Cannabis Consumption (Podcast Transcript) | Seeking Alpha

Editors’ Note: This is the transcript version of the podcast we posted last Wednesday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast embedded below, if you need any clarification. Enjoy!

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Lauren Fontein: Because we have different stores in different neighborhoods and cities. But it’s an overall industry trend that everyone’s saying people just have less disposable money, inflation, prices are up, people are more budget conscious. So yeah, it’s been interesting.

Rena Sherbill: Hi again, everybody. Welcome back to the show. Happy Summer. Happy going back to school for those of you with young children in states and countries where school is opening up. I myself have been in California for a while. We’ve been doing some deep dives on California. I’ve been going around to many dispensaries and some consumption lounges. I’ve been going round with my mom and it’s been a really fun experience getting to see the different dispensaries.

My mom lives in Palm Springs. So we’ve been experiencing a lot of the saturation of the market that exists out here in the desert. There’s a lot of grows here. So there’s a lot of dispensaries. There’s a few consumption lounges. There’s different laws around consumption lounges, like can it be attached to the dispensary, is it separate, that have an effect on what you’re allowed to sell at that lounge.

The nicest by far consumption lounge I have ever been to, probably in my life, was The Artist Tree in West Hollywood in LA. Lauren Fontein, one of the Founders of the Artist Tree, along with Courtney Caron behind the consumption lounge.

It’s one of — also one of the leading dispensaries in California. It has six branches across southern California. I sat there this week with Courtney and Lauren. They both have a background in law. They’re both attorneys.

Courtney is attached to a couple of different companies, retail operators in California that she gets into today. Lauren is strictly associated with the Artist Tree. We talked about what allowed them to build such a beautiful and high quality establishment. The role of consumption lounges in retail. Cannabis legislation is obviously the thing that gets all the headlines. But I think it also behooves all of us to think about how we consume cannabis. Is it private? Is it public? How does that look for society? How does that look for popular culture?

California is one of the best states to look around and see what’s happening because they’ve had legal cannabis for a while. They have some onerous regulations. But they’ve also been able to open up some really nice consumption lounges, which they get into a bit why that’s not happening in Colorado. The stigmas that we still need to dispel, even the different parts of California. Hirsh and Emily talked a bit about this on their deep dive last week, which is a great episode for you to check out.

For those who are wondering about earnings and fundamentals, I really encourage you to listen to our past few episodes with Jon DeCourcey, with Alan Brochstein, with Julian Lin over the past couple of months, that really gets into how to think about analyzing these companies in the wake of earnings in general, in the wake of, you know, a lot of down days and some up days, how to think about Canada and the U.S. But today we’re really focusing on obviously California and the U.S. and the role of retail in cannabis.

We have a lot further to go. But it’s also really exciting to see what’s coming online and what people are able to experience. Anyone in California, anyone heading to California, especially in the LA area, I really, really encourage you to check out the Artist Tree although there’s also one now open in Fresno.

I hope you enjoy this conversation. There’s music in the background because we recorded it live on the grounds of the Artist Tree. You can get a feel for really sitting there and hearing the sounds of West Hollywood, hearing the sounds of LA. And it’s just a beautiful balcony that overlooks the city and a beautiful inside that is like any establishment if you want to go to like a cool bar or eating establishment, this would be akin to that.

It just so happens that you can go to the bar and get a dab instead of a shot of tequila. As Courtney and Lauren discussed, there are baby steps happening in the industry. And it’s good to be observing what those baby steps are as we try to progress the industry even further and understand how we invest in this industry. Hope you enjoy it.

LF: I started my professional career as a Corporate Attorney in LA, but then in 2009 I decided I wanted to take a break from law and I actually was hoping to open a bakery. And I went to this professional pastry school program. And I was partnering with my partner now in this business, who had gotten to law school with me. But his brother, Mitch, who’s also one of the owners had just gotten a dispensary license in LA. And so he was — he owned and operated the store, which is now one of our Artist Tree stores, and wanted someone to make edibles for the store.

And so we decided we would start doing that. And then it turned into like a full-fledged manufacturing business, where we had a commercial facility and we made edibles. And we sold them to many stores in the LA area, which I love. Yeah, and so I was doing that. And I was also helping with some legal things and licensing because the laws in LA continued to change. And then once 2018 and adult use became legalized, then there was a lot of new licensing things to be done to transition. And there were also a lot of new places, new cities licensing.

And in West Hollywood specifically, they decided they would allow consumption lounge licenses, which was very unique, because no one else around here was doing it. West Hollywood is a very progressive city. They’re early adopters of things. They were one of the first places to allow medical dispensaries, like back in the 90s. So they’ve always been on the cutting edge of things. And they saw it as a real opportunity to position themselves as like a cannabis tourist destination, and just another source of revenue for the city.

So they were smart to do that. So they had a licensing process where they had a competitive application process. And they then selected the winners of that as the license recipients. And so that’s how I met Courtney. And we actually hired her to be our attorney and to do the application for us. And so she was really instrumental in that whole process. And when we were doing that location, that’s when we came up with the concept for the Artist Tree brand.

