Like any cannabis company building on the success of its branding efforts, California-based Sunderstorm, producer of Kanha gummies, is constantly reevaluating its expansion strategy while trying to stay true to the elements that enabled it to create a sustainable brand in the first place. To that end, the industry has presented a very challenging environment over the past few years, even for established brands, which rarely know when lightning will strike and fortune and effort will coalesce into something completely new and potentially magical. For Kanha, which was founded in 2015, it has come in the form of a recently announced partnership that will take it global via Thailand.

To be sure, Kanha products are available right now on either coast of the United States, and elsewhere. I could buy a bag of its flagship 100mg gummies today at the Liberty dispensary 30-minutes north of me in Springfield, Massachusetts, and if I were still living in California’s San Fernando Valley, I could buy the same product from The Reefinery in Van Nuys. The price in Massachusetts is twice what it is in Los Angeles – not counting taxes, which vary greatly, though not close enough to offset the price difference – but that said, Kanha gummies are well-established in these markets, making it a national brand of a sort, available in California, Colorado, Massachusetts, Nevada, and Canada, with more markets to come and now Thailand as a springboard to other international markets. Following up on its August 2021 profile of Kanha, Cannabis Business Executive (CBE) talked recently with Sunderstorm co-founder Cameron Clarke about how the company has dealt with the market downturn while making the most of available opportunities.

“The great news for us is that we always knew this was coming,” said Clarke of the chaos the industry has endured over the past year or so. “We knew the industry was going to have to go through some restructuring at some point. It was just too much money coming in and so many brands and too much happening. So, we’ve been racing really hard for many years to build the company and the brand big enough so we can sustain this.

“I think the last 12 months have really been about proving who can sustain and who cannot,” he continued. “because capital is completely dried up, price competition is incredibly fierce in the mature markets, and consumers are not spending like they used to. It has created this dynamic that is challenging the industry such that the companies that are well-run and cost-conscious will get through it, and the ones that aren’t, will struggle. We’ve been planning on this and navigating through it, but we are also optimistic about the new ventures that we’re embarking on and ways to grow the company. We’ve been in the process of restructuring a little bit to make sure that the company is rock solid and stable for the future, and we’ve also been looking at a number of other opportunities that we started working on a year ago. They’ve taken some time to come to fruition, but that’s the stuff we’re working on right now.”

A Multi-Pronged Approach

Sunderstorm intends to continue opening up new markets in the U.S. but will be more selective about the ones it targets than it had been in the past, said Clarke, who underscored the significance of the approach. “Previously, we wanted to be able to open up as many places as possible,” he explained. “Now, our strategy is to have more places where we can actually make money. I think the industry has been struggling with this challenge – do you grow the top line, or do you grow the bottom line? – and I think most of most of the industry has been focused on growing the top line so that you could get to be big enough and you could grow enough market share.

“But with the shortage of capital and the challenges in the industry in the US market,” he added, “we want to focus on growing the bottom line, and growing profit, because the company in the end has to be fully sustainable, and it has to be very stable and have a good platform upon which to grow for the future. So, we will open up in a couple of new states this year, and we’re excited about that and will make that announcement in the very near future. We’ve been working on this for a little bit, and we finally have been able to pull the trigger on it, and that’s imminent. So, we will continue to build the brand in the US market.”

Considering Sunderstorm is already in cannabis-mature states California and Colorado, and also in somewhat newer states like Nevada and Massachusetts, I asked Clarke without telling me those states, how he looks at that dynamic in light of moving into a new market, because there seems to be so much starker of an operating environment now between new states, particularly back east, and the older forerunners, at least for the moment.

“It’s an excellent question and a very important question in today’s market,” he replied. “That is, when you have limited bullets to fire, where do you fire the bullets to get the biggest bang for the buck? When we opened up in the three new states a couple of years ago, our strategy was to go to states that were in excess of a billion dollars, states that had good growth opportunity for us and our brands, and a place that we could achieve the brand recognition that we felt we needed to achieve. So, Nevada, very obvious. Not quite a billion dollars, but pretty close and a great market for brand-building because of all the tourism.

