UP036: Periodic Edibles // getting into the weeds of building a cannabis brand

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Wayne Schwind 0:00
If I’m going to be able to stay here and compete when big money moves in, you know, an interstate commerce is allowed. And there’s these national manufacturers that sell to every state. I basically need to create a business that you can either copy with money or big money to have a trouble competing with. So I’m just thinking about brand, especially in Oregon. People love Oregon own local. And so when I look at something around marketing, it’s like what can we do that really just costs sweat equity in time and not a lot of money.

Jay Clouse 0:27
The startup investment landscape is changing and world class companies are being built outside of Silicon Valley. We find them talk with them and discuss the upside of investing in them.

Welcome to upside.

Eric Hornung 0:55
Hello. Hello. Hello and welcome to the upside podcast the first podcast finding

upside outside of Silicon Valley I’m Eric corner and I’m accompanied by my co host Mr. Sleepy dummies. himself. Jay Klaus. Jay. How’s it going man I am feeling Spry and awake and alert which is different from last night when I tried for the first time CBD dummies What do you think as I told you before we started recording the Navy sleepy well yeah that’s where the nickname came from but yeah that’s not what you think that’s what you felt

Jay Clouse 1:27
I do think that they they were delicious here’s the problem that I have with all things that are fed to you and gummy form. As you know, Eric I have a sugar problem of a bit of a sweet tooth and whether it’s CBD dummies or vitamin dummies or classic Haribo Gummy Gummy Bears, I’m going to eat way too many of those things and things like vitamins or CBD really aren’t things that you should eat way too many of so yeah, it’s it’s something that it did help me

feel relaxed and drift off into sleep. But to be honest, I can sleep just about anytime, anywhere. So I’m not sure if I’m the real core customer for that or not. Maybe try them. I have not actually I’ve never done anything with with CBD. I’m not sure if I’m incriminating my girlfriend by saying she has CBD companies. I’m actually not positive about the I think, I mean, I could buy CBD oil here locally at a store. So I think CBD is fine. Right? So that’s what I thought as well. And I was telling Colleen about this guests were having on she said, Well, that’s going to be tough with the regulations that are coming down and I said, What regulations I’ve done some research. I didn’t say anything. She said, Yeah, they just removed all CBD products from Finley market and a lot of CBD products that we see around might be kind of getting pulled off due to some sort of FDA thing that I’m not very sure on. Interesting. Well, that’ll be interesting for us to talk with our guest today. Who is Wayne Schwinn, the founder and CEO of periodic edibles, periodic edibles is an edible cannabis company.

they make caramels made with strain specific cannabis infused butter, the cannabis CBD space, something I don’t have a whole lot of context on. You know, it seems to vary state by state in terms of what is legal medically, recreationally. Periodic edibles is based in Portland, Oregon was founded in 2015 by Wayne and has been bootstrapped up to this point. But it seems like they have been in the medical marijuana market since sometime in 2015. And then in February of 2017, they received their first recreational license, they have 150 locations and from what I can tell from their website and the product map I think they’re all based in Oregon.

Eric Hornung 3:41
I thought the same thing and I don’t think it’s they have 150 locations they have 150 dispensaries that their product is sold at.

Jay Clouse 3:48
That’s right. Yes, they are in 150 retail locations,

Eric Hornung 3:52
right? This is kind of akin to like a consumer packaged goods company. That’s how I’m going to go into this interview evaluating it unless I’m proved wrong.

Jay Clouse 4:00
Yeah, I think so too. I mean, recently before I tried the CBD gametes, I had my first use of CBD oil that I purchased from a just a convenience store real close to my apartment here. So there, there’s definitely I mean, those things are being sold legally in retail outlets here in Columbus. I’m sure there’s more nuance to it that I don’t know. And it seems like a like an industry that’s pretty nascent, and I’m sure Wayne has a lot of insight for us.

Eric Hornung 4:27
Yeah, I’m hoping to learn a lot in this interview. And I’m also hoping that I don’t let out any marijuana puns because I’ve been just holding them back.

Jay Clouse 4:36
Yeah, don’t leave us high and dry on that. Before we jump into this interview. Guys, if you have any thoughts or bad marijuana puns or THC CBD puns tweeted us upside. FM or email us hello@upside.fm. We’d love to hear your thoughts as we go through this interview with Wayne, which we’ll get to right after this. And now for some validation.

Eric Hornung 4:56
Jay, how many parts of a knife Can you name?

Jay Clouse 4:59
Well, there’s the blade and the handle. And I think that’s it.

Eric Hornung 5:02
No, you’re missing one. very crucial. And there’s the cutting edge. Ah, see, because cutting edge is the name of a review left by Darcy. Three. He says that Jay and Eric bring unique perspective to the world of business. podcasting shows continue to get better every week. Give it a listen what we’re good at. You brought that one with an exclamation mark.

Jay Clouse 5:24
Just

blow out the mic. I love it. Yeah, we are here every week plan on the fringes trying to stay at the cutting edge of entrepreneurship. Whether it’s Global Entrepreneurship or entrepreneurship here outside the coast. We like to play on the friends with Eric.

Eric Hornung 5:38
Yes, we do. And if you think that playing on the fringes is fun, we’d like you to leave a rating or review on iTunes. throw us five stars. And you might get your review read here.

Jay Clouse 5:55
Wayne, welcome to the show.

Wayne Schwind 5:56
Hey, thank you so much for having me. Excited to be on. Yeah, we’re excited to have you here.

Eric Hornung 6:01
We like to start on upside with the background of the founder. So can you tell us about the history of when

Wayne Schwind 6:08
Yeah, so I grew up in the Midwest. I went to school in Michigan, went to college at Michigan Tech, so an upper peninsula. And then when I finished there, I always wanted to go somewhere new, try something new. And I always kind of had entrepreneur tendencies when I was younger, like mowing lawns, selling stuff on eBay. And so when I graduated school, I didn’t really want to stay in Michigan end up getting a job in Portland, Oregon. So I was able to move to the west coast at school at Michigan Tech, my bachelor’s was in chemical engineering at the time, I kind of picked that we didn’t grow up with a lot of money. So I knew that paid well and at a really high hiring rate out of graduation. And I was math and science always kind of came naturally to me. So that’s kind of why I went down that path and learned a lot in the first job out of college. But I got a job in technical sales, do an industrial water treatment. So a lot of big heavy focus on water chemistry for power plants, lumber mills, things like that. I did that for about five years. After about two years, I got my own sales territory from Central Oregon to Northern California traveled a lot, it was always looking, wanted to start my own business, but didn’t really have or just always looking for an opportunity. And actually one of my customers at now goes who I worked for out of college, they were starting a property management business him and his wife was and she had her principal brokers license and all that. And so they want me to come in, kind of from the marketing side, that digital presence, you know, customer acquisition and handle that side of it. So I actually ended up leaving now go to start a property management business, got my real estate license, all that stuff. And it really is just looking for the right opportunity to start a business. And then after that was about a year, year and a half, we end up splitting ways on that that was a really difficult business to run. Obviously, that’s an old industry, it’s saturated. To start a new business there, you have to be really good. And it’s really slow incremental growth and just wasn’t seeing eye to eye with the other partners. So when I left that I was kind of in limbo. It was like either, you know, go to work for somebody else, or try to start another company man I still had about I got lucky. I bought and sold a home right after the crash in Central Oregon, which I had about 60,000 in my bank account. Still from that in savings. And after the losses from the property management business that was was still what was left. And so cannabis was just legalizing recreational market, which means anyone 21 and over can buy and that was the medical market when I started our business. But the recreational market was coming in about two years, they legalized it, it takes a little while for them to put the program in place. But that’s a huge opportunity. Because now anyone over 21 can come into stores buy these products, and they have no brand loyalty. They don’t know who the businesses are. They’re starting from scratch. So to be on the show from day one in direct market is a huge opportunity. So I thought cannabis might be an option. I had my medical card and Oregon and I travel a lot for sale. So I was always stopping into a lot of different dispensary’s. I’ve always use cannabis college they helped me and then even when I was supposed to working for Elko I was didn’t realize it but at the time was doing a lot of market research at these stores. Just out of curiosity, just asking about products and businesses and how things work just to the bud tenders there and learned a lot and then I realized starting in the cannabis industry would be great. And then I had to look for an opportunity or an angle and you know $60,000 isn’t that much money to start a business most of the time and cannabis especially now I don’t think it would be possible in the in the market state we’re in but at the time edibles was super low barrier to entry. You could cook out of your home kitchen, you could set it up at a really low cost, and get a prototype out and just see if it sold. You only had to have your medical card which I already had. And then you get you know, stuff tested at the lab. So I think I only had $5,000 invested until I made the first sale with our edibles. And then we started at Carmel company initially out of necessity was just one product. You know, we couldn’t spread any more thin than that. And nobody had a car more recipes which still to this day. That’s all we make is caramels. So we started with that tested it got it on the market made a few sales and then within like five, six months broke even and was profitable on the in the medical market. And then the transition into the recreational market is a whole different animal. So that actually we flow pretty low to the ground during that time of the transition but just barely made it I had backup resources for finances if I needed them was hoping I didn’t have to do that only need to use the credit cards to get through that period. And then just been slowly building since the wreck market and I was early 2017 is when we got that license.

