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Where cultivation excellence meets unfiltered insight—AROYA Office Hours LIVE Special Edition—hosted by Greg Dunaway. Powered by AROYA's revolutionary approach to data-driven growing, we bring you the brightest minds behind today's biggest breakthroughs.
Stay ahead in this rapidly evolving landscape, from cutting-edge solutions to market strategy.
Greg Dunaway [00:00:00]:
Today we are thrilled to host Beau Whitney. Beau is the founder and chief economist at Whitney Economics. I gotta be honest, there are very few people that do what he does. He is a global leader in cannabis and hemp business consulting and data. His reports are read worldwide. He understands the global cannabis market like no one else because he's one of the only people who is driven by data, research, surveys, et cetera. Bo, I kind of want to dive right in on some of the most fascinating research that I've, I've really enjoyed. Now that I'm kind of on the, on the cannabis side, I have, I have a cultivation out here in Arizona.
Greg Dunaway [00:00:37]:
One of the things that you wrote about in your research was that, you know, the decline in US cannabis business profitability from 42% to just 27%. One of the things that you brought up that I think everybody in the business would be fascinated by is, you know, you've written, you know, regulators have played a key role in creating this issue, which is a very scary issue for our entire industry. Can you elaborate on that and talk a little bit about kind of what response responsibilities regulators might have had in this drastic decline in profitability?
Beau Whitney [00:01:08]:
Yeah, so. So at the beginning of the whole cannabis reform movement in 2014, there wasn't a really good model on how to regulate and how to examine the licensing strategy. And so each state seemingly took a different approach. Some would do limited licenses and some would do unlimited licenses. And very few, well, actually none looked at the middle ground there, you know, and so a lot of the early regulators looked to balance commercial opportunity with public safety. But as the regulatory environment evolved and a lot of the regulators aged out, then they were replaced by mid level managers that were beholden upon the political spectrum. And they were more had a background in public safety. And so when things would get uncomfortable from a regulatory perspective, they would default to public safety.
Beau Whitney [00:02:19]:
Okay, so that's a little bit of a setup. So there's limited licenses, unlimited licenses, each one has its strengths and weaknesses. Unlimited licenses, it's great for opportunity for the, for at the beginning it gets people involved. But what it tends to do is it tends to oversaturate a market. And when it oversaturates a market, that's great for consumers because they have lower prices, but it's not great when your margins are compressed and you're losing money. As an operator. On the limited license, on the other hand, it's great for operators because there's a limited amount of supply but, and prices remain high, but the amount of legal participation by the consumers slows down. And so it's a trade off between legal participation, which is a public safety issue, and operator health.
Beau Whitney [00:03:16]:
And so nobody's really gotten it right, but people got entrenched, regulators got entrenched in. It's an either or. And they never use data. So regulators play a key role in the profitability because if you have too many licenses or if you have too much supply, then margins compress and nobody makes any money. And it tends to. It tends to get. It tends to drum businesses out of operation, and it forces them back into the illicit market. One of the other dynamics in this environment is that it's still federally illegal.
Beau Whitney [00:03:58]:
And because it's federally illegal, you don't have certain protections and certain access to financial instruments and the like. And so the. The cards are the. It's. The deck is kind of stacked against the operator. For example, when you finance your operation because you don't have bankruptcy protection, a federal guarantee, then you put up personal guarantees. And so if you put up a personal guarantee on a loan and the regulator or the regulator environment actually sets you up for failure, then you have a decision to make. Do you lose your home? Do you lose your farm, or do you lose your business? Or do you go and develop a hybrid model? And to list a market, that's.
Beau Whitney [00:04:48]:
What's occurring right now is it's pushing people into these hybrid models where they sell to the unregulated market and to the regulated market. And then that doesn't satisfy a lot of the public policy objectives that were originally intended by rolling out, you know, adult years from medical legalization.
Greg Dunaway [00:05:09]:
Right, right. And what would you say? You know, you. You had made an interesting comment there. You said, you know, look, out of all the states, none of them have really gotten it right. You know, in your estimation, from your vantage point, which states are close, you know, closest to. Right. And which states do you look at? And you just go, jesus, they blew it?
Beau Whitney [00:05:27]:
Well, right now I'm. I'm doing a study on the Maryland market. And they originally went from. They were limited in the licenses and they were doing a slow rollout, but that actually benefited the operators there. They're opening up things a little bit more, and they're taking a reasonable approach to taxation because consumer participation is based upon just a handful of things. And one of them is the pricing differential between unregulated and regulated supply. And so if you have high taxes, then that dissuades consumers from participating in the legal market. Maryland's got it right.
Beau Whitney [00:06:11]:
They kept. They kept Taxes low. And they took a controlled and measured and disciplined approach to the granting of licenses. Missouri is another one. They had a low barrier to entry. They basically have unlimited licenses. But it seems to be working for them because they have low taxes. And so they're getting all this demand from neighboring states as well as getting good participation from the citizens within their boundaries.
