CULTA is Mining the Maryland Medical Market

CULTA is a Bethesda, Maryland-based vertically integrated cannabis company founded by Mackie Barch and Matt Bickel to achieve a specific goal. Per the company, the pair “vowed in 2017 to create a Maryland-based, craft cannabis brand that focuses on product quality.” To that end, the CULTA of 2022 has become an established player in the state with room to grow. It owns and runs a dispensary in Baltimore, operates an indoor/outdoor farm and lab in Cambridge, and its CULTA-branded products can be found in partner dispensaries throughout the state. Product categories cover the bases – Flower, Vape, Infused, Extracts, and Edibles – and a legion of CULTA fans have access to more branded apparel than one person can wear. The company recently struck a deal that adds California-based Old Pal to its menu, and CBE took the opportunity to speak with CULTA CEO Allison Siegel, who joined the company in 2020 as COO before taking the reins in May of last year, about the company’s plans for the future and its steadfast commitment to Maryland.

“I have a pretty unique story and haven’t really spoken about it a lot outside of our company,” Siegel said of her introduction to the industry. Cannabis was not an obvious destination for the experienced executive, to say the least. “I used to run a company called Next Day Blinds, and if you’re not from the mid-Atlantic you wouldn’t know them but it’s a big window covering manufacturing and service and sales company. We sold the company after I ran it for six years, and I was looking for what I wanted to do next. It was in the midst of COVID, I was talking to a ton of people, and I ended up talking to an investor in CULTA who also is on our board of directors. He asked me what I thought about cannabis and my answer to him – which is so funny now – was that I don’t think about cannabis. It’s just not something that I think about at all, and I don’t really have a perspective on it. I just know that it’s federally illegal. He said, ‘I have a company in my portfolio, and we really would like some business knowledge, or just some help from a business perspective. Would you consult for CULTA?’ I didn’t know it was CULTA at the time, of course, and I said I will not because I don’t want to get paid by a federally illegal company. And he said, ‘Well, what if I pay you and they’ll pay me back?’ I said, ‘Alright, I guess so if it’s going to come from your fund.”

What did they want her to do specifically? “They were in this crunch trying to get their budget approved,” said Siegel. “CULTA is independently owned so it’s not as significant of a process as I’ve gone through in the past, but they were having trouble because they didn’t have a lot of senior executives that were working on the budget. Each [department] was putting together their individual budgets, and we were having difficulty getting the Board to see what the management team wanted to do. So, a first task was, ‘Can you come in and help us as the Board understand what the management team is trying to do?’

“And, in all honesty,” she added, “the CEO (Mackie Barch) was already on the Board, and he is as entrepreneurial as they come. He is just a pure entrepreneur, so the concept of a budget, while he totally gets it, is basically in his way. He welcomed me coming and was like, ‘Here, take this whole thing and just tell me when it’s done.’ And he gave me a tour of CULTA. I’d never been to a grow. I had never been to a dispensary in Maryland. So, when he gave me the tour, that was the moment that I was like, ‘This is a real industry. This is a real business.’ I was in shock. I spent a lot of time laughing. I was, like, ‘Oh, my God, people really sit and trim this by hand?’ I took a ton of pictures and was just in awe at this industry that I had no idea about.

“And that was that moment that I recognized that not only was this a business opportunity, not from the sense of being a make money business opportunity, but it was an opportunity to start in an industry that was at such an infant stage that needed people that have business knowledge,” she continued. “I’m an industrial engineer, so for me, it was all about the processes that I knew were lacking not just in CULTA, but in the industry. Once I kept asking, ‘Is there some way to do this,’ and a lot of the stuff just wasn’t in in the industry yet, that was the moment when I knew, when I was like, ‘Oh, my God, this is something that’s really interesting and exciting.’”

