Important Lessons From A Profitable Cannabis Company
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The vertically-integrated playing field of California cannabis companies is full of impressive entrepreneurs.
Among them is Glass House Group's CEO, Kyle Kazan, who has built a cannabis empire with four storefronts and an umbrella of brands that span the state's legal market. Kazan has navigated a diverse career, serving as a special education teacher, police officer, real estate investor, and most recently green entrepreneur.
We spoke with Kazan about the failure of the War on Drugs, private equity investment, the "secret sauce", and how to convert new consumers.
How is Glass House unique in the crowded cannabis market?
Kyle Kazan: In the cannabis sector, every state is almost like an entirely different country. In the “country of California,” Glass House Group is a vertically-integrated cannabis and hemp company with the largest cannabis greenhouse cultivation operation in the world’s largest cannabis market and the largest hemp grow in the entire U.S.
Our company has very low debt, and we own nearly all of our real estate. We are able to grow extremely cheaply and have invested in technology, analytics, and automation, which enables us to have one of the lowest costs of production and goods sold in California, the only state in the country with a cannabis market that’s bigger than Canada’s entire market. Since we are operating in a state which is the size of 13, we only had to build one vertical. Most multistate operators in the cannabis sector need far more cash to build multiple vertical assets in every state, so we decided to prioritize one instead of 13.
Glass House Group touches virtually every part of the cannabis sector’s supply chain—from the farm to consumers’ hands at the retail level, including delivery. We’ve built an incredibly experienced team that is solid in every aspect of our business, which gives us a real competitive advantage.
What problem do you solve?
A very simple one: Glass House Group makes money. Almost everybody else in the cannabis sector is losing money. Today, 99 percent of cannabis businesses have zero or no margin. We often joke around that everything in the cannabis sector takes twice as long and twice as much money.
(Image credit: Glass House Group)
While that’s obviously hyperbole, it illustrates a larger point, which is that the cannabis industry is not like most other business sectors. The problem we’ve solved is that we figured out how to be a profitable, viable business, and are well-positioned to grow for years to come. This is not the case for the majority of cannabis businesses operating in the space.
How has your background in law enforcement informed how you run your business?
Law enforcement gave me a window into what a serious failure the War on Drugs has been. It shifted how I thought about some of the draconian policies and laws that we have on our books. It also kicked off my advocacy work in the cannabis legalization space, which I still am very passionate and serious about today. It also gave me legitimacy and credibility with cannabis advocates very early on, which made my entry into the business sector a bit easier. Since I had taken time to build trust within the movement and understood how our laws and approaches were negatively impacting society, in many ways, my experience as a law enforcement officer gave me a leg up with individuals who didn’t always trust law enforcement or people.
How has your experience in private equity informed how you run your business?
Private equity gave me the discipline to be cautious about investing in assets that have a path to profitability or are profitable. And, because I walked in the door with 20 years of experience of private equity investment, I knew about falling knives, and I knew about the minefields, so I was rightfully cautious and expecting a black swan event like COVID-19.
The one thing that I would tell you is that because of my private equity background and going through two major recessions in my career, Glass House Group is the little pig that built the brick house that was waiting for the black swan. When that black swan—coronavirus crisis—showed up, we are so grateful we took the time to build our brick house.
What is the most challenging thing about running a cannabis business and what have you done to overcome the challenge?
In my private equity career, since it was based in real estate, each time I have a fund or deal I only get to go to the well one time for money. That's it. I have to make it work with that one slug of cash. And because of that discipline, it has kept me focusing on the reason to invest is to make money, not just to try and build some notional asset value for some notional buyer of the company in the future.
As opposed to almost the entire cannabis industry, which seemed to be focused on some nebulous future or a pot of gold at the end of a fictional rainbow that would be handed to the biggest company, I would say that we were really focused on making money because ultimately, making money builds asset value.
What is the best business advice in general that you’ve ever received?
The advice my dad gave me was to "always have the courage to act." That’s a very real part of how I live my life every day. My dad was an entrepreneur who started a computer leasing firm in the 70s that he built into a publicly-traded company that was listed on NASDAQ.
In my house growing up, I was able to watch my dad sweating by himself, building his business, and taking it all the way to ringing the bell. From a young age, I understood that being a business owner takes hard work and perseverance.
What is the most misunderstood thing about the cannabis industry?
That the only use of cannabis is to get high, and it's not. This is not a product for just the perceived “Cheech and Chong” stoners. Many people are still in the dark about the plant’s medicinal aspects. I can tell you on a firsthand basis, I've given out a variety of samples to hundreds of people, who are amazed and become instant converts, so my point is you don't have to just enjoy the high to enjoy marijuana.
What is the best business advice you could give to entrepreneurs wanting to get into the industry now
Sometimes people say to me: "Man, you're so successful. I wish I got in when you got in." That's so ridiculous. There's always an opportunity. You just have to go spot it. But with cannabis, it depends on the country you're in. Then, it depends on the province or state.
This is a local business, which creates a massive amount of opportunity. In fact, even if you're living in an illegal state, you can be out there working legalization right now. If you're in a legal state like Colorado, Washington, Oregon, or California, unfortunately, there're a lot of inefficiencies in the market. Right here, right now is a great time to go build the perfect business and make your fortune.
What advice would you give to other entrepreneurs about how to save money?
Do your homework, be efficient, and align interests—in your operations, your partners, and your hiring—and make sure everybody's rowing in the same direction. Most importantly, grow or make something that benefits people.