Jen Lamboy, Director of Strategy, Hybrid Marketing:
Thanks for joining us for the Steps for Industry Domination: Dispensary Edition. The second part of our webinar series covers the first five years of operations. After you have dispensaries open, what’s next? We”ll cover licensing, marketing, and more, to ensure you are compliant and your brand grows exponentially. My name is Jen Lamboy. I am the director of Strategy for Hybrid Marketing Company. I am joined by Pete D’Agostino with Tenax Strategies. If you are unfamiliar with Hybrid Marketing Co., we are a Colorado-based cannabis marketing agency, focused solely on business outcomes. We build marketing strategies for everyone along the cannabis industry supply chain, and we are hyper-focused on aligning strategies and tactics with business outcomes.

We look at revenue, business objectives, and organizational goals and create strategies to get you from point A to point B. Tenax Strategies is a Boston-based organization working with emerging cannabis industry brands. My guest, Pete D’Agostino, is a co-founder and partner. For over 10 years, Tenax Strategies has provided end-to-end project management for clients to established licensed cannabis businesses in several states. They work with everyone from emerging to mature markets, including some of the most heavily regulated and challenging municipalities and locations. We have gotten to know this team well.

Tenax takes cannabis businesses from concept to commence operations. Managing projects and cutting through red tape so that cultivators, retailers, manufacturers, and others can focus on opening doors to join this exciting and interesting industry. And so also I want to introduce Pete and give a little bit of background on him.

Peter D’Agostino:
Great. Jen, thanks so much for having us. It’s great to work with you guys. We’ve been in the marketplace working with cannabis companies since the summer of 2012. Our background is in public policy. So we started in Massachusetts advocating for the implementation of medical marijuana regulations once the ballot initiative passed in November 2012. Our focus at that time was patient access and patient safety. We remained engaged once the regulations came out. We worked with medical marijuana companies throughout the state, passing legislation within the state to allow testing labs to possess cannabis. So that’s where we got into the market; on the public policy side. And then working with medical operators until 2016 when the voters again passed an initiative legalizing adult-use cannabis in Massachusetts.

And in Massachusetts, it’s a two-step process. The voters have to pass it and then the legislature and the governor have to implement it. We were hired by the campaign and the marijuana policy project, the primary nonprofit behind adult-use legalization across the country. They’ve legalized many of the states that are legal now. They hired us to do the implementation of the law. And so that really is how we got started in cannabis. It was very foundational, very early working on public policy. And in July 2017 when the governor finally signed the bill, we started representing companies and taking them through the state licensing process, including municipal permitting and licensing. Massachusetts remains a challenging market because it was one of the first. When you’re one of the first, you don’t have the benefit of lessons learned. So they put up a ton of barriers to getting open. And we’ve been successful in getting a lot of those companies open and we’ve expanded nationally now helping companies across the country.

My brother joined you last month, and he talked about those initial steps and how we help companies really get licensed and get open. That is our call sign. That’s what companies need and that’s our focus. But once they get open, they need help. They need support on compliance, continuing to engage with the municipality, the community, and the state. Quite frankly, there’s always something. So whether we’re working with a single state operator, a mom-and-pop shop and just helping with their compliance with the state and municipal requirements, or even an MSO. We work with some MSOs and they typically have a director of compliance that sits at the national level and then we end up being their boots on the ground. So we certainly will contribute with that role post-opening, which is a little bit more focused on what we’re talking about today.

And then the other thing that we help with is just general business consulting to help make a profitable company. And seeing a lot of our clients, quite frankly, have gone through either a merger or acquisition where they’ve exited well in the state, and then we get the benefit of working with them in the next state, which is excellent. We love to build those relationships. And so I think for today’s discussion, that’s more of the focus, but really knowing that Tenax can take you from, you have some friends and some money and you want to do something all the way to being open and then really helping you all the way through the exit is what we love to do. And then we got involved with Hybrid, which has been a great partner in not only those initial creation phases of websites and e-commerce and all that kind of stuff that the industry needs so desperately, but I think one thing you guys are great at is really expanding the brand once they’re open and what the role that marketing plays in that is so important.

Certainly in Massachusetts, it is maybe one of the most challenging markets right now. Other states have gone through their challenges and have leveled off, like California where prices are down, but people are getting settled. Massachusetts, amongst others, is still going through the transition. Where we are in New Jersey, we have a ton of stores opening that we’re doing. Again, they’re on the emerging side and I know we’re working with you guys on the emerging side too. So it’s great to have a partner like Hybrid being able to do the pre-opening, the post opening and helping these business get from day one through either operating the business or exiting the business. And we appreciate that partner zone.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
What’s been interesting for us too, in working with you and looking at some of those emerging states in comparison to a mature state like Colorado, is we don’t have the luxury of gathering the lessons learned with a state like Massachusetts. The lessons coming out of each new emerging market are in some ways completely different from one state to the next what we’re finding. So not just in medical-only states but in adult-use states, but we’re just seeing on the marketing side, of course, there’s plenty of limitations within the cannabis industry that we’re used to navigating. We also find that there’s within this space as well, because there’s a variety of folks on the spectrum between legacy into, you’re talking about MSOs, folks entering the space who have no experience at all in cannabis and just learning.

