Normalizing Cannabis Retail With Nicole Fox (Podcast Transcript)

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Editors' Note: This is the transcript version of the podcast we published Wednesday with with Nicole Fox. We hope you enjoy it.

Listen on the go! Subscribe to The Cannabis Investing Podcast on Apple Podcasts, Google Podcasts, Spotify, and Stitcher.

Rena Sherbill: Today I am very happy to be joined by Nicole Fox, Founder and CEO of Aeon Botanika, a wellness cannabis space in LA and in December construction starts on what will be the second cannabis consumption cafe in LA, Aeon Botanika's 7,000 square foot wellness shop that will have a superfoods cafe, cannabis boutique dispensary, spa and cannabis tea lounge. So the next wave of cannabis retail.

Nicole has been a cannabis activist since 2003. She co-founded two of the first dispensaries in LA, the Green Goddess and the Higher Path. She is also the Co-Founder and Head of Biz Dev for Firebrand Craft Cannabis. She serves on the Board for the Southern California Coalition, LA's largest and most inclusive cannabis trade association and continues to actively shape local legislative policy, is involved in the conscious capitalism movement and has 25 years of experience as an expert wellness entrepreneur, is a registered dietitian and has training in functional and integrative medicine. Somewhat surprisingly, Nicole is the only healthcare professional in California to have founded a retail cannabis operation.

So before we get into our interview with Nicole, as we discussed last week, we saw a bunch of negative earnings reports from the big Canadian LP's and though many of them subsequently did bounce back, we were more hopeful for some good news from the U.S. players, the multi-state operators. They did not disappoint. In fact, the top three revenue generators in the cannabis space are now all U.S. companies. So most U.S. companies rallied after some positive earnings reports, more companies in the space reported positive EBITDA. There was the exception of a couple players like MedMen (OTCQB:MMNFF), who is suffering severely from overextension and Sunniva (OTCQB:SNNVF), whose stock cratered after its President resigned. Other than that, the space looked pretty great.

Of course, another major catalyst of this rally, which was a surprising catalyst, to be sure was that the U.S. House approved the more active 2019 which, among other things, would legalize cannabis on a federal level by removing it from the Controlled Substances Act, if it's approved by the Senate, which is of course a big if, but it's still a seriously positive development, especially as it passed with bipartisan support.

And investors and listeners also take note that Michigan begins selling adult use cannabis next week, so another catalyst in the States. And an anecdotal aside, what we see as a sign for bullishness is that Curaleaf (OTCPK:CURLF) just started publishing articles on Seeking Alpha, which we think is a great sign that the bigger MSOs are looking to really get their guidance out there, engage investors with more transparency, a clear path to profitability. So check out their articles but also note management's decision to be more consumer-facing.

Before we begin a brief disclaimer, nothing on this podcast should be taken as investment advice of any sort. I do not have positions in any of the stocks mentioned. You can subscribe to us on Libsyn, iTunes, Spotify, Google Play and Stitcher. And hey, we'd really appreciate it if you could leave us a review on Apple podcast. You know why? It helps other investors find our podcasts and keeps this cannabis content coming. For reference purposes this interview was recorded on September 27, 2019.

Nicole, welcome to the cannabis investing podcast. It's great to have you.

Nicole Fox: It's great to be here.

RS: So tell us what brings you here and your -- about your company and what you do in the space.

NF: Sure. So I was here speaking on a panel called From Laboratory to Living Room. I guess one of the better names of panels I have spoken on. It was great because it was really looking at the supply chain of how a product actually gets to market. So there was an attorney talking about IP, there was an investor talking about how capital is flowing into the product industry and especially in California. There was a formulator scientist talking about how products are formulated and I was there representing the manufacturer.

So we have a product line as well as the retail aspect of the industry because we are also incoming retailers in West Hollywood. So it was just a really good mix of -- relating to each other and I even learned a couple things. It was great.

RS: Nice, nice. So talk to us about your place in the space and what you're looking to accomplish and talk about the -- well let's -- let's start there first.

NF: Okay, great. I -- as I've been in the cannabis industry for 17 years, I opened early dispensaries, the 10th and the 23rd dispensary in 2003 and 2004 medical. And I've also been on the cultivation side. I have a partner who's been a cultivator for many years. So for the last 10 years, we've been focusing more on the supply side on cultivation.

