Fluent in Florida: CEO Robert Beasley’s Strategy of Growth by Contraction

Founded in 2016, Cansortium Inc. is the publicly traded parent company of Florida-based Fluent, which was rebranded from Knox Medical in May 2019. Fluent is a multistate operator with a reach as far west as Texas and as far north as Pennsylvania, but its heart remains in The Sunshine State, as does a large majority of its revenue. The Fluent story is essentially one of resurrection from imminent collapse to a company CEO Robert Beasley proudly points to as the fastest-growing cannabis vertical in the state. It’s also a story about how sometimes less is more, retrenchment equals growth, and the path forward can be as simple as taking one sure step at a time.

“They were one of the first five [verticals] in Florida,” said Beasley of the original company in a recent call with CBE. “They were operated by Bruce Knox, who was the original nursery owner, and Jose Hidalgo, who was his investment partner. Jose later becomes the CEO, and in 2019 they took it public, and then began a long struggle of expansion.

“I didn’t come on board until January 2020, when the board of directors reached out to me,” he added.  The board knew it had a big problem and needed someone to be an interpreter. “I came on board as an advisor to the board in January of 2020, with the idea of listening to what was being said and analyzing and watching with my own eyes.”

Beasley was bringing more than legal experience to the table. “At that point, I had stood up four different cannabis companies from scratch, and I had a feel for what needed to be done, and to me, it was very open and obvious,” said of the conditions at Fluent. “There was a lot of low hanging fruit, there were a lot of things being done poorly, and my coming on board resulted in me writing a series of memos in the first month of January. The CEO resigned at the end of January, they were as a rudderless ship for a few months, and I slowly took over the command-and-control position, just because I was the only guy to answer the questions.

“I was de facto running the company for a few months and urging the board to find a CEO,” he continued. “I participated in the search, helped them try to find someone, and we had prolonged negotiations with a couple of candidates, none of which worked out. And so, I guess I was just the ugly girl left at the dance at 3am, and the next thing you know, they looked at me and said, ‘You’re already running the thing; you’re the only one here that wants the job. So, take it.’

“And so, I took it,” he said, “and we had a lot of work to do. We just started working, and we just started doing better and better and better, with the whole idea at the time that the board was motivated to sell the company. And they wanted to sell the company essentially on a fire sale basis. And then, as I improved the company, standing around sweeping up the place, making a few changes, it just kept getting exponentially better, and they ultimately realized, wait a second, we’re not the wounded duck that we once were, and we don’t have to fire sale. They started believing in us a little bit more, we started getting a little bit of momentum, and here we are.”

Growth By Contraction

The following period for Fluent was the growth-by-contraction period during which Beasley reconfigured Fluent into the company it more closely resembles today. “We had a small grow in Florida in Tampa, Florida, and 20 stores, and those stores were running out of inventory by about 10 or 11am,” Beasley said of the assets Fluent had when he took over. “They did not have enough feed to keep inventory in the stores. There was a license for three stores in Pennsylvania but only one was opened in Hanover. There was a license in Texas but no store, no cultivation facility. There was an outdoor cultivation facility in Michigan that I’ve since closed. There was a trainwreck of something in Puerto Rico that we spent millions of dollars on that I closed. There was a go-forward interest in Colombia where we spent $3 million that I’ve put on ice. There was a Brazilian operation that we spent $5 million on that I couldn’t see any way forward, so I closed that. There was an Australia episode that I killed.

“I basically grew us by contraction,” he surmised. “The prior management was stuck in the green rush days instead of investing vertically in the assets and building out a good business. They were running around the country and indeed the world getting new licenses, so we ended up with an asset heavy but revenue-depleted company.”

The way forward is more of the same. “The strategy is to continue to grow in balance,” said Beasley. “There’s plenty of market-share left in Florida. We are gaining market-share faster than anyone else. We will continue to expand our store footprint. I have four stores in process now, and then we will add more cultivation space because when you’re truly vertical and you can’t purchase wholesale, you’ve got to grow it to sell it. So, staying in balance is the strategy.”

What role do the other states play in that balance? Will Florida be its main focus for the near future. “Certainly, Florida remains our main focus,” affirmed Beasley. “It’s almost 80 percent of our revenues, and so growing Florida was the right answer. If I looked through the basket of assets that I inherited, the one that could get us growth quicker was Florida, and so we invested there. This also gives us some time and space to invest elsewhere, so we’re now working on getting a store open in Texas, we had one store in Pennsylvania – we now have three open – and we’re looking at a cultivation relationship there. So, we’re going to continue to grow in these other states, and now we’re strong enough to look at other partners in other states, but Florida is how we got here. If you looked at the Fluent assets on the table back then, Florida was the only clear path.”

