Green Check Verified: Hi Jesse! Please tell us a bit about Trade Roots.
Jesse Pitts: Sure, and I can give a bit of background first. I learned a lot going through the medical process. I worked with a group that was awarded a medical license, and I learned a lot through that process. I was slated to be their cultivation director, and the day they got awarded the license they let me go. So my journey went quickly from medical to adult-use cannabis. But like I said, I learned a lot through the process and I understood exactly what it took to get those licenses.
One of the main things that I learned through the process of medical was all medical companies have to be full vertical, meaning they have to be completely self-sufficient, in-house, and only a portion is allowed to be wholesale. So, this was a model that we adopted early on, full vertical. I saw big advantages right away through the full vertical system where you're supplying your own demand, through the full vertical system, especially when it comes to quality control. And I wanted that to be an aspect of what I planned to do in the adult-use market, where we could control the supply chain from start to finish.
We're focusing on a craft product, and you're trying to make a craft extraction, you need to start with a craft flower. If you're out there looking around shopping for a craft flower, it makes it difficult. But if you produce it yourself, now you can produce - all the way down the line - a craft product. So that was really important to me. I've had the argument several times with investors and partners, "Why not just do a retail store? The overhead is way less. Why not just do a cultivation?" Being full vertical was really the only answer for me. I wouldn't have done it any other way. So that's where the three separate licensing comes in. They split it up when they created the adult-use: they allowed stand-alone retail, stand-alone cultivation, and stand-alone manufacturing, so we had to go for three separate licenses to do that.
It's important to understand the value of the product. I see a lot of people talking about "biomass" and to me it just seems like such a dirty word. To me, this isn't something that should just be treated, thrown into a bag and treated like it's mass. This to me is a craft flower and it should be treated as such, and the full vertical absolutely enhances that.
GCV: Your team is currently renovating what used to be a massive industrial space. Is the plan to have all three licenses operate out of one location?
Pitts: So, we are co-located with the three licenses, and we have a special permit. Our existing building is 16,600 square feet, but when you chop it up with a retail store, an extraction lab, offices, hallways, bathrooms, we're only left with about 7,000 square feet of canopy space for cultivation. We're a tier 2 license holder for cultivation which allows us 10,000 square feet of canopy, so we have the ability to expand right on-site. I saw the opportunity early on to apply with the town when we went for our site review for a special permit to build a second building on-site. We do have approval for a 6,400 square foot pad site with two floors, so it would be another 12,800 square feet, basically doubling our facility size, the majority of which would be dedicated to cultivation.
GCV: How did you find that space?
Pitts: I don't want to call it dumb luck, but I originally started looking around for a building in Wareham that would be big enough to house a full-vertical facility, and this was the first building that I actually looked at. I was very familiar with the building just because it's kind of a hallmark site from the highway, everybody knows that building. It was just kind of an interesting building. But I didn't like it at first because of the ceiling height! So I kept shopping around and fell in love with another building down the street in the same industrial park. It shortly after went off the market and became a maltery, which I wasn't super upset about. But it was the building I wanted so I had to pivot and after looking around I kept coming back to this building and it was fate, it was calling me. This is the building we're in now, so it worked out. And the ceiling height worked out fine!
GCV: It sounds like you're personally very committed to high-quality service and product. How did you find your way to the cannabis industry?
Pitts: A college roommate reached out to me and said "I'm going to start a cannabis company and I want you to be my partner." I told him "It's all politics, we don't know anybody, it's not going to happen." So after about ten times trying to convince me I finally gave in and said "Sure, if you can get us a seat with the politicians in New Bedford, I'll talk." So we did, and we convinced them that a medical cannabis facility in New Bedford would be a good thing. The mayor did not support us, we so had to get eleven out of eleven city council signatures. And we did it! We finally beat the moratorium, and we really gained some momentum.
The joke has been this whole time that this has been my real college education, launching this business. I'm getting a crash course in accounting, securities laws, it's insane. And the amount that I've learned in these past two to three years is just unbelievable.
GCV: Certainly sounds like a crash course! What about banking? Have you faced any issues with finding a banking partner?
Jesse: Banking has always been an issue, especially for anybody in cannabis. We were very fortunate that I had a good relationship with a local bank that knew me, understood me, trusted me, and we had an agreement that they would open a bank account for me for administrative purposes - for raising funds, for legal, for accounting, for all of that type of stuff. But when it came to leaf touching, I had to close the account before I touched any leaves. I said "One hundred percent, understood. You have my word, and you'll know when I do because it's going to be in the paper. It won't be a secret!" Fortunately, we've been able to operate that way, knowing that that's short lived and that it's not going to be there forever, so we've always been looking at different banking options.
The main issue with banking is that it's one of the first questions an investor asks you. How are you banking? Have you solved the banking issue yet? And where there are only a few banks in the industry that are even banking with cannabis companies, your answer is always "no." And they don't like that. Well, where's their money going? Who's watching their money? So it's interesting because the cannabis industry, if I could sum it up in a nutshell, is it's the cart before the horse. Every step of the way, it's going to be the cart before the horse. I joke with my partner, "You know what, I'm just sick of this. I'm just going to teach the damn horse how to push the cart." This is going to keep happening.
The first thing was the building. You have to have a building in the proper zone to get a community host agreement. Okay, the building is worth $1.4 million. You have to get a Purchase and Sale for that building. You have to show the seller that you have $1.4 million in a bank account to buy that building. So you have to raise $1.4 million. But you don't even have a community host agreement yet to raise money. So it's over and over again the cart before the horse. And banking is the same thing. Banks don't want to bank with you until you're operational, revenue positive, or until you have cash flow, or until you're at a certain point in the process with your licensing. It's the same thing. So it is tough to raise funds when you don't have a banking partner.
GCV: Wow, what a wild process. How did you overcome what sounds like a giant puzzle?
Pitts: It is, it's a giant puzzle and it's not easy. We had to get a cannabis bond for the application. So we contacted everybody we knew in the state that sold bonds and nobody knew what we were talking about. The bond in the end only cost about a hundred dollars, but it was the process of obtaining that bond that nobody knew how to do. Everybody's scratching their heads - it's just mind boggling. And it just keeps happening. They're trying to roll this out but it wasn't very well thought out.
GCV: Anything else you want to tell us about what it's like being a cannabis entrepreneur?
Pitts: This is a legitimate industry, and the people that are in this industry are serious, they're committed, and they deserve the same banking that everybody else has. We have these restrictions in our industry, one of them being fundraising and having the opportunity to get traditional fundraising options. It just makes it difficult, and it forces companies to sell more of their company then need be. It really puts the entrepreneur in an even tighter space than they already are in as a startup. It's just a very difficult space to navigate, but I wouldn't say that if I knew what I was getting into I wouldn't have done it. To me, it is a very difficult space because we don't have those traditional lines; we can't go to the well, so to say. Every time you need to get money you either have to take on high interest rates, upwards of twenty percent. When it comes to purchasing real estate, there's no loans available for us. It's a difficult industry to navigate, and we would love partners.
May 19th, 2020
About Trade Roots
Trade Roots is a vertically-integrated adult-use cannabis business dedicated to delivering a top-shelf craft product and takes pride in owning every step of the production process for their products.
License: Vertically Integrated
Planned Opening: January 2021
Regardless of where you are in your journey, the complexity of your program, or how quickly you’re ready to make changes, we will help you find the right approach.
Schedule a demo to see how Green Check can help your institution build and manage a compliant cannabis banking program.
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