Courtney Caron: It was really a fun process, because we were like sitting kind of — we were like just trying to figure out what do we do to win, like, how can we bring something unique? And Lauren and our partners have so much experience on the cannabis side, it was just kind of like what can be done, and Lauren said, Art. West Hollywood is known for art, like this is what we need to do something with art. And I’m not sure how the name, the Artist Tree. We just were — Artist and Artist Tree, the word Artist Tree and then…

RS: Yeah, Artist Tree, just got it.

LF: Yeah, yeah, and West Hollywood, as part of the application was looking for new innovative ideas and businesses that would really reflect the city’s values. And they required us to really flesh out this business concept. And what would the design be? What would you be contributing to the city?

So we thought if we focus on local artists and had our spaces be a place where they could exhibit their artwork and sell their art, and we’d be rotating the artwork out every few months, so a lot of people would have the opportunity to exhibit, that that would be like a really cool blockchain of West Hollywood. And in the lounge, having performing artists here, which we do you now every — almost every night of the week, we have different programming at the lounge. So we’ve been doing comedy nights and open mic nights and live music.

So it’s been a really great way to like supplement just the cannabis shopping experience by having this whole other art element.

CC: And when you have like all these little things like Lauren mentioned, with the Music Nights and the comedy nights, and it might attract individuals who are maybe more interested in the comedy than the cannabis originally, but they still come along, and then they’re now exposed to the normalization of cannabis. And so that’s what I really love about having programming is that anybody could come whether you’re a consumer or not, and still have a really enjoyable evening.

LF: So having been in the industry for a long time, you know, I told you my story, and my partner, Mitch was involved with that store since 2006. We were very familiar with dispensaries and how to operate them and what the standard one was like in LA area. So we wanted to do something that was really different and was really a notch above what everybody else was doing to really help with the normalization of cannabis and the culture and make it a place where anyone would feel comfortable coming in and shopping, people that were new to cannabis. And then people that were just like regular cannabis consumers that were used to going to dispensaries for 10 years.

Anyone would come in and feel welcome. And we could really show the world what cannabis retail can be and not it doesn’t — it can be like a high end boutique, can be like an art gallery.

CC: And it’s working. I mean, my mother has come here with me a number of times, and there’s a room downstairs that’s more of like an intimate space, where you could take somebody if they wanted to have a little additional education. And so the general manager met me here, while he was here, I met him here. We took my mom and my stepdad into that room. And he in a very lovely and slow method went through every product that they were interested in and their ailments, and why something would be better than another.

And it was a really lovely experience for them in their 60s, only ever really thinking of cannabis as a recreational drug that now this would be able to help them with their arthritis, or my mother doesn’t sleep well. So she uses a pop on Barkley product for that. And he just was so lovely about the entire experience and patient and kind to them. I have no patience for my mother. So it was really great to have somebody with the experience that they had.

And then on in Fresno when we opened, I was there on the first day they open the doors, and I was shocked at the age range of people in the line on the first day. It wasn’t your 21 year old, 22 year olds, it was everybody between 45 and 80, like that first 100 people like all thanking us for being there and being open to them. And they can now purchase the products they need for their — to cure the different elements that they’re having that are negative effects of their life. And it was beautiful.

LF: [Multiple Speakers] Nice. In a beautiful way.

CC: Warm and welcoming and like they felt comfortable and safe coming in.

LF: Yeah. I was speaking to a friend yesterday who’s a manager at a competitor, who was one of the first cannabis stores. I think they’re really took over the legalization market. They’re around here. And he said that he has been floored. He’s now at the downtown location. And how many people have come in and said, oh, have you gone to the Artist Tree and that — and I was so happy to hear him say that. But he said that half of his customers rave about the Artist Tree and the vibe at the Artist Tree and how if they don’t have products there, he’s like go over to the Artist Tree because you’ll find it there, because the selection is just so much larger than a lot of the other locations, in town.

So I was happy to hear that. Even at another very popular store customers have some loyalty to the Artist Tree as well.

CC: Yeah, we opened Fresno together, the Artist Tree in Fresno together, Lauren’s partner, myself and some local partners in Fresno, that I went to — my law school professor is involved, which was really awesome. And then it did. It was — it was really, it was pretty cool. He also is like a huge art enthusiast. So when the project was available in Fresno, I thought he is the perfect guy for this because of the legal side, because just generationally where he’s at, I thought a person in his age range would be a good team member, especially on the ownership side.

He also had funding which is excellent to have, and then loves the arts. So it was a good match there. I am part of Elevate, which is another retailer here. They have three stores operating in the LA area right now. And I applied for a license in Lindsay, California for a lounge, a retail store and a cultivation and a distribution and a delivery. So it’d be a micro business at the end of the day. And then approached Elevate on being a partner there, wasn’t a good match for the Artist Tree just because of the size of the city. Although now I feel like I could have talked them into it perhaps, but at that time, it didn’t really make a lot of sense financially. But Elevate was looking to expand into that area because they already have a footprint in the Bakersfield area from pre-legalization.