“Massachusetts and Colorado are both big markets,” he added, “but what we learned is there’s a massive difference between the two markets. It was a great learning experience for us. We had more challenges than we hoped to have in Colorado, and we realized that in states where there are a lot of retailers that are not necessarily close together and where there is a lot of competition, the time to scale is more than we had anticipated. In mature markets, you have to fight harder with marketing dollars to be able to build the business, which requires more capital investment.

“In a state like Massachusetts,” he continued, “which was converting from a medical into recreational market – shifting from an MSO-focused industry to a more broad-based industry – there was actually a lot of opportunity to be able to build your brand and your business, and a lot of excitement and passion that isn’t necessarily there in mature markets. So, we like the markets where they’re not offering retail licenses to everyone, like in Michigan, which is a very difficult market. It’s so competitive today, it’s basically impossible to make money.”

Money can be made, he explained, but it takes time. He used vapes as an example. “In Michigan, you can get 10 one-gram vapes for $100. I don’t know how anybody can make money selling vapes at that price, retail or wholesale. It doesn’t make any sense and will only last so long. I was in Michigan a year ago, and in every store I went to it was $8-$10 for a pack of 100-milligram gummies, out the door. It’s very difficult to make money at those margins, and you certainly can’t sell a quality product and make money at that margin.

“Those types of opportunities are not interesting in today’s world, where there isn’t the capital to be able to build your business,” he concluded. “It took Amazon forever to be able to make money, and they just kept raising capital in order to able to build their business. That’s what a lot of folks thought would happen in the cannabis industry, but as soon as capital dries up that option is no longer available, and now you’ve got to make sure that you can make money.”

What about the original idea of how to establish their brand, and the stickiness of brands, the longevity of brand loyalty among cannabis consumers – had any of that changed as a result the tougher market?

“We feel more strongly about that today than we ever have,” insisted Clarke. “I won’t name any names, but there are brands in California that were amongst the largest brands in the industry, and their sales are tanking today because they never actually built a brand. They did not build the connection to the hearts and souls of the consumers. I think it’s essential for brands to connect with the consumers in ways that the consumers understand what the brand stands for, and why they should be associated with those brands, whether it’s quality, or a certain image, or what have you, it’s crucial. Brand building is a crucial element of selling products, and I think it’s going to become more important as the market becomes more competitive.

“So, when there are a lot of low-priced competitors in the market,” he added, “in order to be able to charge a little bit more for your products, you have to have the right quality and you have to have built the brand equity, so consumers are willing to pay the higher price, because they trust your brand, they know that you have clean products, they know that you’re reliable, and that you do what you say you’re going to do. And in order to build that, to send that message, you have to do serious marketing. So, we are more focused on that today than we ever have been, and we’re embarking on strategies both in the United States and outside the United States to actually get better visibility with consumers.”

In terms of brand loyalty, I was being told that it doesn’t get any easier. “That’s correct,” agreed Clarke. “The more competition you have, the more professional your brand has to look, and the more you have to be sensitive about how you build your brand. And in these competitive markets, it’s even more important to do your brand building properly, and that’s what we’re focusing on, but when times are tough and capital is short, the first thing that manufacturers cut is marketing, which is the opposite of what you should do, because when you start to cut marketing, it’s the beginning of the downward spiral. When I look at California, there are only a few brands that I can think of that were top brands five years ago that are still top brands. Why is that?”

What made them top brands in the first place? “For some, it was probably luck, or being in the right place at the right time,” replied Clarke. “Some of it was just having distribution; some of it is having the right look and feel. In the end, those things are all important, but on top of that you actually have to show the consumers what you stand for, and why they should pay good money for your product. That’s what has to happen, and in California many of these brands have tanked because they never invested in building that connection to the consumer. That’s what CPG has known for years, for decades, but it’s only now really starting to be understood in the cannabis industry. That’s why we feel like we have to double down on marketing and messaging to the consumer even more than we’ve done in the past, but it’s challenging because capital is hard to come by and prices are falling.”

Have they been forced to cut prices? “We did, but not much,” said Clarke. “In Massachusetts, prices have come down a little bit because they were extremely high when we first entered the market. In California, we’ve been able to maintain our pricing pretty much over time, and it’s because our consumers are willing to pay for the quality of our products and our brand. They feel very connected to us, and we have a lot of appreciation for that, because that has helped us maintain our strength in the market.”