Her actual onboarding was almost a fait accompli. “I worked with Mackie, who was our CEO at the time, and Jonathan Clark, our CFO, working through the budgeting process with the Board members. I got through the budgeting process – it was December 31, we actually did it on New Year’s Eve! My consulting gig was coming to an end, and I was looking for full time work. I was not looking at CULTA or even thinking about it, but then they started talking to me about coming into the company. What role should I play? We weren’t really sure. We weren’t sure what Mackie wanted to do. Like I said, Mackie is a true entrepreneur, and he really built this company from the beginning – tiny – to it exploding and growing very quickly. And he started getting, I don’t think it’s bored, but he started having to have big company conversations and structural conversations that he does not enjoy and wanted to really spend more time on the cultivation side and the entrepreneurial side.

“They offered me the position of COO,” she continued. “I came in not knowing if that’s what I was going to continue doing, because we didn’t have a COO, so I wasn’t taking someone’s position. And I don’t have cannabis knowledge, so I didn’t want to walk in pretending I was a cannabis executive because I wasn’t. But from a CEO perspective, I do have that background, and so I came in and helped evaluate the structure of the company. It was hard to learn about the people and the industry because of COVID. Talking to somebody with a mask on or over Zoom is so different than face-to-face, and then Mackie decided that he wanted to transition out of the CEO role and stay on the board, so he and I came up with the title of Chief Cannabis Officer for him, and I took over as CEO, but I think a very different CEO than he was.”

That was my follow-up question, because it was obviously a pretty quick ascension into the CEO role. So, is she keeping CULTA on the straight and narrow, or taking it in a new direction?

“From my perspective, the CULTA strategy, while maybe not as a PowerPoint presentation, was pretty clear,” she replied. “We were staying in the state of Maryland, we wanted to increase our output, and we knew what our brand was. Mackie, and then Renier Fee (Senior Director of Marketing), helped build what CULTA is. I wasn’t changing any of that. This was about a company that grows from a startup to, I like to say, a teenager, and is in this awkward teenager phase. We’re not trying to redevelop who the person is; we’re trying to put them on the right path. I think it wasn’t about changing the strategy but maybe refining it. Whenever a company is run by an entrepreneur, there are 500 things that are happening at the same time, so helping prioritize those things – mostly processes, procedures, organizational structures, onboarding, the stuff that most founder CEOs think are super boring and don’t want to spend their time on, and I’ve done time and time again – that’s what I focus on. It’s a lot about margin analysis and when a company goes from a small to midsize business.”

The Learning-Curve of Maryland

Needless to say, most of the new business was a steep learning curve for Siegel, who did use previous lessons to help with the transition. “I spent the first part of my career as a consultant, and I think it helped by learning that there’s not a stupid question – I ask plenty of those all the time – and I never pretend that I know something that I don’t,” she explained. “I think the team got a little bit scared when I showed how naïve and ignorant I was on the topic, but I was. And so, I learned as fast as I could. I think it probably took me a full year to understand cannabis, not from a recreational standpoint, but from the medical and highly regulated side. In addition, I’d never worked in agriculture. I’ve worked in manufacturing, which we have a part of, and I could use some of those practices, and I had a lot of experience in retail, so the dispensary made a lot of sense to me. But on the cultivation side, it was foreign to me, and my head now is like, ‘Wow, I can’t believe how much I’ve learned.’ I still learn every single day about the cannabis business, but it has definitely been a very steep learning curve.”

But perhaps the most intense part of Siegel’s new curriculum was learning about the regulatory nature of cannabis in a state that is itself just learning the ropes. I asked how many patients are currently registered in Maryland, what are the limitations under medical, and did she anticipate it going adult-use any time soon?

“This is the crux of everything we talk about every day right now,” she responded. “Maryland has 150,000 patients right now. Which of those patients are active, we don’t know, because the state doesn’t report on that yet, but that number is not growing in any significant manner. So, we are in the position right now, which many states before us have gone through, where we are in a medical market that is four years in, we are finally matured in this medical market, and what that shows, and what everybody else went through, is that supply has now outpaced demand. For years, we were flying high – patients couldn’t get enough product, the dispensaries were buying our product before it was out of the ground, and we could not produce enough – but it quickly shifted as every grower and processor tried to increase their supply to meet the market demand, and we all individually overshot in my opinion. And you don’t want to be the only one that doesn’t, but at the same time there is significant product supply. Right now, prices have fallen significantly in Maryland, which is great for the patients, but at some point very soon – and I can’t believe it’s not here yet – a lot of businesses are going to start going out of business.

