Grown Rogue has a head office in Medford, Oregon and operations in other states. Recent expansion into Michigan has been prosperous and has afforded the company full vertical integration capabilities. It boasts a host of experienced operators in the industry, and investors love its approach, as the company only goes into states that have the capacity to begin operations immediately. We spoke with Chief Strategy Officer Jacques Habra to find out more.
Twelve years ago, when cannabis was only available for medical use, the husband and wife team of Obie and Sarah Strickler had about sixty patients for whom they grew a premium product. In 2016, after Oregon legalized the recreational use of cannabis, a new company was started to focus on recreational adult cannabis.
“I joined the company in 2016 to help with fundraising, before becoming a partner in 2017. I focused initially on marketing and now investor relations. In 2018, the company went public with operations in California, Oregon, and our most exciting state of Michigan, where the greatest economic and cultural opportunities exist,” says Jacques.
Grown Rogue’s business model begins with state-of-the-art cultivation environments, both outdoor and indoor. Jacque tells me there is a reason why Canada has such struggles over the last eighteen months and has lost so many crops. Growing cannabis at scale is complicated and has never been done before. In the past you, people may have been growing an acre, but never have there been indoor grows at this scale.
When producers start to maximize plant count, tripling and quadrupling it, they get into problems with mold and pests and can lose much of the harvest. Canadian cannabis businesses have begun to realize that having the facilities and infrastructure does not always equate to quality product.
“The first aspect of our business model is to create the environment with best practices to produce the highest quality product at scale. It begins with the quality of flower and the ability to consistently produce it. The second part is to be innovative in how we package and provide the flower,” says Jacques.
Grown Rogue has the only patent on nitrogen-sealing for pre-rolls, allowing the product to be as fresh as the day it was packaged. Nitrogen eliminates oxygen in the product to prevent oxidation, and the product is then vacuum sealed.
The cannabis provider works to make the customer experience a pleasant one, with no confusion. The products on the shelf have clear guidelines and labeling that explain how the product will affect the user physically and mentally and what the ingredients are. It is all accomplished within an easy-to-understand format.
“The customer is enabled to make the right buying decision with the appropriate experience. Enhancing customer experience is a big part of our model,” says Jacques.
Depending on the state, Grown Rogue can be fully vertically-integrated. In Oregon, it has a distribution license and processing licenses but does not participate in retail as there is not much margin there. However, it is vertically-integrated in Michigan with cultivation processing and retail.
The company formally entered the Michigan market in late 2018 after finding a group that had a couple of retail licenses, a processing license, and a large cultivation facility under construction. Grown Rogue realized that the asset set-up and real estate was going to be too expensive and had to look elsewhere.
Then, in Muskegon, Michigan, it found a location with full vertical integration from cultivation and processing to retail. In May of this year, Grown Rogue signed a binding letter of intent that is evolving into a definitive agreement to acquire four assets in the location at a fraction of the other deal it had considered.
“Recently, we announced that we did not exercise our option on the other deal due to the obvious economic advantages with the Muskegon acquisition. Construction is thirty-five percent completed on those west Michigan assets,” says Jacques.
In Michigan, it costs $500 to produce one quality pound of indoor flower. In Oregon, that pound will sell anywhere from $900 to $1,200. In California, it can be sold for $1,400 to $2,000. However, in Michigan, the average purchase price runs at $3,500. There are so few operational cultivation facilities in Michigan, and the demand is high.
Michigan has the second-highest number of medical cannabis users in America, and it is the highest per capita in the country. For perspective, there are more medical cardholders in the State of Michigan than in the entire country of Canada. The economic opportunities in the state are huge.
Due to the success Grown Rogue is experiencing in Michigan, it has been discussing the divestiture of its California assets. There is simply more economic benefit in Michigan, but the company has also been pursued by partners in Massachusetts, Illinois, Missouri, Montana, and Oklahoma to provide helpful services.
“We won’t go into those states just yet. Our business model is not to acquire assets, licenses, or real estate. It is to turn on assets as quickly as possible, make them operational and revenue-generating. We want to be up and running within six months of entering a new state. It has a lot to do with a state reaching its saturation point,” says Jacques.
Michigan is at the saturation point that takes place when there is a shift from more medical to recreational use. There is a very slow increase in new consumers who had not wanted the hassle of getting medical cards, so they had never considered cannabis before. Now, they can walk in with a drivers’ license and buy.
When the market hits a certain point – when there is much demand but not much product – that is the time to strike. This is what Grown Rogue is experiencing in Michigan, and it expects that the situation will last for close to two years until cultivations and grows get established and the market begins to plateau.
The cannabis industry has been in existence in America since the 1800s with multi-generational farmers, even though it was only made legal recently. The cultivation experience of the people who work at Grown Rogue comes from that black market.
“What the Stricklers have done is to develop a vocabulary. It is a language of communicating between these generational, agricultural farmers and agricultural experts that really understand cannabis at a horticultural level and what I consider to be the business professionals in the industry,” says Jacques.
Obie Strickler deals with the people who want to take advantage of the growth in the industry and understand marketing, finance, and legal aspects. His background is in the mining industry which gives him regulatory and public market experience, so he knows how to communicate with everyone.
He has made brand development one of the mandates of the company. “That’s why he brought me into the company. My expertise has always been branding, marketing, and really developing an identity around that. I brought that skill set to Grown Rogue in 2017 and our original tagline: ‘The Right Experience Every time,’” says Jacques. Grown Rogue’s new Director of Marketing Rob Rigg has worked with companies like Cannondale and Nike and has led the way on the concept of enhancing the user experience.
The company provides customers with the knowledge and information they need to make the right buying decision. It developed a survey for people to take before and after consumption. Using that information, the company was able to classify its products according to how it affects the individual mentally and physically, which led to the development of its newest motto: ‘Enhance Life Experience.’
What does the typical buyer want from cannabis? Will it involve smoke? People in the industry have noticed a trend towards sublingual products – those that go under the tongue – or edibles.
“We have a dark chocolate line that was developed with a world-renowned chocolatier. That is what I believe the mainstream consumer is going to want over the next few years,” says Jacques.
Many people in the industry overestimated how quickly the mainstream consumer would adopt cannabis once it was legal. It is not like alcohol, which is an easy social lubricant with known expectations. Alcohol, as an industry, can move, adopt trends, expand, and contract very quickly, but cannabis is still an unknown, and having been illegal for a long time, it will take some time before consumers will admit to taking it in any capacity.
The first wave of crossover products that will appeal to the mainstream as well as the connoisseur will integrate existing chosen products, such as soft drinks and beer. These and other products are things that people are already consuming but want an extra kick with the cannabis infusion. The potential for growth in this industry is astronomical. This kind of opportunity where an entire industry is being built happens rarely and has not really been seen since the dot-com boom.
“The difference between that and cannabis is that you have to have licenses to sell the product. You can’t just pick up a license at a local store or government institution. You must apply for and qualify for them. It’s much more involved and right away creates a giant barrier to entry,” says Jacques.
Because of that, it will take longer for competitors to become established, and that creates an opportunity for companies like Grown Rogue and its investors. Companies with an early advantage and that know what they are doing will be very well poised to succeed.