And so that kind of bridges their gap between Los Angeles and the Central Valley. It gives them a nice hub to cater to those — that bigger field, bigger scale clientele that they have. So we’ll be opening that in January,

LF: Here we do put a lot of thought into what brands we onboard and products and trying to offer something for all different types of consumers. So we do have a really big selection, like, a lot bigger than the average store would carry. And part of it is just square footage in our retail area. But part of it was we wanted people to have this like cool shopping experience when they came in where it was like oh my gosh, look at all different types of items.

So we’re always open to new products and new and innovative forms of consumption. And right now the industry is still evolving so much so there always is something new. So you know, beverage is one category that’s really expanding now and there’s all these micro dose options or things you can mix into cocktails and we do that here on the weekend nights which is really fun when someone’s making like non-alcoholic cocktail that you can add a cannabis mix into that.

But so we look at brands that have — some of them have big followings. Some of them are new emerging brands where we just really believe in the quality of the product. We look at all of their social equity things and what they’re doing as a company like…

CC: Ethically, morally.

LF: Yeah, and what they stand for. So we have our Director of Purchasing and brand relations is the main point person for all any new brand onboarding. So he’s the one that meets with the brands. And then he’s there,

CC: And Lauren and I still — I mean, I made a recommendation for the Fresno store and Sean took it — took the recommendation right away, looked into it, got the products on the store, store shelves. He doesn’t — like, he’s very friendly and open to like suggestions.

LF: Yeah, yeah, we both [multiple speakers] We don’t personally curate, make the decision or are like that point person with the brands. But we’re very involved in working with the brands on all of our co-marketing things. So like for me, in the lounge, for instance, a lot of the brands sponsor the events. So I’m involved in that, or if they’re sponsoring things that are happening at other stores. And then I also do all the contracts that we have with the brands. So we do a lot of like discount agreements with them, or things where they’ll agree to provide weekly deals that we can pass along to our customers.

CC: And the same type of thing — that same process that happens with the industry also happens at Elevate. So they have an individual that’s in charge of buying. And any recommendation of products would go through Kevin, through to the main owner or through Mario who does the purchasing and then those products would eventually end up on the shelf. But when Lauren and I went to MJBizCon, last year, for example, we were on the hunt for a couple of very specific products that we knew lacked in the current market.

LF: Well, we were looking for lube.

CC: Yeah, for West Hollywood.

CC: We look at some base products.

LF: And some like topical, like icy hot type of thing, for like pain relief like topicals, not like some less traditional products that we didn’t carry that we thought would be really nice to offer.

CC: Yeah, and there’s the topicals as far as like the icy hot, there’s a handful of those now that are pretty good. But lube is one thing that there’s there was one brand, it looks like it’s no longer available. A secondary brand came on the market not too long ago, but there’s just not an over flooding of those products. And so it takes a moment to kind of hunt them down.

LF: Flower’s like 35% of our sales. And that’s been like very consistent over time. And vapes are like 27%, and edibles are like 25. I wouldn’t say that those numbers have changed that much. I definitely think the beverage category within edibles is growing more and things like live rosin, and fuse vape cartridges, like the vape market has moved a lot towards things that are more pure and the way that they are processed and having like pure rosin or live rosin in them. And so those are things that have shifted, and people care about that a lot more now than like, what’s the cheapest vape cartridge, like they want that quality. People know to ask for certain things, they are more educated.

CC: And the brands are doing a much better job educating consumers now. Originally, there were just — they would give you the bare minimum of what the state required them to. But now there’s literature and there’s, you know, I was in the employee area at one of the stores recently in the back. There were like these beautifully designed postcards with all these facts and all this information that the employees had access to so that they can learn the information to then share with the consumer.

And the Artist Tree specifically incorporates a lot of that information directly into our kiosk. So you can go to the kiosk, which you may have seen downstairs and plug in your ailment, what you’re suffering from, and it will pull up information. And then it’s not just three little tiny sentences. It’s a boatload of information on that particular product. And so by having that information available, consumers, then I believe are more interested in learning about that information, if it’s going into their body where when you search off market, for example, and in an illicit market, there isn’t any of that information available. You oftentimes don’t even know how much THC you’re consuming, or where the product is grown or 100%. So I think because there’s such an influx of information available, and all of the testing requirements have produced so much information on the actual product, it makes the consumer more interested in that aspect.

LF: Yeah, they’re like the quality of the team members is crucial, in my opinion to customers having a good experience, right, because that’s who they’re interacting with. So that person’s demeanor, like how friendly they are, how much they know about the product is really something that we care about. And we put a lot of effort into training our staff. So we do have a very comprehensive educational program that people start with, that’s two weeks long. We have written materials and quizzes we’ve developed.

RS: You can bring people on that don’t necessarily have a cannabis background?

LF: Absolutely. Yeah, and we really look like more for the person and like how they…

CC: Trainability.

