OutCo builds a traditional agriculture business in a non-traditional industry
Long before he knew anything about the cannabis industry, Lincoln Fish recognized the importance of customer service, not just in the sense of being friendly and welcoming, but from the perspective of really listening to his clients.
As CEO of Real Health Laboratories, a nutritional supplement company he founded in the mid-1990s, Fish would spend at least an hour a week answering phones in the call center. He wanted to hear what customers were saying, both the good and the bad.
Today, as CEO of OutCo, a vertically integrated cannabis company based in San Diego County, California, he’s bringing that same philosophy into the marijuana business. He regularly spends time on the sales floor at Outliers Collective, the company’s dispensary, to better understand the wants and needs of patients.
Fish’s mantra, “Always be improving,” is a core tenet that has made OutCo one of the most impressive companies vying for prominence in California’s rapidly changing marijuana market.
What do cannabis customers want?
Research firms turns its attention to the marijuana industry
By Geoff Nudelman
As more states legalize cannabis, the need for consumer-based research increases, and large corporations have begun to show interest in the preferences of cannabis buyers.
Florida-based Monocle Research seized the opportunity when it recently launched RED BOMBr (www.redbombr.com), a sister company that is solely dedicated to cannabis consumer research. It’s the first entity of its kind to focus on the developing preferences of consumers in legal marijuana markets.
“We’re going to pull people from our company who have specializations in cannabis to focus on this new effort,” says Shin Tsumoto, the head of research and a partner at Monocle.
While the company only has four full-time employees, it relies on an army of freelancers to carry out custom research plans for consumer packaged goods (CPG) companies. Up to 15 people will be involved in RED BOMBr’s establishment and operation.
The name comes from founder Dave Palomares’ interest in air travel. His father was a pilot and the company’s logo hearkens back to the golden age of air travel in the 1940s and ’50s.
It represents “a way to get above the clouds and see the world from a new perspective,” he says.
This “new perspective” materialized in Monocle’s first organized cannabis study, “The New State of Cannabis,” which was conducted for OutCo and focused on the attitudes of consumers in California. The purpose was to bring some sense to the incoming recreational market and how buyers may navigate it.
The survey included a wide range of industry professionals and both medicinal and recreational users to fully understand the environment faced by today’s customers.
The findings revealed some valuable insight into consumers’ preferences. Among the top factors that drive product selection, 39% considered THC content to be “very important.” Other important factors were chemical- and pesticide-free products (37%), recommendations from friends and family (30%), dispensary reputation (29%) and shopping experience (25%).
The survey also indicated that many users are considering switching from traditional smoking to other consumption methods.
“One thing we didn’t expect was how this barrier extends to medicinal versus recreational use,” Tsumoto says. Those definitions are unclear to the average buyer and it makes purchasing decisions more difficult, he adds.
Findings like this led Monocle to establish a specific unit dedicated to cannabis data collection.
The company discovered many of its current clients in the alcohol and chocolate industries were keen to learn more about the opportunities in the emerging industry, especially in a new market like California.
Monocle is also working on ways to bring these corporate research methods down to an affordable and scalable size for smaller companies, where the core of the current cannabis industry exists.
“We don’t want to have the industry taken over by big companies just because they have more money,” Tsumoto says.
Like Palomares, Tsumoto wants this data to become a key tool in helping companies grow and come out of the shadows.
Their findings go so far as to break down when and where California users consume cannabis products and which factors have the most influence into purchasing decisions — much like Monocle’s CPG clients do for just about any other product.
Tsumoto says that government entities have reached out through their clients asking for research results too, but ultimately the decision remains with the individual companies if they choose to share the information.
No matter the client, the entire operation is focused on Monocle’s consumer-first approach.
“Every business action should be focused on identifying, meeting and exceeding customer’s needs and expectations,” Davis says.
When Fish started Real Health Laboratories, he rented a 400-square-foot office from Marc Lair for $300 a month. The company grew so rapidly, Fish bought a 35,000-square-foot commercial building from Lair two years later. When the legal cannabis industry began taking shape, the two entrepreneurs reconnected and began the process of turning OutCo into one of the true leaders of mainstream cannabis.
Outliers Collective — named after the Malcolm Gladwell book, “Outliers” — was the first municipally licensed dispensary in San Diego County. The parent company, OutCo, was also one of the first businesses to partner with a local Indian tribe to build a commercial cannabis production facility on tribal land.
California, long recognized as the marijuana epicenter of the United States, will be undergoing major changes in the near future with the first statewide regulations planned for the medical sector and the launch of the state’s recreational cannabis market following the passage of Proposition 64 in the 2016 election. And OutCo is ready to capitalize.
“We’re thrilled with Prop 64,” Fish says, “because it will increase the visibility and it’s going to spur the growth of the industry in California.”
Fish isn’t shy about identifying OutCo’s employees as the company’s most important asset.
“We’re not the biggest player in cannabis yet, but I will absolutely, unequivocally state that we have the best team,” the CEO says. “I’ll put my team up against anyone I’ve seen so far.”