There’s a lot to be learned on a state-by-state basis. And so having someone, an organization who knows this world well and is also really, I’ll say, really organized and getting all those steps done, it makes it much easy for a marketing agency to come in tandem with you to really start focusing on what we like to think of as the fun part, building the brand, building the story, really getting to know who some of these clients are and who they want to show up as and how big they want to show up. So Pete, from your perspective, when you’re seeing folks, they’ve been awarded a license, they’ve opened doors, do they typically know that they need someone to work with them on the compliance side?

Peter D’Agostino:
I think it’s an evolution. So as we’re going through the process, I think people have ideas as to how the business will operate once it’s open. And I think that really evolves as you go through the process. And I think it’s really hard to conceptualize the level of compliance, whether it be on the marketing side, which you guys certainly help with, or whether it’s in the operational side. It briefs probably better than it executes, right? Because they get into it and they’re like, oh, wow, we can’t do this, we can do that, whatever it is. And so it becomes an evolution, I think they think, all right, once we get open we’ll be okay. And then they get open, they’re like, “Hey, we need some help on some of this stuff. We just want to remain compliant.” Because they’ve invested so much blood, sweat, tears, time, money, friends and family.

That’s just how these things are getting done unless you’re a large MSO. And so it’s really boots on the ground work and getting it done. And so as they go through that evolution, they realize that getting open is the first phase, but then to your point, brand amplification, continued compliance, it plays a bigger role in the company than I think people really contemplate initially. They’re like, yeah, we got to do compliance and marketing and different things later, but they don’t, I think fully appreciate at what scale when they’re very early in the process. And so what we learn early on is a lot of our clients are like, “Hey, you guys are on the team with us, right?” We’re like, “Yes, we’re here with you as long as you want us.” And so it does, it evolves, and it’s a lot of learning that occurs.

And to the point you made earlier where the lesson learned are so different from each state, I mean, it speaks to the lack of federal legalization. So every state has little tweaks. Everybody’s trying to make it slightly better than what the last state did. And so you’re right, we’re not able to get these consistent lesson learned because all the rules are different. And not maybe all the rules are different, but each state has different rules. And so some of the rules are the same from state to state, certainly. So you’re right. And that’s why these companies like us and you and others that are helping companies get open, it’s really getting through all that stuff, is like, well, I heard my buddies in this state and they’re doing well and this is what they’re doing. And then they learn they can’t do that in the state they want to be in, no, no matter what the perspective they’re looking at it from that often ends up being the case.

So yeah, this is how it evolves for us and how they come to realize, okay, this is maybe more of a permanent or long-term role than we’d initially contemplated.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
What are some of the common missteps that you see organizations making once stores are open where they might need a little bit of guidance?

Peter D’Agostino:
It’s funny. I think the misstep happens sooner and then it gets executed against. And so I’m going to tell you what I mean by that. So really being super conservative on your budgeting and your business plan is so critical, even in an emerging market where there’s maybe a little bit more free cash because you’re on the tip of the spear and you’re getting sales that are not sustainable long-term through a mature market like we’re seeing in Massachusetts. So all those people that were in the first couple years, I mean, they could probably just retire and go in into The Bahamas, but if they didn’t do that yet, now they’re realizing, hey, mature market, I got to be competitive again. It’s a market, right? I mean, it is a market and so it operates like any other market. I know we talk about it in cannabis because it’s not legal everywhere and there’s a lot of challenges, but from a financial perspective, it’s a market.

And so yes, there’s highs, there’s lows, there’s growth, expansion, contraction, mergers, acquisition. All these things that would happen in any market happen in the cannabis market. And so what we see is very early adopters, whether it be in New York or New Jersey where we’re working with those people and they’re going to be right at the tip of the spear of opening the first stores, we tell them, listen, let the upside money be the expansion. Let it be the retirement money. Don’t build the business around it. Because if you build a business around those kind of revenue projections, it’s not sustainable. And so to answer your question, is we see that occurring earlier. We’re really pushing hard to say, guys, let’s get to reasonable. What does this look like sustainably? Let’s look at California, Colorado, even Massachusetts, say, what are those sustainable markets doing? Let’s plan on that and take all the upside and invest it into the business or the expansion or retirement.