LF: Yeah, we think they have a good attitude, a willingness to learn. A customer service oriented persona, versus requiring people to have prior cannabis experience. I mean, we definitely like if they have that, because it’s helpful that you have some background. But in places like Fresno…

CC: There wouldn’t be much.

LF: There weren’t a lot of people that could have had that experience. We’re fully prepared to train everyone and to make them feel really comfortable with all the product knowledge. And then the training is ongoing. Like, it’s not just when they start.

CC: After the two week training in Fresno, I was super impressed with — there were two — there’s two employees there, Travis and Desmond. And those two guys know everything about every product that comes in, that’s on the shelf. I mean, just sitting there and listening to them talk, they may have had some natural experience already just because of their — them being consumers themselves. But they learned so much information in such a short amount of time that I would go up and ask a question for a customer that I was walking in the door. And they knew exactly where to go, exactly the right product and everything about it.

I mean, it was really impressive, the level of information those two specific gentlemen had. They also work in back of the house. And so they’re around all the products, and opening the product and getting the product into the tracking system. And so they’re reading a lot of that information on a daily basis, as they’re keying it in and looking and then sorting all the products into the different vaults. So because they have such hands on handling experience, that in two weeks, they knew everything about everything about everything. And it was pretty, pretty remarkable.

LF: People do have their favorite flavor profiles, or they’re looking for — I would say, primarily, they’re looking for what the effects are, right? Like how it’s going to make them feel. So terpenes have a role in that definitely. And so people are looking for either like an elevated experience where they can go and go work out afterwards. And there’s people that do that, or they’re looking for something to be more calming, and they have anxiety or can’t sleep. So I think that’s like the primary thing people look for is what the effect is.

And sometimes it’s not — just like is it sativa, indica can be a lot more nuanced than that. And then with all of the other types of products that aren’t flower, they really can be specific about the ways that they affect your body and what you can get out of that product. So I think that’s like the number one reason. Maybe if you’re in the lounge environment, it’s more about like, what’s the strain, the highlight, because I think it tastes and smells really good or like, maybe you’re looking to enjoy something right now.

And then people really do have their favorites when it comes to different brands. So that now that we’re in the legal market, I feel like branding has become a huge thing. Where people — before it was just, wow, what does it look like? What does it feel like? Now people have associations with brands where they think of it as high quality or they think of it as exotic strains, or they know that it’s grown a certain way.

CC: I mean, packaging one is one of my favorite parts of the industry. Their packaging is beautiful. And just like when you go to the grocery store, you’re going to look for a product that has nice packaging. It’s going to attract you typically more so than something that doesn’t. It doesn’t mean you’ll buy it necessarily, but you’ll at least have an attraction to it.

But I think that the brand — certain brands are just really good products. And if you are a person who falls in love with one of those brands, and your experience using that brand is a really positive one, it’s going to be difficult, whether it’s packaging or anything else to want to try something else because you have brand loyalty because you had such a positive experience and used to that particular one.

My mother is like that. She really prefers one type of gummy for sleeping. I’ve offered her a dozen different kinds and that’s not what she wants because her experience with that one solves exactly the problem that she’s having. And it can be served in a ziploc or cardboard box and she would only want that one because her experience with it is so good. Papa & Barkley Sleep CBD…

RS: Yeah, Papa & Barkley is great, yeah. So is their tropical.

LF: They just have like a new edible line that’s all like the live rosin thing.

LF: Yeah, so I actually really like those because I feel like they’re more potent like than other edibles even though it’s supposedly the same amount of THC and those ones have been really good.

CC: And I think that it’s also important like words, Lauren mentioned micro dosing. So like, micro dosing moms is something I happen to know quite a bit about. So we both had three children. Our children are almost the same ages between — I have an eight month old baby, a 3.5 year old and a five year old and Lauren has a four year.

LF: Three, six and eight.

CC: Yeah, three, six and eight. So…

CC: Nursing.

LF: Yeah, those nice and nursing moms can totally be a whole thing. I had so many now, you know, mom, friends that are whatever scared to — maybe they weren’t lifelong cannabis consumers, right?

CC: Exactly.

LF: So they’re cautious or they just want something with like a light effect.

CC: Just to take that edge off so that we don’t want to murder everybody at the end of the day, you know, just a nice little edge, so that — and maybe you don’t want to take an anxiety medication or maybe you don’t want to take something that’s more of a pharmaceutical grade medication. So educating moms on micro dosing is something I personally find to be super interesting. And I’ve been doing a little bit of reading up on it. And I have friends that that micro dose all day long that are also moms. So I think that there’s definitely a future for normalizing it among moms,

LF: I mean, I’m such an advocate for cannabis and how it can be beneficial for health reasons, but also that it’s just a safe option for a recreational drug. And for me, I see it as better in a lot of ways than alcohol, which clearly has social acceptance, and our kids are going to probably try that at some point, when they’re whatever, at high school or something. And so for me, I feel like it’s going to very different than when we grew up, because it’s legal. And we can treat it the same way that we would, about talking to them about drinking, while they’re underage. And educating them about safe ways to do it. And yes, what’s legal and what’s not. But also that it is just part of mainstream culture right now,

CC: I intend to take my kids to Lauren’s house. So we’re going to just do a group session, get them all together.

