The Flower Shop Looks Beyond Arizona and Utah

Arizona-based TFS Brands, aka The Flower Shop, began life as SKY Dispensaries in 2017 only to rebrand to its current name in 2019 following the promotion of Greta Brandt from General Counsel to her current role as President of the company. If that decision did not succeed, the company may have been put up for sale, according to Brandt, who spoke recently with CBE about the tough love she had to employ to turn the vertical operation around, and how that success enabled them to set down roots in Utah and start the process to expand into other states.

The Flower Shop currently has three retail shops in Arizona, plus all the vertical trimmings. “We’ve got cultivation, manufacturing, processing, distribution, and wholesale, and we’ve got five wholesale brands,” said Brandt. “We’re also in Utah, where we are vertically integrated all the way through wholesale and distribution as well, with two stores out of 14, and then we are applying for licenses in Florida, and potentially going to New Jersey.”

The company she inherited is not The Flower Shop of today. “The existing operation was two stores and a small 4000 square-foot cultivation, and I would say it was very loosely operated,” explained Brandt. “I mean, the cultivation was a joke. The infrastructure was less to be desired, and the stores, as you can imagine at that time, fit in a professional building and kind of looked like a doctor’s office with a waiting room, and you got ushered into the back. It was very dated.

There was an existing team, including a master grower. “Everybody maintained their positions, and from there, we brought on a director of operations and another master cultivator, to try to work out the kinks, for lack of a better word,” she added. “The ops team that was brought in did not have experience in cannabis, but the owners are very sophisticated and came from an ag background, so they understand cultivation, manufacturing and processing, distribution, and wholesale. They have a huge ag business, in fact, which still exists, so they understand and once you peel back all the layers, cannabis is no different than any other type of ag from a growing practice, though the nuances obviously are very different.”

And then there was moving from the presumably cushy job as general counsel to the highly stressed responsibilities of president of the company. For Brandt, it was a no-brainer. “To be honest, I never loved the law,” she said, elaborating. “My transition into my current position stems from me being present during all of the meetings versus as a lawyer sitting in the office drafting contracts and dealing with HR and employee issues. I was involved with the CEO providing guidance and advice on how to structure certain things, the impact on the existing contracts, legal liabilities, compliance concerns. Two years of that provided me with a very good understanding of the structure of the entity, the enterprise, the inner workings of how things are working out, and then the opportunity presented itself.”

Taming the Wild West

The situation not just at the company but in Arizona was not for the faint-of-heart, recalled Brandt.  “I feel like I’ve seen it all,” she said. “Every component of the industry provided an opportunity for people to exploit. And people back then were so used to the black market and forcing them into more of a corporate structure came with a lot of complications. And then, to complicate things further, you have third party brands that don’t necessarily have the money to buy a license, and those licenses weren’t necessarily easily available to purchase anyway. So, they would contract with operators like me for a licensed facility that I had available underneath my license. It’s another complication to the Arizona structure that requires them to be essentially an agent of me at my company, and I’m liable for any actions that they take and for all of their products, and all their sales reporting flows through us as an operator; we manage all of that and push back all the revenue to them for whatever fee is agreed upon.

“That complicates things,” she added, “but also having no bank access, the security concern paying bills in cash, paying your employees in cash, paying taxes in cash, going to Food City with a security guard to pay our $100,000 power bill using their vending machine. I mean, you want us, and you also don’t want us to operate in the gray, but these are the reasons why the industry has been known to be so shady, because you’re forced to do this, and you don’t want to carry around all this cash. Give us access to a bank, let us pay our taxes, be transparent in what we’re doing, but also have a fair shake on deductions, and all of those things will be wonderful.”

“Coming in as a young female lawyer was also very difficult,” said Brandt of the challenge she faced. “The only way that I knew to do that was to immerse myself into the business so nobody could say I didn’t know what I was talking about, that I’m just a lawyer, that I don’t have any idea what operations or manufacturing is. To counter that, I immersed myself into the business, and hindsight being 2020, it was the best move I could have made to really get the organization to rally behind me, to understand that I knew what I was talking about. I was there in the trenches with them, creating common sense approaches to why we’re making these decisions, why I’m cutting these expenses, because our focus is to grow this revenue, and eliminating some of the low-hanging fruit that was dragging down our P&L and our costs.

“I asked the board for six months to let me turn this around,” she added, “and if I did not deliver on what I’m saying, then sell. The value of the company is not going to drastically change in six months. So, they sat back and allowed me to turn the company around, and that’s what I did. I was able to drastically change our trajectory, but part of that required me to rebrand, and the reason for that is because there was a dark cloud that was hanging over the previous name. The change that the company needed to make was that we’re not the bro culture anymore. We’re professional. This is a corporation and I’m a lawyer by trade, but I understand business, and we’re going to make decisions based upon concrete facts and details that make sense for the business.”