I don’t care where you put it, but don’t spend money against it. And then if that advice doesn’t resonate or the store really does well in those early stages we see overspending, hiring too much, bringing on staff before they really need it, investing in things that they’re not ready for. And that’s where we see early steps. And this kind of lends to the discussion for today is then if you’re looking to exit this business at some point, you’re going to have to answer for those mistakes at some point because they’re financial in nature. And so when somebody comes in to acquire you or merge, they’re looking at your financials and they’re saying, “Oh, well how the hell did you lose a million dollars?” And you’re like, “Well, we did some stuff we shouldn’t have done.” And so we really try to help clients really understand the short term and long term impacts of that.

And so those are the early steps. I mean, I would say those are the things we focus on the most early on, beyond just remaining compliant because any lack of compliance gets very expensive very quickly. But beyond compliance, I think those are things that we see people doing initially that could hurt them, certainly in the overspend in the first couple of months that they actually do it, but then long term when they look to be acquired and their balance sheet, it doesn’t look like what it should. So those are kind of things we’re talking about in the early phases.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
And where along that journey when folks are even applying for a license, do they typically already know, hey, in five years I want to exit. And I know it probably varies from organization to organization, but when are folks thinking about that?

Peter D’Agostino:
It’s funny, you’re right. I mean, it really does vary. And it’s funny, we’ve seen people who said, “I’m going to operate this. I’m going to give this to my kids. This is going to be a great business.” And they’re right, it is, and it’s such a great business. They take the check and go home. So it’s just not what they ever contemplated exiting the business. And then people who want to exit the business, I have a client in mind specifically, they thought, we’re going to open it. We’re going to crank this thing up, we’re going to exit. They’re doing phenomenal. They’re like, “Why the hell would we give this up?” And they’re just trying to expand. They’re like, where else can we go? What else can we be doing? So again, these businesses, because we don’t have 20, 30 years of legal business experience and we know the legacy market’s there, but doesn’t tell the market story.

What’s a capital market look like as it relates to this? People’s own feelings evolve as they go through the process and people who said, “I’m exiting the day we get this thing open,” they’re still running them years later. And just the opposite, for people who were trying to build a legacy for their family and they end up exiting very soon. So we try to, and I know you guys do as well, we try to really build these businesses so they are sustainable, period and that gives the operator the most flexibility in what they want to do in the furniture. If we build a financially sustainable business, and we talk about this all the time, then you have the flexibility later to decide, are we going to run and operate this business and make some money and pay for what we need to pay for or are we going to exit? But as long as you’re building it as a sustainable business and just like you guys do with the brand amplification and really getting the name out there, the, it’s just giving the owner of the flexibility to make a decision.

So whether you think you’re going to exit early or you’re going to stay in it forever, I would say don’t make business decisions against that thought process. Make business decisions against being financially sustainable, being profitable, growing the brand through the marketing, through the amplification, and leave those avenues available to yourself so that when you finally learn what’s important to you and what the business is capable of doing, you’re able to execute against it.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Sure. And I’ll explain a little bit more on that, what you mean by amplification too. That’s specific to our organization. We work with dispensaries, of course, everyone from retailers to brands to LED lighting solutions for indoor cultivation, everyone along the supply chain. But we work with folks in two phases. The initial one is a foundational phase where whether or not they’re just opening doors or maybe they realize they need to revamp their website logo, all of those pieces in foundation, we dig in and take a peek at how are you showing up in the digital space? How are you showing up in the marketplace in comparison to competitors? And we start looking at the brand, the brand story, the content, the messaging. Also, we look in store as well, are you pulling that brand from the digital presence into the store so that folks are having a cohesive experience of who you are as an organization?

Once that foundation is built, or not only built, but sometimes fortified, then we move into what you’re talking about as amplification where we can now start digging into a little bit more on the personas to really create a strategy that’s going to resonate with the target audience. But really what we’re amplifying is we’re talking about campaigns specifically, so now that we’ve got that framework, now we can add campaigns on top of that. So we’re similar to Tenax in that we’re very structured in how we operate and how we drive revenue and business objectives for the organizations that we work with.

Peter D’Agostino:
And that foundational part that you’re talking about, it’s just so critical. When we look at our clients, and we have the benefit of having clients in a lot of different states, and so we can see market differentiators and stuff. And if you’re new in Missouri, if you’re going to be on the tip of the spear in New York, we know you’re going to kill it early on. Where are you going to be in five years? And what we’re seeing in the Massachusetts market where we’ve been for I don’t even, 11 years now, what we’re seeing is the people that got in early and understood who they were and built something around it and stayed true to who they were, they’re the businesses that are being sustainable right now because they built a culture, they built a brand, they built a customer base, they did it early. So you can get away with stuff in emerging market. What I mean by that is being sloppy and maybe not having this foundational brand concept. And you can get away with that and you’re going to make money just by being open, there’s no doubt, but only for so long.