While conventional wisdom might lead a lot of companies to hire individuals with deep roots in the cannabis community, OutCo went the opposite direction, putting a higher premium on people with business and science backgrounds.
Austin Birch, the company’s co-founder and chief operating officer, has more than 40 years of experience in construction and real estate, both domestically and internationally. He recently spent three years co-managing RECON International Group, which handled nearly $100 million of construction contracts annually in the Helmand Province of Afghanistan.
Alex Bryan, OutCo’s vice president of marketing, went to Harvard, where he studied artificial intelligence development. Later, he had a key role in four successful startups.
Heading the extraction department is Markus Roggen, a German-born scientist who earned his Ph.D. in organic chemistry from ETH Zurich in Switzerland.
Ben Ballard, the vice president of operations, understands the complexity of working in a highly regulated environment, having handled compliance for an international oil exploration consulting company and overseeing one of the largest exploration surveys ever.
“Those are the kinds of people we’re putting in place to grow the company,” Fish says.
But all the business experience in the world could be meaningless without the right person to grow the crop.
Fish spoke with numerous growers looking for the right fit. With few exceptions, every cultivator would spend hours explaining why they’re the best, why nobody else’s methods made sense, why they only use one brand of nutrients or how the grow facility should be set up.
“There is no question that there are good people who have been working within the industry for a long time,” Fish says. “But that is not the standard, as far as I’m concerned. … After a little while, I got pretty disenchanted with cannabis cultivators.”
About that time, Fish met Allison Justice, a young integrated pest management consultant with a Ph.D. in plant and environmental science.
As part of the background check, Fish contacted her mentor at Clemson University, one of the world’s leading experts on growing poinsettias — a flower that is strikingly similar in cultivation to cannabis.
The professor “told me I’d be a complete idiot if I didn’t hire her,” Fish says. “He said in 25 years of teaching, she was the best graduate student he’d ever had by far.”
So, the matter was settled. Lincoln Fish is no idiot.
Justice joined OutCo as the vice president of cultivation in the summer of 2016 and she admits there was a little bit of a learning curve.
She had grown up in the world of horticulture, spending a great deal of time on an ornamental tree farm in South Carolina, before receiving her Ph.D. in 2014.
While she had done some consulting for integrated pest management and greenhouse management, she had not grown cannabis before getting into the industry, though she realized it wasn’t that much different than poinsettias or tomatoes. The learning curve wasn’t so much about growing plants, it was the lack of scientific data specific to marijuana cultivation.
She began asking questions of other growers. How much light intensity do cannabis plants need? What sort of daily light integral? What light spectrum? How much photosynthetically active radiation is ideal?
“Nobody could tell me,” Justice says.
Some gardeners would point her in the direction of a few blogs on growing marijuana.
“‘We don’t know, just hang the lights 12 inches above the plant,’” she recalls other people saying.
“Well, that doesn’t mean much to me,” she says. “I know cannabis is a very high light plant. They can take a lot, but just because they can take a lot doesn’t mean that’s the most efficient way to grow.”
Justice is used to having very specific data to work with — details that have been researched and tested to the point of being an exact science.
With cannabis, “you basically have to pick something that’s in the middle and adjust from there,” she says. “And that’s not just for lighting. That’s for fertilizer too.”
Another frustration for Justice was the lack of consistent, clean genetics in the cannabis industry. Having come from the traditional floriculture field, if she wanted a thousand cuttings of Prestige Red poinsettias, she could order them and have them shipped to her doorstep within a week.
But in the cannabis business, ordering a thousand Blue Dream clones comes with more questions than solutions, Justice says. Does anybody have that quantity available? Are they clean or full of mites? What pesticides have been used? Is it even Blue Dream?
“The industry is getting better and better, but it’s been a huge struggle,” she says.
Justice joined OutCo as it began the transition from two relatively small indoor grows to a 105,000-square-foot commercial greenhouse located on tribal land. She was instrumental in the design and build-out of the state-of-the-art facility, which will be fully operational this spring. The two indoor facilities, totaling about 6,000 square feet, will still be used for propagation, research and a breeding program.
About 95% of the total plant count will be grown in the greenhouse, Justice says.
Fish says OutCo planned to grow in a greenhouse practically from day one.
“I think the future of this industry is in truly sophisticated greenhouses,” he says. “Why not use the sun? Why waste all that energy when you’ve got a much better bulb available? What we’re building is an indoor operation with the world’s biggest light bulb.”
One of Justice’s primary goals was to reduce the need for labor-intensive processes. OutCo installed a GTI computerized boom sprayer for watering — reportedly the first of its kind in the cannabis space — as well as a post-harvest conveyer to automate as much as possible.
Biosecurity is placed at a premium, particularly since many of the company’s growers are also cultivators at home. Scrubs are mandatory and there are changing rooms and an air-shower to minimize the possibility of bringing in mites or powdery mildew. Hydro-store nutrients and chemical pesticides are being replaced with commercial fertilizers and beneficial insects for pest control.
About one-third of the greenhouse will be dedicated to veg. The rest will be for flowering with six different zones set up on a 10-day harvest schedule. Rolling benches maximize the facility’s square footage.
