Aurora Cannabis CEO Steps Down, Cannabis Industry Loses Legendary Breeder Subcool: Week in Review

Jeff Radway: Oh, wow. It feels like it was three lifetimes ago. Quite a bit has changed. We now have six stores open, and we have another five stores set to open over the next few months. Our main production facility where we cultivate and process is recreationally approved, so we’re actually growing rec product as of early January—not yet harvested, but that’s in the process. We have our first rec store open in Ann Arbor, which is phenomenal, and we are learning and navigating through the process of trying to maintain two different sets of inventory and trying to optimize both sides of the business in terms of medical and recreational and have the right product at the right place at the right time for the right consumers. All of that is on top of actively working on some acquisitions in some other states. So yeah, it’s been busy. 

CBT: How is the Ann Arbor market?

JR: It’s been phenomenal. We were actually the eighth or ninth store open in Ann Arbor for adult-use—we’re one of the newer med stores. We had only been open I think six or eight weeks before we went rec. There are stores, of course, that have been open in Ann Arbor for years, but the response has been terrific. We feel like we’re showing the consumer for recreational as well as the patient for medical a new buying experience. Our stores are really an elevated model. There are browsable floors, and you can preorder and pick up in the store. You can step up to the counter without lines or stanchions. That’s always been a concern of ours— that the cannabis retail experience doesn’t look like other retail environments, and we frankly thought that it should. And then, of course, if you have questions or want to browse the floor, we have sales associates with mobile POS, checkouts on iPads, able to help give information or even check a customer out on the floor. 

CBT: Can you describe how that store in particular is set up and how you guide consumers depending on which market they belong to? 

JR: We really don’t differentiate medical to rec as far as the consumer. Once you have passed our reception desk, first of all, you enter our store and you’re greeted by basically a concierge, and they’re going to ask you if you’re in our system. If not, we’re going to ask you to sign up or, if you’re there for recreational, show an ID and also sign into our system so we’re able to track daily purchase limits to stay compliant with state regulations. Once you’ve passed through the reception desk, you’re onto an open sales floor, and you can browse by brand. We certainly carry a lot of our own in-house brand, Skymint, but we carry a full selection of really solid brands that are available to the Michigan market, so you can shop by brand and by form factor. Or, you can stop at iPads in sort of an informational journey and try to learn more about the products. 

If you’re unfamiliar, you can also be helped by a mobile sales associate out on the floor. So, we have really a bunch of ways to experience it. We have sniff jars out on the floor for various strains. We think we’ve got the broadest selection of flower right now in the state of Michigan. But again, the product on the floor looks the same to medical and rec. The strains are the same. The offerings are mostly the same, but not every product from outside third party-vendors is available to recreational yet. There’s just a really limited supply right now in the state, but we expect that to change here shortly.

CBT: How did you go about preparing your supply for the adult-use market and have you experienced any shortages on either side?

JR: Frankly, the state of Michigan opened up [adult-use sales] rather unannounced, and there wasn’t much advanced warning. We actually thought it would happen 45 or 60 days later than it did. … This came very quickly, and we had to sort of scramble to get our application in first, get our cultivation and processing facility licensed, and then go through all the local municipality steps for our stores. It’s a bit of a learning curve, I’ll be honest with you. We’re learning more every day about the differences between a recreational customer and a medical customer. They do indeed act differently in the market. Michigan may be unique because we’re a more than 10-year-old mature medical market, but the recreational customer needs a lot more assistance, help and knowledge about understanding the various product types, where the medical customer tends to know a lot about the market already.

[The state] invoked a rule called Rule 40, which allows for up to 50% of your medical inventory to be transferred to adult-use. … We had a lot of inventory in our vault and we had a lot of inventory at our stores, and to the extent that it met the criteria put out by the state, we were able to transfer that, so we started day one of being open for recreational having full shelves on both sides of the equation. 

Because we are a vertical producer, in some cases we’ve had to reallocate between our wholesale and our retail division, but we are still very active on both sides of the distribution equation. As far as our third-party buys, approximately 20% of what we carry in our stores is purchased on the outside. That has been limited. There’s very little to choose from right now in the Michigan market in terms of vape, concentrates, edibles, so we’re buying everything that we can that is from a quality producer with strong branding. 

CBT: What’s the ratio of what you’re growing for medical versus rec?

JR: Some of that is confidential. What I will say is that the market for adult-use is far bigger than for medical. This state is already seeing a decline in the medical card patient base, which leads me to believe that it’s just easier for certain consumers not to have to worry about seeing a doctor and renewing their cards. I think there is an economic [aspect] for the patient who needs a lot of medicine, because it’s still less expensive to buy using a medical card. I don’t know how that plays out in the future, but I suspect the two will probably meet somewhere in the middle on price point. As a company, we charge medical customers less just because we feel an obligation to the patients who have serious medical conditions. We don’t want them to be quite as exposed to the supply and demand types of pricing issues as an adult-use customer. 

CBT: What would you say has been the biggest lesson you’ve learned over the past year or two? 

JR: I would say that first of all, operating inside of a federally illegal business is incredibly challenging for all the reasons we all deal with, from banking to insurance to working with suppliers. But I would say the thing that surprised me the most is that it is not normal or natural or easy to grow a highly regulated agricultural product indoors that has to meet very stringent levels of state regulations and testing. So, indoor farming is not easy.