And then where we start to see that separation in the market is the people that said, we know we are going to have to do this, do that foundational work you were just talking about, especially on the brand. And so I think most people that have been in the space for a long time have universally come to the agreement that this is going to be a brand play because the quality of cannabis is becoming so high everywhere and everybody’s able to sell it, that unless you’re a craft cultivator really doing something really unique and craft, which there certainly are ones and they’re really good, if you aren’t that, then you’re everybody else. And so how do you distinguish yourself? And it’s that foundational work that you guys do. And we’ve seen it firsthand, so I know when I speak to it and what I mean by that. And it’s critical. And those are the companies in Massachusetts who they’re not being hurt by the market in the same way the people who didn’t do that were, right? So it’s so critical early on to really do that for that post operational success.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Sure, sure. Well, I’m thinking too, when you’re talking about the differentiators, how are you going to stand out? A lot of times when we speak to folks, of course they’re thinking customer service, we want our budtenders to provide a really excellent experience that folks return and that we’re building loyalty and that ambassadorship of course along the way as well. But I’ll say that most folks, most retailers are thinking that. They’re thinking, okay, our differentiator is our customer service. And so we had talked a little bit about employees, employee training even a little bit. How does that really play into the success of an organization as well? I know that’s something that your organization helps with as far as the training piece. And I’m thinking specific to budtenders who are in many ways the key to revenue growth.

Peter D’Agostino:
Yes, it is funny, you hit on a couple of key topics there. I mean, one, I would tell you that every cannabis retailer I’ve ever spoken to said they have a better different experience. And I’ve never been to a store that had a better different experience. So the reality of it is everybody’s focused on that. It’s where people are putting time, money, and energy. And so I would say that it’s more a matter of if you aren’t doing that, you’re losing. And if you are doing it, you’re just meeting the standard. So this isn’t such a new industry. We’re still talking about retail. And that’s what we really try to talk to clients about, is guys, we understand the product’s different. It’s a retail experience. Everybody walking into your store has had a retail experience and they have a certain level of what a retail experience is.

And we have clients that interpret that differently. Some want a really cool vibe, some want a very medical vibe, even if they’re an adult used store. Some want a very educational vibe. We get that. And that’s a differentiator, but what’s not a differentiator is that level of customer service. I think you’re either doing it well or you’re losing because of it. I don’t think you’re gaining because of it. But when you talk about how the budtender generates revenue, that is a slightly different conversation and it comes down to your budtenders being able to understand and listening to what somebody’s telling them. So if you walk into the car lot and somebody says, “Yeah, I really want the four wheel drive.” And they’re like, “Yeah, we got 12 of them.” They’re not helping guide that customer to the right solution. One, they’re probably not coming back because they didn’t get the experience from the product that they were looking for. But two, the business is losing the opportunity to potentially upsell or add other products or ancillary products, which is a huge opportunity for retailers. And so that’s the differentiator in the budtenders.

So the good customer service, got it. If you’re not doing it, it’s not ever going to get you money, it’s going to cost you money. But well-trained budtenders can make you money because they’re pumping up your ticket prices through listening. A customer comes and says something, they don’t know what you have most likely, or they certainly don’t know everything you have. I’ve been to Macy’s a lot of times. I don’t know everything they sell there. And so that’s the thing we’re talking about, is somebody that can say, hey, we also have this and we also have that, and that could address what you’re looking for? And what you’re looking for is such a individual need. Everybody is so individualized in that way. And so that’s how we think about tenders in really two different ways. The customer service has to be there, but for the opportunity for the business and investing in their budtenders is for them to be able to educate the consumer about what other products might meet their need, which ultimately results in a return customer at a minimum and at a maximum is increasing your per ticket price.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Sure. And we as an organization around that, when we’ve got folks who are coming in the door who have never owned and operated a retail operation before. And so we say, do some secret shopping, go into some other dispensaries, see what you like and what you don’t like, figure out who you want to show up as, again, what that relationship might look like when folks come into your own store. Once the retailers we work with are already open, we do the same, like I’m saying, the secret shopping. We go in, we for lack of… We have a form that we fill out for ourselves just to say, all right, did we hit all… Did the experience hit this degree of did they ask the right questions? Did they of course follow the rules? Were they able to read us? I mean, I’ve gone into dispensaries before, and if there’s a young budtender behind the counter and they say, “Hey, how can I get you high today? I think, well, I’m a middle aged woman. I’m not cool and the vibe is a little bit different, and so I would say around not only training, having the standard for your organization, but then also check out other dispensaries on a regular basis as well just to get a sense of temperature read.

Hey, here’s what we know is in the market. Here’s what we like. Here’s where we see some folks not do a good job, and here is a checklist for our budtenders to say, hey, did you do X, Y, and Z when somebody came in the door? And even all the way through and following through that whole experience so that when they step out of the dispensary, you can guarantee they’re going to come back in the door.