Eric Hornung 10:36
That was an awesome rocket ship took us all the way through the whole whole story.

Wayne Schwind 10:40
Right.

Eric Hornung 10:41
So I want to dive into some points of that.

Wayne Schwind 10:43
Oh, definitely.

Eric Hornung 10:43
Let’s go back to the decision in Michigan to go to the up and study chemical engineering. You mentioned it was mostly money driven. But there had to be some sort of interest as well. It wasn’t you didn’t just look for or maybe you did. I don’t know what is the best paying job

Wayne Schwind 10:59
there. It was calm, it was probably more best paying job. Honestly, when I was younger, I thought money was was the answer. I learned that pretty quick. Once I started making a decent decent salary that didn’t matter so much. You know, once you have your basic needs met. And that’s when I was really starting to look for other opportunities. You know, I probably would have picked I like building things. I like engineering, I much rather would have done like mechanical engineering material sciences. I think I would have enjoyed that more. But chemical was the one that stood out as a higher pay and a higher hiring rate. But yeah, I didn’t find I like chemistry. I like learning things like that. But chemical engineering isn’t quite as sexy as some of the other engineering disciplines.

Eric Hornung 11:37
What’s water engineering? Like? I don’t, I don’t really know anything about that.

Wayne Schwind 11:41
Yeah, I mean, there’s hundreds and hundreds of different tests, we could run on water. So depending on the application, water is used in so many different ways, one of the best thermal conductors there is. So for cooling towers for heating, cooling, it’s really useful and then wastewater discharged, you know, back to rivers or streams, we have to test for all that and there’s all these special equipment and chemicals that have to be used in that process to purify and get it ready to go either back out into the environment or just to be reused again in your own facility. And so we were the point guys on parts of that process to just engineer the water so it can be used properly and if you have bad water can shut your equipment down obviously be discharged the EPA is involved that’s a huge issue and I mean you can get 50 hundred thousand dollar fines a day until you correct that so we were kind of that middle person it was a sales role but also really technical because he had to know the chemistry of how to run all that

Jay Clouse 12:31
as you’re looking around at different opportunities. Someone with a background in water testing Did you look at brewing it all?

Wayne Schwind 12:36
Um, I didn’t and it probably would have been a really good time to look at that I did actually hit by was working for now go to the shoots brewery if you guys are shoots Yeah, they’re I think they’re they’ve got a pretty big reach. Now I think they set up a wholesale in Chicago, but they were just one of the customers I was calling on, we didn’t have their business, but I was going in there and probably didn’t look good to apply for a job while I was trying to sell the account at the same time. But I thought it’d been a really cool business to work for. But I didn’t look at like starting a business or any sense around beer. No, but that would have been an interesting spot to look

Jay Clouse 13:08
just talking about the timeline when you moved out there and started this this role on the west coast and the Upper Peninsula that was probably about the time that Denver or Colorado first made the move to legalize medically. So what was that like moving from the Midwest where things were a little bit slower and a little bit more conservative out to that side of the country?

Wayne Schwind 13:28
Yeah, it was interesting. I mean, an upper peninsula I almost view Oregon or Upper Peninsula of Michigan is like a smaller Oregon, there’s the lakes, there’s the hills or some skiing, they get good snow, but everything’s smaller. So the culture and the up was similar to out here downstate Michigan, definitely a lot different, much more conservative, it was really strange to be able to just walk into a store and have all these products and options with test results and potency and be able to hand them some money. And like the first couple of times you do that you’re like, looking over your shoulder, you know, it’s a, it’s a different feeling. And when I brought my parents out here to visit the first time, you take them into a store, and they’ve got clones that they sell, which are small, immature plants, and those are over in the corner, and I could feel like they’re nervous. And is there like sweating walking into the store. But it gets normalized after a while. And now it’s the opposite. It’s weird to go home and talk to people that have a problem with it or see it as weird or they think we’re out in the corner of the alley selling our products or something. But yeah, it gets normalized. Definitely on the West Coast pretty quickly.

Eric Hornung 14:27
You mentioned a little bit about the marketplace. You kind of alluded to it. And he said, I don’t think someone could start a company with $60,000 now.

Wayne Schwind 14:34
Yeah.

Eric Hornung 14:35
where are we at now in the cannabis space? Jay talked about legalizing it in Denver for medical and now we’re somewhere where are we it?

Wayne Schwind 14:45
Well, the biggest thing with the cannabis industry right now is it’s super fragmented. So every state is literally its own little ecosystem of rules and regulations and still illegal at the federal level. And there’s no interstate commerce so each state operates independently. interstate commerce. Federal legalization are huge questions, we don’t know what that would look like. And so there’s a lot of unknown because if that comes into play, and the federal government says we want to regulate it this way that could put businesses out of business just because they can’t follow the regulations with their model. So that’s a huge concern going forward. And besides that, inside of each state is really critical of the point in the timeline of where that markets at and how you would position your business and when you’d want to get in. So I’m looking at Michigan really closely right now they have a medical program, and they just legalized wreck. So Michigan’s literally going through the same situation is when I started the business in Oregon. So that’s a huge opportunity if we could be present there during that time. Oregon, on the other hand, is super over saturated. I like what they did, they made a really low barrier to entry, our annual licenses $5,000, which was super affordable, they’re very pro small business, and they didn’t cap the licenses. So they didn’t say only 100 licenses, it was wide open, let the free market figure it out. businesses will go out of business, maybe the best survive, but you have this huge oversaturation we’re producing like three times the amount of our annual consumption. And I think 50 to 75% of the businesses probably have to go out of business just on a supply and demand issue. So each state is very different. somewhere like Ohio has high regulations caps the basically creating an oligarchy where I think they’re allowing 10 or 20 licenses. And we have 1000 growers in Oregon versus 10 to 20 in Ohio. I don’t know what your population and that is there. I think it’s similar to Oregon, we’re on 4 million just kind of a smaller state and Oregon. So I mean, that just changes everything. You got to have millions of dollars to even get started with it. Which I could have never Well, I probably wouldn’t have been able raise millions of dollars. Without past experience of how to do this. I probably wouldn’t went down that path.

Jay Clouse 16:46
So of all of these fragmented state ecosystems, how many states or you know, estimate how many states are legal from a medical standpoint and how many illegal from a rock standpoint

Wayne Schwind 16:58
I think it’s it’s definitely overhead for medical, I think it’s almost 30 states now, Summer 2026 and 30 have a medical program and I think and rec, we’re at like, nine now nine or 10 I don’t know the exact numbers. But rec is Yeah, last year, I think three, three or four states legalized wreck, and we’re at about six before that. So around 10, I think 20% of the states what’s the opening up of Canada do for the United States if anything, nothing right now, but it’s a huge question down the road because obviously interstate are not interstate international outside of the country. Export is a huge industry and opportunity. And so Canada is going to beat us to that. And that could be huge. I mean, selling to other countries that don’t grow as well. I think Mexico is going to be a huge one because their outdoor growing opportunity is monstrous and outdoor is kind of outcompete indoor because growing indoors so cost intensive. When you have the sun news and the right climate, I think a lot of places and states won’t be making their own they’ll be importing it from from outdoor states, but I yeah, Michigan. I mean, the United States just isn’t involved in international export right now. So Canada is definitely gonna beat us to that.

Jay Clouse 18:08
Why do you think what’s slowing things down? You know, like the states that are doing well, why what is good about cannabis legalization for those states? And why is that slow to just catch on nationwide?