LF: Like my daughter has seen the store, but she can’t come in, right. So she’s just — I let her look from the outside. And I said look — because she loves art. I’m like, look, we have lots of art here. Like, she’s eight, she’s not really asking a lot of questions about what we saw. We just said, oh, it’s a store that for only for adults.

But I feel comfortable, like explaining what it is when she’s a little bit more interested and explaining what cannabis is, and that it has a place in society, as far as I’m concerned and, yeah, there’s rules and laws you have to follow, and that it isn’t safe for underage people to consume it. And there are dangers and maybe health issues to be aware of. And so that’s all important, I think, but for me, I will — I hope that people can really embrace it.

I think that culture is starting to anyway, but that it will just be like on that same level where maybe it’s a safer alternative to a lot of other things that kids might end up trying when they’re in their teens or 20s.

CC: I think my kids are definitely going to ask. I speak very openly about it now. Both my husband and I work from home. And so my kids have heard me on the phone with Lauren and everybody else in the car and everywhere. The word cannabis, while they haven’t asked me what it means, is definitely a word that they know. There’s no way they can’t possibly know what that means.

When the Fresno store was opening, I spent quite a bit of time up there and my kids came to the shopping center. But obviously they weren’t allowed to come inside either. And they just said do you work your mom? And I’m like, yeah, this is where I’m working today. And they thought it was very cool. But didn’t really ask what we were doing there. They just thought it was cool that it was a store that their mom was somehow associated with. They’re also slightly younger. Well one of them is slightly younger than Lauren’s. And so Lily maybe is a little bit more advanced in her knowledge of what’s happening versus my kids who are a couple of years behind.

But I do think they will ask. And so I try to be very open with my discussions with Evan, my husband or with clients. When the kids are in the car. I don’t spell out the word I just say it because it is a reality that in California, especially by the time that they are teenagers, this is going to be an extremely normal thing. So let’s start teaching them now. Like Lauren said the right time to use it, what the laws are, how to be safe and move on from there.

RS: I’m also thinking as you’re talking, how perhaps this is the wrong word because spoiling [ph] it is live-in California. It’s just like totally…

LF: And it’s not like that in other places and I think that we forget that. Like when I’m — I don’t know, talking to like my cousins that live somewhere else. I’m like there’s no dispensaries here. My god, how can that be?

CC: I think it depends our setting, right? So when I went to the Midwest to visit my family that’s in the Midwest and my husband’s family, we took Emily there. That’s not a thing they’re thinking about as much in Kansas, Missouri now, but not so much when we went. And they were like, oh, so that’s what you do. Like there was a very like, reserved feeling on it. I wonder if now if I went and talked to him about it, maybe their view would be a little bit different. But if we go to conferences and whatnot, the people we talk to, everybody obviously is at that conference because they have an interest in cannabis and the progression of cannabis in society.

So that works out pretty well. But I certainly have family members, even my dad, when I told him I was going to be a cannabis lawyer, he was like, okay, what is this now? And explain to me what are you going to do exactly? Well, I’m going to help people open stores legally. Okay? And now he calls me with questions for his friends. And it’s like, no big deal. And he brags constantly about, the success the Artist Tree has had, and some of the other clients that I’ve worked with over the years. And he’s very proud of the fact that that’s what I’m doing with my life.

And so I think just a little bit of education in time, and knowledge really does change a person’s feelings on the whole topic. I definitely want to take the Artist Tree out of California. I was just hounding Lauren and the team last week. But what about consumption lounges in the model of consumption?

LF: I think consumption lounges being more widespread is essential for the full social acceptance of legal cannabis. Like, I think until people feel comfortable with having a place where people can openly go and buy it and hang out and it’s on par with a bar or restaurant, then, it’s still — there’s still fear about it. And so I’m really hopeful that more and more places will license consumption lounges, because even in California, where we’re so progressive, it’s so there’s only a few cities throughout the whole entire state that have them, and it’s very limited.

So for me like, I just feel like this is like a social outlet that people really need. And then just another place where people can have a great experience. And maybe they’re not even consuming cannabis. And they’re going for a rec, but maybe they are, but there should be that option for people now, because it is a legal substance that is available to anyone of age.

So I think the movement to license them has been very slow and frustrating for us in the industry, because we see that all these municipalities are reluctant to allow them. And in my mind, it’s like why, right? Like, there’s — I don’t know, if they’re worried about people over consuming or crime or the smell or whatever. But really, we can mitigate all of those things and make it a safe experience for people. And so I would expect, it’s going to take a long time in other states for them to really embrace. I know, Nevada and Las Vegas.

RS: Nevada is moving forward.

LF: And they’re such a tourist centric economy. So I think for them, it’s like, they see it as a great move to supplement income in the city. But other places, it’s like, we don’t want that, we don’t want this like smelly coffee shop in our neighborhood. So I hope that we can be part of the education process for cities and for residents and other places to say, like, come look at this, like, look at what it’s like.