For supplemental lighting, the company chose LEDs for their energy efficiency, but in the greenhouse environment, Justice says certain light spectrums would have been completely unnecessary. Most lighting manufacturers didn’t factor that into their specs, so OutCo went the unconventional route, working with Florida-based Windsor Lighting to manufacture bespoke lighting with a customized spectrum.
The company currently distributes products to about 75 dispensaries throughout California, including its own retail outlet in El Cajon. By the end of the year, Fish expects the company to be producing about 3,000 pounds of flower per month.
OutCo is going through the licensing process for one more dispensary, while negotiating multiple acquisitions and franchising opportunities. By early 2018, OutCo plans to have four or five retail outlets, with a longer-term goal of 10-20 stores. However, owning a major chain of dispensaries is not really the company’s business model — rather, the stores will serve as channels for product testing and customer engagement.
“Dispensaries give us a face to be out there talking to people and get that feedback loop established,” Fish says. Although California’s impending regulations prohibit vertical integration, companies that were vertically integrated prior to July 1, 2015 are grandfathered in until 2026. OutCo is structured in a way that pieces can be split up if and when that is required, Fish says.
Much like the companies and people featured in its paperback namesake, OutCo looks at business from a non-traditional perspective.
The company’s leadership shows little interest in doing things the same way they’ve always been done.
Tried-and-true methods in the cannabis space may be valid, but they’re rarely sustainable, definitely not scalable and typically not based on science, Fish says.
OutCo intentionally seeks out different models, new techniques and a fresh outlook on how to achieve its goals. It takes inspiration from business models that have worked well in other consumer products.
While most cannabis growers pride themselves on “top-shelf” products geared toward connoisseurs, OutCo follows a different set of priorities. It’s not to say the company isn’t concerned with quality, but Fish and his team believe the connoisseur market is over-saturated, so they’ve turned their attention to the “new market” of consumers.
“We’re more focused on the next user,” Fish says. “We’re more focused on the book club, if you will. The market that’s coming up is much, much larger — perhaps four to seven times the size of the current market.”
What that means is finding a new way to communicate with customers and gain trust. OutCo worked with Monocle Research to conduct surveys of about 2,000 marijuana users to understand their needs and preferences.
“A lot of it centered around reliability and dependability — not words typically associated with cannabis,” Fish says.
For example, cannabis products with high levels of pesticides or residual solvents may have been accepted by Joe Pot Smoker, but won’t be tolerated by people who pay attention to food labels and buy organic groceries.
Words of Wisdom
At times, OutCo CEO Lincoln Fish speaks in business-school soundbites. At first glance, they might sound cliché, but they serve as the foundation for the company’s success — and could be used as a field map for businesses operating in any industry.
“If you want to get it done right, you have to do it yourself.”
This is not true across the board, Fish says, but in some cases, when quality really matters, it’s better to handle certain tasks in-house.
Plus, many well-regarded cannabis companies worth partnering with are already busy building their own brands. That was one of the reasons OutCo began doing its own extractions.
Markus Roggen, OutCo’s vice president of extraction, is “very focused on reproducing standardized extracts, so we can get to standard products that people know the exact dosage,” Fish says. “We’ve got to bring that kind of professionalism to this industry.”
Another example of this DIY mentality came when scouting the perfect LEDs for OutCo’s grow facility. When the growers couldn’t find the perfect fixture to meet their needs, they built their own.
“Realize that cannabis is maturing into a real business.”
Yes, cannabis is the fastest growing industry in America. And yes, some of the winners will become millionaires and possibly even billionaires.
But, “You’re not finding a pot of gold at the end of the rainbow,” Fish says. “There’s a lot of work that needs to go into doing it well and doing it right.”
People jumping in with a get-rich-quick mindset tend to ignore production costs, marketing expenses versus revenue, and details like showing up to meetings on time.
“I would caution anyone, especially investors, to not get taken in by the gold right away, but to really evaluate the companies they’re looking at,” he says.
OutCo built its financial projections at considerably lower prices than the current market, because Fish knows cannabis is being commoditized, driving wholesale and retail prices down.
“Always be in touch with your customers.”
Fish believes in a customer-centric approach to business. It’s a key to building a consumer brand, he says, but there are bad examples of it all over the place. He’s always a bit shocked that companies will spend a fortune to get a customer, but then dedicate very few resources to maintaining that relationship through customer service.
“A lot of cell phone companies have been guilty of that,” he says.
“These new consumers are not going to put up with that,” Fish says, so it’s important not only to set a higher standard for clean cannabis, but also to educate consumers about what to look for and assure them that OutCo is a brand they can trust. The company’s goal, for both the medical and recreational markets, is for everything to be produced at a truly medical standard.
By no means is OutCo the only company taking this approach. Fish says he’s seen other businesses follow this path and knows that many more will follow. But he does have his eyes on the long-term future of the business, based on the belief that someday marijuana will be decriminalized federally and major corporations will jump into the green rush.
“They’re not going to buy fields and they’re not going to buy machines,” Fish says. “They’re going to buy brands and mind-share. That’s how we want to position ourselves. We want OutCo to be synonymous with quality and innovation in the cannabis space.”