As mentioned, the regime Beasley put in play has thus far paid off. “We’re about four and a half to five percent of the market share,” he said, “and we are the fastest-gaining market share company in Florida. We continue to gain, we’ve gained every month, and we’ve never not gained. The rate of patient accrual and for a new patient has really massively slowed, so we’re all competing for the same patient at this point.”

Market share is measured in volume of THC milligrams both total and flower sold, explained Beasley. “Although we know our average customer consumption and dollar averages, it would be hard for us to measure it not knowing what they spent at other stores,” he added. “So, if you look at the total amount distributed in the state of Florida – and the Office of Medical Marijuana has a lot of data they publish every week – you can see where you are relative to your competitors in total milligrams sold.”

One way Fluent is winning (and retaining) patients, according to Beasley, is by building on its reputation for high-quality flower. “Our biggest competitor in Florida is Trulieve and they’re known for being fairly mediocre in their quality of flower,” he said. “There are other high-quality flower competitors out there, but that’s one method [of retention]. We’re also doing it through service. Once we get that customer, retaining that customer is very important to us because there are only so many of them, and so we really work on customer retention.

“And we do it through some of the physician programs.,” he added. “Physicians remain the gatekeeper in a medical market, and so we continue to make sure those physicians have the support they need and stay top of mind. And then we’re just expanding our footprint. you get every new patient in an unserved market if you can get there first, and there’s still open footprint in Florida.”

I asked about delivery in such a large state. “Delivery has not been a successful model in Florida,” he said. “Because we have very few high-population urban centers, we have maximized our region in existing stores, and our stores are selling 30 percent more this year than they sold in the last two years. We’re doing more customer outreach, more digital outreach is really helping, and the type and manner of the new stores we opened also helps, and we’ve got drive-throughs now.

“But there’s still a lot of map in Florida,” he added. “It looks saturated until you really start to dial it down. Florida’s a big state, and there are still a lot of holes that are under-served – what I call the B markets – and some of the A markets also have sections that aren’t covered. So, I’m not worried about availability. What I’m worried about is staying in balance and making sure that I don’t open the store that I can’t seed.”

Beyond Florida

Fluent is a multistate operator, of course, with a footprint in Texas and Pennsylvania. I asked Beasley if the company prefers to structure its move into new markets in a particular way, noting that MSOs tend to do it differently. “We do it all ourselves,” he said. “You’re right, there are many different approaches to how to develop and grow a company in this developing frontier market. I think those approaches are driven by your origin or your primary business model and the approach to how you learn to do it is really controlled by your regulatory environment.

“In Florida,” he continued, “we’re purely vertical, we’re forced to be vertical, and we’re in a limited-license, competitive state. As a result, we had to master all three components of being vertical: the cultivation, the manufacturing/processing, and the retail. Once we go into a state like Pennsylvania, and we’re just doing retail, frankly, it feels like we’re only half-working because we’re not growing or processing. And since we know how to do the other legs, it’s easy for us to continue to work our way towards a vertical model.”

If he had come from California as an early-mover, he added, or from Colorado, he would likely have been more retail-oriented. “But I came from a state where we never got to buy wholesale, so I don’t even understand it,” he said. “The other thing about Florida that’s different is, we are our own brand. Because of packaging and labeling restrictions, brands don’t do as much good because they’re not worth the brand premium, because a brand consists of a color scheme and a logo, which we can’t have; it consists of other types of product dimensions, which we can’t have; so, branding does very little good, although there is some branding developing and finding its way into Florida.”

But the brand discussion is far from over for Fluent. “I’ve talked to some companies in the northeast,” said Beasley. “A really good one is Gary Santo at TILT Holdings. They’re all about brands, they’re building their business rebuilding and adopting brands. They’re bringing West Coast brands to the East Coast. That’s their entire model, and if you’re in an environment where different brands can stand out on the shelf, that can be a successful model. Gary and I have spent hours talking to each other. I said, ‘I’m fascinated that your company has grown comparable with ours, you have comparable revenues and EBITDA, but we’re two totally different business approaches in the same space,’ and it’s just because they came out of a different regulatory environment.”

So, what will Fluent look like in Pennsylvania? “Once we go to Pennsylvania, we have to fit into the Pennsylvania box,” replied Beasley. “There are many things that we can do in Florida that we can’t do in Pennsylvania. They’re even tougher from a regulatory point of view, but what’s different about Pennsylvania is we shelf competitor products and a variety of brands. So, Pennsylvania becomes a little more brand specific.