Beau Whitney [00:06:41]:
So those have been doing a reasonable job. New York initially was really fumbling out of the gate. They had kind of an upside down approach where they granted licenses to smaller businesses rather than larger ones. And they couldn't necessarily affect the market, they couldn't affect price. And so there was a rather robust bodega market or unregulated market, but now that. And they also had lawsuits that limited the amount of access that consumers had. They couldn't open up doors. But now that they've opened up doors to really turn the corner.
Beau Whitney [00:07:20]:
So New York is starting to get it right. They've made appropriate changes and they're kind of listening to not only the consumer, but the business operators as well. On the other hand, when you look at a state like California, oh boy. So California, you know, half the counties don't even allow the sale of cannabis. And so you're automatically excluding consumers from the regulated market. But then also they're jacking up taxes. And so they're increasing the differential between regulated and unregulated pricing. And so it's no surprise that legal participation is lacking relative to where they should be at this point in the deployment of the regulatory program.
Beau Whitney [00:08:09]:
Another state is Michigan. Michigan, they started off okay. They had a lot of medical businesses, but they didn't transition necessarily those medical businesses into adult use businesses. And so they basically doubled up on the number of licenses for cultivation and retail and the like. And as a result of that, there was a massive oversupply situation. Prices crashed and people were kind of drummed out of business. And so I wouldn't necessarily put them on the. On the mantle of, you know, best known methods by any means.
Beau Whitney [00:08:50]:
And then there's some that just continue to make the same mistakes and don't take any corrective action. And I would put Oregon in that position. I'm based out of Oregon. And they just, they realize that something must be done, but they just are kind of frozen in place. And I think part of that may be the hope that there's a national market and that they want to make sure that the growers and retailers and brands are available to take advantage of that increase in demand if the national market opens up. But Right now it's so desperate in Oregon that I'm not sure even if the market opened up, if anybody would have any money to do it, you know. And so, yeah, and I mentioned the, you mentioned the profitability. When you have those compressed margins, when you have oversupply, then there's going to be less of an opportunity for profitability.
Beau Whitney [00:09:53]:
And a lot of that has to do with the regulators, you know, and, and they kind of control the health of the market, but they're not really considering that in their regulatory approach. They default by saying, well, it's up to legislature to fix this. But, you know, I've seen countless instances where regulators want a policy change at the legislation, at the legislature, and they get that policy change. So why they can't influence some policy changes to promote cannabis businesses rather than, you know, rather than continue a program that's clearly been failing and that's across the country.
Greg Dunaway [00:10:37]:
Right.
Beau Whitney [00:10:38]:
Pretty much failed model with this dispensary business.
Greg Dunaway [00:10:41]:
Right. And so, and again, I think one of the things that kind of is mind blowing Beau, from the seat that I'm in, which again I'm lucky, I get to kind of travel and see the global market. But then also with Colt at the micro level in Arizona, it is wild to me, the abundance and the volume of material, material that's still on the market. And I wonder if you could talk a little bit about that in these, in these markets. Do you think it's something where there's these sunk costs that these vertical MSOs, they just are like, well, we have a license to grow. And again, I'm being specific to Arizona. We should. So we have our own product, but the material, and again, some of it's very lousy material on the market.
Greg Dunaway [00:11:19]:
That volume is just astounding.
Beau Whitney [00:11:21]:
Yeah. In normal agriculture, if you're talking corn or soy or wheat, if there's bad pricing, then you know, cultivators don't plant, farmers don't plant. But for some reason, cannabis is different in the fact that even if there is bad pricing and oversupply, the operators continue to plant. And so it just makes things go from bad to worse. And it's, it's not just unique in any way. One state, it's, it's a common trait throughout the entire market. And part of that is because of the lack of protections. And so if they don't plant that don't have revenue, and if they don't have revenue, then they can't pay for their loans and they can't pay for their operations.
Beau Whitney [00:12:16]:
And like they can't maintain their licenses. And so, so it's because of the fact that they, they have to have some revenue generation that they keep planting. And then it just, you know, like I said, it makes things go from bad to worse in the sense that they just keep on oversupplying and supplying the market. Another issue is that if you're not around, if you're not a supplier, you lose your shelf space at the retailer and the retailer really controls the access to the consumer. And so if you don't have supply, then the retailers aren't buying your stuff and so they don't know about your brand. And so even when and if the market resets itself, if you're not around, then nobody's going to buy your product. And that just is the death knell to these smaller businesses that, you know, continue to oversupply the market.
Greg Dunaway [00:13:14]:
Yeah. One of the things that I think is super interesting in your research was, I was reading Beau, that you had written, despite widespread legalization, that around 70% of cannabis transactions still occur in the illicit market. That is not great for operators like me. I'm a niche market guy. Concretely, Bo, what can happen from your perspective that could knock that number, say from 70% to 35%. What are the things that maybe, or let's not even be that aggressive, let's say 70 to 50%. So half of illegal or illicit market transactions now are, make up the totality. What can happen?