Peter D’Agostino:
It comes down to knowing your audience and in the way they maybe addressed you and it put you off a little bit so I think that’s a great thing. We actually do secret shoppers as well, but from a much different perspective. So we come in and we typically understand what the brand is at that point to the extent they’ve built one, and we’ll give the client feedback like, hey, your employees did a great job representing who you guys are or they didn’t, whatever the case may be, but we do it more from the compliance. Could we get away with something? Were we able to do something we weren’t supposed to do? Did they check our ID? And it sounds crazy, but they get busy and they forget to do that second ID check at the point of sale, which is required in some states. And so we do that in a different way with different context, but it’s critical. It is critical on the marketing side and it’s critical on the compliance side to have the third party.

And typically the employees don’t know who I am, certainly they probably don’t know who you or your team is at the budtender level. They probably will never forget you after you do the secret shopper so you can probably only get away with it so many times, but it really is important for the business owners. And this all goes to building the post operational business, building that financially sustainable business. Whether you’re going to stay in it or exit it, it almost doesn’t matter, you’ve got to do it either way.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
I just wear a fake mustache and then I [inaudible 00:29:16]. Well, around that and evolving not only the internal team of budtenders, can you speak a little bit to how organizations can mature with the market around them? So whether or not you’re in, let’s say an emerging market, but as cannabis becomes more prevalent in a particular state, I feel like the market also matures. And so what are some ways, maybe even on the compliance side or even from your perspective in other areas, can an organization continue to mature?

Peter D’Agostino:
That’s a great question, and I think it starts really with the foundational assessment that you were talking about from a brand development way and the financial sustainability. So if that’s the pillars that you build the business on, we know who we are and we’re not spending money we shouldn’t be spending, we’re being financially sustainable. If those are the pillars, it gives the owners and the ownership group or the partners, however, it’s structured, incredible flexibility to adapt to the maturing market. And what we found in Massachusetts, and I only use that as an example because the market it’s been stood up long, it’s the oldest one on the East Coast, it’s evolved so much. Who the customer is evolving, right? Who’s coming in the door as a customer is evolving, but that’s okay as long as you know who you are. If you know who you are as a business and you’ve built a financially sustainable model, you can meet the need of that customer as they evolve.

And what we’ve seen in Massachusetts is prices have come down. 2022, we saw 55% increase in the customer base because prices were coming down, people were coming out of the illicit market and into the regulated market because they know it’s tested and safe and it’s the same money why the heck wouldn’t you do it? So that’s great. It’s a great thing that I hope that’s what everybody in the industry wants to see. But as the market matures, if you have those foundational pillars of you know who you are and you’ve build a financially sustainable business, you can ebb and flow with the market. Whether it is leaning a little bit more to the left or right to address the needs of who your customer has become, that’s what you’re going to need to do foundationally to be able to speak to or address those things as they evolve. I think it really starts there. If you are trying to make it up, and we’ve seen it, people in Massachusetts over the last year are trying to figure out I’ve been open for three years and we’ve been killing it. Last year we got hurt, what do we need to do to build our brand?

There’s people five years ahead of you because they’ve been building their brand since day one. It is super expensive, and as you know super time-consuming to do that work. Google is only going to update so quick, and it takes an immense amount of effort by hiring people like you and the team internally to that right that ship and move it along. And while you’re doing that, everyone else is still moving so it comes down to that foundational work and building the company on those two pillars of financial sustainability and brand awareness.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
I might add a third pillar, if I can add a third pillar, and that really is the audience, the target audience. I love how you’re saying the customer base is also maturing and changing year after year, and folks you might have seen in the door in your first or second year of operations may be completely different from who’s coming in the door three or four or five years later. From our perspective as a marketing agency, we really have to dig into who is our audience? Where are they digesting content? What is the experience that they’re looking for? Because it is really important to know who you are as an organization, but it can’t be so siloed that it’s not in service to that target audience. And oftentimes when we run a discovery with a new organization that’s looking to work with us, we ask, who are the personas? Who’s the target audience? And oftentimes folks will say everybody over the age of 21.

And I think, well, we need to help narrow that down because it’s not everybody. Some markets, I just talked to a client the other day who said, whether we like it or not we are in the game of being a very value-based organization. People are looking for the least spend that they can do when they walk into a dispensary, and so in that way, you can’t necessarily ignore that. Even though you’re saying, hey, we want to be an elegant dispensary, but it’s not a match for the audience that you’re serving. So if I can, then I would just add one more pillar or maybe it’s like a mini pillar next to the foundational piece as well.

Peter D’Agostino:
Yeah, I think you’re exactly right. And I would argue that most people don’t know who their customer is or their audience is. I bet when you ask them that question they can’t answer it, but that’s actually a fair thing for them not to be able to answer it because people build these businesses around their vision and then reality sets in. So the reality of it is based on the area are you getting the 35 to 45 year old customer that might be willing to spend a little bit more? They’re looking for a little bit more refinement, maybe more of a craft product. And it probably tracks pretty closely to the beer industry where most people will drink a Bud Light or something similar, and then there’s another group that pretty much does craft beers and they say, I’ll spend the extra couple of bucks to get the craft beer. But when they go to a cookout, they probably will still drink the regular beer.

