The 11-month-old Columbus company's vision of becoming the top cannabis retailer in North America is being actualized step by step.
Green Growth Brands’ audacious business plan, collection of experienced retail executives, swagger and shocking early success all have drawn attention to the Columbus company that didn’t exist 11 months ago. This year is bound to be packed full of things to do for GGB—things that have the potential to raise its value from $900 million to several billion in 12 more months. How high can Green Growth get? Columbus CEO sat down with CEO Peter Horvath in Columbus and visited a GGB dispensary and grow facility in Las Vegas to get the whole picture.
Peter Horvath was taking a break from employment and waiting to see if something interesting would come along, and it did. In December 2017, he was invited to a meeting in New York with Columbus retail magnate Jay Schottenstein and Canadian investors. A conversation exploring opportunities in the cannabis industry, particularly in the U.S. but also in Canada, where it’s taken off much more quickly, resulted in the formation of Green Growth Brands on March 1. The company has plenty of market potential: It estimates that in the next five years, the cannabis industry will generate $28 billion in new revenue from 14 million consumers.
Inside of 11 months, Green Growth has raised $104 million in capital, acquired two companies, created four brands, grown from two to 70 employees, gone public on the Canadian Securities Exchange, won seven licenses in Nevada, acquired one license in Massachusetts and launched a hostile takeover bid for a company worth twice as much. “This is the Wild West, and I think that’s part of what attracts all of us to it,” says Horvath. “Can yet another business in Columbus … that leverages all things good about Columbus, become globally relevant and a leader in the [marijuana] industry?”
There are two arms of Green Growth’s business—cannabis and cannabidiol. To understand the difference requires a quick science lesson. Cannabidiol (CBD) is a cannabis compound—or cannabinoid—that is different than THC, which is the compound found in the flower of marijuana plants that makes the user feel high. This distinction carries with it many differences for each side of GGB’s business. The CBD portion is easier and cheaper to carry out but will generate less revenue—an estimated $200 million to $22 billion in five years, compared with cannabis’ $12 billion to $40 billion. However, cannabis has many constraints—it’s capital-intensive, its funds must stay within the state where it’s sold and it is heavily taxed. Additionally, the 2018 Farm Bill was good for the CBD market, removing hemp-based CBD from the list of Schedule 1 drugs, making it easier to transport across state lines.
Overall, cannabis retail is a highly regulated industry, which makes it a lot more complicated. Horvath says it reminds him of his time working for Mission Essential, a defense company where there was a lot of regulation to comply with. It’s difficult to be in the marijuana industry because of all the “legal hairballs—both on the federal side with cash, and then the local jurisdictions,” says Lee Peterson, a long-time retail expert and the executive vice president of thought leadership and marketing at Dublin-based WD Partners. Because each state has a different set of rules, each storefront must be built and operated to the specifications of state laws. Being illegal on the federal level, dispensaries also must deal in cash, which is definitely not ideal. However, Horvath seems unfazed. He’s got a legal team, of course.
In September, Green Growth purchased The Source, a dispensary in Las Vegas, while it was visiting the top 100 performers in the industry. Horvath is a longtime executive with successes under his belt including taking DSW public on the New York Stock Exchange and mammoth retail experience gleaned from positions at DSW, then Victoria’s Secret, then American Eagle Outfitters. His team of retailers all have resumes similar to his—Ed Kistner, DSW and Victoria’s Secret; Kellie Wurtzman, Luxottica Retail, Victoria’s Secret and Virgin Entertainment; and Scott Razek, Bath & Body Works, Victoria’s Secret, The Limited Stores, American Eagle Outfitters and Pillar Technology. The Green Growth team was impressed with The Source’s savvy setup and enthusiastic employees. Green Growth was awarded seven licenses in Nevada, in addition to acquiring the two Sources in Las Vegas and Henderson, so it eventually will have nine stores in the state. Horvath predicts those stores will produce $150 million to $200 million in annual sales. Although Nevada has only 3 million residents compared with its 42 million visitors, the majority of sales come from locals.