“At the same time, we don’t have a grow there,” he added, “so we don’t have our own brand on our own shelf, which is something I’m trying to fix. My next move in Pennsylvania is to develop our own brand in conjunction with a grow partner and get some higher margin product on the shelf that has Fluent’s name on it. Right now, there’s not one single item with the name Fluent in the Fluent store.”

Fluent is also in Texas, medical-only and also highly regulated. “The legislation process was a true sausage-making event where they got out of there with 1 percent THC by volume,” said Beasley. “We still have all the regulations related to why we can’t have a store, so we figured out a way to navigate around it, and we are going to open a satellite delivery center outside Houston, which will from the customer’s point-of-view look like a store. We’re looking at maybe the community of Katy, Texas, because it’s about an hour and a half from our grow facility.”

Beyond Texas and Pennsylvania

What other markets is Fluent eyeing? Are there markets Beasley would feel more comfortable in than others? ”I would really like the opportunity to be a new applicant in some of these southern states,” he replied. “Having grown up in the Florida environment, I think it will fit very nicely if we are awarded along with our application partners in Alabama, South Carolina, North Carolina, when they come online. But that’s kind of a longer-term perspective.

“As far as existing markets today,” he added, “I like Pennsylvania and I want to expand what we’re doing there. We’ve looked at several opportunities in New York, but I haven’t figured out what’s going to happen there yet. I think there’s a lot of companies that have bought in under one set of assumptions that are now regretting the purchase price they paid. I’ve studied as much as I can, and I’m not in it, so I think I’d rather sit it out for now.

“I think New Jersey has a lot of potential,” he continued. “I think Massachusetts is cooling off, but still has an opportunity. So yes, some of those Northeastern markets. There’ are Midwestern markets that are still strong. I think Minnesota has a strong possibility as a market. There are plenty [of states] out there that could be good markets, and we’re just looking for the right partners. If we find a partner that has a complementary footprint, and we can make the numbers work, I will rather grow through that method. We’ve proven we can operate, we know how to operate, we’re leading, we’re mean, we’re efficient, we know how to run full vertical operation, and to the highest efficiency. That is becoming one of the greatest assets of this company, because there are many companies that have licenses, they even have money, but they haven’t been able to figure out how to operate efficiently at scale.

“It occurred to me early on that scalability was going to be the Achilles Heel of this industry, and it has been proven true,” added Beasley. “If you take the growth techniques that came out of what they call the legacy market, the basics of how to grow, it’s all small-scale, and many of those techniques and equipment start to fail when you get to the size we are, and you’ve got to reinvent it all. So, scaling up is something the industry had to learn, and it’s still learning even today.”

Did Beasley see cannabis moving towards a tobacco model, as has been proposed, or an alcohol model? “I think it will fit into those boxes and will actually probably be controlled by those industries ultimately,” he replied. “They say we’re going through a consolidation period, but we’re really going through an internal consolidation period where those who had taken a little bit of a lead in financial stability are taking advantage and soaking up the little guys that are failing. But the true consolidation has not occurred yet. There is so much money on the sidelines, and so many industries that can come in and consolidate and revolutionize the way that we’re doing business; that’s coming.”

What will be the catalyst for that, and what sort of legislation is needed most urgently? “SAFE banking, first step; de-scheduling, second step,” said Beasley. “De-scheduling gets us out of 280E, which takes a 30-percent bite out of our taxes. That allows a growth factor all by itself. De-scheduling and SAFE banking will also disconnect our stock values from regulatory events and reconnect it to our financial performance.

“If you take our financials and our quarterlies, and the performance and pathway we’ve been on, and put it in any other stock in the New York Stock Exchange,” he added, “people will be piling into the stock. But we produced phenomenal quarterly results and I think there was a penny change, because our stock is not connected to our financial performance, our value, at all. It’s entirely connected to regulatory constraints, and that artificial constraint on our value has to come off. When it comes off this industry goes up dramatically, and then the real consolidation occurs.”

Currently traded on the Canadian Stock Exchange, Beasley looks forward to the day when Cansortium will be traded on a U.S. exchange. “If and when our stock becomes related to or connected in any way to our financial performance, we should be on the other exchanges,” he said. “Until then, it doesn’t really matter. If you took the market cap of this company right now and added it up, it wouldn’t even equal the value of what we could sell our Texas license for, and the Texas prices is on idle; we don’t even have a store open.

