For years in the music industry, record sales were charted through phone calls and conversations with music stores. The widely-believed assumption was that rock and roll topped the charts. It wasn’t until the industry started tracking records directly based on sales that the true pecking order — with country western at the top — came to light.
The same analogy can be made of the cannabis industry, where so many numbers and reports tend to be anecdotal in nature, rather than based on facts. That is, until recently, as Washington’s seed-to-sale tracking and programs such as Tetratrak reveal the true sales and production numbers of every licensed marijuana business in the state.
And what that data shows is that Grow Op Farms is absolutely dominating the Washington market.
The Spokane Valley-based producers of the wildly popular Phat Panda brand have sold nearly $3 million dollars of cannabis in the past six months.
Grow Op Farms was the top-selling producer/processor in the state for a four-month stretch between February and May (June results had not been released as of press time).
In April, Grow Op finished the month just shy of a $1 million milestone. Its $946,000 in sales was more than the next two companies combined.
BMF Washington, which produces the Liberty Reach brand, sold $471,000 of product, while DB3, of Zoots fame, sold $458,000 of product.
Despite being operational for just six months, Grow Op Farms ranks third in the state for total revenue since Washington’s recreational market launched in July 2014. Co-founders Rob and Katrina McKinley say the Grow Op team is biggest reason they’ve been able to grow so rapidly, with the quality of their product and their marketing and brand creation as other significant factors in their success.
The McKinleys brought a wealth of entrepreneurial experience to the grow, but had never been directly involved in the marijuana business. In addition to a wide range of other business ventures, the McKinleys own a successful marketing company, which lent its name — Phat Panda — to the company’s flower brand.
The McKinleys say they’ve been lucky many times in their lives, choosing the right path and picking the right people to align themselves with. It seems Grow Op Farms follows in that lineage.
“I always look at things from a business perspective,” Rob McKinley says. “If you could have been Jack Daniel’s when they removed the prohibition on alcohol, then you should probably make some whiskey.”
And so it goes following the end of cannabis prohibition in Washington that the McKinleys figured they should start growing marijuana.
The right hires
McKinley points at two hires that were absolutely crucial for Grow Op’s success.
The first and most important was Andrew Guy, the vice president of operations and master grower of Phat Panda.
In terms of his growing knowledge and expertise, Guy “passed the sniff test,” McKinley says. He was confident Guy could handle the enormity of a full-size, commercial grow operation.
Plus, Guy’s contacts within the industry allowed management to build a team underneath him that was up to the challenge.
“Some of our best employees came from Andrew’s knowledge and contacts in the industry,” McKinley says.
Guy probably isn’t the typical “master grower.” He started learning cultivation techniques years ago from a relative, but he also has a degree in economics and an understanding of how to make a cost-benefit analysis.
There’s a level of trust between Guy and McKinley that’s necessary when it comes to equipment and capital expenditures. McKinley tells people he’s never said no to Guy. One of the first questions that came up between them was about the type of lighting they were going to install in the flower rooms. They weighed the merits of a cheaper light at $250 apiece or a more expensive light at $400.
“When you’re buying lights for a single room, it might not be that big of a deal,” McKinley says. “When you’re buying a train car of them, that was a big decision.”
They went with the more expensive light — a decision that seems to have paid off considering the yields they’ve achieved.
“I’m certainly able to objectively look at what things cost, what the potential return is and make the best decision for us as to whether that’s something we need to do,” Guy says.
The second key hire was bringing in Garrison Smith as a staff designer.
McKinley calls Smith the best designer in the industry, which warranted Grow Op to bring him in-house and keep him away from other competitors.
Smith is responsible for the label designs that are one of the most recognizable aspects of Phat Panda. Whether it’s the Granddaddy Purple, the Golden Pineapple or the OG Chem, each strain has a unique, eye-catching label that sets it apart from the vast majority of the industry.
Marketing and branding
With the McKinleys’ background in marketing, it stands to reason that Grow Op Farms would put a heavy emphasis on establishing a brand that would stand out in Washington’s crowded cannabis marketplace.
Not only did the packaging have to stand out to potential consumers, but it was also the first step in getting Phat Panda on retail shelves.
“I would say that the packaging was very important to getting our product tested by the store owners,” Rob McKinley says. “When we would drop off samples, typically there was a basket with 50 other samples in it. Having glass (jars) and a really cool presence or label got our product tested first. All of our flower is packaged in glass. I believe we were the first to do this. Because of the labels and glass jars, our shelf presence is undeniable. When you walk into a retail store our products will be the first to catch your eye.”
The company’s original plans were to go a co-branding route, where the farm would grow the product, but it would be branded for each individual store.