Wayne Schwind 18:22
Yeah, I just think stigma and momentum. You know, Colorado was the first to do it. Nothing blew up. Nothing, you know, all the fear mongering around legalizing cannabis. None of that happened. I think almost every states a good example of what legalizing cannabis looks like. It’s almost all pros. And I like looking at the downsides and the negatives. Because I think those are important to talk about too, but they’re just not there. And so I think it’s just old people in place that have traction and momentum and just takes time. And we’re just in the middle of it. Probably past the tipping point by now. But it’s happening if if you’re not legalizing this year, next year, we’re going to be behind the ball. Definitely.

Eric Hornung 18:57
So I think we’re focusing a little bit more on kind of the month it because one Jay and I are curious about it. And to you know a lot about it. You also run a podcast, is that right? Yeah. And what was the decision to go from a consumer brand to spinning out a podcast? Is it educational, like what’s give me like the back end behind creating that?

Wayne Schwind 19:18
Yeah, so with my business model here, like I said, we only make caramels. And that started on necessity, because we couldn’t afford to make another product. As we grew, we realized having a niche product kind of position us as the expert, at least in that category. And we’re still trying to pump out and scale to meet our demand and all the stores here. So the podcast was, listen, I didn’t raise a bunch of money to start the business, I could do that later down the road if if I want to grow faster still. But when I look at the model, if I’m going to be able to stay here and compete when big money moves in, you know, an interstate commerce is allowed. And there’s these national manufacturers that sold every state, I basically need to create a business that you can either copy with money or big money, Trouble Trouble competing with. So I’m just thinking about brand, especially in Oregon, people love Oregon owned local. And so when I look at something around marketing, it’s like, what can we do that really just costs sweat equity in time and not a lot of money. And the podcast is a very low cost, right? I think it was like three 400 bucks to buy all the equipment and we’re up and running. It’s just our time and effort. So building that connection to our audience, and especially in the business space with bud tenders, which are the connection point to the consumer. You know, we can’t sell directly to the consumer. And those bud tenders know about you, they’re familiar with you guys, they’re going to recommend your product is really high and a lot of customers but tender say half the time or asking for their recommendation. So we built that podcast just to build that relationship with them. And it’s really a long term marketing play, but it’s built around education, science of cannabis stuff, we really brand ourselves around as well. So it’s really a marketing marketing move.

Jay Clouse 20:54
What are bud tenders?

Wayne Schwind 20:55
Yeah, bud tenders are kind of a mix between bartender and kind of Pharmacy Technician really, because they’re, they’re the ones at the counter selling products to customers. And so someone might come and go, Hey, I’m going for a hike. What do you recommend the offer this product, someone might come in and say, I just been diagnosed with cancer and I’m going through chemo and you have this person who’s kind of entry level in this industry building those kind of question questions, which is is crazy but they’re the contact point to the consumer.

Eric Hornung 21:25
Can you walk me through a example of for someone who’s never been in a dispensary? I walk in the front door. How do I get to your product? Like is it a grocery store? Is it a pharmacy? Like what does it feel like? What is it like for a first timer new experience?

Wayne Schwind 21:44
Yeah, there’s there’s smaller shops I’m trying to think of maybe like a really high end t store that you have laid out it’s not a big footprint you walk in normally there’s a check. You walk into one room they check your ID, the products and everything are normally separated by another room. So you walk in back there after you check your ID. They’re probably only i mean you know, 1000 square feet maybe and it’s all counters and shelves and so they’ll have all their flower in one area edibles and another concentrates vape pens or big products that’ll be in another area you walk in. It’s really just laid out like a mini like craft brewery store. If you’re like a bottle house or something. If you’re going to walk into

Jay Clouse 22:24
your edibles from what I can see on your website, you have some different options. One of them being CBD, one of them being Ithaca and one of them being and really showing the diva diva showing how green I am on my knowledge of this.

Eric Hornung 22:40
Wow, that was a nice pun.

Jay Clouse 22:41
I’m gonna go Yeah, so what is what is the landscape for CBD in the United States?

Wayne Schwind 22:47
Yeah, CBD is a really big opportunity and a really unknown future around it. So they just legalized, they did 2018 farm bill passed. I don’t know if you guys heard of that are familiar with it. It’s basically basically opened up the floodgates for CBD businesses to go to work. So CBD companies it’s a separate regulated market compared to THC products. So THC is the psychoactive part of the plan that kind of you know, has that euphoric high feeling CBD is non psychoactive, although it is slightly but nowhere near THC, it’s much more therapeutic. So inflammation, rest recovery, and you can sell those products right now through your website across state lines. And so those are kind of the two pillars of the industry, the CBD market from hemp and then the THC products which are much more regulated but right now you could start a CBD business edge out of a smaller commercial kitchen way less regulations and start selling that online direct to consumer if you wanted or into any stores, coffee shops, there’s our grocery stores here are carrying CBD products now. And so that’s kind of another pillar of the industry which we’ve been looking at strongly but having entered into yet

Jay Clouse 23:56
you mentioned that when you got started you were cooking out of your own kitchen or you could cook out here kitchen so edibles is CBD at a similar nascent point, like it’s two years behind where we are now in the THC market, or is it just completely different,

Wayne Schwind 24:09
it’s completely different. It’s definitely behind because it’s newer. In that sense. It won’t follow the same road as teach, they won’t become highly regulated to the point THC is, there’s just a lot less risk. You can take a really high dose of CBD and it’s fine THC, if you overdose is not an enjoyable experience. dose is just so important. Yeah, no, I think you could do the same thing right now. You’d have to in Oregon, at least you can cook out your home kitchen and get that certified by the Department of Agriculture as being safe and usable at a certain scale. But you could definitely test a product I think and push it out to market even just through your own website to see if something has any legs under it.

Eric Hornung 24:45
So there are a lot of claims made about CBD. Yeah. How, how scientific are those? I feel like every time I hear about CBD, it’s solving some other problem. So what does it really do? Like it puts JTC sleep? That’s what we learned. But what is it? What does it do for scientifically? Does anyone has there? Has there been studies? Do people know anything?

Wayne Schwind 25:08
Yeah, we do. And we’re still super early, just at the tip of the iceberg. I mean, real, like science has been done in some other countries, but it just hasn’t been open in the States at least. So we’re just starting right now that tip of the iceberg and we know enough about it to kind of predict certain things right now. It’s a lot of trial and error. So if you have a real medical condition, seizures, put them in CBD for some reason, is just amazing at preventing seizures. So epilepsy, those ones works really well for if you’re looking for in the wellness or just well being space, it seems to have an effect on inflammation, rest. Some people help sleep through the night. So there’s the body has what they call an endocannabinoid system. And this is kind of some of the science of how it works. And it’s your largest nervous system in the body. Apparently, it’s largely just not taught at all in medical school. I’ve tried to figure why that was the reason maybe because it was had this association with cannabis or cannabinoids but basically everything in cannabis they call them Fido cannabinoids and your body produces endo cannabinoids, which the cannabis just mimics something your body’s already producing. So they call it homeostasis, which is this balanced state in your endocannabinoid system, your nervous system if you’re out of balance, I think that’s what’s leading some of these ailments, whether it’s lack of sleep, pain, whatever it might be, CBD can put your body into balance. And so will it work for you right now, we don’t really have a prediction model to say like, oh, here’s your ailment, here’s your dose, this will work. But a lot of people are trying to see if it works. And some of these stories aren’t either. I mean, they’re, they’re legit, some crazy stories that are happening out there. But you got to also look at companies who are making wild claims, and that it’s the silver bullet, which also isn’t the case. So I think the answer is somewhere between snake oil and the magic bullet. It’s probably somewhere in the middle.

Jay Clouse 26:55
I want to get back to talking a little bit about regulation. It seems like when people talk about regulating this at a state level, or making it legal, it’s a benefit to being able to tax it and make money for the state and theoretically then for the country. So who has the vested interest to not make that legal that it goes so slow?