“The only thing that’s going to save us in Maryland is legalization,” she added, “and by us I mean the industry, I don’t mean CULTA. We focus on high quality in everything that we produce, and we will not let anything out of our facility that we do not consider high quality. That has always been our niche and our focus, and so we had margin to work with, but a lot of companies don’t have high quality and their product is being sold for a low amount. I feel like I’m in California, or Colorado, or anywhere else out west that has such an abundance of supply.

“So, Maryland’s in a tough spot right now,” she continued, “but the good news is that there is a referendum question (Question 4) on the ballot in November for legalization, and should it pass, which we expect it to, we need it to pass with like flying colors, because we need the regulators to understand that the people of the state of Maryland want recreational legalization, and that once it does pass, we need the regulations to be put in place quickly, because the way the law was written, starting in July of 2023, home grow is going to be legalized – I think it’s two plants, but it may be four plants per person – and decriminalization goes into effect. And we’ve seen what happens when that’s the case. I’m very happy that those things passed, but if we vote yes on legalization and those things are in place and we don’t have a regulated market, we’ve seen in the past that crime goes up, that the gray illicit market thrives and that not good for anybody. So, we’re really hopeful that not only will it pass, but that our legislators will ensure that they have regulations developed quickly enough that the legal market really does go into effect.”

That was a lot to digest but it clearly laid out the stakes for CULTA and other operators and potential operators in the state. I asked Siegel if there could be additional complications, such as required approval at the local level. “I haven’t heard anything about local,” she said. “Now, they may add something that says local municipalities can say they don’t want a dispensary in their neighborhood, but they haven’t talked about that. The way Maryland licenses were awarded, there are two licenses given per district. So right now, they’re spread out based on district, and the question is, how many more dispensary licenses are they going to give out? We expect to stay a limited-license state, but there will be an application process, and there will be more licenses given out, but how they are given out, I don’t know. We’re in favor of all additional licenses being 100 percent social equity, and that’s obviously a lot of the conversation, but it’s not being talked about from a local level; it’s all being talked about from a statewide level.”

Is CULTA set up to serve an adult-use market if and when it happens? “Yes,” said Siegel. “Should we get approval to be able to do that at our current dispensary – our dispensary in downtown Baltimore is in a great location on the harbor and a great location for a recreational market – we hope that we’ll be able to service that market, and we expect to be able to service that market as a wholesaler as well. But like you’ve seen in other states, the first few months are going to be kind of tough because we’re going to have to build up our supply.”

There is usually a lot of regulatory flux at the beginning, I noted, and sometimes it lasts for longer than anticipated. “What I’ve heard is that the regulatory body, MMCC, which is currently under the Department of Health, will be moving under Alcohol, Tobacco, and Firearms,” said Siegel. “Other than that, it sounds like they’re going to try and keep everything else stay the same. We already use METRC and that would continue, and then it’s about whether your POS systems change, how taxes get paid; all of those things have to get worked out.”

CULTA Future

Dealing with those details are in Siegel’s wheelhouse. The question for CULTA would seem to be its plans for retail and other expansion, and whether it has any ambitions beyond Maryland. Also, what does the rest of this year look like for CULTA, and dare we ask, into 2023?

“It’s an ugly time to have this conversation,” admitted Siegel, “but I’ll tell you a few things that are for certain. We are focused on Maryland. Unless something crazy comes up and falls in my lap, Maryland is where we expect to stay, and that helps us stay focused in keeping with our strategy. We are and will continue to be focused on high quality. We have some friends in the state who like to say they’re the Anheuser-Busch of cannabis. We aren’t looking to be the highest volume producer. We’re looking to be the highest quality producer, and that will remain. And so, when we look at new products, or we look at new strains or new partnerships, it’s all under a high-quality umbrella, and it will stay that way.

