Interview: The Pros of Vertical Integration For Legal Cannabis Companies

Sunday Goods is a vertically integrated cannabis company based in Arizona. They serve medicinal patients and caregivers (Arizona does not permit recreational pot, which failed in state referendum last year). They also grow, sell and deliver their own products. Marketing for Sunday Goods highlights the all-natural, clean attributes of their cannabis.

Why would a cannabis company prefer vertical integration over taking part in a state-run, three-tiered control system? For perspective into that we recently spoke with Sunday Goods CEO Randy Smith, and Head of Genetic Development and R&D, Sjoerd Broeks. Our conversation also touched on the topics of clean cannabis, the federal government and the trend of plants grown less for potency and more for craft and medicinal purposes.

Kyle Swartz: Your company is vertically integrated. Do you believe this is superior to a three-tier system managed entirely by state government?

Sunday Goods CEO Randy Smith. | This and all photos courtesy of Sunday Goods.

Randy Smith: When you have control of the supply chain, the value and the volume of product can both be higher. That means you can produce at a lower cost, and then you can pass that value onto the patient.

In order to build a brand, which is what we’re trying to do, you need to solve for the product first. We happen to believe that the plant grows better in the sun. There’s no better light than the sun. It creates a cannabis profile better than with a lamp — a more well-rounded profile. If you can grow cannabis in a way like this that’s also affordable, you can spend more money on brand building.

But there are people trying to build a brand who cannot control their supply chain. The quality of those products can be all over the board. Sometimes they cannot get product consistently. And all that leads to an inconsistent value proposition.

I believe the three-tiered system should be voluntary. When a manufacturer needs the help of a distributor — because the manufacturer doesn’t want to deal with trucks, field teams, etcetera — that option should be available. But when you make the three-tiered system mandatory, it builds an artificial layer into the system that punishes brand building, because you have to pay more for the plant.

The need for distributors is real. You should be able to pick your distributor. When it’s mandated that you must sell to a middle person, and that’s the only way your product can arrive at the end destination, then no, we’re not in favor of that.

KS: Your marketing makes it clear that you produce clean cannabis in natural sunlight. Why the emphasis?

Sjoerd Broeks: It’s about transparency. If production is hiding behind walls, then people don’t really know what’s in the product, what toxins might be in there that are harmful to the human body.

Arizona’s mandatory testing laws are just now coming online. You really could just push through product if you wanted to. We don’t do that. For instance, instead of pesticides, we use beneficial insects to protect our plants. We release bugs, and we can control the process so that there’s no flavor from this left behind prior to cultivation.

Sunday Goods Head of Genetic Development and R&D Sjoerd Broeks

RS: A lot of this comes down to ethics, morals and economics. Most people don’t want to put out product that’s contaminated, of course. But their cultivation is inefficient in protecting and growing plants. That’s because a lot of people who get into the cannabis industry believe that they’ve hit the lottery and will easily become millionaires. But it’s really a labor of love. I’m afraid that many people make decisions that are not in the best interest of the plant. They use pesticides and artificial-enhancement products to try to cut corners.

Our commitment comes first to the plant. We test three samples from every variety we grow. That’s not mandated by Arizona, but we’ve done it from day one. We do 45 tests per week — not only to guarantee quality, but also to raise the bar for testing.

KS: There’s been a rise in cannabis products made not for potency but medicinal or recreational effect. What’s the thought?

SB: We breed plants with lower THC and higher levels of terpenes. That’s what sets us apart. With higher levels of terpenes you can pick and choose plants based on what you want them to do. For the last two decades people have bred plants mostly for potency. Now there’s more attention to crossbreeding plants to call out unique cannabinoids and terpenes for pharmaceutical purposes.

There are so many applications for this product that it’s almost impossible to imagine them all. What if you have a cavity or a toothache? We could offer you CBD toothpaste. Now we’re giving customers the ability to choose products not just on potency. There’s going to be a laser-like focus on what terpenes and cannabinoids can do for specific ailments. That’s going to be a big part of the future of cannabis.

RS: We’ve had wholesalers tell us that if we can breed plants with THC levels higher than 27%, then they’ll buy it all. We tell them, ‘That’s not our brand. If that’s the only purchase you’re looking to make, then we’re not for you’.

I think what Sjoerd’s getting at goes along with what’s already happening in food and beverage. People no longer walk into the beverage store and automatically reach for the strongest bottle of vodka. It’s the end of that era. We’re growing for the new generation of consumers who actually enjoy cannabis not just for its THC. They care about how it feels and tastes, how it’s made. People already care more now about what goes into their bodies, and that’s not going to stop with cannabis.

Inside a grow house at Sunday goods in Arizona.

KS: Do you feel threatened by the federal government?

RS: I’m not a Republican but Trump gets a bad rap. He’s been on record for being in favor of outright legalization, and only recently changed that to clearly supporting medicinal cannabis. He has gotten more opaque on the subject as the president, however.

Meanwhile, Jeff Sessions is a dinosaur. But look at the result of him rescinding the Cole Memo. In doing so he clarified that state prosecutors had the right to intervene with legal cannabis if they believed it necessary. And so far, we haven’t had a single prosecutor come out and do that. Nor do I believe a single Republican in Congress has come out in support of Sessions’ decision-making with the memo. I also think Sessions is too busy these days worrying about whether he’ll even be Attorney General in six months.

I am a little pessimistic about the situation, though. I believe most politicians support cannabis now because they can’t hide from the polling numbers. They have to be for it.

KS: We do see more Republicans supporting legal cannabis, though. Do you believe it will attain bipartisan support?

SB: There’s multiple reasons to support cannabis. It has broad appeal among voters, and it reinvigorates communities with new jobs and revenue. I believe Republicans do see the financial aspect of it as a positive, though they might still believe it has a negative social impact. Moving forward, I think more Republicans will see and understand that the social impact is not as they might believe.

Kyle Swartz is an editor of Beverage Wholesaler and Cannabis Regulator. Reach him at kswartz@epgmediallc.com or on Twitter @kswartzz. Read his recent piece Paul Hletko on How Legal Cannabis and Alcohol Can Coexist?

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