Wayne Schwind 27:14
It’s a good question. I think big industry or money pharmaceutical. That’s probably the biggest one. And then that just mixed with stigma and fear of, you know, past rhetoric that is kind of still held on, it’s a benefit to everybody, not only the people that can consume it for their ailments, the state then gets all that tax money, and let alone the order it puts in place where there was called cannabis, a gateway drug, let’s practice you’re buying your cannabis from someone that also so sold coke or heroin or something. I mean, those are all mixed together. When you separate it, you legalize it, you test it, you know that it’s clean product, it’s a whole different different thing. And so you’re taking money out of drug cartels on top of that, potentially, because that money is still going like we’re still we’re not going to stop consuming cannabis. But it’s just been in the black market. But I think it’s just entrenched industries don’t want to see it

Jay Clouse 28:01
that stigma, do you as a CEO of a cannabis edibles company? How does the national stigma affect you on like a day to day basis,

Wayne Schwind 28:10
it doesn’t affect me at all, especially in Oregon. It’s not an issue. I mean, there’s some technical things like, you know, around getting a bank account, you know, we can’t get lines of credit certain things on the business side. But as an individual, not really at all. I mean, if anyone has a concern with me, initially, when I started the business, I wasn’t public about it at all. I mean, if it didn’t work, I had to go back into the industry and get a job. And I didn’t want that kind of like scarlet letter on my resume. of all of this is a cannabis person. And you know, don’t we’re not basically not going to interview or anywhere, I probably want to put it on my resume even. But after I saw was gaining traction, I was leading towards success. And it’s been, you know, three years now. Now, I’m really open about it. And anyone that wouldn’t want to hire me because I started this business I probably wouldn’t want to work for anyways. But at the beginning, I definitely wasn’t as open about it.

Eric Hornung 28:56
It seems like so you didn’t raise money? And you mentioned you didn’t raise money? Because you didn’t want to? Is it you didn’t want to? Because that would have made you go public? Is it you didn’t want to because you didn’t think investor appetite was there or that you didn’t want to? Because of the equity component you wanted to hold on to it like, or some combination of those? Like, why was raising money? Not in your best interest early on?

Wayne Schwind 29:18
Yeah, it might have been in my best interest, to be honest, I think, you know, in hindsight, looking back, I should have even right now, it’s kind of the same question like, should I still raise money and three years, I look back like, Oh, I should have, but you know, the external market is so variable right now, I didn’t end the beginning early, not because they want to go public or be out there. I’ve never raised money to start a business before, like, like I said, grew up in the Midwest, it was always just strong work ethic. If you didn’t, you couldn’t buy something, if you didn’t have the money to buy it, you know, we didn’t run around with credit cards, purchasing things. So when I looked at the business to start, it was like, I didn’t need to raise money to start it and test it. And then we started, money started coming in, we were profitable. And so I just kept taking that route. But you know, when it transition to the recreational market, we had a list of probably 90 to 100 stores wanting to carry our product that we couldn’t sell to at that time. Because we were if we sold to a store, I want to make sure we could get the next order and we’d be consistent supply there. But if I would have had more runway or been able to push harder during that time, would probably be a bigger company now, definitely. But I just had never done it before. And when I started the business, I realized I didn’t need to, to get it running. And it was working. So I just kept taking that route.

Eric Hornung 30:27
I think so far, we’ve kind of danced around it the idea of periodic edibles, what is it today? And what is the vision for the company?

Wayne Schwind 30:36
Yeah, so our short term goal short to mid term goal is to fully saturate Oregon be in 70 to 80% of the stores. Right now we’re in only about 25% of the stores. And then we have some other product lines that we’re rolling out that are Carmel still. But the big thing with cannabis right now is there’s these different strains that produce different effects. So you can get something that’s kind of for nighttime and watching a movie and some as for the daytime, and going for a hike, so only making a karma. The reason why I’ve been able to do that is because we have multiple skews of the karma for different effects in different formulas. So looking at a lower dose, smaller karma, that’s a lower price point that can be kind of thrown on as add on item we’re working on that a vegan karma. So vegan is big in Oregon. So making a karma that’s a vegan version when we still have those other options. So I think we could roll out another four to five skews, just as the karma and then saturate Oregon at that point, I think we’ll probably be four to $5 million in sales business if we get there. And so that’s all I’m focused on. Now, once I if I get to that point, then we’ll look around and go, Okay, what should we do next. And we are looking at Michigan right now. Because I grew up there. I have friends family there. So we may move into Michigan before getting to that full Oregon goal that we have more both just playing playing those bolts kind of by ear right now, as we keep growing.

Eric Hornung 31:57
So you can exist in multiple states, you just can’t do commerce between the states.

Wayne Schwind 32:02
Exactly. They need its own operation, its own production, sales, everything. Yep, separate, separated.

Eric Hornung 32:08
So $45 million that comes in. That’s as far as I understand it, that’s this is a cash business, right?

Wayne Schwind 32:13
It’s switching a lot. So we have banking by half our customers pay us with checks now, but it largely was and it’s just transitioning out of that.

Eric Hornung 32:21
So how do you manage cash, when you have trouble with getting a bank account

Wayne Schwind 32:26
exactly how you think you collect cash payments, you have a big safe at home, you pay cash, payrolls in cash, I mean, that’s very time consuming. But everything you do is with cash. And then you know, you get a just enough into your personal account for things you have to buy online with your own personal bank account. I mean, there’s some things you can’t pay for, with cash and that way, and then you just deposit the cash in your bank account. And you go around that way. But now we have a bank we have had for about a year now. And so we put all of our cash as soon as weekly, we put all the cash into there. So that’s a lot more comforting. We pay payroll and checks. We don’t have to do that anymore. But it was a very time consuming process when we only had cash.

Eric Hornung 33:03
Was it scary?

Wayne Schwind 33:04
Yeah. Oh, yeah. It’s a weird feeling. I mean, I never thought I’d look at, you know, 30, $40,000 in cash. Like just sitting there going to the bank. And you know, we’ve never had any issues knock on wood. Most in the industry haven’t, you know, people don’t know your we don’t publicize, we don’t put our logo on our sales vehicle or anything. We stay incognito like that. But But yeah, walking around that with a bag driving walking into the store. If I get pulled over, and the cop finds it, like, are they going to compensate it? I mean, that’s my, my half my business funds, you know, but yeah, no, it’s not, it’s not comfortable.

Jay Clouse 33:35
Talk to me about I just wanna learn more about the model of of this business. So like cost drivers. And I would assume the margins are pretty good. I just don’t know, like all the things that go into the model this business,

Wayne Schwind 33:46
yeah, the margins are really big, I think pricing is going to come down over time. But with the license, we get taxed really high, There’s something called to add tax code, which was put in place around the outcome prohibition period. But we basically can only write off cost of goods sold. So we actually get taxed on our gross margin, not our net net profit, gross profit. So 2017, we haven’t got our 18 taxes you’ve done yet. But we paid 60% on our net profit and taxes. So you can imagine when you’re trying to grow off internal profits, and not raising money, that’s a huge chunk that we don’t get to keep, which makes it even more of a struggle. So that’s a huge one that I think most people outside the industry don’t know of here and get taxed around, you know, it’s like socialism, or closer to communism, I guess, at our tax rate. So that’s a big one. But most businesses, I think, or Yeah, probably operating in the 70 to 80% margin, gross gross margin range, which kind of have to, with the, with all the costs of regulations and stuff, and we’re all trying to grow. So that’s a big piece of it. But the largest for us is probably labor on our production and manufacturing,

Eric Hornung 34:52
who’s doing caramels in other states,

Wayne Schwind 34:55
what I like about caramels, and a lot of the stuff we kind of figured out as we kept going, I didn’t realize mall I wasn’t ever in food production or manufacturing before. So it’s kind of learning all this to me as I go. But caramels are a little more finicky. They’re harder to produce, especially at scale. It is really a science. And it’s tight chemistry, which was my background and, you know, doing water chemistry. So I brought that skill set, which has really helped us scale and keep quality as we do more output. But I think even in Oregon, there’s only three or four other Carmel companies. And if you will get chocolate or dummies, those are a little more popular categories. There’s 1020, I don’t know how many companies and those but a lot more outside of Oregon. I don’t really I don’t know, there’s, I’ve seen some in California, probably every state has a car manufacturer, I’m guessing. But outside of the state, I don’t pay too much attention right now as we try to focus on where we’re at.

