Photos by Nina Monroy
Cannabis growers spend a lot of time designing their grow facilities, managing their operating costs and nurturing their beloved plants. However, many in this industry overlook a piece that is essential to running a lucrative business: government affairs.
Derek Peterson, CEO of Terra Tech, a publicly-traded cannabis company with grows and dispensaries in multiple states, says this component is absolutely critical.
“If you want to be competitive and successful, you need to understand that you have to focus on government relations,” Peterson says. “You have to get focused on the legislation before it passes.”
Terra Tech currently has one dispensary in Oakland, another in Reno, and three in Las Vegas. The company plans to continue branching out as opportunities present themselves. Terra Tech is a rarity in the domestic cannabis industry — a public company that touches the plant (OTC:TRTC). Its stock has fluctuated between 9 cents and 75 cents a share over the course of 2016. As of late December, it sat at 27 cents a share.
The company’s dispensaries, which go by the name Blum, have been carefully crafted and designed with the end consumer in mind. They sell their own IVXX brand of cannabis (the Roman numerals for 420).
Peterson, who previously spent more than 10 years as a successful Wall Street investor, says these choices have been made strategically.
“We think what ultimately wins in the marketplace are strong brands,” Peterson says. “I don’t care if you’re talking about coffee, tobacco, alcohol. Brands win at the end of the day.
“The reason Starbucks can charge what they charge per cup of coffee is because they’ve built brand recognition. There’s consumer adherence because of the lifestyle.”
It’s the same in any industry, he says. Cannabis is no exception.
Developing brand consistency is what he’s trying to do with Terra Tech.
“It’s extremely important for us to build a brand that will have significant scope and ultimately, we can migrate nationally once federal issues are dealt with,” Peterson says. “There’s so much fragmentation at the retail level and part of that is just a byproduct of it being so cottage and so mom-and-pop in nature.
“If I go out and buy OG Kush in Oakland and then I go buy OG Kush in Las Vegas and OG Kush in San Diego, I’m going to get three different products. And that’s just the reality,” he says.
“I’m going to get people that are lying about the strain, I’m going to get the same strains that were grown but grown so differently they have entirely different characteristics associated with them. And that isn’t acceptable in any other industry.”
For example, he says, if you walk into a Starbucks in San Francisco and buy a grande mocha soy latte, you will get the exact same thing as you would at a Starbucks in Las Vegas.
If shoppers were to get entirely different products, he adds, they wouldn’t put up with it. Most people would complain and the product — in this case coffee — would be fixed.
“I don’t care whether that’s a widget, a coffee, a watch, cosmetics — you name it. Continuity affects perspective consumers,” he says.
Terra Tech wants all Blum facilities to look and feel the same. They currently have the same color palette, the same tiles and the same lighting fixtures. All of the cannabis is the IVXX brand, grown in exactly the same manner.
“There’s a measure of consistency from a product standpoint,” he says. “And then hopefully (consumers are) getting the same service because everybody’s trained under the same umbrella.”
Peterson calls it a “consistent, homogenized service experience.”
The company’s long-term goal is to win over the California marketplace and then move out across the country, particularly in the major cities.
Nevada is one of its key targets, he says.
The CEO points to the fact that 42 million people per year travel to Las Vegas from all over the world. It’s one of very few locations that not only gets national but global branding impacts too.
Florida is another state on Terra Tech’s radar.
“We’re looking at the major markets right now,” he says. “High population density impacts. We’re staying away from the smaller Washingtons and Oregons just from a bandwidth perspective. If we’re going to mobilize a team, I’d rather mobilize a team in a market where we can open up 10, 15, 20 stores — not a market where we can open up only a handful.”
Peterson attributes a large part of the company’s success to the energy it has put into building government relationships. The business has a government affairs department and lobbyists in multiple markets.
Focusing on these strategic relationships not only helps the company land new permits but also helps it maintain a competitive advantage afterwards.
“We don’t want (the local government) to issue too many permits until the industry has a chance to mature, so part of it is playing defense,” Peterson says. “We just put a million bucks into each one of our locations. We just invested $15 million dollars into Clark County, into the state of Nevada. We want to make sure we get a return on that before they issue 10, 15, 20 more licenses. So, we start working with our lobbyist and legislators.”
That gives Terra Tech the chance to recoup its investment before additional permits are opened up to everybody else.
Many see this as a ruthless attempt to prevent competition; others view it as a smart business tactic — tough, but perfectly within the bounds of ethics.
Peterson says he believes those strategic relationships were part of why an existing dispensary in Nevada was given an 18-month head start before any additional permits were issued after Nevada’s recreational marijuana ballot measure passed last November.
He anticipates the same trend will continue in other states.
“You’re going to see that out of Florida with the people that won the CBD permits two years prior,” Peterson says. “They’re going to make sure that new people can’t come into the marketplace because they came in early and put a bunch of risk capital out there.”
At the moment, Terra Tech’s government affairs division consists of four full-time employees whose sole duties are to manage lobbyist groups and outside relationships.
