How One Cannabis Company Sells Its Flower For Twice As Much

This article by Alex Halperin was originally published on WeedWeek, and appears here with permission.

At Hey Emjay, a Los Angeles delivery service, eighths start at $16 and top out at $70. Almost all of the $70 offerings are indoor-grown flower from two brands, Connected and Alien Labs. On Friday afternoon, with hundreds of more affordable options available, several of the two brands’ SKUs had sold out.  

We’ve all heard 2020 was the year of the value brand. But no one seems to have told Connected, which acquired Alien Labs in 2017.  

According to data firm BDSA, between January and September 2020, Connected/Alien Labs generated more retail revenue selling branded flower — nearly $50M — than any other company in California. (Value brand Pacific Stone was a distant second.) 

Courtesy BDSA bdsa.com

Connected CEO Sam Ghods, who previously dropped out of USC to co-found cloud computing company Box, said the company wholesales its indoor-grown flower for more than $4,400 a pound, about twice the California wholesale average. Ghods said Connected’s marketing budget is less than 1% of revenue. (The brands’ combined 500,000+ Instagram followers can’t hurt.)

In a wildly competitive market, how has the company pulled this off? Ghods says the difference between Connected and its competitors is akin to the chasm between a $1,000 bottle of wine and a $20 bottle of wine. Surely, quality helps. But perhaps more importantly, Connected seems to occupy, as well as any brand out there, the happy crossroads where hustle and serious capitalistic know-how intersect with the ineffable magic of street cred. 

Things “really spiraled”

In a rare interview, Connected founder Caleb Counts told WeedWeek that he started slinging weed in seventh grade. He kept at it in high school and then at Chico State. 

After college, he went into real estate for a few years and came back to cannabis after the housing bubble burst. In 2009, he opened his first dispensary, Sacramento’s seventh, he said. He dealt with the same kinds of challenges as everyone else who was in the game back then, and went on to be involved in shaping the city’s cannabis regulations.

Soon enough, it became clear that the business needed to expand into cultivation. Counts says he convinced the best grower he knew to be his mentor. Connected’s current methods are “pretty close” to what his mentor taught him, he said. 

“The best weed out there is still being grown in someone’s garage or basement with incredible attention to detail,” Counts said, a sentiment few other MSO execs would echo. Producing it at scale is an “entirely different world.” 

In 2014 or so, Counts came across some “prized genetics” and business got better.

The company opened stores in San Francisco and Stockton, not a town commonly associated with $1,000 bottles of wine. The company’s celebrated Biscotti strain began to trickle out, finding its way into rap lyrics.

Connected started wholesaling it. “We had to build a brand because we saw the future,” Counts said. 

Counts began to realize retail wouldn’t always be the focus of the business. But his dispensaries remained “hype spots,” where he could study the customer experience. 

When he inevitably looked south to LA, he first made his product available at only one dispensary, GreenWolf, a collective he felt would “represent it properly.”

Cultivating scarcity, and tactics like teasing new strains like sneaker drops, remains central to the company’s marketing strategy. (Aside from California, Connected is only available in Arizona.)

When strains haven’t sold well, Counts said he pulls them from shelves “no matter the cost.” He seems motivated both by quality control, and maintaining the impression among consumers that Connected isn’t going to sit around on shelves waiting for them.   

Things “really spiraled” in 2018, when hip-hoppers Migos got their tour bus pulled over in North Carolina. A photo of their stash — Xanax, codeine and big sacks of weed from Connected and competitor Cookies — appeared on TMZ. 

“The rubber hits the road”

Counts met now-CEO Goads a few months later. Within 30 seconds, the tech executive grokked that Connected sold out its inventory at twice the price of its competitors. He didn’t need much more convincing. Other brands have similar stories and friends in the hip-hop world, “but where the rubber hits the road is price and volume,” Ghods said.

In 2019, Connected raised a $25M Series A with Navy Capital as its primary institutional investor. Navy managing partner Sean Stiefel, said that by “kicking ass at the top shelf” Connected has the most defensible position in the market. For value brands, it’s a “distribution game” and at the bottom end it’s a “race to zero.”

By contrast, he said, Connected is “playing the big boy game of building a billion dollar brand.”

Read the original Article on WeedWeek.

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