The changes extended to all areas of the business. “For our long-term plan, this is where I want to take it,” said Brandt. “I want the brand to be clean, inviting. I want to be able to attract women to our store, and I want a name that is synonymous with that. If you know what it is, you know, and if you don’t, you won’t be offput driving into the parking lot, or embarrassed if someone sees you walking into The Flower Shop or holding a bag from the store. I wanted to create a safe environment, which required upgrading the facilities and the interiors, and paring down our product offerings to meet what our customers wanted; we didn’t have to carry so much excess inventory.

“I also put money behind our customer service,” she continued. “I hired consultants to train our budtenders and our wellness experts on customer service, customer experience so that it wasn’t juvenile, and the experience felt sophisticated, like you would experience at a Nordstrom, a Whole Foods, or any retailer that has invested into the overall appearance of the store and their infrastructure. And so, we just chipped away at all of the things that needed to be done to create an environment that felt like me or my mom, or my dad, or my grandparents would feel safe enough to want to come in, and that was a big change for our stores during that period.”

Fueling Growth

As Brandt’s marching orders took hold, the company’s fortunes started to change, opening up more opportunities. “Through 2019, with all of those changes, we started to stockpile cash for the things that I wanted to do,” she explained. “Rebranding cost us money; new signs, new interiors. I cash-flowed all of that, because for me it was a priority to establish a brand. In 2019-2020, we were medical, and adult-use in 2021. In 2021, we did $50 million in revenue between the two states. So, we definitely have the cash, and part of that was deploying it in the right area. Plus, my facilities had to stay open 30 hours a week, and we had to be very creative with construction upgrades, doing them overnight so we didn’t have an impact on sales. I couldn’t move to a different location because of the challenges with zoning and the Department of Health, so we had to get creative remodeling our stores while servicing our patients and remaining open. Some of it probably wasn’t so efficient. If we had closed for two days, we probably could have knocked that out, but at that time I couldn’t justify closing a store and losing $30,000 in revenue a day to do an upgrade, so we would do it over a week at night.”

It was also a time when Utah beckoned. “In 2019, because I was successful [in Arizona], the board and I agreed to apply for licenses in Utah, and we were successful through their merit-based application process,” said Brandt. “In November, we were awarded a license, and we had plants in the ground 30-days later. I went off to Utah with one of my cultivators to set up a short-term plan while we were building large processing and cultivation facilities from the ground up on property we had acquired in Brigham City. That was challenging because the pandemic was starting and we were launching our two stores; We launched our first store in March and then the second store in April of 2020, right when the lockdown happened.

Was it opportunity or something else that pointed them toward Utah? “Opportunity,” said Brandt. “We look for limited-license states that are based on merit. The distance to our Arizona headquarters was also ideal; an hour-and-a-half flight for me, I go up twice a week, so it was an easier sell. And my board is in Idaho, so whenever we meet, we meet in Utah. Plus, we have family connections within this enterprise with connections in Utah, so it felt natural to expand there, knowing that if we were going to go up north, we could follow that train with more of a conservative state.

Will that be the presiding model going forward? “Yes, and opportunities present themselves quite frequently,” responded Brandt, “but what we’re really focused on is understanding what our bandwidth is. First of all, we don’t want to have an interruption of our operations in Arizona or Utah. We look for states that are limited-license, that are medical, and that present an opportunity knowing that within three to five years it will convert to a rec market. So, we look for those opportunities, and we look local, although we are applying in Florida, and we have acquired properties in Florida for our application. That is not close proximity, but you can’t overlook the market share that that state has, or the overall value to the enterprise having operations in Florida.”

A Shift Away From Promotions & Deals

“Every time we’re going to a new state, we want our stores run as The Flower Shop,” continued Brandt. “Ideally, we want to set up in 15,000-20,000 square-foot manufacturing/processing facility for all of our brands, and we want our indoor cultivation built out how we have it in Arizona and Utah. We’ve also developed in-house our own proprietary lights for our cultivation called High Variety lighting, and we have a brand called High Variety, because the specific light that we use in our cultivation produces unique proprietary products.

“Yes, we have brand equity, we need our stores to be The Flower Shop, and we want the same design, the same feel,” she added. “I equate this to being Starbucks. The stores need to feel like you’re at a Starbucks regardless of where it is, and you know you’re going to get your customer service, your staff has been trained the same way, you might have different products on the shelves, but the training, the experience, the platforms that we have, the online experience, will be the same. But our brands being in these states is a necessity to be able to establish that brand equity there, and also because if you’ve got your stores and your brands, you have shelf space to create that margin at the retail store and allow for wholesale sales.

“As we are now entering into a reciprocity scenario across the US, you’ve got to have stores. I think that you’re going to start to see a shift for wholesale brands, that if you don’t have a store, it’s very difficult to succeed because of how competitive the market now is. If I have a store in Utah and I have a store in Arizona, and there’s a brand that wants to get on the shelf, you’re looking at it to say, ‘Is there an opportunity where they can help me in Utah, and those are the conversations that are happening now with brands and with operators from a reciprocity standpoint. That’s been around for a while, but it has now come full-force and is now sweeping across the West Coast because of the competition with brands, especially in the rec market, as they are flooding into the Arizona market. We have an oversupply issue, and it is the same thing for Utah, but every somewhat mature market is having an oversupply problem.

