Grown Rogue executives double down on their strategy to increase the company’s market share on the West Coast
Grown Rogue is one of the most recognizable brands on the West Coast, with well-established cultivation and distribution operations in Oregon and California and plans to make even bigger headlines in 2019.
About 225 retailers carry products from Grown Rogue, which currently has 90,000 square feet of canopy in Oregon, including two outdoor farms and a state-of-the-art indoor production facility, as well as a distribution license and 14,000-square-foot micro-business facility in California. The company plans to eventually hold manufacturing, retail and distribution licenses in the Golden State and has formal partnerships in Michigan for cultivation and processing centers and three retail outlets.
While the company has established itself as a leading producer, Grown Rogue anticipates the opening of its first retail stores in 2019 and a public offering on the Canadian Stock Exchange.
Marijuana Venture spoke with Grown Rogue CEO Obie Strickler and chief strategy officer Jacques Habra about the state of the company and the future of the industry.
Marijuana Venture: How do you see the marijuana business playing out in Oregon?
Obie Strickler: Oregon is a producer state. The DNA of farmers and cultivators is to generate income from the land, and cannabis is an ideal crop. This has and will continue to result in tremendous supply.
At some point, interstate compacts will allow Oregon to export product, which will reduce the strain around price compression that we are seeing in Oregon. Until then, farmers and producers must be thoughtful in what they produce and plan ahead for distribution to ensure a meaningful return on investment. Oregon will always be a leader in cannabis and hemp, and the farmers who thrive in this burgeoning industry will need financial discipline to be successful.
MV: Can smaller, independent cannabis companies survive?
OS: Absolutely. Oregon’s entire regulatory structure was set up to support the craft producer. That being said, competition is going to be fierce for several years, if not more. The smaller, craft companies will be successful by really focusing on what they do extremely well and not getting spread out.
They also need to establish their unique value proposition of why their product is better. This is really where the branding becomes so critical. The solution of just saying “I have the best weed” isn’t going to work anymore. We are already starting to see some of these really special product companies create a niche for themselves in Oregon by focusing on those critical concepts.
MV: How important are brands in the marijuana industry?
Jacques Habra: The marijuana industry is a sophisticated consumer packaged goods industry. The fact that marijuana products are ingested and consumed greatly elevates the level of responsibility and scrutiny for each product.
Brand equity will be the difference-maker in this industry as the entire value proposition of brand development is to establish and build trust. How do you build trust in a nascent industry like cannabis? This begins with doing what you say you are going to do at a high capacity. When we say that our products are high quality, we deliver high-quality products. If we fail, we take responsibility, adjust accordingly and reaffirm our commitment. Our brand is rooted on promising consumers “the right experience, every time.”
A lot of cannabis companies talk about achieving the right effect but few, if any, publish how they plan to do this. Since mid-2017, we have been very transparent in sharing our scientific process with the community as to how we establish our five experience classifications (Relax, Optimize, Groove, Uplift, Energize) toward ensuring the right experience. We have not only shared our quantitative approach with the broader community, we have included the community through our ROGUE Study, which measures people’s feelings before and after consumption. With hundreds of participants, we can confidently provide direction on which product to choose for the right experience. This level of transparency and inclusion is our approach to building that critical trust with the consumer and creating a direct line of communication.
Our brand allows us to move from state to state and even from country to country without tremendous investment or scrutiny. As expansion and growth is fundamental to our plan, developing equity into our brand is a constant effort.
MV: Which products are growing, and which ones are declining?
OS: In general, we continue to see every product category increasing; however, some are increasing at faster rates than others. In particular, flower continues to lose market share to the other categories like concentrates, edibles and pre-rolls. This is a natural evolution of the industry as more innovation and products are brought into the market.
The fastest-growing segments are definitely cartridges and edibles as both of these product lines are much more conducive to the mass market. Flower is still the primary product category, representing nearly 50% of total sales. The industry is still in its infancy and we don’t anticipate a reduction in product growth for the foreseeable future.
MV: How have you modified your business model in recent years?