CC: It’s successfully working.

LF: In a smoky room that feels shady or dingy, like this is just like another great place to come hang out, and there should be more of them.

CC: But for the success of consumption lounges, from the legal standpoint, you also need the municipalities and the state regulations to coincide what it is you’re trying to do. So for example, in the State of California, right now, you can’t sell food on site, through the actual business license, that is also the business license for cannabis. So this food that I ordered, the Artist Tree has a deal with a restaurant nearby, and they’ve set up as a curated menu specifically for the lounge, I order my food and then it’s brought here from a third party because that in California is the only way you can serve food on site at this point in time.

Now there’s a regulatory change, that’s going to allow some cold case items like pre-bottled latte, salad, sandwiches, that sort of thing.

LF: But still not —

CC: Not on site cooking

LF: People really want, which is like a restaurant where you could have a kitchen where we’re selling the food and the coke. And then we can also sell…

CC: Like a steak, potato and a steak and you can have infused butter that you’re in control of that you could then put onto a steak. You can do a model like that here with offsite food, but how much better would the experience be if it was like your kitchen, your staff, and you were in control of that environment. So until California steps up and meets cannabis consumption lounges halfway, that experience will not really be fully realized the way that we had all envisioned that it would be initially.

And that goes for even a more social atmosphere. Like if you wanted to have a venue that had a concert, or a swimming pool or anything like that, you have to find a way to give people food and beverages that don’t have cannabis in it if you’re going to have them consuming a controlled substance, like you want to make sure that they are having the opportunity to have a full stomach and not — just like you would with alcohol. And the state is preventing that which is very odd to me because in a bar you can definitely buy a hamburger and enjoy a beer. But they just they haven’t come up with that part yet.

LF: Because they are — distinction they made and it’s just a great example of how all the regulations haven’t caught up to the open market.

CC: Right, the market.

RS: This is what Hirsh was also talking about on his episode about just like we’ve — there’s been some wins with like the cultivation tab and hopefully with the delivery like how much they can have in their delivery cars but yeah, just like what you’re talking about and I’ve heard also just like totally frustrating ridiculous, like almost laughable like they’re trying to make us laugh with the inequities and the ridiculousness, as kind of like, lawyers put the lie in your arsenal, like, how do you think about it? Because somebody like me, I think about it, like, the politicians just want to make us crazy. And they don’t want to legalize this, and they want to make it hard. And until we push that, they’re not going to allow it, how do you think about that?

LF: Like that. Like they’re trying to regulate it as much as possible, so regulated, as with taxes, but also just put all of these rules and restrictions on businesses that don’t exist in any other industry. That makes it very hard to offer it and very financially burdensome. And so the red tape that we have to go through to get the license in the first place and get all the rules around operating it…

CC: At the local and state level. It’s the whole process.

LF: State can be totally counter, right. And they have to, like, discuss between themselves to get the work done, because the law totally isn’t there.

CC: So I’m having that issue in Lindsay. So Lindsay didn’t do a sequel study, before they allowed for their licensing to take place, in order to get a California license, you have to either have an exemption from Sequa, or you have to have a report that’s been done that suggests that your business isn’t going to be detrimental to the environment. The city didn’t do that.

So I kept going to the city and saying yes, but I can’t move forward on this project until something occurs here. So either we need to set this up with you, or we need to start working on our exemption, there is a there’s a back road, you can take to the exemptions where you basically just have to write the legal analysis of it all and all this stuff. And it’s a whole process. So I finally just told the lady at the state who is working with us, like our representative, I can’t seem to make the — plead the case quite right. I’m not communicating something effectively, like can you get on the phone with them? And she did. And she was able to explain to them exactly what it was that was missing. And they then morphed that into part of our see up process, our conditional use permit process, that gives us the right to start building.

And so now that has finally been handled or is being handled as part of that continuing conditional use permit. But it took three weeks of me going back and forth trying to explain that this was part of the process. And I was surprised because I feel like when any city is going into the cannabis process Sequoia is not something that’s like brushed under the rug. Like it’s a very well-known thing that that’s something that has to occur in the city or…

LF: Yes, this is matter but why…

CC: But why is a good question like,

LF: Yeah, so this is a matter of like I could understand from any fracture or cultivation, but why does a retail location in Los Angeles need to go through Sequoia analysis to be able to operate when I could open my like clothing boutique or my CBD store, boutique, cookie shop or your cookie shop or a restaurant and it doesn’t need to go through that step until there’s hundreds of examples of things like that where they just make it so much more difficult.

And like I’m very pro-protecting the environment and maybe if it’s in a protected area on certain types of land or coastal area or something…

CC: Right. So the City of Ventura has that, the coastal zones and so if they have an entirely different committee working on retail and any other licensing in the coastal zone. So sure we’re okay with a little more effort in the coastal zone.

LF: But it’s like why would like that just be a standard requirement for — just because it’s a cannabis business, it has to go through the Sequoia analysis and especially exemption. There’s many things like that, that are in the rules and regulations.