“Now, when you ask what 2023 looks like, I say it’s such an ugly time is because we’re in this crazy time between medical and recreational,” she added. “So, if you told me legalization is not on the horizon, my answer would be very different, because it would be all about efficiencies and how do we survive and get really efficient so that we can service this medical market. But that’s thankfully not the state we’re in, and what I see is us really buckling down. That’s what we have been doing over the last few months and what we will continue to do to answer some questions: How can we get from here to 12 months from now, when legalization is here? How do we refine all of our processes, to refine all of our products, to be the best we can be in this medical market so that we’re ready for the adult-use market. And ready means that we have the best products, and that most of the best products we have are CULTA.”

The company’s plans for growth also are clear. “Expansion from now until then would only be on the dispensary side,” clarified Siegel. “We will start expansion on our cultivation, but we won’t complete it until after adult-use is here. Any dispensary that we come upon that makes sense for us to acquire, we will look at, but it makes sense for us to be able to put more of our products through other dispensaries”

What percentage of dispensaries in Maryland is CULTA available in right now? “We are in every dispensary that pays their bills,” said Siegel. “It fluctuates month-to-month, but we’re probably in somewhere between 60 and 80 dispensaries depending on the month, and there are probably around 90 that are up and running right now.”

CULTA is privately owned and does not discuss revenue, but there are metrics they use that can be talked about. “I think my company would laugh if I had to document to you all of our KPIs,” said Siegel. “I think we’re at a 60-page deck now, so we won’t go into depth, but our senior leadership team talks about five key metrics at the meeting every week. I should be able to recite them, so let’s see if I can. Product quality is the first one we talk about, and we read it as red, yellow, or green (in decreasing urgency). And then we talk about yield from the standpoint of our grow, but also yield from our processing lab. The third one we talk about is revenue and cash. We talk about them together to make sure we are on track with them versus our forecast. Not absolute numbers, but how are we doing against our forecast. Then we talk about hiring and retention. And the last one, and probably the most important, is employee engagement, which we usually spend the most time talking about.”

So, how are the metrics going? Are there any trends to speak of? “It definitely changes based on when you’re talking to me, but right now our forecast is not where we expected it to be, because this market has taken a nosedive based on the pricing,” said Siegel. “So, obviously, if we were expecting to sell a certain number of pounds and we’re still selling that same number of pounds of flower, but we’re selling it for 40 percent less, because that’s about the average of the drop in retail price for flower in Maryland right now, our forecast is not where we expected it to be. So that is the negative trend that we are seeing, and with that comes a tough conversations that we have to have in the company.

“And so, we’re watching employee engagement very carefully, because it’s really fun when you get to talk about a growing market and double-digit growth and all the awesome stuff that we’ve seen for the past few years,” she added. “And while employee engagement doesn’t always stay high, it’s easier for it to be high during those times. But what we’re seeing is that those people that are loyal to CULTA, which is a lot of people – I mean, there are people who wear CULTA literally on their sleeve. We have arguments often about do we really need to give people more apparel, but they love their CULTA shirts – they’re like, ‘We’re in, we’re ready, let’s go, we’re holding on to legalization.’ So, that’s kind of the trend that we’re seeing. Yield and quality used to be the things we talked about the most, because we were a younger company, and when I first walked in, quality was the topic of every conversation, but both of those are bright green on our scorecard now, and we’re really focused on the other areas.”

I asked Siegel the same question I now ask of all producers. Are cannabis consumers in general brand loyal? “I think cannabis is not there yet,” said Siegel. “I think there will always be brand loyalists, and that someone that makes cannabis a really big part of their life probably is loyal to one or two brands, but I personally feel that cannabis as an industry has not had enough time to develop those brands. For people to be loyal, I think there needs to be a few brands out there that hit the mark in terms of having the best product and the best marketing and are national. And to me, I always think of CANN. I think the product is amazing, I think it tastes great, I think the effects are great, and I think their marketing is great. But I don’t think there are that many products out there like that, and in the state of Maryland, I just don’t think we’ve been around long enough to make that call.”