And when Prop 64 passed we had to really decide, what lane we were going to choose as a company and in California cultivation, we've been watching the wholesale price of cannabis flower products really drop year-over-year for many years and it was a bit of a race to the bottom unless you really wanted to scale. And go out to Adelanto, Northern California, do 100 -- 100,000 square foot grow and that just wasn't our model. We were smaller than that.

So we decided to pivot back into my roots of retail. I'm also a health care professional. I'm a registered dietitian. I'm the only health care professional in California to have a plant touching cannabis business, a retail business. And I decided that, post Prop 64 really, it was time to come out of the cannabis closet with my health care professional license, because I had both of those businesses and I had a private practice, supplement line, everything in the nutrition world. Cannabis was like a whole separate track that I was also working on.

So Aeon Botanika is our new company. We have a retail store opening in West Hollywood. We also got an onsite consumption lounge license that's associated with that. And we also have got a micro business license for cultivation, manufacturing and distribution and delivery. So that's a whole operation in Downtown LA that's coming online in about two months where we'll be growing flower to supply to our own dispensaries.

And then we have a 15 SKU wellness-oriented product line that I've developed with a formulator that we will be bringing to market. It'll be also branded Aeon Botanika. We will be launching now all over California in the middle of next year, initially, just in our stores.

RS: Is that THC and CBD?

NF: It's both, right. It's THC but most of the THC is low dose. I really believe in micro dosing THC for the target audience that we are trying to reach, which is women. Women consumers are really only about 25% of the cannabis market right now. And yet they make 75% of the household buying decisions across all categories of consumer packaged goods. So why aren't women going into dispensaries and why aren't they approaching products is a problem to solve, in the industry that we're really going after.

Another target audience is older adults. So most of these consumers are newer [to the market] and they need products to start out with that are between 2.5 and 5 milligrams of THC with balanced CBD and other cannabinoids to start out with. And they can titrate up their dose as you know if they need to. But I think that the lower dose product market is an unmet need that I'm seeing more and more products coming in, but that's really where we sit on the product spectrum.

RS: Okay. How common is it to be a grower and then to sell to your own dispensary? Are you guys one a few to do that?

NF: Yes. Well, just a handful of having vertical integration. So some states, they demand vertical integration like Massachusetts, right? You have to have all of the licenses all in-house and you can basically only sell your own products in your dispensary and your retail store. California is a little bit different with the way licensing happens, but because of our suite of licenses that we have it makes us a vertically integrated company where we are selling flower back to ourselves -- back to our retail outlets. And we chose to not be a flower brand on the California open market. So we are only selling our flower in our stores. And we're only producing -- we'll produce enough to about 500 pounds per year, which is enough to cover about 25% of our shelves.

RS: And is that because you want to stay the size that you are and do well at that size and you're not looking to expand -- grow expansively at first.

NF: With cultivation, we're not really looking to grow expansively for the reasons I mentioned at the beginning. Commoditization, price compression, it's difficult to grow unless you're going to do at scale. We are open to scaling the retail model, in other locations in California, potentially out of state as well as the product line will be launched all over California by middle to end of next year.

RS: Talk to me, I mean, especially given your experience in this sector, talk to me a little bit about the evolution of the industry that you've seen and things that you've been surprised by and things that maybe you like, are we not there yet? Why are we still not there yet?

NF: I always have mixed feelings, especially coming, I've been to a lot of conferences in the last year and we didn't have conferences in 2004 and if you had told me we would be sitting here in a booth with like everything from business professionals in suits to guys with dreadlocks with growing equipment. I just would have thought you were crazy. So I continue to just be in such awe and it's so surreal in a beautiful way for me that we have this and it's such a meeting of the minds. And so everyone is now able to knowledge share what we were all learning in our own grows and our own extraction facilities. And so all of -- the people that have been able to transition into the regulated market, which isn't as many as I'd like to see, but when you meet them and people like us that have the experience, you really see, how things have changed. But there's some things that haven't really changed.

So we're able to take the knowledge that we had and move it into the new market. But now that everything's out in the open and scientists are on-board and business people from very successful companies, investors that have scaled global brands are joining cannabis companies. And to me, that's just amazing and fascinating.

RS: Yes. So what do you see for the future of California? I know the laws here are super complicated, ever changing. It's really a lot of -- gives a lot of challenges to companies. How have you found navigating that?