So I think that you have the same thing in a cannabis store in that it’s hard to define the customer. I think you go in with a vision, but you have to be ready to evolve because you ultimately don’t know who’s going to walk in that door because it’s very geographical. So unless you grew up in that neighborhood and you know who those people really are and who’s going to come into your store, it’s super hard to define that customer. And if you’ve built the business the right way, you’re going to be able to adapt. And you’re right, we’ve had a lot of clients say that about they don’t want to be a value brand, but they want to be in business so they’re going to have to have a value brand. And some people, I have one client of mind particularly, their demographic of customers is so diverse that they just do both. They have craft cannabis that’s probably three times more expensive than the value brand, and they have customers that walk in and they go right to it and they don’t even look. They’re not even walking around. They know exactly where they’re going, and then other customers are coming in and they’re just saying, THC versus price.

What’s the lowest dollar amount for the most THC to get that psychoactive effect? So I think a lot of businesses are in that position where they’re going to have to provide both depending on how far apart the other dispensaries are from them. Certainly the greater the distance between dispensaries, the larger demographic of customer you have to serve. And then where they’re more heavily concentrated I think each dispensary based on their brand starts to fall into a little bit of a groove even amongst the public, and it’s one that they set the foundation for when they decided to say, this is who we are. And so you’re going to miss customers doing it that way, but if there’s enough concentration of stores, at the end of the day your job at that point is to retain as many of the customers that align with your brand as possible. And where the distribution of dispensaries is greater, meaning the geographical distribution is greater, you certainly have way more flexibility to provide a variety of products and serve a larger demographic of customers.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Sure. I want to pivot a little bit around we’re talking about maybe maximizing folks in the door, having an inventory that really matches your audience. What about for folks who are looking to either open a new store, open in a new state? I guess my question really is on any information on just maximizing your license count within a particular market?

Peter D’Agostino:
Well, I mean, it’s super important that you’re always evaluating those because the market’s shifting and it’s growing and new states are coming online it feels like weekly from where we’re sitting. It’s probably not, there’s probably people in the industry say it’s too slow, but it is a lot. They’re coming online quickly, and so I think that one of the things we really talk to our clients about early on is what is next? And they say, let’s get this open and we’ll figure it out. And we say, by the time this is open if you don’t already know what’s next, you’re a year behind. And so expansion or maximizing license counts within a specific state may have a value. If the geographical distribution of cannabis stores is appropriate and there’s not an oversaturation of stores, then there are some operational efficiencies in doing that. You could potentially have higher level people operating multiple stores that’s not needing a whole new team.

And so we really help clients evaluate that early on, because if you wait till the first store’s open as an example, the property you would’ve done for your second store is gone. I can assure you of that. So you have to be more proactive than waiting until then, but it can be scary because you don’t want to be running too many tracks. I will say over the last few years, it’s a lot of what we’re doing is really getting that next door open, whether it’s in the same state or a new state. It’s a lot of what we’re doing because we’ve already opened their first store or two or three, and now they’re saying, oh, in [inaudible 00:39:45] three, right? So they say, we’re maxed out now so what else can we do? Which is great and we love it. We value those relationships significantly, but you can’t wait till the first one’s open to figure out what the next one is because your opportunity may be gone. It might not be, but it most likely would be gone.

And so we evaluate it from two’s perspectives, how aggressive, what’s the capitalization of the investment group? How aggressive do they want to be in expanding, whether it be within a state or in multi-state? We evaluate that. And if they say, we have no appetite to do it, we say, great, perfect, but we got to have the conversation way before you’re ready. If you think we might do that someday, then start thinking about it today. If nothing other than trying to secure some property just to say, okay, we’re putting a pin here, putting a flag in the ground saying this is us. It helps also in the brand story development where you show that future growth, it can be an element to that. It certainly helps on mergers and acquisitions because you’re building future value in the company today because it shows a longer plan. So there’s so many reasons to do it, there’s maybe as many to not do it quite frankly, but you really want to do that way earlier than you’re ready, if for no other reason, to understand what do you think the answer might be?

And as it goes to emerging states, obviously you have significantly more flexibility. If you say, we want to go into New York which doesn’t even have their adult use regs out yet in a final version, then today’s a great time to talk about that because the property’s starting to go already so you might want to start thinking about it. So that’s how we talk about it and how we think about maximizing your license count. We think of it in a couple of different ways because doing it all in one state just to do it may not make sense quite frankly. And so maximizing your license count can be seen in two ways, either meaning maximize it against the regulatory limit if there is one like in Massachusetts, or maximizing against your capitalization. If you just know we’re capitalized to do three of these, all right, where do we want to put them? Mass, New Jersey, New York, that’s probably a pretty good idea depending on the location. So maximizing your license capacity, really we view it in a couple of different ways.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Got it. So what’s the timeline? And I feel like it’s almost like birthing a child when you open up your first retail operation. The difference between that for your first one and then maybe going into a second store or into a second state, can you compare? Is it, I don’t want to call it painful to open a shop-

Peter D’Agostino:
I think most people would call it painful.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
I know.

