How Golden Leaf Went From Burning Cash to Earning It
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When Jeff Yapp took over as CEO of Golden Leaf Holdings in the fall of 2019, he knew it wasn’t going to be easy to turn around the struggling company that was deep in debt and “burning more cash than it was making.”
One of the biggest challenges would be recruiting the team he’d need to help reverse the publicly traded company’s misfortune. With decades of success at high-profile businesses, Yapp reached out to people he’d worked with in the past, people he trusted, people he knew trusted him and convinced them to join the company. And he didn’t sugar coat the challenge that lied ahead.
“Clearly the pin was out of the grenade,” he says. “There was not enough cash to make it very long.”
Golden Leaf Holdings had raised more than $100 million, but Yapp says the Oregon-based company had very little to show for it.
However, Yapp, who had joined the company the year before as an advisor to founder and then-CEO William Simpson, believed in the Chalice Farms brand and its chain of cannabis retail stores. He knew that with the right business practices and, more importantly, the right people, Golden Leaf and Chalice Farms could be transformed into a profitable enterprise.
“Your success in business is always tied to the team you are able to put together,” he says. “At the end of the day, this business is people.”
Less than one year later, in September 2020, the company was cash-flow positive, with revenues up 50 percent year-over-year, and set company records in both the third and fourth quarters of the year. The company, which owns a chain of retail shops and a cultivation site in Oregon, owns manufacturing and distribution licenses in Nevada and has partnerships in place in Washington and California, actually grew through the pandemic, hiring more people on its way to record revenues.
“We have completely turned the business around,” Yapp says. “All in all, I’m really pleased with where we’re at right now.”
Yapp’s experience with cannabis began when his son, now 24, was diagnosed with autism as a child. Yapp and his wife decided to pursue any and all non-pharmaceutical and non-surgical treatments available, which led him into the health and wellness space where he began to learn about cannabis and its medicinal properties.
Soon after Oregon legalized recreational cannabis in 2014, Yapp was introduced to Simpson, a former athlete who had used cannabis to stop using painkillers and then founded Chalice Farms to help spread the word to others who might not have considered what it could do for them.
“Chalice really came out of a belief that there’s a whole opportunity outside of current users to really grow the market in health and wellness, and that’s been my premise,” Yapp says. “It’s shaped so much of the way I think about our business.”
In 2017, Chalice Farms was acquired by Golden Leaf Holdings. Yapp, who initially joined the company as an advisor, stayed on after Simpson stepped down as CEO in 2018 and the company began searching for a new chief executive. First, the company hired a “turnaround specialist” that didn’t see eye-to-eye with Yapp and was asked to leave. The next CEO only lasted four weeks. After that, the board of directors asked Yapp to take the reins as the company’s fifth CEO in the span of a year.
“It’s been a wild ride since then,” he says.
Yapp, a graduate of Northwestern University’s Kellogg School of Management, brought a wealth of business experience to Golden Leaf, having worked at some of the country’s most well-known brands in a wide variety of different industries. He worked at Kraft Foods and the E&J Gallo Winery, where he learned some of the techniques he would later use to turn around Chalice Farms. He gained marketing experience working for Pizza Hut, where he helped launch the massively successful stuffed crust pizza in the mid-1990s. Soon after, he moved into the entertainment business, where, as president of 20th Century Fox’s International Distribution, he helped convince George Lucas to relaunch Star Wars with the Special Editions (“Lucas didn’t want to do it,” he says). Next, he ran Hollywood Video, Cablevision and East Coast electronics retailer The Wiz before landing as an executive vice president at MTV, where he was instrumental in the release of the Rock Band series of video games. He left MTV to work at a startup in the music space, which brought him to Portland, and was then recruited by a friend to work as a consultant for Microsoft.
“I’ve always tried to drive growth through innovation, that’s kind of the string through my whole career,” he says.
Golden Leaf Holdings and Chalice Farms were at a low point when Yapp took over in September 2019. It was deep in debt, losing money and its stock was “going nowhere,” sitting at $0.03 per share, down from a peak of $0.58 three years earlier and $0.40 in January 2018.
On top of everything else, Oregon temporarily banned vape cartridges as they became linked to strange deaths all across the country, a “huge part” of Chalice Farms’ business. But Yapp believed in the vision and began calling together his team with a plan of going hard for three to four months and then seeing where they stood.
He brought in Jane Sullivan, who had a successful career in retail, including at Coach, Apple and Microsoft, as his “chief people officer.” He hired John Ford, who he knew from his Microsoft days, away from running Apple Stores to join him as Chalice Farms’ vice president of retail. He reached into his Hollywood Video days for VP of planning Marshall Hawkins.
The non-cannabis nature of the team brought a much-needed business sense to Golden Leaf and helped Yapp connect with the 75 percent of the population that didn’t have a relationship with cannabis.
“I don’t look at myself as competing with other cannabis retailers,” he says. “I actually think we compete with alcohol and pharmaceuticals.”
Together, the crew drew up a plan to focus on the customer experience, as any other retail shop in a competitive industry would.
“At the heart of it was changing the experience in the store,” he says.