The Road to Bangkok

That strength and its founders’ experience in the industry has enabled Sunderstorm to continue its glide to growth. “In California, we’re up to about 30 SKUs, but some of them are limited time offers,” said Clarke. “We came out with live resin products last year, and we’re coming out with a number of new products this year. We’re investing heavily in research and development right now as well, because we’re going to be expanding into new product categories.

“We believe that innovation is the other tent pole that is very important for this industry,” he added. “And while we couldn’t invest as much in R&D as we would have liked while we were expanding into other states, and our innovation pipeline wasn’t as strong as we wanted, we are now very heavily invested in a new R&D team and launching new products as we speak. So, this year is going to be the year of increased brand building, enhanced innovation and product development, and launching new exciting SKUs for the consumers. And then really just focusing on our global strategy. The thing that I’m most excited about is being able to finally build a true global brand.”

How was the company able to invest in this growth while simultaneously maintaining the fiscal discipline necessary to survive? Had it had to tighten its belt? “One of the things that we invested in early on was technology and mechanization,” explained Clarke. “While others in our category have been making products generally by hand, we started mechanizing everything in 2018, and we’re lucky now that that mechanization is starting to pay off.

“One thing we’ve done in the last 12 months is we’ve really enhanced that part of the business by taking everything we learned over the last few years and optimizing it so our cost structure on producing product is probably one of the best in the industry,” he added. “That has allowed us to maintain a good gross margin, and is an important part of our overall strategy.

Staying cutting-edge has been a priority for Kanha from the get-go. “We want to make sure that our products are best of breed, and so early on, we invested in the launch of nanotechnology products back in 2015,” said Clarke. “We launched our nanotech gummies in 2019 in a partnership with GeoCann. The technology comes out of a Swiss pharmaceutical company and has been used for drug delivery for many years and used in nutriceutical products on all continents for the last few years. So, this is a proven technology, there’s science behind it, and clinical studies have been done on it. We wanted to make sure that we used a technology that compressed the time of onset, so that the consumer didn’t overdose or have to wait for their experience, and that was proven safe. So, that is part of our innovation pipeline in our supporting technology, which is also an important aspect of building your company in this market.”

The same priorities will continue with its new partnership in Thailand, assured Clarke. I reminded him that in the previous article with CBE, his partner, Keith Cich, had not exactly been enthusiastic about international opportunities for cannabis, at least not in the immediate future. What changed?

“We have been less optimistic about the international market because we haven’t really seen a lot of success with cannabis to-date,” explained Clarke. “There’s been a lot of excitement in the past about things happening in Colombia, and through our Canadian partner, we had an opportunity to export our products to Europe, but that never came to fruition, and in general the Canadian export opportunities have not really materialized like a lot of folks had hoped. We also note that there are a number of countries that are legalizing cannabis and starting to develop the internal market, but many of them have been slow to evolve.

“So, yes, we had been a little less optimistic about the international opportunities,” he added, “but then the world changed on June 9 of last year when Thailand essentially decriminalized cannabis with the stroke of a pen. The difference is that they opened up their domestic market for retail cannabis, which is now being sold on almost every street corner, but the other thing they’ve done is open it up for export opportunities. They’re still in the process of defining the regulations, but there are going to be very few limitations on how they export both CBD and THC products. But it will be within the confines of their regulatory framework, because the Thais are very keen to become one of the big exporters.

“They’re one of the five tigers in Asia and understand export opportunities as well as anybody,” he added of the Thais. “I think that is something they are going to be focusing a lot of energy on in the coming years. For us, it took a little while, but in Q4 of last year, I saw that Thailand was very, very serious about becoming a global cannabis powerhouse, and we were able to partner with THCG Group to be able to manufacture products in Thailand for both the domestic market and the international market. I think that’s an exciting opportunity for us, and I believe that because of their cost structure, they will have a significant advantage over other countries trying to export cannabis.”

The partnership with THCG is “essentially a 50-50 joint venture,” said Clarke. “They were one of the first medical license holders in Thailand and are absolutely supportive of a fully regulated market. They have the compliance piece of it and the political piece nailed down, but they also have facilities they’ve been building out for cultivation and raw material supply. These facilities are GMP-compliant and fully set up with all of the regulations for export as well as domestic markets, so they’ll be able to seed supply for us to be able to develop our new products and categories on top of what they’re already doing. So, it’s really a good partnership – they have the infrastructure and we have the branding know-how and products.”