Peter D’Agostino:
Yeah. We try to make it less painful.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Yeah. Opening your second one, is it equal? Is it like having your second kid?

Peter D’Agostino:
It’s funny, it’s similar but it’s certainly not as painful because when you go through the opening of the store, much like having children, there’s so much evolution that occurs from what you thought it was going to be through pregnancy to what it is post-delivery. And it’s a great analogy, your thought process during that time evolves significantly. When you go to do your next one, that thought process has already developed. And so where we see clients, I don’t want to say struggling, but where we see them feeling challenged the most is where they have to keep evolving their thinking because they’re like, oh, we didn’t quite realize that. Oh, we weren’t thinking about that. All those things that happen so when they go do the second one, it’s eyes wide open. They really have figured out who they are, they understand the decisions they’re going to have to make, and that makes it significantly easier on the client, on the people.

But what’s not really different is you still have to go through the municipal process, and that’s not promised to anyone. You still have to go through the state process, and generally speaking in most states as long as you pass the background check you’re going to get a license unless it’s a competitive state like Texas is right now and some other ones, right? So Ohio, that was a lottery. It didn’t matter how good you were if they pulled your name, you got one. If you were the best in the state, you maybe didn’t get one. Best in the country, you maybe didn’t get one. So they’re all different licensing schemes, and so that part doesn’t really change because whether it’s a lottery where you assume an incredible amount of risk with literally no ability to affect your outcome or a competitive state where again, you’re putting an incredible amount of financial commitment, but you can control your outcome because you’re being scored so you know what to do to perform against, but ultimately there’s no guarantee.

Or a New Jersey or Massachusetts where as long as you pass the background check and you do everything you’re supposed to do, more than likely you’re going to get your license unless something really unusual happened. And so those are all part of the evaluation so to answer your question, more or less painful? I would say as an individual, a human being going through it, the second round’s way easier because you really have solved in your thinking what decisions you need to make and probably what the answer to those decisions is going to be. From the municipal and state experience because the regs from state to state aren’t the same and from town to town, even in the same state aren’t the same, those pain points still exist, quite frankly. The only exception of that is if you’re doing two in the same town, and when people do that they do a retail and then they say, hey, we love this town. We’re going to do a cultivation or manufacturing or something else and that certainly is the easiest to do from a pain point perspective.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Got it. This is maybe a little off topic of the webinar, but I’ve been so curious especially looking at Alabama with the announcement of their handful of licenses that they’re distributing. What do organizations do when they do that, a significant financial obligation into an application and then don’t win? Do they typically go to another? It baffles me, we look at our [inaudible 00:46:02] they were spending a million and a half dollars just in application prep to then not be afforded a license.

Peter D’Agostino:
So we did the RFA2 round in Ohio, we think we submitted the third most applications of any one entity in the state for that round so we spent quite a bit of money on behalf of our clients. And when you do it, it needs to be disposable money. It needs to be money that you’re okay with walking away from and saying, I’m buying a lottery ticket for a couple hundred grand and if I don’t hit it, I’m okay. If you can’t say that, please for the love of God don’t do it because it’s no different. In Ohio, it was literally no different than buying a lottery ticket and it was incredibly expensive. But what we do to mitigate that risk for our clients is we built a pretty big umbrella of partners, you guys being one of them and others, architects, engineers, and so what we really try to do is work with our partner businesses that we don’t own or control, but they’re people we’ve just worked with throughout the last 10, 11 years. And we say, hey, listen guys, we have a client that wants to go all in on Ohio. We literally did this. This is a real world example.

We have a client that wants to be super aggressive in Ohio. They’re going to spend a ton of dough no matter how cheap we make it for them. We’ve worked with this client in other states, you’ve worked with this client in other states, can we do some preferred pricing to help them be able to buy more lottery tickets? Because in Ohio you could have multiple location. So the more efficient we were with our costs, and I mean not just Tenax, but across the board, architects, engineers, attorneys, real estate, all the crap that had to go into it. The more efficient every partner in that was, the more lottery tickets or locations the client could apply for, which gives all of us collectively a better chance of doing business there. And so we really went on behalf of the client and pitched all these vendors and said, listen guys, here’s our pitch to you. Are you in? And every one of them said yes.