NF: Yes. That's a whole thing right there. And so for our listeners that don't know California is the only state so far, only adult U.S. state that has what's called dual licensure. So you have to get licensed in your local jurisdiction. So Los Angeles or West Hollywood for us, as well as the State of California, you have to get local approval first and then state. So it's like literally going through two different licensing rounds and sometimes the city and the state regulations do not match. And so you have to figure out which trumps which and typically it's local law trumps the state law, but it depends on what the state law is. And it's just literally I'm sure you've heard the expression, we're building the airplane and we're like attaching the wings while we're flying it, over the cliff right now, and hoping that we don't crash. But you know, it's caused a lot of great innovation to happen in the industry and a lot of workarounds, especially for someone like myself that's been in cannabis.

I've been an activist in cannabis working with government and regulations for a long time. I always say, you know, in Cannabis, if there's a puddle that we can't walk through, we'll walk around it, we will like figure out what the workaround is to keep moving things forward. And if it wasn't for people willing to take a risk in the medical market in California, I don't think we'd have an U.S. industry to model off of to the likes that we're seeing today.

RS: You talked about expanding maybe into other states. I'm interested, especially because you've been in touch with legislators you've been around for so many years. What do you see going forward as the trajectory of that? Most people believe it's going to be state by state and some people. I mean, I just talked to Irwin Simon, and he thinks there's not even going to be many more states to go recreational -- to legalize recreational. What's your feeling on that?

NF: Yes. So I think we're now at 13 adult use states and plus D.C., is the total. That's how many adult use states we have. And then we've got another 30 something -- 33 that are medical. Yes I think it's definitely going to always be a states kind of rights issue or a state issue. And so we could very well have federal de-scheduling, right, similar to what happened with the Farm Bill with hemp. But federal de-scheduling does not mean federally regulated, federally taxed. They're just going to de-schedule it, and then allow the states to run it.

So all of those states are going to have to come online and create tax structures and regulatory schemes and like, get all of that together. And as we've watched in all of these 13 states so far, it's no joke, creating all of that. So I think we're a number of years away. Regarding more states say in medical, I think it's just going to -- it's going to take two or three years, but we just had what, Massachusetts; we have Illinois right now, we have some really big states that are coming online, but I think we're quite a ways away from being -- having both the federal de-scheduling and enough states regulated, that institutional capital is going to come in and it's going to be like, everything's going to become big business. And which is great for a craft brand like ourselves, right?

So we're small, we're not ever going to be a MedMen or something like a big multi-state operator. But I mean, I'm open to that. But it's just going to depend on the number of years we have to do that. So I think this - it's a really great opportunity for entrepreneurs, right now for people looking to enter the industry.

RS: Talk to me a little bit about why you think women aren't bigger consumers or customers of -- do you think it has to do with the stigma? What do you think it has to do with?

NF: I think it does. I think it's one part, the stigma, so it's one part -- first, let's approach it from a retail model right. Most of the dispensaries have been not so savory in LA, even ones that mean well, because of the regulations. We had to have like security cages or just like a loud buzz and it's just -- and then for years and years like mild dispensaries included, all the employees are allowed to consume cannabis, while they're working. So it smells like a pot shop. And there's not a lot of education going on. And I think female consumers, if they are moms, if they're working professionals is a little bit of the stigma thing is there. And I think how we solve for that is offering lots of education offering a more normalized retail environment.

So at Aeon Botanika, we have an open floor plan. So there's nothing behind the counters. People are allowed to pick up products, interact with them. We have a proprietary technology solution that we're going to be implementing where people can really see where that product is sourced, where it comes from. And more importantly to our model, what wellness goals it reaches.

So we are positioning cannabis as a wellness product. And we're going after a Whole Foods Mom, a demographic that we have, right. So the same woman with some disposable income that's going to yoga, buying organic vegetables and adding a cannabis product into her life for the most common reason for women in wellness seeking cannabis is for sleep. Most women are either... they're worried and can't fall asleep or they've got some hormone imbalances. So they're waking up at night. And cannabis is a really great solution for that.

I also think there hasn't been enough low dose products on the market, like 2.5 to 5 milligrams for the new consumer to start out with. So that's something that's in our product line that we're creating. We have nothing over 5 milligrams per dose. I think women will really attach onto that and see cannabis as a wellness product that doesn't get them super intoxicated.

And then last, I just think lots of education and really educating the consumer, but also educating more healthcare professionals, and we're planning on reaching out to all of the physicians in our neighborhood and because I'm a dietitian, we're going to be able to do that and have -- we're calling them lunch and learn. So we're going to send a nurse. We have a nurse on our team that's going to go out and talk to the nurses and doctors, leave information about our store. How we're very wellness focused.