OS: Each state in the U.S. has very different rules of engagement when it comes to cannabis, requiring the constant adaption of our business model. In Oregon we are continuing with our vertical integration model through strong partnerships with best-in-class retailers and, in some cases, planning to acquire retail locations that share our vision for the right customer experience. In California, we have already aligned with strong product companies who meet our standards of excellence in cultivation, manufacturing and processing.
Our brand focuses on creating the right consumer experience based on a validated scientific study; importing this concept to a new state has been relatively smooth. We have positioned our brand in California in niche markets, without the costly expense of infrastructure investment. This model allows us to capture valuable market share in California without the capital costs required to construct manufacturing centers.
As we are finalizing our public listing on the Canadian Securities Exchange, our strategy considers the broader investor sentiment, which requires careful consideration on a state-by-state level. At this time, we are also evaluating other neighboring states as well as some locations in the Midwest. There are many opportunities developing and our approach is to pursue the right ones in a deliberate fashion so we can maintain our core values of integrity, consistency and quality.
MV: What are your thoughts on going public?
OS: About a year ago we began seriously considering this path. Our team and advisers evaluated the market and the future of the industry and determined being a public company in this sector provided the most opportunity for success. Really, the three critical factors were transparency, access to capital and being able to use our stock as a currency during the inevitable consolidation.
Transparency allows the consumer and the investor to know that Grown Rogue discloses pretty much everything about our business, providing comfort in how we operate. Access to capital has been and continues to be one of the biggest limitations to cannabis companies. Being public opens up a much broader range of investors, giving us both more access and cheaper rates than private capital. Because the industry is so fragmented, we also wanted a way to offer the most value and opportunity to our key partners in the industry as consolidation begins to take place. Having a tradable security gives potential partners a much better solution for their financial wellbeing then being privately held.
MV: What changes would you like to see when it comes to Oregon’s rules and regulations?
OS: That’s a great question and one that is difficult to answer. It’s really too early to understand whether things are working with the industry and the regulatory structure. Lots of people point to the fact that too many licenses were issued, hence the oversupply and price compression. We take a different view, which is that one of the objectives of legalization was to reduce the amount of illegal buying and selling of cannabis. While we believe it will take full federal legalization before you completely eliminate the out-of-state diversion of cannabis, we also are very confident that almost all of the cannabis consumption in Oregon is now done through legal channels, which is a huge win for the regulators and the people of Oregon. The Oregon Liquor Control Commission has done a great job of navigating the challenge of implementing new regulations, and all of our interactions with them have been great.
I think the biggest thing we would like to see change — and something that Grown Rogue is actively working on — is how the tax dollars are disbursed. Right now, taxes from cannabis sales are distributed based on location of sales. This means most of the taxes are sent to the Portland metro area where most of the dispensaries are. This is not equitable to areas like Jackson and Josephine counties where something like 70% of the production occurs. We have been suggesting that tax is distributed to counties based on number of licenses and not just retail sales.
With the price compression, we also support a change that would allow for more tourism and allowances for consumers to visit and tour small farms. This would be very similar to the winery model, where consumers could go to a farm, tour the facility, purchase cannabis products and possibly consume on the premises.
MV: What are the plans for the company in the next two to five years?
OS: In a nutshell, continued expansion and growth with a strong commitment to our core values. Grown Rogue believes the cannabis industry has the potential to benefit virtually everyone on planet earth whether medically or through health and wellness. Our responsibility is to develop standards to ensure high-quality products and to educate and inform consumers to ensure the right experience, every time.
We do this through our cumulative 75 years of cultivation and manufacturing experience and partnering with scientists to evaluate the effects of cannabis production. From there, we can bring diverse, high-quality products to the market and provide the context to ensure consumers are selecting the right product and right dosage to achieve the desired experience.
Grown Rogue already operates in multiple states and over the next two to five years, we will develop our brand into several more states and select international locations. Our vertical integration model emphasizes the all-important consumer experience. We will continue to refine the retail experience as the industry evolves. Ultimately, we want our brand to be associated with the “right experience, every time.” Achieving this goal requires constant trial and error, persistence and fulfillment on our promise to deliver high-quality cannabis products to the marketplace.
This interview has been edited for length and clarity.