lolo has NorCal Cannabis Co. Feeling Not-So-Low

NorCal Cannabis Co. might not be a nationally recognized name (yet), but California consumers are definitely buying their products. The company, officially launched in 2015, saw its lolo cannabis brand hit the top spot in units sold and second place in total flower sales by revenue in Headset’s 2022 rankings. This after only entering the analytics company’s rankings at #14 in August 2021. Year-over-year, lolo flower sales are up 100.6%, the company reports.

Between 2019 and the end of 2020 “the company went from burning a couple million dollars of cash every month to generating $1.5 million, or $2 million of cash every month,” Doug Cortina, co-founder and strategic board director at NorCal Cannabis Co. told Cannabis Business Executive in an interview.

Like most other cannabis companies who have managed to navigate the early days of legalization through today’s still murky market, the road to get Norcal Cannabis to where it is has been bumpy and winding for its co-founders (Doug Cortina, Jigar Patel, and Blair Carter), filled with an abrupt pivot from a growing business model to a more sustainable (and profitable) operation.

Building the Business Foundation

As a former New York investment banker turned real estate developer in San Francisco, Cortina knew

a good business opportunity when he saw one. Realizing the revenue per square foot that Bay Area dispensaries were averaging, and knowing the San Francisco real estate market, getting into cannabis real estate became an interesting avenue to explore for the businessman.

But this was 2014, still early after the 2013 Cole Memo loosened federal restrictions–or at least enforcement–on cannabis operations. Most tenants did not have access to traditional forms of banking, and no brands were truly established, making determining which players were going to be around for the long haul an exercise in painful due diligence.

Energized by the connections he had made with people in the cannabis industry, Cortina decided to enter the space as an operator. In November 2014, he received a license for a delivery-only retail operation–one of the first such local licenses awarded in the state.

“As soon as we applied to do that, I saw the value in vertically integrating,” Cortina told Cannabis Business Executive. “At that point in time, we really only had one product SKU: It was all unbranded flower.”

Cortina met Jigar Patel and Blair Carter, NorCal’s other co-founders, in 2015 through their work developing similar cultivation projects in San Francisco, a city that took a welcoming approach to licensing.

Patel, also NorCal Cannabis Co.’s co-CEO, is quick to acknowledge his background is the polar

opposite of his partner’s. The son of Indian immigrants who had dreams of their child becoming an engineer or a doctor, Patel “turned to the plan at an early age, and it really opened my eyes to a world I was very unfamiliar with,” he told CBE. 

Patel attended Purdue University and followed a group of friends who had ventured to California following the passage of Prop 215, where he’s been steeping himself in the Sonoma County culture (and California’s cannabis culture) for more than 20 years. He had established several growing collectives, unknowingly building the foundation upon which NorCal Cannabis would be built.

“When I met Doug, what I recognized was if we were to grow, this wasn’t gonna be a scenario in which we could just sustain that on our own. And what Doug represented was something that I hadn’t seen to date: the ability to raise money for cannabis projects.”

The Selloff

Patel says the North Star that guided the founders in the early days of the company (and still today) is the brand. “We believe that the long-term winner in the cannabis space will be a brand that matters, [and] a brand that really resonates with the consumer. And while we believe that there are brands out there today that do have some staying power, I’m not sure if we’ve seen the true Coca-Cola of cannabis, per se.”

Up until 2019, the company believed the direct-to-consumer (D2C) model would be the key to building brand presence. That belief was directly tied to the assets the company held, namely the delivery licenses that Cortina brought with him to the business. 

NorCal was not wrong that delivery services would be popular in the cannabis market. By 2020, the company was handling or facilitating more than 3,000 orders a day in a region that reached about 18 million people. At its peak, the company employed more than 900 drivers. 

“I don’t think we were wrong in that, but what we didn’t understand at that time were the regulatory hurdles and really at that time, the customer acquisition costs and what was necessary to build a real D2C platform,” Patel said. One such regulatory hurdle: California law requires that drivers be treated as W2 employees, not 1099 contractors.

“And we were all over California: We were in Sacramento, all over the East Bay in San Francisco, and then down into Southern California,” Cortina said. “It is an incredibly expensive business vertical to run. No matter how you managed it, we found it impossible to not burn cash while operating that business vertical. 

“We saw the strategic value in it, but at the same time, as the capital markets shut off for cannabis operators in late 2019, we had to look inside and make some hard decisions,” Cortina added.

That hard decision was selling off its delivery assets over two quarters. “Making that decision was not easy by any means, but we also knew that at the core of our business were a bunch of people that actually were committed to cultivation products,” Patel said. “And we really believed in that. And at the same time, our cultivation expansion was coming online, so it coincided with basically our footprint being doubled. I don’t know if the stars could have aligned more.” 

Do What You Do Best: Cultivate Efficiently

As a cannabis grower and vintner, Patel has been dedicated to growing plants since he first arrived in California in the early aughts. Bringing the business’s focus back to the cultivation operation felt like returning it to its roots. 

“We saw a real strength in our roots, and that was cultivation,” Patel said. “Even in those days, we were probably more efficient than most. But you know, when you look at who NorCal is today, we really rely heavily on our roots as efficient cultivators of indoor cannabis and on our ability to provide those products at a better price than most.”

Part of those efficiencies comes from optimizing technologies used in the growing areas. For example, most of NorCal’s flowering rooms are decked out with HPS lights, yielding an average of 100 grams per square foot of cultivation area. However, the company has trialed high-intensity LED lights across all of its cultivars and is seeing average yields of 130 grams per square foot, with some harvests topping 150 grams per square foot. These lighting system upgrades are now a part of the company’s growth plans.

Beyond the company’s cultivation prowess, what Patel is especially proud of is how during the company’s pivot away from delivery towards cultivation was that it did not lose revenue year-over-year. Essentially, it turned delivery revenue into cultivation revenue before growing the business even more. 

Between 2019 and 2022, NorCal Cannabis increased its revenue from $2 million to over $70 million. And while revenues are down slightly so far in 2023–which Patel attributes to the macroeconomic environment–“year over year we still sell more cannabis,” he said.

NorCal distributes that cannabis to 713 3rd-party retail stores carrying its “good” (lolo), “better” (1Lyfe), and “best” (Panacea Farm) brands. On average, the company receives anywhere from 150-300 product order requests per month from each retailer.

“I think what we’ve gotten really right with Lolo is product market fit,” Cortina said. “We’ve always taken the view that you have to outcompete the black market as well as the legal market. … You have to put out a great product, you have to do it consistently, and it has to have value to the consumer, meaning that intersection of quality and price has to work. When you look at lolo and the success that we had this year, and you compare that to how much volume we did last year, that tells a pretty compelling story.” 

lolo also serves as an onboarding ramp for price-conscious consumers who may want to explore their retailer’s finer selections, as recognizing a producer across product lines can build trust in those sister brands–so long as the past experiences were good.

“I think a lot of companies came out of the gate and overspent on marketing/consumer awareness with the view that that’s how you build a brand,” Cortina said. “But I think, fundamentally, it’s about quality, consistency, and price. If you can get that right, you’ve got staying power and you get the opportunity to build a real brand that can scale not just nationally, but internationally.”