And so then -- because I've heard from internal medicine physician friends all the time for the last year. My patients are asking me about weed. They're asking me about marijuana. Who do I tell them to call? And these are just my few physician friends. So I know that that's happening. And if a physician doesn't really know what to say, they'll be like, yeah, I think it's safe enough. But they're not directing these women where to go, where they can get good education on the sales floor, they can like watch amazing content, like what we're going to be providing.

Yeah, and that's where, I think when a woman is making a decision about cannabis, she's really looking for a trusted source, trusted retailer. And that's what I feel like my role is. I'm a mom, I'm a working professional and I want to be like neighbor, girlfriend next door, but also a healthcare professional that's offering safe products that are curated for wellness.

RS: So on the product side, I mean, especially in this industry, given that it's growing so much talk is about branding and packaging and the importance of that. And whoever is going to get that right or whoever the number of people that are going to get that right are going to be able to like really make a name for themselves. What was your approach to branding and packaging given that?

NF: Yeah. That branding and packaging is so important, I have to back up a step and say that there's a number of beautifully branded products in the California market. That really the quality of the products isn't there from the source ingredients that they're using. And there's a number of great products that are good inside and out. But that's something that so many people have been so excited about branding and making it look amazing and just shelf appeal, and there's 7 seconds that a consumer has to make a decision when picking up a box to putting it in their basket. So the branding is key and important.

But I think I want to urge any manufacturers listening to this, you really want to make sure that you're creating a good clean product. And then when you're looking at your wellness products, and not only does it have to be beautiful, but the brands that are really going to win in my opinion are the ones that are clearly stating on the packaging what it's for. Especially for the wellness market, which is a huge expanding sector within cannabis manufactured products. Like specifically say, it's for sleep or it's low dose or what it is.

And then provide more information in the package, right? So we have a sleep teacher for example. So the teacher will be in a box with a packaging insert, that we're going to give the consumer more information about just good sleep hygiene and good sleep rituals. And what to eat and not eat and different things that are really helping them position cannabis as a wellness product, but also giving a lot of just lifestyle education.

RS: So talk to me about your goals, like five years from now, what do you envision or what do you want to happen?

NF: Yeah. So I definitely would like to scale our products nationally, that's difficult to do with the fragmented -- that you have to basically find a manufacturing partner in every state and then develop retail relationships at about the 3-year mark, I'd like to see us in all the adult use states with our product line and I'm open to expanding the retail brand and maybe anywhere between five and ten stores. We have a very high touch retail model. It's very luxury positioned, lots of consumer attention, with our sales staff, lots of education. It's not a cookie cutter thing that I can go franchise out all over the country.

That's why I'm really looking on the product side. And we'll see if this goes all the way to five years or not with, like we were talking about at the beginning with what's going to happen federally and within all the different states. But I have a ton of energy and a ton of passion for what I'm doing. So I hope to be doing this five years from now and being able to tell you like what amazing top-line revenue numbers we're posting.

RS: I hope to be listening to that... So let's end with this, I'm interested. I mean, you spoke a little bit about this given that you're in the health and wellness sector and kind of giving that validity that legitimacy, given the data, given the science, given the medicine, do you think the CBD market is eventually going to outpace the THC market in terms of providing that health and wellness without the psychoactive aspect even if it's a low dosage?

NF: Yeah. So I have a point of view on the hemp industry. So right now hemp products are not... they don't have mandated third party testing. A number of the good hemp companies are third party testing. But it's not mandated, they can still choose their lab and everything. And I feel like there's just a lot more regulation that has to happen around hemp products in order for me to feel comfortable carrying them or recommending them. We have -- we know so little about this plant about hemp, or about cannabis.

We're starting to know more and more about cannabis products and -- or cannabis and cannabinoids and what we really -- what we really know is about the entourage effect, right. And it -- for most people it takes more than 0.03% of THC for someone's body to be able to uptake all the cannabinoids. So hemp products aren't bad for you, but they usually don't contain enough cannabidiol. And the cannabidiol needs THC in order to really go through the gut mucosa and be bio-available and useful. So, a lot of these doses that are only 25 to 50 milligrams of CBD or CB Isolate, the body kind of doesn't know what to do with that. As a dietitian, I liken it to taking broccoli extract in a bottle from Whole Foods versus eating the broccoli. Your body will be able to do more with the broccoli than just the broccoli extract.