Now, it still was expensive because there’s just so many people and so many things that need to get paid, but that’s the kind of collaboration that we try to really pull together in those highly high risk application scenarios. Texas is similar, dissimilar. I mean, Texas is not a lottery, but what’s interesting about Texas, and we just did several applications for that that’s closing on Friday, it’s not a lottery, but they didn’t put out the scoring criteria. So you’re just taking a flyer. You don’t know what they’re evaluating. This is what you got, you got an application, you got a set of regulations with eight words in it, and you got a law with 12 words in it, and they said take your best shot. And so even though it’s not a lottery, you have to operate under the same premise because I don’t have a score sheet that says we’re giving 10 points for this, five points for this, eight points for this. We looked at historical data. We looked at the previous round. You can make a lot of assumptions. You understand what’s important to regulators, all that’s great.

You still got to be able to walk away from that money because you can’t prove or ensure that you can perform against that unknown scoring criteria. And so those are the ways we manage it in different scenarios. There’s a lot of different ways to this. Ohio was certainly the toughest because it was literally just name out of a hat, but that’s how we address it with clients. But first you got to be willing to walk away from the cash, which is a big tough thing to be able to do.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Yeah, welcome to the cannabis industry.

Peter D’Agostino:
You don’t have to do it the hard way, but those are hard places to do it for sure.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Well, let’s go to the other spectrum then. So when folks are ready to exit, they’ve maybe planned to exit or external factors or whatever, however they arrived at the decision to exit, what are some of the things that they should start thinking about or start doing to prepare for acquisition?

Peter D’Agostino:
Well, they got to start way before they think about it, and that’s what we really focus on. And it goes back to almost in a way I’m going to give you the same answer, but it’s really true. If you built a financially sustainable business and you didn’t spend money you didn’t need to spend and your balance sheet looks good, it is without a doubt your best chance to maximize your return on your investment during an exit. What we do see is clients that they do all these things, they try all these things, they take all this money, and by take money I mean whether it be investment or debt or whatever the case may be, they give up equity to get the cash in and we’ve seen so many different scenarios and then they go, well, now I’m going to exit. Where are you exiting from? What’s the value to the buyer? Because it’s just like pulling a ripcord, and so we really pound the pavement.

I know I’ve said it a couple times, but it’s just so important. Guys, you should be planning to exit from day one. You should be planning to keep this business from day one. If you do those things, it’s your highest and best chance to have a good exit if you choose to do. It’s also your highest and best chance to have a sustainable business if you choose to do it. Deciding in year three that you’re exiting in year four, unless you were really lucky is going to be super challenging. You can’t erase what the balance sheet says. You can’t erase where the money went and whether or not you have some, and so that’s how you got to be thinking about. And if you’re already in the space like some of the folks joining us today certainly, and you’re already past that point of no return we already spent the money we shouldn’t have spent. Get it right, get some help, get the business back on track, grow your EBITDA, grow your sales, take a year and exit, and you’ll probably double your money.

If you have to get out, you have to get out and we get it, but then you have to have a realistic expectation of what that looks like.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Sure. So the goal here is exit strong.

Peter D’Agostino:
Enter strong.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Enter strong. Good edit. Awesome. Well, Pete, I want to be respectful of your time and the time of those who have joined us. Is there anything that we missed? I feel like we covered a lot of really fun topics here.

Peter D’Agostino:
Oh no, we could probably do eight more hours, but this was a great conversation. I hope the folks that were able to join us or who are watching it later can think about some of these things, reach out to Tenax, reach out to Hybrid. We can help you. We can help assess your individual situation and understand your goals and try to be a good partner to you. But this is a great initial conversation, and we welcome the opportunity to continue that with whomever. But thank you Jen, so much for having us and really helping people think about what happens after I open the door? Which was great.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Awesome. Yes, it’s always our pleasure. Of course, it’s our pleasure to partner with you and then to have these conversations and really to help share the knowledge because from our perspective, which I think is probably aligns with you all as well, is we believe in this industry. We believe in growing it in the right direction. We believe the more cannabis there is, the better we are off as a planet and people. And so we look for those partnerships, we look for those who have an eye toward longevity as well so thank you. Thank you. Thank you so much, Pete.

Peter D’Agostino:
Thanks, Jen. I went ahead and put our email addresses here. Reach out to me, reach out to Pete if you have further questions. We will provide the recording here soon. And I also wanted to give you a heads-up on our next topic as well. We’re really moving hard on the dispensary topic so next month, July 12th is the million dollar search, Dispensary Near Me. I’ll be joined by Jeremy Johnson of Dispense, and then our own director of marketing, Tyler Jacobson with Hybrid as well. So thank you again, Pete. Thank you, Tenax. Thanks for those of us who joined us, and we hope to see you soon.

Jen Lamboy, Director of Strategy, Hybrid Marketing:
Thanks, Jen. Have a great day. Thanks everybody.

Peter D’Agostino:
Bye-bye.