on its inclusion in the spending bill by recalcitrant Republicans. Still, in the face of a souring economy, bright spots loom for a product like N2.

“I think when we do see economic slowdown or otherwise, and you see products sitting on the shelf longer, shelf-life matters,” he augured. “So that is absolutely going to inure to our benefit in a way that a pop-top or a glass jar packaging provider isn’t going to benefit from.”

As our time wound down, I asked Brodeur about the rise of so-called synthetic cannabis products, the hemp-derived delta-8 and other products that frequently bypass testing and other safety measures, and whether they impact either of his businesses.

“The FDA recently appointed Norman Birenbaum as its cannabis policy expert,” responded Brodeur. “So, finally there is a human being at the FDA that is allegedly going to focus on getting [the agency] to make its ultimate regulatory bindings and decisions on CBD and what I call its adjacent category sisters and brothers. Depending upon how bureaucratic that particular gentleman is in terms of moving through the system, the hope is that in the next 18 to 24 months there will be a lot more declarative decision-making on CBD.

“We’re not seeing a ton of risk on our end around D-8, D-9, and others,” he added. “We have a brand on the Sky Wellness side that contains those products, but we sequester it. It’s in its own LLC with limited distribution, and we only go where that product is usefully distributed to the consumer – a smoke and vape shop, or a dispensary model – so hybrid products like that are not our core business. They are literally less than three or four percent of our total revenue at Sky Wellness, and I did that with intention. I did not want to put the house of brands in mass retail at risk by muddying the waters too much and putting those types of products under the brands that were being readily accepted in Albertsons, Safeway, Circle K, and places like that.”

Was he looking forward to the day when the FDA takes its responsibility seriously with regard to these products? “All of us are,” he replied. “The only thing any of us ever gets from the FDA is a spanking and a cease-and-desist when someone mislabels something. Nobody gets, here’s what you can do; we always just get, here’s what you can’t do. And so, when we move from that sort of place of scarcity to an abundance mindset of, ‘Alright, here are the green lights,’ then people will understand that the good among us who choose to operate our businesses properly should be able to move more freely without the fear that if we do that, what will it do to this over here, and how will it impugn the healthy business that we have.

“But now you’re seeing retailers on the CBD side both in Canada and the U.S. – like Circle K – looking at how they can allow pop-ups or adjacent businesses attached to their real estate,” he added. “I think that in and of itself is a very telling sign from a vision perspective where the broader market believes the FDA is going to go, where you could walk in or go to the drive-thru at High Rise, grab your THC products, and then anything and everything CBD that you want to have for other reasons is right next door.”

Until that day arrives, however, Brodeur and his disparate teams are building on the markets that exist, and to that end, I asked him how MJBizCon had treated N2 from the perspectives of expectation and ROI. “The show is very useful to us, largely because the vast majority of the customer types that we seek to do business with, or our existing customers, attend, either as floor travelers or as exhibitors,” he said. “So, just the ‘company you keep’ perception works for us, but from a lead-generation perspective, we found it and a couple of other of the dozens of shows that you can attend in the industry to be very useful to us in terms of business development and prospecting.

“As far as ROI,” he added, “if we walk away from a show investment like the one we make at MJBizCon with a new customer, that amortizes over the course of a year and pays for itself two to three times. In our case, we expect there will be probably three to four closes from the show probably within the late-Q1, early-Q2 time frame. So, very useful, and very valuable for sure.”