But yeah, the CBD market is growing fast and I think that it is going to usurp the cannabis market because they have global distribution, right? They don't have a lot of the laws to contend with that we do. So I think it is going to grow, but let's just like kind of buyer beware, like look at it and like make sure that it's actually a good product that the company is testing and yeah.

RS: Which is what we're experiencing. I mean, even like the FDA or in Canada, Health Canada, they're trying to get that kind of solidified. What is a good product?

NF: Yeah.

RS: What they're saying is it true, is it not true?

NF: Right.

RS: So I think the consumer really does need to be hyper aware in that space it seems like?

NF: Yeah. Right now especially, while it's still early. Basically the government passed the Farm Bill in December 2018. And like everything's been off to the races and all these products are being created and branded -- branding and packaging and all this, but what's really inside that product? It's my personal point of view that we are -- it's a little early to market to be shipping CBD products on Amazon, all over the place and like what's really in these products where are they sourced from?

And I think people are... a little bit of THC is not going to hurt you, like a half a milligram, right? Most people won't even feel the psychoactive effects from half a milligram of THC, but just that extra bump up in THC will help the other cannabinoids into the person's system and really provide the healing or the relief from pain anxiety and stuff that people seek CBD products out for.

RS: Let me ask you this and I said that we will end there, but now I really mean it. And there might not be an answer for this. But do you -- there's so much buzz around CBD and hearing you talk about the kind of -- the -- not necessarily clear side of hemp and CBD? Do you think all the buzz has been a good thing or a bad thing ultimately?

NF: I actually think it's kind of paving the way for the cannabis industry, in the marijuana cannabis industry. So I always like to clarify, because a lot of people don't realize this. CBD is a molecule, it's a molecule whether it's in hemp or in cannabis, it doesn't matter. And the only difference in a hemp product is that it has... a hemp product has less than 0.03 THC. But the CBD is the CBD... So when you say CBD, you can get CBD from a cannabis product. So the hemp industry taking off has made it where all -- everyone's grandmas now asking everyone in the cannabis industry about these products and I think people will -- new consumers will use a CBD product is kind of an entrée.

And honestly hemp CBD products don't work for a lot of people. They take it and go, I didn't really experience a noticeable depreciation in my pain or my anxiety symptoms. And then I feel like it's then kind of a lead in for them to maybe go approach a medical dispensary or an adult use retailer and look for a micro dose product with a little bit of THC and that's the kind of consumer education, that it's important to Aeon Botanika to get out there.

RS: Right. So I've always heard that that's because the patients aren't taking it every day for CBD to be like effective it needs to be taken every day. But you're saying that it's just not necessarily effective for everybody?

NF: It's not necessarily effective, because there's usually products with less than 0.03% THC are not -- they're not providing the entourage effect that the science that we know is based around for why cannabinoids work in our system to regulate our system. And provide homeostasis and help with all the symptoms people are -- it works in a small percentage of the population. But we really don't have any double blind randomized control studies around CBD especially the isolate products and like 80% of the market is isolate products, very few hemp companies, if you look, if you turn over the package are using full spectrum hemp in their products, it's expensive, right?

So I have friends who have CBD companies and I'm -- I tell them like what -- make sure you're offering clean product, lots of education and make hay while the sun shines. Like, I know you guys are an investment oriented business model, it's great. But I'm thinking a little bit longer range with our brand as a health care professional led brand that I want to provide scientific products produced with a scientific basis as part of our product line and products in our store that really work for people.

And I'm just concerned about CBD later being seen as kind of a snake oil and 2 years from now and I wouldn't want that to come back attached to our brand. But I'm keeping my eye on the hemp industry. There's a lot of amazing things that hemp can offer us. And I'm just keeping my eye on and I'm not like…

RS: You're not dismissing it.

NF: Yeah. I'm not dismissing it. I just right now, it just needs a lot more structure and regulation like the Farm Bill was step one, but I think investors and people starting these hemp based companies just need to slow down a little bit and make sure that they're really bringing good safe products to market.

RS: Responsible growth?

NF: Responsible growth, exactly, exactly.

RS: Well, thanks for breaking it down. No pun intended.

NF: Yes, yes.

RS: Nicole, you've provided a wealth of information. I really appreciate you taking the time.

NF: Great. Thanks so much.