Marijuana Business Magazine - March 2018

Auntie Dolores in 2008. She quit the MJ-infused products business at the end of 2017 because she reckoned the profit margins in California’s newly regulated marijuana market would be too small to succeed. Carella now focuses solely on her hemp-based CBD prod- ucts for pets, Treatibles, which don’t carry the same regulatory baggage as MJ-infused goods. Retailers also can make the pivot relatively easily. Oregrown, a cultivation and retail business in Portland, Oregon, sells snowboards as well as cannabis.The diversifica- tion allows Oregrown to be more of a lifestyle business rather than one focused solely on cannabis. “It’s just a commonsense move,” said Aviv Hadar, an Ore- grown co-founder. Hard Pivots But a pure cultivation pivot is harder, especially for large- scale commercial growers, because the investments you’ve made in things like security, lights and heating and cooling are a lot harder to recoup with vegetables and produce versus marijuana. “It’s not going to be a particularly lucrative transition,” Weiss said. “You’ve got bills that wouldn’t be required for any other crop.This is an area where indoor cultivators are hit particularly hard because it is very difficult to pivot at a moment’s notice for indoor cultivators.” Terra Tech’s Example But cultivators can make the switch. Consider Terra Tech, the California company that today holds 10 retail and cultivation licenses in California and Nevada. Back in 2013, Terra Tech was a hydroponic grow equipment company that wanted to get into the cannabis industry. But crackdowns were still common, and the risk compelled the Terra Tech team to stay out. “We were thinking about it then, but being a public entity, we believed there was too much risk at that point,” said The New Normal Julianna Carella founded the edibles brand Auntie Dolores in 2008 but later quit the MJ- infused products business to focus solely on hemp-based CBD products for pets. Mike James, Terra Tech’s chief operating officer. “You have to understand that in 2010, 2011, 2012, that was before the Cole Memo came out. And the Department of Justice, FBI, local law enforcement, they were cracking down on people growing weed, selling weed in states where it was legal. We stayed on the sideline until the Cole Memo came out.” Around the same time as the Cole Memo came out in 2013, Terra Tech acquired an organic lettuce and herb greenhouse grower in Belvidere, New Jersey: Edible Garden. A few weeks after acquiring Edible Garden, Terra Tech filed applications for medical marijuana business licenses in Nevada. “It was truly a hedge, but a hedge in a business that we thought we could truly build up,” James said, adding that he believes having Edible Garden helped Terra Tech win all eight Nevada licenses it had applied for. “I think it added a lot of cred- ibility to what we were doing. We weren’t somebody growing weed in their basement.” Indeed, Edible Garden retails in major grocery chains like Walmart, ShopRite, Kroger and Market Bas- ket.The company generated about $5 million in revenue in 2017, James said. So if the feds were to crack down on cannabis, James and his partners would have a suc- cessful business to fall back on. How to Pivot For business owners who decide to create a new product line or alternate business, the first thing they should do is create a business plan. “Similar to as if they were starting from scratch,”Weiss said. Key elements should include: • Brainstorming new product ideas. • Putting those product ideas through focus groups. • Figuring out new material costs as well as the costs for retooling equipment and retraining employees. • Determining the market potential for any new products. • Calculating a new product’s wholesale price. • Calculating the margins. “Treat it as you would a new enterprise or venture,”Weiss said. “Run the numbers.” Mike James is COO of Terra Tech. 64 • Marijuana Business Magazine • March 2018