Eric Hornung 35:44
So how do you differentiate your your brand that because this feels to me, like from the consumer side? It’s like a CPG play almost? Yeah. Oh, yeah, exactly. So how do you differentiate like, how are you the RX bar and not the Luna bar? Yeah,

Wayne Schwind 36:00
so I think being first is a huge help. And then from there scaling being available first, for us, we have focused on the effects for each formula. Not hardly, there’s only a couple of edible companies doing that right now, it’s kind of a new move that cannabis manufacturers are taking, because there’s those different effects. So we’re one of the first to do that. We’re one of the only to do our infusion method, which, which gets the full spectrum of the cannabis profile into our products, which correlate to those effects. But other companies are going to do that as it comes in. So for us, the reason why we’re just looking at Oregon to be solid here is get our products everywhere, we’ve got the distribution channels, people know us, we’ve got a lot of repeat buyers, people seem to like our product. And then they’re continuously buying sometimes one a day even, but that point to be present, once big money comes in, someone’s gonna be able to do just what we’re doing, I probably had a lower cost. And so that’s why the podcast is huge, but tender education, they all know us really well. And we’re looking at starting maybe a web series on YouTube, and just really focused on brand because that’s, I think the only thing that’s going to save us when somebody else comes in and can do more. I don’t think the karma even now in CPG, it’s hard to really differentiate off just the product anyone got someone else can make that product. It’s just a guarantee, especially someone with money, faster, cheaper. And so at that point is your brand and it’s other things we do besides the product. I think that hopefully will keep us here in the long haul.

Eric Hornung 37:24
So talk to me about your team real quick. On the brand side, who is who’s like your brand guru? Who’s the person who’s kind of carrying this torch forward, that is going to be your moat? Yeah,

Wayne Schwind 37:36
it’s me. Honestly, I’ve shifted almost all my time and attention to marketing a little bit still in sales, not as much on the manufacturing side. But I really enjoy that always made videos and stuff when I was in high school. If money wasn’t a factor at all growing up, I probably would have went into digital media or production or something, I really enjoy that side of it. I really like marketing I do the podcast so I’m kind of face for the company off that as well. But yeah, I’d for the first six months I started the company I did everything from making the caramels to packaging and going out and selling it and the first thing I did was get manufacturing taken care of with with our team so I kind of pulled my hands out of that the next thing was the sales and then now 80% of my time is completely focused on marketing and I have two other people on the team that support me and support me in that an effort so how big is your team and total we have 11 people on the team

Jay Clouse 38:26
so you guys are growing your own product manufacturing that into the karma products cracks I’m understand that right don’t

Wayne Schwind 38:33
we don’t grow the cannabis don’t grow the candidates. Okay. source that from other farms.

Jay Clouse 38:37
Okay. And most CPG food products you have to go through like the FDA right to be able to sell anywhere and a retail outlet is that that’s a process that doesn’t exist right now for edibles right

Wayne Schwind 38:48
No, no, no. And there’s the Oregon Department of Agriculture that gets involved certifies your kitchen looks at your process a little bit, but the FDA isn’t involved.

Jay Clouse 38:57
Now how strenuous is that process? Is that hard to clear?

Wayne Schwind 39:00
it’s not bad there. It really depends on your product. If you had meat or dairy or something, I don’t think you can make make meat products because the FDA has to certify that. So that’s kind of off the table. But it’s not bad. I mean, normal commercial kitchen standards. There’s a lot for us to learn during that process. But working with the Oregon Department of Agriculture, they’re extremely helpful. I’m really close relationship with our inspector and I just a whole way through the process was, Hey, what about this? What about this, make sure we’re doing it right. And now that we’re up to scale, we got it right. It’s not much of an effort to keep it going. And do you think that will as this becomes de stigmatized and probably a little bit more regulated? Will there be a more strenuous process and will you guys have an advantage to get through that or that just be another drag on you guys to say like, all right, actually, now you have to go through this new long term process? Yeah, there definitely could be I mean, it’s FDA is involved we don’t know how it could be regulated as a nutraceutical a supplement, do they say it’s a drug and now FDA approval and trials? And that’s a big question. If it’s just down to the food product. I think it’s an advantage to us. We have a really long shelf life over 12 months. And so our inspector from the health department even said, you have a really low risk product caramels confectionery is like that there’s not big concerns for bacteria growth or other things that can happen. So I think we do have a nice product that they don’t look at as closely because there’s less room for issues to occur.

Jay Clouse 40:22
Cool. This is such a wild west, you know, when we’ve had drug companies come on, or medical companies that have to go through a whole long process and I haven’t really thought about food. Tell me about the decision to bring in the cannabis itself versus grow it yourself.

Wayne Schwind 40:37
Yeah, that one’s really a no brainer, the Costa bring grow, your own cannabis is significant. And right now in Oregon, because there’s such an oversaturation our cost of purchase flower, the cannabis sometimes I’ll call it flower is really low. There’s so much competition, we just have our pick from almost any supplier. So we have a few farms that we have a good relationship with their consistent offers a good price, they also have quality when we continuously buy from them. But if you’re going to I mean, the cost to start the edible business was really low. Initially, when I looked at growing cannabis, your costs are extremely high your initial capital costs, and would be significantly harder to start that kind of business. And you wouldn’t really want to do it just to supply your own infusion. Just because there’s so much available out there at a lower cost.

Jay Clouse 41:21
Since people are a lot of times you mentioned, this is our first time buying a product, they don’t have brand loyalty, I have historically, always either under dosed myself, or overdosed myself, and typically just have a bad time in either of those cases. You know, what is most important that you find to most first time customers? Is it that they can have an expectation that’s lived up to? Is that a certain effect people are looking for? What are you optimizing for?

Wayne Schwind 41:47
Yeah, it’s a good question. It’s hard to know, with the new consumer base coming in and what they’re going to be looking for people that have come from kind of non cannabis background or didn’t consume in the past. For us, our model is really all around the effects. So expected effects and then the right dose. So our consistency on potency testing across batches is like really tight within 1% variants. And so just the predictability and the consistency is what we sell on and our biggest selling point is right now in cannabis, it’s hard to say that this karma will be relaxing for you that’s our prediction but we can only tell so much but if you tried it and it did have that effect you can be sure guarantee that it will the next time the next time and the next time so that’s really what we’re selling on and then a quality of product comes in without

Eric Hornung 42:35
going down this kind of first person in the store has never heard of your product before again and CPG shelf space is like King right now is it the same way in these dispensaries? Are you paying for better shelf space or a certain display? Or how does that all work. And then how does that play into like how your packaging looks as your packaging change, like, give me like the user experience of five your product on the shelf.

Wayne Schwind 43:01
Yeah, I think shelf space is huge. Just like any other CPG product, when we first came into the market, there just wasn’t enough products to fill the show. So if you had products, you were on the shelf, like you had sales. So a lot of the companies that started that were first I think that maybe didn’t have the best business practices or didn’t scale with the market are kind of struggling now, because they have that success in the beginning. And then now it’s becoming so much more difficult. But you walk in, yeah, most shelves in our stack. So if they’re going to put your product on the shelf, they probably have to remove one, they might be able to create the space for it. But you know, we may be closed one and four or five clients now new retailers that we want to get on the shelf for but you walk in, it’s not really matured enough where like buying shelf space, that’s not really happening right now, we’ve heard a couple people talk about trying that they haven’t really gotten any traction. So it’s just really fragmented. There’s not really big buyers, there’s a couple but not many that own, you know, 10 or more stores that you can sell to and get into a bunch of branches like the that walking in almost everything is behind the counter. It’s either in a glass countertop or behind the counter on the back wall is where they’re positioning everything. So they don’t want to give customers access to be able to touch and grab product. So you have to ask a bud tender to do that. So you’re almost always engaging with a bud tender while you’re looking for product are going to make a purchase, which a little bit different than CPG products just sitting on a shelf. And the customers they’re kind of on their own scanning and looking. But sitting there, we just we actually are in the middle of rolling out complete brand update, but a new packaging system and a new display system to really try to capitalize on that more. Because I think the packaging and how you display it is your kind of salesperson on point. If the bud tender doesn’t know about you, that customer has to pick you and want to try it. So we’ve really focused on clear communication of our effects. So you mentioned the RX bar earlier, we kind of taken their model of being just very clear, transparent, here’s what it is we do that around the effects and really promote that on the packaging multiple ways. And then we kind of have a nice wood craft display that can shelf the products create our footprint to give us a little breathing room around our products. So there’s not stuff sitting right on us, then just the packaging that the customer would buy. But we focused heavily on the display system that we just start rolling out a couple weeks ago. So we’re excited that get that out and see what that does for sales for us.