Not the “Starbucks of Pot”
Localization, Horvath says, is an essential component of retail, especially since 72 percent of millennials don’t trust most national brands. “If you’re creating a business from scratch, why would you base it on a cookie-cutter model that’s from the ’90s when you could [make the storefronts fit the neighborhood they’re in]?” he says.
Peterson agrees, saying retail is in a “third wave” that’s all about localization—a sharp deviation from identical department stores and thousands of mass-produced McDonald’s restaurants. He cites Columbus food purveyors Fox in the Snow and Northstar as companies that have mastered the art of localization. “They’re not interested in having 1,000 units across the States,” he says. “I think the same thing could be said for marijuana—all retail really is best as local as possible.” Localization is especially valuable in an industry like cannabis retail because local jurisdiction variations will prevent a company from becoming what Peterson refers to as “the Starbucks of pot.”
“You would run into incredible difficulties,” he says. “When I look at what Green Growth Brands is trying to do, they are a parent company for all these brands, so they could own all these different brands under their umbrella and kind of solve the problem that way.”
To that end, Horvath says he isn’t interested in using The Source’s particular brand everywhere—it has to resonate with the community it’s in. “I think The Source is admired and supported by their loyal customers in Las Vegas and Henderson, Nevada. It’s unlikely that we’re just going to create a bunch of Sources.” And when Columbus CEO traveled to Las Vegas to see what the fuss was about, local after local said The Source was the best dispensary in town.
“If you set out with the intent [to localize] every time you open a customer experience—whether it’s a store or a website—it’s going to make people feel like it’s for them,” Horvath says. “It’s a mirror that reflects who they are and it’s something that they can become loyal to.”
What Happens in Vegas
There are some tweaks Green Growth would like to make to The Source’s store layout and operations. The basic arrangement of the store is designed to be as easy to navigate as possible. Because of all the regulation the store must adhere to, the sales floor is more of a showroom than anything—think Apple. One-way glass (part of Nevada’s regulatory laws) allows light to stream into the store from the outside. There is the customary waiting area with receptionists to check people in. Brandon Wiegand, director of operations for The Source dispensaries, says customer information isn’t saved. Behind a layer of bulletproof glass is the showroom floor. The aesthetic is very modern, with a glossy concrete floor and wooden furniture. Decorations are stylishly Spartan and consist of small potted marijuana plants and some educational signage.
Among the products for sale are flowers, edibles, concentrates, tinctures, CBD lotions and other items, and pipes. The flowers are arranged against the walls on shelves that break them into three categories by quality and type, helping shoppers understand how potent their purchase may be or what kind of high they may experience. Horvath likes this approach. He wants to show the other products in the same way, rather than as they are currently shown—in glass cases in the middle of the floor, only allowing for one or maybe two customers to see offerings at once. Sales staff are present on the floor, but they won’t take you on a mandatory tour. Nor will they aggressively upsell. Right now, a customer has to stand in line to get an order filled at the sales counter, but in the future, Horvath says sales associates will have iPads to get the order filled before the customer reaches the counter, alleviating the clog. “If [it is] faster and easier, you’re more likely to consider spending more money one way or another, because you’re buying more things or investigating things that are more expensive,” he says.
Most other dispensaries, Horvath says, have a sales associate breathing down the neck of a potential customer who may want to feel things out alone. Horvath radiates confidence in the ability of Green Growth to be the “category killer” of cannabis retail because of the executive team’s combined experience. “There aren’t any other cannabis retailers who could have said what I just said. They will say customer engagement is important, but they can’t tell you how.” He can.
Wiegand says the setup allows for customers to have their own experience with the product.
“State regulations require that the flower is secure, but other people take that to mean they need to have it in a locked cabinet, behind the glass,” he says. “We’ve set it up in a way that allows a customer to come in, and they can interact with the products. They can look at it, they can smell it.” The act of asking an associate to take the flower out of a glass case, Wiegand says, makes people feel like they’re then obligated to purchase. “It creates this awkward experience. We try to make it as normalized as possible. That’s one thing we think where we win,” he says. Each flower is presented in its own clear container to comply with regulation, but the containers allow for a close examination and the option to smell the flower. It is illegal for customers to sample a product before purchase, so the descriptors, interaction with the containers and the experience of the sales staff are all customers have to go on. Wiegand says he would love to add a place to the shop that allows customers to sample product—like a brewery. That’s not yet legal.