“And every operator is sitting in my position today, thinking 2021 was a unique year because of the economics of the pandemic,” she noted. “Fast forward to 2022, and we’re thinking, ‘Okay, I understand about the economy and discretionary funds have dried up, so it’s now about trying to understand your market, understanding who your consumer is, and really trying to understand consumer behavior. And that has been a very unique challenge because of the promotions and discounts that have crept back in 2022 from a reprieve in 2021 because everybody had cash, everybody was home, and everybody was consuming. But in 2022, capital markets were open, you had a lot of people getting cash, opening up new facilities, and new brands coming into the market. As a result, you had fierce competition, promotions began, and they have rapidly taken over the industry across the US.

“So, we operators now sit around the table thinking, we created this problem, this discount craze, so how can we fix it, because it’s not a sustainable model,” she added. “How as operators can we figure out how to retrain or at least reeducate our consumers that the discount is not necessarily the be-all component. And honestly, the only way that I’ve come up with is, because we’re all selling the same stuff, it’s got to be the customer experience, your facility needs to be the representation of the brand and who your customers are, you’ve got to provide the accurate product offerings that your consumers are looking for, and then the convenience factor; two of our stores here are going to have drive-thru options, one of our stores in Utah has a drive thru. Offering delivery, but also acquainting our brand with a larger purpose, standing for something as a company that is going to provide value to that consumers and for employees when they come to the store, that there’s a meaning behind or purpose as well as that customer experience. Those convenience factors are going to differentiate you as well as having a robust loyalty program that speaks to what your customers are looking for and that differentiate you from the competition.

Fiscal Discipline

A private company, TFS Brands has had to become disciplined to keep its head above the water. It was not easy said Brandt. “I shut down all funding, and every expenditure had to be approved by me to be able to show me the ROI for every dollar,” she said of her early days as president. “You’re not spending your money, you’re spending somebody else’s money, and I have to justify every penny we’re spending to the Board. So, when I say the clamps went down, that’s the only way in this industry that you can survive, if you’ve got internal control of spending.

“Our accounting department was my right hand,” she added. “It was the closest bond and relationship that I had to establish, because that’s the heartbeat of the organization, and if you had a CFO that was willy-nilly and looking for rapid growth, rapid spending, because that’s the way that we’re going to buy our way into the market, it’s a terrible business decision. You’ve got to understand what you’re spending on and what the ROI is on that thing. Is the juice worth the squeeze.

“I think I’m a prime example of that exact point about discipline,” added Brandt. “We were overspending, we were absolutely over our skis, and without me clamping down and cutting costs – I looked at every department, and had a fire 30 percent of the staff, because they just hired to hire. Nobody wanted to do it, and I had to come in and just cut down to bare bones. I said we’re going to have to do more with less. If you guys are not on the same page, there’s the door, but everybody needs to be working as hard as possible until we can recoup, build-up cash flow, and then determine where we want to spend our cash so that we’re able to spend it in the right areas.”

That discipline extends to its debt-load. “We recently took on debt to finish building out our cultivation site in San Manuel, Arizona,” said Brandt, “but that was backed by the real value of the real estate.

The company currently employs about 29o people and is clearly growing. Is it also looking to acquire? “We’re actively looking to acquire more licenses here in Arizona,” said Brandt. “We want more storefronts. When you’ve got four or five wholesale brands, you definitely want more shelf space and one more source to push that product through. In Utah, we’re also looking for more stores, so yes, we’re actively looking to find the right deal, and making sure part of the deal also depends on the real estate. The bigger issue for Arizona is the zoning and the available sites based upon all of these setbacks and requirements. That’s what you’re seeing with social equity, that they’re having a hard time finding locations. But we’re definitely looking from an acquisition standpoint.

“From a brand standpoint,” she added, “we’re not necessarily looking to acquire brands, per se. I would say probably in about two years, yes, no question, as we roll-up and fill the different segments that maybe our brands aren’t hitting today. But we do have a drink line coming out, and we’ve got a female product line launching January 1. So, segments that we currently don’t occupy are being scheduled for rollout, and it’ll be interesting to see this year where brand shake out given the competition. Those that don’t have retail stores, how they are going to survive? I think they’re going to have a very hard time given the environment today with reciprocity.”

Current product brands include LadyLike, High Variety, Shorties, and Cannabis Beverage Company. As far as what they are known for, “Our in-house flower is very well known, “said Brandt. “I can’t keep some of our proprietary strains on the shelves, but I would say Shorties is probably our best-known product, and we’ve invested in a pre-roll machine this year to beef up our automation and make sure we provide a sufficient amount for wholesale.”