However, the Phat Panda prototypes were an instant hit among Grow Op’s employees. The name came from a lesson McKinley took from one of his early mentors — use an animal if you want to create a memorable, catchy brand. Thus Grow Op Farms utilized Phat Panda for its flower products and Sticky Frog for its concentrates.
Katrina McKinley came up with the idea of using mug-style glass jars during a trip through Hobby Lobby.
While the jars might be more expensive than the typical plastic bags most producers use, the glass helps separate Phat Panda from many of its competitors.
McKinley describes one instance where a retailer specifically requested his shipment in plastic bags. Grow Op Farms granted the special request, but in the hustle and bustle of putting the shipment together, packaged the flower in glass jars just like every other shipment.
Originally, McKinley and his team were apologetic for the mix-up. But within a couple weeks, the glass jars were flying off the shelves and the retailer completely reversed his stance.
The glass jars and catchy packaging have also created a collectible craze among some consumers, McKinley said. He regularly hears comments from people that they are trying to collect every jar, or that they save the bigger mugs to reuse as drinking glasses.
The packaging is crucial for getting consumers to buy Phat Panda products in the first place, but getting them to keep coming back for more is a factor of quality, McKinley says.
“Cool packaging might lead people to buy a product once, but if they’re not satisfied with the product, they’re not going to keep buying it,” McKinley says.
McKinley says he believes Grow Op Farms grows the best cannabis in the state.
But, then again, everybody in this industry says that, right?
“If our product weren’t the best in the state, then the retailers wouldn’t call back after we drop samples and the customers wouldn’t become repeat buyers,” McKinley says.
Guy says the employees of Grow-Op Farms are what make Washington State’s largest cannabis producer successful. Without having the right staff in place to manage all aspects of the garden, as well as the trimming, processing and packaging needs, Phat Panda wouldn’t be what it is today, he says.
The business currently has about 40 full-time employees and 27 part-timers.
“A lot of the employees really enjoy working with the marijuana,” Katrina McKinley says. “They love it. Not only do we try our best to treat them well, but they like their work. They want to be there, because they like what they’re doing. It’s awesome that they get the opportunity to do something they used to have to hide in their house to do and now they can actually do it for work and get paid to do it, legally.”
The attrition rate has been extremely low since Grow-Op Farms began operating. That’s been crucial in getting everybody up to speed and on the same page, Guy says.
The company has been able to retain the bulk of its work force by taking care of the employees.
“We treat them well, and in turn reciprocate with their time and energy,” Guy says.
Grow-Op Farms’ lowest-paid employees make at least $12 an hour, while many make $15 an hour or more, plus the possibility of overtime during especially busy times.
The entire management team has the option for an ownership stake written into their contracts, and every employee is eligible for profit sharing. Rob McKinley says 4% of the net profit at the end of the year is set aside for bonus dividends for all employees at the end of the year.
On the busiest days of the week — Tuesdays, Wednesdays and Thursdays — the company provides lunch or dinner for all employees
The McKinleys don’t take a salary from the company. Instead, they’ve been reinvesting any profits back into the enterprise.
“Right now, as long as we’re bringing in more than we’re spending, that’s a good month,” Rob says.
Staffing was originally one of the biggest obstacles Grow-Op Farms had to address.
“We grossly underestimated the amount of people that we needed, mostly on the processing side,” Guy says.
McKinley adds that the operation grew so fast during its first few months that employees were working 10-12 hours a day for several weeks at a time. That shortage cost the company a lot of money in overtime as it tried to keep up with the staffing needs.
“Since we are growing plants and they have schedules, flex time is difficult to offer any of the growing staff,” McKinley says. “Processing is a similar situation. Certain jobs have to get done in a very organized way. There isn’t a lot of freewheeling like you might find in a small tech startup where as long as I get my code written no one else is harmed. With plants if they aren’t attended to correctly it will negatively affect the whole operation, not just that one person and their job.”
Grow-Op Farms currently does not offer health insurance, but could be offering a medical/dental plan in the next few months for employees who wish to participate, McKinley says.
While working for Phat Panda is extremely fun, it’s certainly not easy, Guy says.
“It’s challenging,” he says. “Every day it’s the most challenging thing any of us have ever done.”
There have been times when Guy has worked 24-hour shifts — or more. The magnitude of the grow makes it easy to lose track of time taking care of necessary tasks, he says.
“We shackle him at night so he can’t leave,” McKinley jokes.
One challenge almost all state-licensed growers face is scaling up to commercial quantities.
“It’s one thing to grow one room, but changing that to 16 big rooms and meeting the labor demands is completely different,” Guy says.
There really is no secret to how Grow Op Farms has managed to tackle that challenge better than any other producer in Washington. The growers have done everything they can to maximize their allotted 21,000 square feet of canopy. They’ve had to learn how to manage the balancing act of keeping enough clones and mother stock to supply the 16 grow rooms. They use top-of-the-line lights and nutrients, McKinley says. They capitalize on economies of scale.