Wiegand says he thinks The Source’s flowers are some of the freshest in town because the business makes sure they don’t sit for too long or dry out in the arid Nevada climate. The product goes from the meticulously clean and efficient cultivation facility to the store within 10 days and is kept in jars with sensors to make sure it has some moisture, although it has been dried. Wiegand says it will be a harsher smoke the drier the flower becomes. The Source markets itself as a wellness-focused space with fresh and organic product that is easy to navigate.
In future shops, Horvath says improved-upon back-of-house operations and store flow will be standardized, but the branding will be different based on the location of the store. The overall design of any store, Horvath says, can be one of two things—a place selling a bunch of different brands, “which, in its worst form is a CVS or a grocery store,” or a store with a curated experience where both space and brand match.
“[If] the store design and the packaging of the product look like they’re designed by the same people, that takes a lot of anxiety out of the experience for you. You come in and it all kind of makes sense. It all meshes. Now, you’re just concerned with color and use,” Horvath explains. “There’s an opportunity to bring that to cannabis. That’s not the only way to win in cannabis, but I think it’s something we’re very interested in because that’s where our skills lie.”
Horvath says he isn’t trying to be arrogant, he just truly believes Green Growth has something in its sauce that all other cannabis retailers are missing. He says other companies he knows of are led by investors or real estate developers and talent is outsourced—an architect, an ad agency, etc. He calls Green Growth’s approach “holistic” because of the deep understanding of retail the team brings to the table. “Actually, the only people that can compete—but only in a small way—are the local guys,” he says. As he’s looked into other multi-state operators, he has noticed that, while some of them have more licenses than Green Growth and have been in the business longer (four to eight years versus 11 months), sales at the two Nevada stores would put Green Growth at No. 8 against the other companies.
“That just tells you how immature and young the industry is,” he says. “There are companies that I would consider buying or combining with because I wanted their licenses, but there’s no company I would combine with because I wanted their management.”
So far, Green Growth has created four brands. Perhaps surprisingly, most of the brands are focused on women. Horvath says the cannabis industry is generally focused on men, and not even doing it well. “It’s kind of a street, club orientation. It’s terrible,” he says. Instead, he says Green Growth is marketing to “anyone with a wallet.” That includes non-users.
To Do in 2019:Open 302 mall kiosks in next 12 months (in KY, TN, IN, IL, WI, KS, MD, NV, RI, CA, OR, AZ, ME, MI) Open 10 stores with newly acquired licenses in Nevada and Massachusetts Build grow and production facility in Northampton, Mass. Renovate grow facility in Pahrump, Nevada Move Las Vegas processing facility to new space Win Aphria takeover bid Apply for more licenses in the U.S.
The Busy Year Ahead
In the cannabis industry, everything is changing constantly. What was a focus one day may not be a focus the next. For instance, Green Growth is no longer focused on obtaining licenses for stores in Canada, although it went public on the Canadian Securities Exchange nine months prior to conception. Horvath planned on applying for 50 licenses of 900 being offered, thinking Green Growth could get maybe 25. But all that changed when Canada cut back on license offerings—now only 25 will be issued through a lottery, so Green Growth is pivoting. “If they decide they’ve got enough supply that they’ll open it up again, we’ll think about it again,” he says. Instead, it has turned its gaze toward the U.S., where there is a smorgasbord of states legalizing recreational cannabis to choose from. Not that Green Growth needs to acquire more businesses or licenses right now. The new year is full of tasks to be completed already. “In a normal world you would be like, ‘You shouldn’t be acquiring anything,’ ” says Horvath. “ ‘You just need to get your work done,’ because if [we] just get our work done [we] have a business that’s worth $3 billion.”
The biggest thing on the company’s plate is the opening of 302 Seventh Sense kiosks in malls throughout the U.S. to sell CBD products. The first kiosk opens in early February, in Lexington, Kentucky, at Fayette Mall, with the rest rolling out throughout the year. The Seventh Sense website (shopseventhsense.com) will launch at the same time. Horvath says the 150- to 200-foot kiosks will allow customers to walk through, bucking an over-the-counter experience. Retail wisdom also dictates that people “buy with their nose,” so samples will be abundant. The GGB investor deck estimates 450 kiosks will generate $120 million in revenue by 2021.
