Root Sciences chief financial officer Sam Kassem talks uncertainty, scaling, regulations and future of the cannabis industry
When you look at successful businesses such as Microsoft, Amazon or McDonalds, they all seem to have one thing in common: They start out with a well thought out plan, hire top talent, work hard and continuously evolve to meet the changing demands of the market and their customer base.
Long-term success in business invariably involves evolution and incremental changes as opposed to revolution and big shifts. Most industry-leading companies are hyper aware of this and what their customers want or demand. They continually adapt and change with the times. Those that don’t — think Kmart and Myspace, among others — are replaced by organizations that are faster on their feet and more aware of the competition.
When I first wrote about Root Sciences back in 2016, the company was already a pioneer in the rapidly growing extraction side of the legal cannabis industry. With a smart group of dedicated scientists and a well thought out road map, the business was one of the first to make significant advances in the distillation of cannabinoids. The company’s belief eight years ago was that the industry would see big advantages to a pure, clean THC extract that could be used in many different forms and adapted to a variety of products. Today, Root Sciences is still at the forefront of the extraction side of the business, but with a new suite of products that offer a complete A-to-Z set of solutions for anyone looking for equipment in the extraction processing space. This includes new versions of the molecular distillation equipment that started it all. With a group of manufacturing partners that features many of the world’s best, Root Sciences has managed to evolve with the cannabis industry and stay at the forefront of a rapidly changing market that continues to demand innovation and expertise.
Marijuana Venture spoke with Root Sciences co-founder and chief financial officer Sam Kassem about the company’s plans for the future as it continues to adapt to the fast-paced industry.
Marijuana Venture: What types of changes has the company made to its offerings and has your focus shifted with time?
Sam Kassem: Over the past few years, Root Sciences has undergone some significant transformations to better serve our customers and meet evolving market demands. One major change we’ve implemented is the expansion of our product offerings to include comprehensive end-to-end processing solutions. We recognized the need to provide our customers with a one-stop-shop for their processing needs. This means that we now offer a complete suite of services, ranging from extraction and distillation to filtration, formulation and nano-emulsions. We’ve essentially become a one-stop destination for companies looking for solutions in these areas.
MV: What mistakes were made early on? Looking back, did you miss some obvious signs that you were off track?
Kassem: Absolutely, we’ve had our share of early challenges. When we first started, we were primarily focused on one specific stage of cannabis processing, which was distillation. Looking back, it’s clear that we initially missed the opportunity to provide a complete suite of end-to-end processing solutions to our clients. However, there was a silver lining to this approach. By concentrating on one segment, we were able to perfect our offering in that area before expanding into others. This allowed us to fine-tune our processes, equipment and services, ensuring that we delivered a premium product to our clients.
In terms of missing signs, we realized that our narrow focus might have limited our growth potential. But at the same time, it provided us with the space to conduct extensive testing and prepare standard operating procedures for our equipment. This investment in quality ensured that when we did expand our offerings, our clients had access to top-notch equipment and solutions. So, while we acknowledge that we may have initially overlooked the broader picture, it ultimately allowed us to build a strong foundation for our company’s growth and success.
MV: What do you see going forward and how has changing consumer demand affected your focus as a company?
Kassem: As we look to the future, we see several significant factors that will shape our company’s trajectory. One of the most pivotal developments is the potential federal rescheduling of cannabis, which will undoubtedly have a profound impact on both existing producer-processors and new entrants to the market. To meet the emerging regulatory standards, such as Good Manufacturing Practices (GMP), will be crucial. We have long been able to cater to our GMP customers, but we are only recently seeing an uptick in interest for GMP certified products.
In terms of changing consumer demand, we’ve been closely monitoring shifts in preferences and behaviors. We’ve observed a clear trend toward consumers seeking high-potency products while also emphasizing cost savings. In response to these evolving preferences, we are sharpening our focus on providing scalable solutions equipped with high-throughput equipment. This approach ensures that our clients can meet the demand for potent products efficiently and economically. We have definitely seen a shift toward nano-emulsified beverages and solventless concentrates in terms of the retail market. So, we have made sure our product offerings cater to these shifting preferences.
MV: This is a difficult environment for equipment suppliers. How have you managed to thrive in the current environment?
Kassem: Surviving and thriving in a challenging environment has indeed required strategic thinking and proactive measures. One significant step we’ve taken is to reevaluate and renegotiate our contracts with suppliers to secure more favorable pricing terms. By doing so, we’ve managed to reduce our operational costs, which has allowed us to maintain competitive pricing for our clients while still ensuring quality and reliability in our equipment. We’ve also focused on offering exceptional customer service and guidance to ensure our clients succeed. Our clients’ success strengthens our credibility and positions us as a trusted partner in the cannabis industry.
This approach reflects our commitment to adapt and find innovative solutions to the challenges presented by the current business landscape. It’s all part of our broader strategy to not only weather the storms but also position ourselves for sustained growth and success in this demanding environment.
MV: How has the consolidation in the cannabis industry impacted your business and the industry as a whole?
Kassem: The phenomenon of industry consolidation has had a notable influence on both our business and the cannabis industry as a whole. One prominent trend we’ve observed is a significant shift in the average capacity of processing equipment being ordered as compared to what we saw four or five years ago. This change can be attributed to several factors, primarily driven by the price compression of products resulting from increased competition within the market.
As competition has intensified, industry participants have been compelled to explore strategies for reducing their unit costs. One effective means of achieving this has been through the adoption of higher throughput equipment. This shift in equipment requirements aligns with the overarching industry trend of consolidation, as larger, more efficient operations often emerge from these mergers and acquisitions.
Lastly, it’s crucial for industry stakeholders to think strategically about their current and future equipment needs. The competitive nature of the market and the imperative to reduce costs necessitate a forward-thinking approach to equipment procurement.
MV: What can processors do to prepare as consolidation occurs in the industry?
Kassem: As the industry continues to experience consolidation, processors can take several proactive measures to better position themselves for success. One key strategy is to explore large-scale equipment options and place a strong emphasis on achieving economies of scale.
By investing in large-scale equipment, processors can optimize their production capabilities and streamline their operations. This not only allows for increased output but also helps in driving down per-unit production costs. Economies of scale play a pivotal role in remaining competitive within the evolving landscape of the industry.
MV: What do you see as the benefits processors can gain by scaling their business?
Kassem: Scaling a business in the processing industry offers several significant benefits, with two key advantages being the reduction of barriers to entry and the expansion of market share.
Firstly, scaling allows processors to break down barriers to entry, making it easier for them to compete in a highly competitive market. Smaller operations often face challenges related to cost-effectiveness and the ability to meet growing demand. By scaling up, processors can access economies of scale, which can result in reduced per-unit production costs. This, in turn, makes it more feasible for new entrants to establish themselves and thrive in the industry.
Secondly, scaling also leads to an expansion of market share. As processors increase their production capacity, they can cater to a larger customer base and potentially reach new markets. This not only strengthens their foothold in existing markets but also provides opportunities for diversification and growth.
This interview has been edited for length and clarity.