If CULTA is committed to Maryland, what about its products? Could we see CULTA brands on shelves in other states one day? “Who knows what the future will bring, but the current strategic plan does not have us going into other states,” said Siegel. “I’m not really involved in this, but we have done such an amazing job of building the CULTA brand that I could see us licensing it in the future. That’s not what we’re focused on, but I’d be very willing to have that conversation because we do have a marketing powerhouse here, Mackie really knows how to build a brand, and he did that at CULTA. So, we have that asset we could utilize in the future, but we don’t have a plan right now to do so.”

Conversely, in bringing a brand like Old Pal into the CULTA fold, will we see more such deals like that, tapping into brands that originated elsewhere? Is it a sign that CULTA is actively looking to add more options to the menu?

“I think it’s a sign that we are open to it,” said Siegel. “I just had this conversation with a cultivator in Maryland, who said to me, ‘I don’t understand why you signed on with Old Pal when you could have just done it yourself. Why is it so novel?’ And my answer was, ‘I could have figured all that out myself; I could have created my own packaging, developed the brand for it or used the CULTA brand. But we’ve developed a few products ourselves internally, and the amount of time and effort that goes into the development of a product, the creation of the SOPs and making sure that it is to the level of quality that we want as a high-quality operator, is so great that the opportunity-cost of what else we could be doing means it’s just not worth it in some areas. I don’t want to bring on something that competes significantly with my own product, and to be honest, I have to tell you that most of the people we’ve started these discussions with are not professional enough for me to feel comfortable working with them. But the Old Pal team just blew us away. They were great people, which was really important to us, but their SOPs were amazing. It was so easy to work with them. They just made this very turnkey, and to me that’s the key to having a licensed brand.”

Old Pal’s SOPs are the backbone of their business model, I noted. “And it makes a difference,” said Siegel. “Everyone thinks you can just go write some SOPs, which I guess you could, but theirs are so detailed that it was very easy for my team to follow. I know when my team starts complaining, ‘Oh my God, why are we doing this?’ that we didn’t sign up for a great deal, and I never heard that about Old Pal. So, I think we made a great decision here. We’re in our first week of sales with them, and it’s going really well.”

Our time at an end, I rushed a few obligatory questions by Siegel before she had to run. What does she spend her day doing other than speaking to people like me? “Every day is so different,” she said. “There’s no way that I could actually summarize. Some days, I’m driving to our dispensary in Baltimore, and other days I’m driving to Cambridge to go to our grow. But mostly, I’m talking to our people, asking, ‘What do you need for me to support you? Are you waiting on something from me? What decisions can you not make without me?’ I think most of my days spent supporting the team and ensuring that there are no roadblocks.”

What keeps her up at night? “Legalization without regulation; that is a very scary place to me. I don’t know what else. That’s the biggest.”

After a pause, she added, “Maybe the other thing that keeps me up, or is very frustrating to me, is that there is minimal education. There’s a huge gap between those who understand the cannabis marketplace and those who don’t, and there is no one in the middle. People either understand what the regulation is doing, what being federally legal means – the whole 280E disaster that is crushing these independent dispensaries – and then there are people who are like, ‘Wait, why do I smell pot?’ There is no one in the middle.”

And what is it that gets her up in the morning? What does she love about her job? “I love being able to be effective,” she said, “and to really believe that my team feels like I can be without being the smartest person on the topic. I used to believe that I had to know the most to be in the top job, but I am so far from that and would never be there in this industry that it’s been really thrilling to me, and still is, that I can make an impact, and that people value that impact even though they know a lot more than me about the product itself.”

As for being a first-time CEO, Siegel was decidedly and disarmingly nonchalant. “I like it,” she said, “but I don’t know that I give it that much thought.”