Jay Clouse 45:20
Are there like tap room equivalents for this industry? Do you go places and just try things out? Or like, hang out socially?

Wayne Schwind 45:27
No, no, no, social consumption, no lounges, nothing right now it’s in some of the bills that they want to pass or look at is allowing and legalizing but that doesn’t exist anywhere right now.

Jay Clouse 45:38
And that’s because of a legal aspect is not legal to have those

Wayne Schwind 45:41
correct. Yeah, the regulations don’t allow it. But I think California is in the middle of legalizing public consumption which would allow for lounges and kind of almost like a Starbucks feeling where you could actually consume on site. But that’s not here in Oregon.

Jay Clouse 45:53
So I want to, you know, Eric, and I do this podcast because we want to learn and get reps as potential angel investors talking to companies like this, but this is so new and so outside of Eric and eyes wheelhouse. From your perspective, what should investors be asking about this space? If they wanted to get into it? What should they know?

Wayne Schwind 46:13
Yeah, I don’t know. It’s a big question. I feel like you’ve got to have either a relationship or some knowledge of the industry. I think if you’re looking to be passive and just put your money somewhere, it’s a huge risk. I think it’s going to be just like the.com or tech like 80, 90% plus are going to go out of business just with the amount of companies that are here it’s going to happen so how do you know who’s going to be successful verse isn’t, you know, you can do product research puts on the ground secret shoppers he was selling what a bud tenders recommend can be very helpful. But then I feel like you got to know the team or meet the team because it’s so fragmented state by state, and there’s a lot of hucksters, I guess you would say out there.

Eric Hornung 46:53
What would put periodic under? Like, why? Why would that not be one of those 80 90%

Wayne Schwind 46:59
I think, think if we don’t scalar distribution fast enough, and don’t have that relationship and, you know, 70, 80% of the stores. We’re at just over 25% saturation right now. We got to get there soon. I think big money moving in. And other options for similar quality with a much cheaper price point is our biggest factor and risk and a lot of big money is kind of being cautious because of that tax code I talked about, and also the fragmentation from state to state but if federal legalization happens, or interstate commerce, that’s a huge concern for us. So I think lack of brand and just customer loyalty. When a cheaper product with a similar quality hits the market,

Jay Clouse 47:38
can you walk me through the value chain of this industry? So you have like manufacturers? Will you have like the cannabis manufacturers? And you have the edible manufacturers? Like what’s the whole string of parties that can be involved in this industry?

Wayne Schwind 47:49
Yeah, there’s four licenses in Oregon in some states have five, they break out an extra one, but we have the producer, which is the grower. So it all starts there. That’s the wrong way material, we’re going to make a value added product after that, or sell the cannabis directly. That’s your starting point. You have labs. So lab is another license and they test all the product across every part of the supply chain. And then you have processors which are manufacturing. So value added products that could be edibles. It could be the extract pens, a topical that you put on your skin textures, kind of the drops you put in your mouth, and then the retailer license or dispensary license. So you can sell directly to the public. You have a store brick and mortar. They do allow for home delivery within your I think it’s zip code. So there are some Portland retailers that don’t have a brick and mortar and they people buy online, they deliver right to their door. So that is allowed the other license, I guess there’s five as a wholesaler license. So basically a middle person between us and the retailer who has, you know, they’re in 90% of stores, they do all the distribution logistics of it. Those are kind of each pieces of the process.

Eric Hornung 48:53
Are those licenses indicative of what other states have as well?

Wayne Schwind 48:57
Yeah, pretty close. There’s not really much outside. Yeah, you grow it, manufacturer it into a product, if you want, you get it tested. Sometimes there’s a middleman, wholesaler or distributor, and then the store that sells it to the consumer, where do you see outside investment, investing the most capital and in those different areas, it’s kind of all across the board. It seems less actually in the manufacturing space. And the edibles more around pens and extracts, I think those have a little higher margin. There’s a lot to produce those. But it’s a very small type product. That’s in a little case that sells for $60, you know, so it’s, like, maybe more scalable. And then on the flower side, there’s some big producers that are starting to conglomeration and try to mass produce on the growing side. And outside of that, what I’ve heard from other business like that we’ve had on the podcast, you know, consultants is they actually recommend their customers if they can find an ancillary business to go into. So not plant touching is, from what I’ve heard a little bit safer bet and maybe a little more controllable and predictable. So it’s kind of like the gold rush and the picks and shovels versus the actual gold. I see a lot of people actually focusing there because you don’t have all the limitations that we have banking, crossing state lines, things like that

Jay Clouse 50:10
you’ve been bootstrapped to this point, what would make outside investment appealing to you? Like if you went down that route? Why would you go down that route? And when

Wayne Schwind 50:18
Yeah, Michigan would definitely be I would have to raise money to go into Michigan. So if the timing on that looked right, and there was clarity around regulations in the body that’s giving out the licenses and they’ve got their together To be frank and everything streamlined. Oh, definitely would have to for there in Oregon, I don’t know it’s constantly on the fence about it. Because I get my my thing is right. Now, if in Oregon, I could get to that 5 million mark and sales if I could get there and six years without raising money or get there and two years with raising money, but still get there. I would take the six year path, I’m fine with going slower, keeping an internal the big. What if it’s just the external forces that we don’t have any control over regulation is changing interstate commerce and big money coming in. And so my fear is that I take the longer path and don’t raise money. And I don’t go fast enough. And a big player moves in and kicks us out. Basically,

Eric Hornung 51:12
what is the Portland ecosystem been like for you? You came from Michigan, you get to Portland, and you first launch a business that’s in property management. But then you launch another business, is it is there a community? Is it everyone just kind of doing stuff on their own? Like, what is the Portland cannabis slash entrepreneurship space? And do those overlap or they separate? Like, how does it all kind of fit together? Yeah, there’s

Wayne Schwind 51:38
kind of a little bit of both. So I’m definitely involved in some groups meetups that are more entrepreneur focused. And I’m normally the only cannabis person in those groups, which I kind of likes, I get a lot of great perspective from other businesses. And I think those are the companies that will be in that, you know, 10% success rate that are going to, you know, agricultural expos. And I went to the Chicago food pack Expo, we’re on packaging and stuff like that, that are non cannabis. The actual cannabis space is surprisingly highly collaborative. And I don’t know if it’s just an Oregon thing in Oregon culture, it will be like that in other states, but I have our direct edible competitors doing podcast episodes with me, I had one six months ago, I was having a regulation issue around a part of our process. They have a similar operation. And they invited me on site. They said, here’s the things we did with the state regulating body. Here’s what we told them, they approved us, if you do the same thing, you should be fine. And it was hugely helpful. I could have wasted a lot of time and money trying to figure that piece out. So the companies are really collaborative. And it’s really good to see Oregon own companies that are still local, and maybe don’t have those big funds that they raised all working together. And there’s some groups that are kind of unifying all the small businesses. So it’s been a really collaborative, which has been amazing. Are there any aspirational brands that you look at when you’re thinking about building the periodic edibles brand? When you say aspirational? Do you mean ones we want to model after? Yeah,

Jay Clouse 53:00
things that are like inspirational to

Wayne Schwind 53:02
I don’t know, that’s a good question. There’s some brands that that I really respect that went faster sooner and have the scale that we want to have in Oregon. I mean, they’re everywhere. Everybody knows, um, I don’t think they’ll be going anywhere, if anything they might get bought. So getting to that scale, as far as around like products, or quality or skews that we’re putting out not really I think we have with our focus on the effects in the different skews and roads are going down. And the way we’re doing it. I think we’re the first edible company, maybe in the country, but I know in Oregon to be doing the products the way we’re doing it, and I think others will come behind and do something similar. But just from a business perspective, there’s a couple that I think I really respect and have been impressive, even outside of the cannabis industry. I mean, do you look at things like Patagonia or anything? Is there like as a CPG brand that you look at it? Yeah, yeah, definitely. Our x bar is a big one, I researched them a decent amount to see kind of their scale and process and how they start old. And that’s kind of us, their focus on the ingredients being so front and center to us as our effects being so front and center, I read the Zappos book Delivering Happiness. I think the culture and the operations here is probably my biggest focus, I think it’s the most important thing that allow us to scale and be super effective when big money does move in. So I really like Zappos model, how they’ve done that, obviously, something to even get close to would be really impressive to be able to pull off. So yeah, I think that’s a big one.