The company initially faced a challenge with keeping the full-automated programming running correctly, McKinley says. With such a high-tech operation, it took a while before employees were familiar with the inner workings.
The growers have kept the operation within their means, focusing on what they do well. There are plans of introducing a line of non-perishable edibles in the near future, but rather than investing in extraction equipment and hiring somebody to handle concentrates, the company has outsourced that part of the operation to Weed Bunny, a Rainier-based processor.
On an average week, Grow Op Farms puts out about 40,000 to 50,000 grams of flower, 12,000 pre-rolled joints and 1,000 grams of concentrates.
The week leading up to 4/20, the grow facility stepped up its production to put 80,000 grams of flower and 17,000 joints on the shelves of retailers.
Despite consistently high revenue, McKinley admits the company is probably not making a lot of profit right now. The operating cost of a nearly 600-light grow operation, coupled with the cost of labor, is tremendous (all Phat Panda buds are trimmed by hand).
McKinley says his goal is to build Grow Op Farms into a $50 million dollar company in gross revenues.
“I think we can get there within 18 months or so,” he says.
Without a background in the cannabis industry, McKinley said he initially didn’t know what to expect in terms of yields. When early numbers came out, Grow Op was averaging about three pounds per light.
That set a high bar to follow, McKinley says.
“We didn’t really set out to dominate (the market), but as soon as that was provided to us, then there’s only one way to do it,” he says. “You’re either going to do it or you’re not. We fortunately have the team that can take it by the horns and do it.”
The company is in the process of implementing changes that could push its weekly production to around 80,000 grams.
“When we’re at that point, I think it’s going to be really hard for people to keep up with us,” McKinley says.
One might think sales would be easy for a company that’s producing more cannabis than anybody else in Washington.
“As fast as we can cure it, is as fast as we can sell it,” McKinley says.
But, like anything, the balancing act is half the battle. Despite its tremendous production, the demand for Phat Panda currently outstrips the supply. McKinley says he has to turn down at least one retail store per day, and the company already has to keep its 40 active retailers happy.
“We currently have a waiting list of 50 retailers that we cannot fulfill due to lack of product,” McKinley says.
As soon as Grow Op Farms had product to sell, McKinley and Johnny Wilson, his vice president of sales, were cold-calling retailers and dropping off product to as many stores as possible. McKinley and Wilson saw the value of developing a great rapport with the owners and buyers at retail stores.
McKinley handles the two Spokane stores — Satori and Green Light — while Wilson handles the west side of the state.
“They have parties for him when he shows up,” McKinley says. “They’re giving him hugs and high-fives and they’re taking pictures with him because they want everybody to know they got their Phat Panda in.”
With a limited supply to spread throughout the entire state, Grow Op Farms has had to focus on working with like-minded retailers, while also trying not to oversaturate a particular region of Washington. McKinley says it was important to hire the right person to handle sales, but the company doesn’t have a particular policy that sets it apart from other producer/processors.
“It’s very important to have good open and honest relationships with all of our retail partners,” McKinley says. “We are growing plants. This can cause variances in supply due to unforeseen circumstances and having a good relationship that’s open and honest allows us some goodwill on the retailer’s part.”
If there’s one regulatory change, McKinley and Guy would like to see, it’s the canopy limitations the Washington State Liquor Control Board has implemented.
Grow Op Farms is fortunate that demand is exceeding supply, McKinley says, but in the long run, he would like to be able to fulfill more orders and have a larger retail footprint. Grow Op isn’t ready to expand just yet. But McKinley and Guy say they want to have the option when the company is ready. It’s only a matter of time before Grow Op Farms is going to need more canopy.
“The goal is to get rid of the black market. If enough product can can’t be grown, at a reasonable enough price, that will never happen,” McKinley says.
Overall, most of the regulations haven’t been too burdensome, but Grow Op Farms has had a bit of a “head-bashing contest” with the Liquor Control Board about the topic of expansion.
McKinley says it doesn’t make sense to penalize businesses that have maxed out their canopy and still need more room to grow.
“They don’t limit how many grapes you can grow, or even how much tobacco you can grow,” Guy says.
One idea that would ease the canopy restrictions on successful growers would be to make it so non-flowering plants don’t count toward the canopy, Guy says.
That would allow the canopy to focus on flowering plants, while allowing plenty of room for clones and mothers needed to keep the operating running.
However, the McKinleys recognize that the Liquor Control Board regulations are a fluid guideline.
The legal cannabis industry is so new, it will take time to shape rules that provide the right level of regulation without stifling business growth, Katrina McKinley says.