Peterson recognizes that this isn’t something every company can afford. Still, he says, even smaller startups should put some investment into government relations and try to have at least one lobbyist.
Furthermore, they shouldn’t just select the first lobbyist they find. Business owners should make sure they’ve got someone who knows what they’re doing, or it’s not worth the investment.
According to Peterson, the best way for smaller companies and startups to do this is to work backwards from the legislation.
“If you’re someone that’s starting up a company, you may not have access to a governor or a congressperson or a senator, but you may have access to a staffer,” he says. “You may have access to somebody that works in City Hall. Leverage those resources to do due diligence and find out if those people are well respected, because if your lobbyist is not well respected — and just like any industry there’s slimy ones and there’s ones that have a very, very solid reputation — your reputation is going to be tied to them.”
The first step in finding this person is determining where to operate. Do a thorough analysis of all of the rules — what types of sales are allowed, what the regulations are, what the permitting process is like and other considerations.
Once you’ve decide on a specific market or gotten a better sense of the one you’re currently operating in, begin researching the best lobbyists in that location.
Peterson notes there can be a considerable learning curve when doing this for the first time.
To avoid bad hires, he advises, keep in mind that everyone will tell you they know what they’re doing.
“It’s the land of ‘over promise, under deliver,’” he says. “You need to recognize that.”
Do your research first so you know what you’re trying to accomplish and have a strategic vision, he says. That way, you can ask the right questions to determine how effective that person will be.
“You need to ask yourself, ‘Do they truly know how to navigate?’” Peterson says. “Do they have access? Do they have a voice?’ Because there are certain lobbyist groups that will tell you they do, but they don’t.”
He urges cannabis entrepreneurs to ask for referrals before making a hire. Talk to people the candidates have worked with, either within the cannabis industry or outside, to see where they’ve had success.
“Double check,” he says. “Don’t just go off of what you’re being pitched because they’re all going to tell you they are great. They’re all going to tell you they have efficacy. They’re all going to tell you it’s a slam dunk. And most of them are lying.”
Having good lobbyists and government relations is even more important following the 2016 election, Peterson says.
Although there is a degree of uncertainty about what the presidential election will mean for the cannabis industry, the fact that so many ballot measures passed is a good sign, he says. California, Massachusetts, Maine and Nevada all passed adult-use measures; Arkansas, Florida and North Dakota approved medical marijuana, and Montana passed an expansion of its existing medical laws. Only Arizona, which already allows medical marijuana, rejected an adult-use measure.
The results mark one of the “biggest legislative swings in the entire history of our country,” he says.
That said, Peterson says he was disheartened to see that even with such a huge sweep, the subject didn’t receive much attention in the press.
“To have eight of nine pieces of legislation passed in the major markets around the country for something that’s ending prohibition is a gargantuan step,” he says. “But it was lost in the media because of the intensity over the presidential election.”
Even prior to the election, he says, there were missed opportunities to give cannabis the attention it deserves. He points out that it wasn’t addressed substantively during any of the presidential debates.
“It was never on anybody’s agenda to really discuss, even though it’s a huge economic factor, tax credit generator and job creator,” he says. “So that was weird.”
It was especially surprising to him, he says, given the major economic potential of the industry.
“I have 180 employees and that’s just me,” he says. “This industry is a huge, huge economic driver and the fact that it was ignored is a bit perplexing. I certainly know there’s more pressing issues but I do think there’s partly that old mentality that ‘Hey, it’s still a bunch of stoners’ and that’s just not the case.”
Now that the election is over, the main question is how President Donald Trump will handle marijuana legislation, particularly in light of Trump’s choice of Senator Jeff Sessions for attorney general.
“We don’t necessarily know,” Peterson says. “So everybody’s scrambling to find out what the policy is going to be.”
As more cabinet members are appointed and confirmed, Peterson and his lobbyists will have a better idea of the direction they’re heading and what they are working with.
One thing that is known about Trump, he says, is that the billionaire real estate mogul generally favors state’s rights, which Peterson calls a “huge win in and of itself.”
As long as ballot initiatives that passed have the right to be implemented, voters can keep the forward trajectory going at the ballot box.
“That was huge domino that we needed to see tipped regardless of who ended up in the White House,” Peterson says.
“That really cranked open Pandora’s Box and solidified our position in the marketplace. It really solidified our voice and that, to me, was the best thing that happened in the election. If that hadn’t happened, we would have been on a lot weaker footing.”
Still, as is common in the cannabis industry, a sense of uncertainty remains.
“I think everybody still feels a little bit unsettled about where things are going,” Peterson says. “That same kind of unsettled feeling we had prior to the election, we have now.”
The difference is that “now we actually have a course of action to go out there and open up conversation and use our lobbyists to get meetings, to figure out who’s being appointed.
“We were at a fork in the road before and now we know where we’re going,” he says.
Now that the ballot initiatives in question have passed, Peterson says he hopes that path will be easier.
“We certainly hope we get the attention that the industry deserves now that we’re through the thick of it,” he says.