Will there be an on-ramp in Thailand that starts with domestic distribution and then expands to other countries? “We are consistent in our philosophy and strategy that we want to build for the domestic market and the international market simultaneously,” replied Clarke. “We see that there are opportunities for both immediately. So, they’re excited about the fact that Kanha is one of the largest brands in North America, that we’re well recognized, and that we also have a great understanding about how to bring products to market and how to innovate. They see tremendous opportunity for us to be able to sell domestically as well as internationally, so we will not be focusing on one market over the other initially, but we will focus on both, and we will develop products that are working in both markets.

“That is something that is an important part of our strategy,” he stressed, “and it’s also going to be consistent with what we’re selling in North America. In order to build a brand, you have to have consistency among your products so consumers can buy them anywhere, and that’s what Kanha is going to be doing with our products. We will also be expanding into new categories, not just edibles, and that will give us a lot of opportunity. We see the Thailand opportunity, and also, for example, our distribution platform in California, and the strength of our brand, as an opportunity to be able to grow the business by developing new categories.”

Sunderstorm also produces vape and tincture products under the Wind and Nano5 brands, respectively, but the company is transitioning them to the Kanha brand. “I think that’s going to be a big distinction,” said Clarke of the move. “We have a lot of experience in other types of categories, but we now have a better understanding of how to bring them under the Kanha brand with new product development initiatives to be able to offer much more exciting products for the consumer.”

I noted that Kanha had already showcased products at conventions in Thailand, and asked when they will be for sale. “That’s the important question,” said Clarke. “We did showcase some of our products at the first Asian Hemp Conference back in December. There was a lot of excitement and enthusiasm, and I was very excited to find out that there were no less than 30 people that came by our booth that knew our brand and were very excited to see that we were coming to Thailand. That tells me that we’ve been building our brand properly.

“We believe that we should be able to bring products to market in different categories starting probably Q2-Q3 of this year,” he added. “We’re in the process of working on the edibles side of the business and we may bring other products to market sooner. In terms of our go-to market strategy and plans, we’re in the process of crafting that now, and should be making some announcements in the next 60 to 90 days.”

Are new products created in response to what the company is hearing from its consumer base, or is it something else? “It’s a combination of things,” said Clarke. “Part of it is what we hear from our consumers and from our retail partners, part of it is taking a little bit of a leap of faith and trying to be a little bit ahead of the market in developing new products that we believe consumers will be excited about. But I’ve always said, you don’t want to be a full step ahead in the market, you want to be a half step, because if you’re too far ahead, then the consumers may not be ready for those types of products.

“We spent a lot of time in our innovation process making sure that our products are suitable for the consumer today and in the near future, so that we’re not trying to sell something that the consumers aren’t ready for,” he clarified. “I think that’s an important piece of it, and we gather data and information from a number of different sources. One of my big initiatives last year was building out our data platforms and gathering data from multiple sources so that we can play with that data to understand more about what the market needs and wants. So, data is an important piece of that whole, and the data can be both subjective and objective as well.”

As our time was winding down, I asked Clarke if there was anything he wanted to add. “I’ll just summarize it this way,” he said. “We learned a lot in the last two years, we are at an interesting time in the cannabis industry, and we believe that our experience has helped us hone our business in a way that will give us a lot of strength in the future. Our initiatives for 2023 are based on innovation, on building a global brand, and on continuing to expand in the US market. The way we’ve been expanding are the tenets upon which we are building this company, and I would wrap by saying we’re focusing on profitability, because that is more important in today’s world than it was two years ago.

I noted that while it is going on eight years with Sunderstorm for both Clarke and Cich, in this interview he sounded as engaged as ever. “I think that’s interesting,” said Clarke, “because the last 12 months have been very trying for all of us in the industry, and sometimes it’s difficult to be optimistic. But I have to tell you, based on what we’re seeing now and what our plans are for 2023, both Keith and I are more excited than we’ve been in the last two or three years. I’ve been telling my team, in chaos there is always opportunity, and you need to look for opportunity even when you are struggling and dealing with a lot of different issues. I do think that there is still plenty of opportunity. The key is to make sure you have the energy to plow through it, and both of us definitely feel like we have plenty of energy to build this global brand.”