CC: And a misunderstanding by a lot of lobbying groups of what — in the consumption realm specifically like what cannabis consumption is. So there was a Bill that Richard Blum had put on the assembly floor that would have been really helpful to cannabis consumption lounges, and that was going to allow a cafe model. So certain foods and beverages to be prepared and sold on site.

And it went through the first — four years ago or three years ago, I went through. It was stopped by the Union. But the union was actually advocating here in West Hollywood specifically for a licensed retailer who had not received a license. And so the bill got stopped because the union was lobbying against it until the city was willing to meet them halfway with one of the cannabis stores they represented.

That was ridiculous. But aside of that, it then resurfaced back around and the Cancer Society stopped at that time. So they lobbied against it, put it on a two year track. We’re now halfway through the second year, and it has not. They didn’t want the smoking and consumption of food in the same place because people would stay longer. So there’s still this thought process that the smoking is secondhand smoke that’s going to cause cancer in folks who are in the same space. So how?

LF: Yeah, so that’s a [Multiple Speakers]. In California, it’s not legal to smoke at restaurants, right? Tobacco smoke. And so it’s kind of this weird gray area now, because there’s not a specific prohibition on it for cannabis. But then I’m — then in Colorado, I believe that the American Cancer Society like basically shut down all the lounges, because of the same thing, they advocated that this is a public health concern. It shouldn’t be allowed.

RS: So maybe medical studies, maybe additional medical studies on the actual effects of cannabis as a secondhand smoke to see if it has the same effects as cigarette smoking. I mean, there certainly are open air bars that might as well be covered in California where people smoke. I’ve gone to — Orange County has several bars that are built in that fashion where I’m surprised people are smoking there because it does not feel like an open air patio, but it actually is. So open air patios, like what we’re sitting in right now there’s one solution. But then you have the people complaining that they can smell the cannabis on the street.

Well, you’re in a city that’s got cannabis, you’re going to smell it on the street anyway. So why not provide people with a space to actually contain it in some regard? And give them a spot to consume versus just having everybody do it freely in the open when they’re not supposed to anyway? I mean, give them options.

CC: Yeah, this whole thing is so funny. I mean, it’s such a like —

RS: You could smoke a cigarette. That’s far more offensive.

CC: You can kill yourself. Drugs…

RS: Uh huh.

LF: Yeah, someone also interviewed me recently, it was really interesting, because he’s older. And he was part of this UCLA study on the effects of cannabis use on your lungs. And they were comparing people that were long term nicotine smoker, or tobacco smokers and people that were cannabis smokers. And they found that the lung damage to someone with cannabis smoking, even a regular long term person was like — it almost was the same as a regular person’s lungs. And there was like some inflammation, but nothing to the degree of what cigarettes would do.

So I think like you said, there just needs to be a lot more data and scientific studies on these things to see.

RS: But how long will that take? Are we talking 20 years where you start studying more now? And then in 20 years you have…

LF: I think those things need to catch up. So what’s happening now, and I go places, I mean, even with the retail licensing, cities have been really slow to do that here in California, and not really in other states. But just making it a less cumbersome process for everyone involved would just really be better in the long run to make this like a viable industry that people can come in and invest the resources to be able to open places like this, because it takes a lot of experience, and a lot of financial backing to like be able to have something of the caliber that maybe cities would want.

And I think they don’t understand that by putting all these licensing fees and taxes and all these like owners operating requirements, they are preventing people from doing that. So then we have, for example, there’s a lot of companies that have gotten licenses, that in 2019, they were awarded them and they still have not opened. And it’s because there’s so many hurdles to getting started in the industry, like you need legal counsel and to help you figure out like, how do I even get — like once I got approved, how do I even apply for this state license.

CC: So I had this conversation with the County of Los Angeles last week. I was on a legislative call with a group of other cannabis lawyers who are part of the Los Angeles County Bar, the Cannabis Bar Association. And so we have a legislative committee that meets once every few weeks. And we talk with different cities and municipalities who are interested on how they can progress with their cannabis programs. And we talked a lot about that because there’s this huge wave of help having social equity programs, for example, in different cities that will allow somebody who may have been afflicted by the war on drugs also have an opportunity now to have a business come from that. But you have to have money to be able to open a cannabis plant.

LF: Yeah, it’s like if you’re going to do that then what are you going to do to help these people actually be able to open a store.

CC: A $1 million. It’s a million — I mean a $1 million is like a pretty safe budget to open a store, a decent sized nice cannabis store. Sure, you could probably do it for $0.5 million if it were under 1,500 square feet and you had…

LF: Cheap rent somewhere.

CC: Cheap rent somewhere and like millwork that’s not custom. You might be able to do that. you went to Ikea and bought shelving or something. You might be able to throw something together for that. But you’re — with the product even alone that you have to purchase in order to open a store, I mean, you really are looking at a million dollars. So these programs have, you know, social equity aspects to them. But what ends up happening is, you get folks that come in from companies that do have huge financial resources. And then they make deals with the social equity individuals for maybe 10%.