“We’re most excited about the kiosks because in the kiosk I can control the experience that goes with the product,” says Horvath. “I can select and train the associate that’s going to engage with you. I can control the in-stock. We designed the kiosks and they have the highest margin.”
Horvath isn’t worried about the kiosks being “the best you’ve ever been in.” He says his strength and the strength of his team lies in their ability to learn from customer behavior. “We just need to get going and then the customers will help us navigate to really rate the experience.” In addition to malls, Seventh Sense stands will be available in 96 DSW stores. When the partnership was announced, Green Growth’s stock price rose by as much as 10 percent (it was $5.80C as of Jan. 16.). Seventh Sense products also will be sold at the West Coast grocery store chain Albertson’s—the Schottensteins are investors in the $60 billion company.
In a test-run of 10 DSW stores, Seventh Sense products sold three times faster than is typical for personal care products, and the product sold out in four weeks.
The CBD business is lucrative in part because it targets consumers who have never interacted with marijuana before, or don’t on a regular basis. “The new consumers are less likely to smoke anything,” says Horvath. “The first five million legal consumers—probably four million of them were [previously] illegal consumers. But the next 14 million are probably going to be less illegal consumers and more everybody else. So the product development has to evolve.”
At some point, Green Growth may launch a more elevated brand (probably Green Lily) that could have kiosks in more expensive malls like The Forum Shops at Caesar’s.
Green Growth’s focus goes well beyond its CBD business. It’s also looking to states that have legalized recreational use to set up flower shops. Its most recent acquisition of Just Healthy LLC in Northampton, Massachusetts, brings with it build-out of a grow and production facility and licenses for three stores. Horvath says he’s pleased with the licenses because he can choose where the stores go. He, of course, is looking at Boston, where he thinks the Camp concept will flourish, saying that since the city is young and bustling, the idea of “getting away” will resonate with residents.
In addition to Massachusetts, Green Growth has its sights set on Michigan (legal in a year) and Arizona (legal in two years). Along with those, Green Growth is interested in entering the Florida market even though it is a more conservative state that has legalized only medical use. Horvath says the number of baby boomers in Florida who need medical marijuana will make it a good investment. On the horizon are New Jersey, New York and Pennsylvania. None of them have taken the plunge, but they all have expressed interest, not wanting residents to take their tax dollars to any of the surrounding states.
If Green Growth gets licenses in all these places, “Each one of those could be a $10 million or $20 million store, which is a nice return on investment,” says Horvath.
As if it doesn’t have enough else going on, Green Growth is enmeshed in a hostile takeover bid for a Canadian license-producer called Aphria, a move that’s raised eyebrows and some suspicion, mostly from Aphria short-sellers. Green Growth’s second-largest shareholder is GA Opportunities Corp., a fund backed by Aphria and advised by its CEO, Vic Neufeld. When questioned in a Bloomberg interview about the connection, Horvath said Green Growth didn’t meet with those providing funds to GA Opportunities, nor did it ask who was providing them, and Aphria didn’t come to Green Growth asking to be purchased. “I don’t think they made that investment hoping that we would buy them. That just seems really far-fetched,” he said in the interview. He isn’t self-conscious about the bid for takeover. Horvath is proud that his company—worth roughly half of Aphria’s $2.2 billion value—is taking on this giant.
“I’m not trying to be self-promoting, I’m just looking at this, like this is just amazing,” he says. “This company did not exist 10 months ago. We’ve got a company that’s worth $900 million, and we’re going after a $2 billion company. It’s a heck of a story. It could be that you’ve just interviewed some crazy people, or that a year from now this will be a $4 billion or $5 billion company.”
At the end of Horvath’s time with Columbus CEO, he adds one last factoid. “By the way,” he says, “Our stock is worth $900 million U.S.—that’s like two and a half times the value of Express. Express had hundreds of stores. We have two.”