“You couldn’t touch Florida for four times what the stock is priced at,” he added. “So, we’re in this disconnected scenario where we’re getting almost zero value out of being publicly traded. If this were to persist in this status for very long, I would suggest we go private and get out of the markets, because there’s nothing the markets are doing except adding administrative and financial hassle and cost to us.”

Will Canopy Growth be successful in their effort to create a separate entity to trade here? “I think they will be successful because look at what Scott’s did with RIV. There are already examples of how there is a way to navigate being listed and also being cannabis-touching. You have to do it a certain way, but whether or not it does any good until this regulatory restrictions off, I have no idea.”

Synthetics

“It’s a concern,” said Beasley when asked about the rise of synthetic cannabis throughout the country. “It has not impacted our bottom line or even our top line, but it’s a concern because it represents almost everything that every regulator and legislature that did not want cannabis on board feared. It’s unregulated. It’s unknown, it’s unquantifiable. You don’t know if you’re getting inert substance or you’re getting some chemical compound created in a basement somewhere.

“I am concerned about it from a health and safety point of view,” he continued, “and from a reputational point of view. It is not an economic impact on us now. It is in other states, but it is not on us, and I think that’s because we don’t have access to the recreational market. Our 800,000 patients took the time to become patients and their level of concern for their own health and safety is such that they went through the process to become a patient, and they want a product that has gone through the standards that ours has. I don’t know how many of our medical patients in Florida also stopped by the convenience store at that Circle-K and get a bottle of delta-8, but I bet it’s not many. Now, is there delta-8 being sold in Florida? Absolutely. It’s just not impacting our sales.

“What you hear are the concerns of the recreational market” he added. “Because you have a regulated recreational seller that has a cost of goods sold that includes all of the regulatory hoops they had to go through. And then you have a delta-8 seller who has none of those. And so, they’re beating them on price. And then the regulated cannabis seller has advertising restrictions and things they can and can’t say and packaging restrictions. Delta-8 has none of those, so you have a highly regulated, intense, cost-driven market trying to compete with an unregulated illicit market. It’s not fair competition, and it’s not safe for the consumer.

“I think delta-8 needs to be at-most regulated, and probably eliminated,” he concluded. “To me, it’s the same game that the FDA and the DEA chased with the Spice issue that went on a while back, when they would outlaw a formulation and then the Chinese would come up with a new formulation and synthetic THC that was a real health concern. You had people having permanent psychotic breaks the first time they tried it; you had people dying from it; and so that’s my concern about it. I am not currently worried about it from a competition point of view.”

Future Fluent

It is probably fair to say that there will be no monumental surprises near-term from Fluent, which, under Beasley’s leadership, has become a steady ship in the consistently rocky waters of the cannabis industry. The CEO even backed off his early efforts to get Florida to embrace medical cannabis reciprocity when the political headwinds indicated little chance of success with the current state leadership in place.

“I’m no longer active in it,” he explained. “It was my big idea how Florida could increase our revenues by 30 percent without going recreational. I found it to be a good middle-step that I thought everyone would be happy with. You take a state that has light conditions, you line them up and give reciprocity to each other, and it allows people to get away from the burden of illegally moving their medicine from one state to the other.

“From a business point of view, we serve patients with conditions now, so we would serve as many patients for those same conditions as we could take, and the fact that they are here for a couple months or even a week, but they have a card in New Jersey or elsewhere, shouldn’t matter.

What he quickly realized was that neither the governor nor the Florida Department of Health wanted an expansion of the program in any way. “To try to accomplish a reciprocity program when the executive and executive agency don’t want any kind of expansion was just wasted time,” he said, “so we’re going to wait it out, because it’s still a really good idea.”

In the meantime, Fluent will be working to grow in balance while it entices new and existing patients to keep visiting its dispensaries. “We have a good diversity of products, and we have a lot of consistency in our flower,” said Beasley about their market share improvement. “You’re always going to find a couple of high-quality offerings on our shelf, and you’re also going to find a couple of value offerings on our shelf, because not everybody wants to drink champagne every meal. And we’re trying to keep those two product lines very consistent, even though the names are different, the strains are different, because people like variety.”

New products are also on the way. “We’ve got chocolates coming out,” said Beasley of upcoming SKUs. “I’ve been slow to develop chocolates as an edible because I worried about shelf-stability in Florida, but we’ve got them coming out. We’ve also got live rosin coming out, and we think live rosin is interesting. You can’t usually convert a flower-user off of flower into a vape, but live rosin does. I think it’s because it has that full profile. It’s not flower, but it gives a lot of that flower profile experience, and so we think it’s going to be a major market mover.”