So the social equity individual only keeps 10% of the entire business at the end of the day. But on paper, that’s not what it says. So it ends up not being the program that was initially created by a particular city. So something I do hope improves. And what we discussed with the City of Los — County of Los Angeles was, how can you come up with some funding, for example, whether it be alone, or whether it be a grant or something. There are grants out there, but they’re not enough a $50,000 grant barely scratches the legal surface of costs associated.

And so I think that’s one movement that needs to come forward, honesty also needs to happen. I realize that everybody has to make money in this, if you’re going to do it, an investor is going to want to see some sort of return, I understand that. But there has to be a way of differentiating, those companies who are predatory and taking advantage of an opportunity versus those who are actually supportive of the cause. And I think that kind of goes with when you were saying what are you most encouraged by and maybe least encouraged by. And I think mine is the exact same thing. I’m most encouraged by the fact that there are some cities that are opening up that I didn’t think would, like Fresno.

Fresno was a very conservative county, it’s a conservative city. And we wondered if it would ever happen. And it took years and years for them watching everybody else. And it did. It happened. And we were first to open in Fresno, and we were able to set that precedent. And now the city is reaching out to us to help other people open their stores, because nobody else is able to figure it out. And we’re like, sure, send them our way, we’ll see what we can do to help them in the time that we have. So I’m meeting with somebody next week from a social equity applicant, to talk to them about the problems that they’re having, where they hit the roadblock so that we can try to kind of facilitate that and move it forward.

And so maybe there’s just a willingness of people with the knowledge like Lauren and myself to sit down with folks with the limited time that we have also knowing that we’re running our own businesses, and that you’re essentially bringing in the competition. So how can we find a friendly crossroads of being a good facilitator of goodwill in the industry, but also protecting our interests, because you have to be able to do both?

And so it’s just a while I’m happy that cities are opening, I’m also disappointed in how slow the others are going. I mean, I reached out to the City of Visalia, the city of Clovis, all in that area and invited them to come see the Artist Tree, because I felt like if just a couple of city council members would come and see the level of class and beauty and education, that we’re providing consumers that maybe that would shift, any doubt that they were having. And I received a few emails from city council members that were essentially the middle finger, telling us, cannabis is a drug. Like, you can’t do this here. And I responded with a whole lot of respect.

And even though I was outraged, and I said it to learn, it was like, oh, no, like, this is ridiculous. I responded, and you know that I understood his point of view, and that I really still felt like if they would just give a chance to see what we’re talking about. But the other half of the city council said, let us know when we can come in. So it’s just baby steps, baby steps. Yeah, and say, just please come and check this out, I really do think that it would be something you would be interested in.

So it means stepping outside of your comfort zone and stepping outside of what you’re doing for your own success and trying to look at the greater good of the industry. And what can we do to bring other people in. I mean, the 28 E taxes alone and how it affects what you can and cannot write off to be a success — it really changes whether you’re successful or not. So if you want some of these small mom and pop shops that you’re talking about to be successful, then have the federal legalization in place, and it will remove all the restrictions of 280E which will help those businesses turn to profit sooner. I mean…

LF: Yeah, and a lot of other problems that cannabis businesses still face with finding like banking.

CC: Banking, talent, investor.

LF: …Costs for banking, credit, card processing, insurance. Yeah, a lot of things like that. So I mean, we’re thinking of it. I mean, I feel like it’s still a ways away, and it’ll be a state issue for the next foreseeable future. But I think it’ll happen sometime in the next 20 years.

CC: Oh, my gosh, two years. I was expecting it to happen the first year of this administration, and then it just didn’t. And now it doesn’t even seem like it’s — I mean, look at the Safe Banking Act. We’re on like version 35.

LF: Yeah, they can’t even agree to do — right. And that seems like…

CC: I mean I’m encouraged that it doesn’t fall off entirely right. So I’m encouraged that there is a new version that keeps being drafted. And I think what they’re trying to do is people have interests that are separate and apart from cannabis that are getting tied to that Safe Banking Act, which is prohibiting it from crossing party lines and just becoming something that we needed to be.

And so if we could get some politics set aside and just look at the fact that cannabis businesses exist, and there’s a lot of cash associated with them. So let’s keep those businesses safe from just a plain old business perspective, not a party line, not a personal belief on cannabis use. If we could just look at the practicality of operating a business that is primarily in cash. That would be great if our politicians could just take a look at that. But here we are.

Thanks so much for listening to The Cannabis Investing Podcast. Subscribe or follow us on Seeking Alpha, Libsyn, Apple podcast, Spotify or Stitcher and we’d really appreciate it if you left us a review on Apple Podcasts. It helps other investors find our show and makes us feel fantastic. If you have feedback or questions. We’d love to hear from you at Rena+canpod@seekingalpha.com.

Nothing on this podcast should be taken as investment advice of any sort. I’m long Trulieve Khiron, Isracann Biosciences, The Parent Company, Ayr Wellness and the ETF MSOS. Subscribe to us on Libsyn, Apple podcasts, Spotify or Stitcher. Thanks so much for listening and see you next time.