Jay Clouse 54:30
Are there any questions we’re not asking that we should be asking?

Wayne Schwind 54:33
Yeah, I think it’s just around I mean, state by state, I think it’s, it’s hard to talk about the cannabis industry. And I’m kind of, you know, saying it from my perspective, but it can be a black and white difference inside of another state. So taking my business model to Ohio as a potential opportunity, you know, I don’t think I would be able to start my own opera, I know, I wouldn’t be able to, just because they kept the licenses. So if I were going along that road, I’d have to license the IP to someone who’s already operating there and give them the opportunity to build it, scale it and sell it for me. So that’s probably the biggest one is just the fragmentation state by state. We’ve kind of hit on it. But every state is just its own model. And it makes it really hard to scale I think outside of the state that you’re in. Awesome. Well, this has been very insightful. If listeners want to learn more about you or periodic edibles or periodic effects after the show. Where should they go? Probably the websites the best place periodic edibles.com is our edibles website. Obviously, you have to be an Oregon if you want to buy our products or try them. And we have product map on there. I think the biggest one for probably most listeners, especially if they’re outside of Oregon is the podcast, periodic effects.com. The focus of the podcast is really cannabis science, and then cannabis, business or business stories. So either interview an owner of a company, like I said, I’ve been interviewing edible competitors that we have in the state and sharing their backstory and success and what they’ve done or we really focus on the cannabis. We get a doctor, a researcher on we talked about the endocannabinoid system. We did a whole episode on that for over an hour about how it works, why it works, and I’m just trying to re re articulate some of the things I’ve learned in some of those episodes and regurgitate them. But some of those science episodes have been really profound. We’ve had actual stores pay their bud tenders off the clock at home to listen to the science episodes is training as part of their training regimen. So when we heard that from a couple different stores, it was like, well, that’s having some serious effect for us. So the podcast, probably the biggest one for learning anything more about cannabis, periodic effects, calm

Jay Clouse 56:34
All right. Eric, we just spoke with Wayne Schwind, have periodic edibles a bootstrapped company, what are your first takes you want to talk about want to talk about weighing the founder, you want to talk about the industry.

Eric Hornung 56:45
I want to talk about the 13 colonies, Jay

Jay Clouse 56:50
can’t wait for this.

Eric Hornung 57:11
So I might be reaching a bit here. But interstate commerce used to be regulated by Congress when we first were born as a nation. And the idea wasn’t that you could trade easily between states, the idea was that Congress would regulate when you could trade easily between states. And I think that that’s kind of the market that we’re sitting in right now with cannabis in the cannabis industry is that everything just feel so state specific, except there is no regulator, there’s no Congress saying, Here’s how you can go between states, there just is no between states, which is wild. To me. It also reminds me of the Glass Steagall act in banking, where you couldn’t have banking presence in multiple states, until that was repealed in the 80s or 90s, I forget which date and then all of these bank corpse like chase existed across everywhere before that there are bank holding company. So I feel like we see this theme over and over again, in American history, where first something is states only. And then it becomes able to be wider. And there’s going to be a ton of consolidation. So right now, super fragmented, super states specific, and eventually, it’s going to consolidate it. So the biggest question for me is, when I look at what does winning look like and our return and our revenue? Is this company able to consolidate others or will be acquired by another company? That is the question that is at the foremost of my brain when I think about periodic,

Jay Clouse 58:32
yeah, this is such a outside of my realm of experience company, because the question you just posed, will they consolidate other companies in them or be acquired and a lot of ways you would think, you know, there would be two reasons that a company like periodical be acquired, it’d be either for the quote unquote, IP of their recipe or before the brand equity of the brand that they’ve built or potentially for the territory that they have in Oregon, the shelf space you know, this gets into nuanced you’re talking about this, this Congress in this interstate commerce, it seems like the states just got frustrated with the fact that they couldn’t make tax income on this or legalize it themselves, or it wasn’t being legalized at a federal level. So they exercise some states rights and said, we’re here the roles that we’re going to do for our state. I just never seen something play out like this, the way that cannabis has across United States. I don’t know what the future is what I liked about talking with Wayne as a founder. And maybe it’s because I am so ignorant of the space. But he seemed extremely knowledgeable, to the point where at some point during this interview, I was treating it almost like a coffee chat episode. You know, I was trying to learn about the industry just as much as I was trying to learn about his company. And, you know, he said, he might not even be raising in the future, it’s something he he struggles with, back and forth. And as an investor, I think, with so much uncertainty, I’m much more likely to try invest in a different type of company in the value chain than a brand itself, it seems really hard to invest in a brand that maybe has one strong state that has a foothold, kinda like periodic does. But with it being such a wild west and everyone trying brands for the first time, it’s hard to build a brand name across the United States, even if it was federally mandated that here, here’s the policy and you can go across state lines, because it’s going to be kind of, I think, a race to build a brand that people know and trust. And I think that’s a game that as Wayne said, big money kind of wins.

Eric Hornung 1:00:38
I think it’s interesting though, that you could build a brand Portland, or sorry, in Oregon, then you could build that same brand different company, different employees, different distribution, right. So you have to effectively raise to create that company or hold your own personal cash into that company in Michigan. And then you could do that same thing in whatever state legalizes next. And then I guess I make all of this on the assumption. And my whole like preamble, as well as on the assumption that this is going to be legalized at some point federally, and I just it’s my thesis, I think it’s going to happen in the next five to 15 years, probably on the back of a recession, to be honest, because that’ll be a good a good political move for a lot of politicians to bring a lot of revenues into the government and does jumpstart some business. But the the idea that you could kind of create pockets of a brand that are all worth Let’s call like, let’s call the Oregon brand worth $100, and Michigan brand worth $100, and they launch a Florida brand and $100 and they all look the same, they all feel the same, but they’re different companies. Once that regulation kicks in those three things, when you add them together, maybe they aren’t worth $100, maybe they’re worth $900, because there’s a multiplier effect of now you can link your businesses together, which is interesting to me as a expansion strategy because it’s an expansion strategy that’s limited currently by regulatory hurdles, but is also super unique because you would never see another business expand like that.

Jay Clouse 1:02:12
I don’t know that seems like it would go super slowly and take a lot of time that building one sort of overarching brand, you know, I see it I see a future where the cannabis industry looks kind of like the beer industry, and you have a Miller Corps and you have an ABN Bev that are just kind of dominant and spend a ton of advertising money just to be the brand that people here and believe in and also has really, really tight quality control. You know, he mentioned consistency and the importance of consistency in the experience a company like ABN Bev that produces Bud Light and Budweiser, one of their core core competencies is just super tight consistency with their product. I think that’s going to be key in this industry. And, you know, he mentioned big money so many times that interview that I could see that this is a huge concern for independent brands like his and I can see why it just seems like people who can really go into their deep pockets and spend to build a perceived brand that can go into interstate commerce will be faster in my mind than doing that state by state approach you’re talking about.

Eric Hornung 1:03:18
I also agree with that. I think I’m talking when I say the state by state, I’m saying that the value accrued through that is going to lead to a multiple that’s higher when you get acquired by a CPG of cannabis, which is it will be someone for sure. Maybe it’ll be the old tobacco stalwarts, maybe it’ll be the Procter and Gamble’s and Unilever’s, maybe it’ll be the Nestle’s who knows what it’ll be, maybe it’ll be the alcohol companies, I don’t know, maybe it’ll be a new player. That would be interesting. But my take about the states is that if you have multiple states and multiple territories, and you have a strong brand in those, that’s super valuable, because real estate and geography matter here, whereas you’re building our x bar that’s less geographically constrained. So you’re you’re not selling territories, which I think is different. If you sell into Whole Foods, Whole Foods is everywhere. Sure, you’re selling that contract effectively when you sell our x bar, but you’re not selling the number one brand in Minneapolis, or Minnesota or something like that, that you have, like, you have a foothold there. I think it’s just a little different. And I think that it’s unique in that you need to acquire if you’re this big company, you need to acquire a region not just and I think you alluded to this, you need to acquire a region, not just a great brand.