First, the company focused on making the environment work for both returning and new customers, adding online orders and curbside pickup to streamline the process for regulars, as well adding delivery and the “Best Buds” user club that gave members early access to new products.
Next, they worked on finding the right staff and doing extensive training to make sure the budtenders could answer any and all questions to make new customers feel comfortable.
They also listened to their customers, leading Yapp to realize Chalice Farms was not as invested in flower as it should have been, so the company added a “flower wall” and went back to traditional mason jars instead of pre-packaged flower. He also moved heavily into concentrates. Through it all, he focused on sustainable agriculture practices to ensure the product is “as close to the flower as intended to be.”
With the need for more flower, Yapp drew on lessons he learned working at the E&J Gallo Winery and focused on vendor relationships.
“I said, ‘let’s identify the best farmers and growers in our business and let’s build a long-term, dependable relationship with them,’ and it’s really worked,” he says. “Now I have access to incredible product.”
With the team and the changes in place, Yapp says the company had an “amazing” first quarter with him at the helm.
“All of a sudden we had some momentum,” he says.
Yapp recognized that while his pure business team may have made sense for part of the company, an understanding and respect for cannabis was also a necessary component for success. So he hired from within the industry, bringing in Meghan Miller as vice president of strategy and Joe Klobas as vice president of production. Both helped establish and grow the company’s own, sustainable brand, Bald Peak, grown at the highest point of the Chehalem Mountains.
He says the combination of bringing together the “science of running a business” with the “art of growing the product” is what makes everything work.
“If you focus entirely on the business practice of it — the science — you lose the sense of the art, and I think what we try to balance is the art and science,” he says. “The way that we’re doing that is bringing in business discipline — science — from outside the industry, married to universal respect for the art of the business.
“This isn’t making Oreo cookies. This isn’t making frozen beans. It’s literally an art. And I think understanding that and respecting that, for the whole team, is absolutely everything.”
Crawl, Walk, Run
Yapp also brought with him a “crawl, walk, run” philosophy that has become a hallmark of Golden Leaf Holdings’ strategy and success, even with customers. The idea is to start slow and make sure the customer understands the product and how to use it, to ensure they have a good experience and come back again.
On the business side, that meant steering away from buying new licenses in Nevada or California and instead focusing on low capital investment partnerships. The company worked with third-party partners for manufacturing and distribution, willing to sacrifice short-term margin to assess demand.
“Once you’ve validated your revenue stream, then invest behind it as opposed to ahead of it,” Yapp explains.
He says the company’s experiences in three different state markets correspond to different parts of the “crawl, walk, run” philosophy at the moment.
“The crawl phase validates, the walk phase starts to invest in acceleration and run is to invest in margin,” he says.
Nevada, with a manufacturing license but no retail, represents the walk phase. California, where the company has partners and its own distribution, is in the crawl phase. And Golden Leaf’s home market of Oregon is in the run phase, with full vertical integration and seven retail storefronts.
“It’s fully optimized for profitability and growth,” Yapp says.
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Yapp also incorporated “Retail 101” practices into the Chalice Farms turnaround.
Black Friday sales were “absolutely insane” and a “12 Days of Christmas” program, complemented by a digital magazine featuring the company’s partners, was so successful, it’s getting retooled for a spring event.
And between the promos, the retooled staff, the renewed focus on flower and the dedication to balancing the science of business with the art of the cannabis industry, everything has seemingly worked. Golden Leaf and Chalice Farms continue to grow. Transactions are up 10 percent and average ticket growth is up 22 percent. Overall, according to a message to shareholders, revenue was up nearly 40 percent from 2019. The company also registered its first cashflow-positive quarter in 2020, generating more revenue in the first three quarters of last year than in all of 2019.
“Jeff Yapp has been a welcome breath of fresh air to GLH,” Executive Chairman John Varghese told investors in the most recent investor update. “Jeff has brought much-needed strategic focus to GLH, along with financial discipline and controls never seen within the company. In the process, he has built the best team in GLH’s history. The often-repeated mantra within GLH of ‘crawl, walk, run’ has become part of our culture. GLH no longer chases revenue, investing only once we have proven revenue models.”
Yapp also says that Golden Leaf will keep growing, but at its own pace.
“That’s the other lesson I learned working for Ernest Gallo: ‘Don’t overexpand until you have a really solid base in the market you’re in,’” he says. “Look at MedMen, they spread themselves way too thin, way too fast and didn’t have the infrastructure for growth. And I’m not going to do that.”
But again, it comes back to the team that will make any kind of growth successful. At Hollywood Video, Yapp says he opened three stores a day for three years and learned that the leadership team made all the difference in success.
“Retail is all leadership,” he says. “You can pick a bad store and 90 percent of the time it’s going to be that leader of that store. Change that person out and the store will change within four weeks.”
The key to successful expansion, he says, is making sure the culture that was successful transfers to the new stores.
“The culture that you created that’s so successful? How do you transfer that? Through a book? No, it has to be through people,” he says. “The whole thing is your team. It’s always going to be your team. You can’t grow faster than the leadership team you have.”
“I am eternally grateful for the team that came on this journey.”