Jay Clouse 1:04:38
Yeah, I’m interested to see the development of the physical spaces around this industry. You mentioned that the stores right now kind of look like convenience stores, there are no social aspects are sort of like lounges or tap room is what I liken it to any interview. I think there’s probably going to be some industry around that as investor. It’s just hard for me with the uncertainty of the record environment. If I’m going to go into cannabis. I don’t know if I’m going into a brand versus going into some of the picks and shovels of this industry because that seems a little bit safer from regulation. And also, I don’t know that the upside of a brand is higher than the upside of a picks and shovels type play.

Eric Hornung 1:05:17
So I think there’s more competition for venture dollars in the picks and shovels area right now, I read a medium post the other day about this and it essentially said, Okay, everybody in VC wants to invest in the next headset, which is data analytics for cannabis companies. Everybody in VC wants to invest in the QuickBooks for cannabis. Everybody in VC wants to invest in all of these things that are specialized and made for cannabis companies. So I think your competitions higher there. So I think there is more potential for alpha if you can find brands, or if you can, almost everybody moved out of commodities farming right? All the money there. I feel like people are seeing and they’re saying, okay, the prices are coming down, there’s really no competitive advantage there. It’s just agriculture. So that’s going to be all loan based, debt based investments. Brand still has upside, but you need to be able to select which brand you need to be able to be very good about it. The other area that I think is the most interesting which is what you brought up is this social side of things, but the we work of cannabis but for like, how does that expand what’s the first Starbucks of cannabis? Right like those things are interesting but that also falls into the brand category I think

Jay Clouse 1:06:37
WeWork are you talking about like a co working space for cannabis companies

Eric Hornung 1:06:41
no I was just really talking about a franchise across but I used a bad example so

Jay Clouse 1:06:45
Starbucks is good. Starbucks make sense.

Eric Hornung 1:06:47
Yeah,

Jay Clouse 1:06:48
I was blown away that he said that he paid 60% on net profit for his taxes last year.

Eric Hornung 1:06:53
Well, that law is insane that you pay taxes on your gross profit it I’ve never heard that before. that I think will change with regulation. But that is incredible. Like imagine. Imagine how expensive a Bud Light would be if that’s how they got taxed. And alcohol.

Jay Clouse 1:07:13
Crazy. I touched on this a little bit a minute ago. But let’s talk about Wayne as a founder here. What struck you about Wayne as a founder.

Eric Hornung 1:07:21
I like that he has the depth of knowledge in the industry that he’s been around for so long that he understands the history of the industry. But more importantly, I liked that he understands that he needs to create a moat for the future. And I love that that foresight and right now it’s a podcast. Sure, I’m sure that more things will spin out of that. I know that podcasts are awesome. Obviously, we do one. They are one of the greatest life hacks around. But I think the more he thinks about how do I create a moat around this brand. How do I be you know Warren Buffett who invested in see’s candy bar see’s candy, that’s like his prototypical example of like a great brand. And it’s because they created this moat around if you come home, you better come home with see’s candy and you can’t come home with other candy so i think that i love the concept that he’s so forward thinking about moats. That’s that’s my biggest takeaway. Bar none.

Jay Clouse 1:08:20
I would agree, I think there are two ways that a founder is this is this is a real hot take. But it seems like they’re probably about two ways a founder and the cannabis industry could go about building their business one is just full throttle in one direction, or a million directions, just trying to land grab as quickly as possible. And the other is a more calculated careful way to go about operating in a regulated space. And I think that’s closer to the side that Wayne is doing things. And I think I appreciate that about about a founder, I agree that his foresight was something that was just palpable through the whole thing. And like, you know, we gotta, we gotta build a brand around the effects and we’re doing this podcast and the bud tenders are getting paid overtime to listen to the show. That is huge in my mind. So I appreciate that. I also appreciate a bootstrapped founder, because, you know, there’s a lot of skin in that game. His story is about everything, being cash, and managing that cash is crazy. But he struck me as highly intelligent, extremely aware of the space he is operating in and doing his best to really look around corners to figure out where things are going. Granted, I think he was on the pragmatic side of just saying, like, Look, this is all the things that are unknown, as opposed to maybe a visionary side where he says, This is the version of the future that I believe is going to happen, I’m going to bet everything that this is the version of the future that happened. I think founders go either way. But I liked where he was coming from.

Eric Hornung 1:09:53
I agree, I think he could benefit from having some more people around him that fit in that visionary camp that can give him ideas, because he seems like he can execute well, and can create moats. But one of the benefits of taking capital is that now you have people giving you insight, sometimes probably too much insight, sometimes not enough, sometimes bad insight. But you at least have people giving you counsel and advice. And when you’re a bootstrap founder, that can be less so or you’re only getting it from other founders owner, you’re only getting it from your community. And you don’t, you don’t get to you don’t have someone who’s investing in 100 other companies who has seen, hey, they’re doing something here that’s really unique that might fit your space. And I don’t know whether or not that’s an advocacy for venture capital. But I think it is an advocacy for building a board that has experience across other businesses, which I do not know if when has or not.

Jay Clouse 1:10:53
It did seem like there’s a lot on him. But he mentioned going to some of the startup and tech meetups just to meet other people in the space that are orthogonal II related and learning from them, which is what that was good. Alright, so what are you looking for 6 to 18 months from now from periodic.

Eric Hornung 1:11:08
So it’s actually something that’s not periodic. It is periodic cousin company in potential cousin, cousin company in Michigan. I think that this aggregation theory of brands will really benefit people who have multiple region entities. And if the decision is made to go and launch periodic or whatever they have to call it in Michigan, that will be something that really gets me excited for the opportunity in the next 510, 15 years.

Jay Clouse 1:11:38
This is a different question, I think, for periodic because as an investor, I’m kind of sitting here saying, this is a regulated space, or a soon to be regulated space. I’m going to wait and see what happens 1618 months from now, from a regulation standpoint, but you really can’t do that. If you’re trying to take advantage of this opportunity. you’ve kind of got to make a bet and go, whether it’s with periodic or someone else in the space. So yeah, I guess I’m also looking for if I’m an investor, and I’m looking at investing into this. I’m looking at expansion and saying, What does expansion look like? What do they learn about it? How can they continue to build a moat? I’m looking to see how have they grown not only the periodic brand as an edible in different markets. I’m looking to see how is this mode of a marketing effort around cannabis education and the science of cannabis doing because that I think, could be a leading indicator of how they could almost backwards build an edible brand from the media brand.

Eric Hornung 1:12:36
I love that. I think that we have not question once the product itself, but it seems like it has good reviews. So I think that that is something that we kind of took for granted and took at face value. But I love the idea of media as a route to expansion. Jay, if people want to learn more about upside, or interact with us or this episode, where do they go?

Jay Clouse 1:12:59
If you guys have thoughts this episode, please tweet at us at upside. FM, or you can email us Hello at upside down. FM. If you or someone you know could be a good guest for the show, email us at hello@upside.fm. And if you enjoyed this episode, send it to a friend interested in cannabis. leave a rating on iTunes. It goes a long way in helping us bring on high quality guest to the show. Thanks. And we’ll talk to you next week.

That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at hello@upside.fm. or find us on Twitter at upside. FM will be back here next week. At the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know and make a good guest for our show, please email us or find us on Twitter and let us know.

And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there were a couple things we wanted to share with you at the end of the podcast. And so here we go, Eric Hornung and Jay clouds are the founding partners of the upside podcast. At the time of this recording. We do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinions of death. And Phelps LLC and its affiliates under collective LLC and its affiliates or any entity which employs This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on this show. Thanks for listening and we’ll talk to you next week.

Interview begins: 05:52
Debrief begins: 56:32

Wayne Schwind is the founder and CEO of Periodic Edibles. Periodic Edibles creates cannabis-infused caramels with consistent and repeatable effects.

Wayne graduated from Michigan Technological University in 2010 with a Bachelors in Chemical Engineering. Upon graduation he moved to Portland, Oregon for a job in technical sales in the industrial water treatment industry.

In July of 2015 he left the sales position and started Periodic Edibles. After a year and a half in the medical market, they received our State recreational license on February 1, 2017. Since then our team has gotten Periodic Edibles into more than 150 retail locations.

Learn more about Periodic Edibles: https://periodicedibles.com
Listen to the Periodic Effects podcast: https://www.periodiceffects.com
Follow upside on Twitter: https://twitter.com/upsidefm