Beau Whitney [00:13:56]:
Well, part of the, part of the issue is that there's a dispensary model that limits access to consumers. And so not everybody is inclined to go into a dispensary to purchase cannabis, especially if it's say a low dose beverage. They're not going to go and want to go to a dispensary to acquire that product. So you're already excluding a pretty decent percentage of the consumers just by insisting upon this failed dispensary model. And then you've got 24 states, which is impressive, that have adult use access, but that's only half the market. And a lot of the medical ones that are still remaining in the market, like Pennsylvania is a good example, or Florida, they are still medical. And so that's limiting access to only those that have a medical prescription or a medical, you know, have medical access to the market. So in that sense, what would help drive legal participation would be open up the market, access to sell it in grocery stores and sell it in wellness centers and sell it still in a controlled manner where you're checking IDs and limiting access and testing the product and doing all that, but opening up the access, making it easier to.
Beau Whitney [00:15:28]:
To acquire the product. That would increase legal participation, but it also give opportunities for smaller businesses at the cultivation level and at the processing and manufacturing level because there would be more demand. You may not have great prices, but you'd have more demand. And so you could still be profitable even with those lower prices. So increasing access. The other issue is converting those states from medical to adult use. And then the other thing is, is just opening up the demand for interstate commerce. I think if you have interstate commerce, then if you have too much supply in a given region, then you can look at other regions in order to increase your demand and, and open up those new markets right now, because it's siloed, meaning that whatever is grown or manufactured in a state has to remain in that state and be sold in that state.
Beau Whitney [00:16:35]:
Because you have that. You have these pockets where you're oversupplied and there's no way to increase the demand. You can't drive more legal participation because one, you're kind of stuck in this dispensary model. And then two, you can't tap into other state markets in order to relieve some of that excess inventory position.
Greg Dunaway [00:16:58]:
One question I have for you is, let's say, let's. Again, we're just going to keep using my company as an example, Bo, because it's easy, right? So colts a smaller grow base in Arizona, should I be fearful? Or consumers or companies in Nevada, companies in Arizona, companies New Mexico. From your view, should we be fearful of national legalization and removing those state line barriers? Do you foresee just a glut of California product streamlining and steamrolling all of. All of. All of these businesses?
Beau Whitney [00:17:28]:
Well, what I see ultimately is that there will be the large national supplier and there'll be the smaller niche supplier, and there's room for, for both groups. It's just like a grocery store. You could have large grocery store operators and small grocery store operators. Each one needs each other, and the same thing applies. Another analogy would be the craft beer market. You have your national brands and then you have your regional brands. So there's a market for that and you could be successful. What I found, and I've also been doing a lot of traveling both within the United States and internationally and talking to a ton of people.
Beau Whitney [00:18:15]:
And what I found is that all is not lost if you're a small supplier. Assuming that you create a community and you create a network of businesses, and if you work together as A network. Then you can develop your supply chain, you can develop the relationships, get the outlets, get the shelf space, and do it in a manner where you're insulated from the influences of the larger suppliers.
Greg Dunaway [00:18:46]:
I love that. That gives me some hope. Let's dive into something that is just a tough topic and then we'll go into some positive stuff. But we are, and I just was talking to somebody, we are in the midst of a correction. I think you and I would be pretty standard saying that a correction that was a long time coming in cannabis. It's been hard. In Arizona, for example, Beau, we've watched three or four independent cultivations go under. What? From your vantage point, how would you describe the correction that the overall cannabis industry is in right now? And do you foresee the end of the road anytime soon or are we still really traveling along with no real end in sight?
Beau Whitney [00:19:28]:
Well, there's a couple of things that need to occur. One is that there needs to be some type of federal reform. The state by state models is creating all these externalities and it's just not necessarily working. But you've also got to put a lot of the responsibility on these state regulators because they can and they have the tools, because I've been supplying tools to different state regulators that you can assess the demand and examine how many licenses are needed at each level of production in order to satisfy the market while still maintaining a viable, profitable and sustainable marketplace. And so right now, very few of the state regulators are even looking at the data in order to assess what is the right level of supply versus demand. And so I've been working with some large multinational corporations that are ancillary suppliers in this space. And I did a assessment recently of the total supply in the market that's been authorized by just the state regulators. There's over 122 million pounds of cultivated output capacity in the United States.
Greg Dunaway [00:20:51]:
Wow.
Beau Whitney [00:20:51]:
122 million pounds. Now that's supply that goes in not only for flour and pre rolls, but for vapes and edibles, everything. Right? So, but the total demand, regulated and unregulated. The total amount of supply that you need to satisfy everybody in the United states is only £50 million. And so you've got two and a half times more supply capacity than you do total demand. And so that's the nature of this whole correction. That's the crux of the issue. That's why people aren't making money.
Beau Whitney [00:21:27]:
And so if you look at it from an investment perspective, and I talk to a lot of investors, we do risk analysis and we write reports for them to, on market entry strategies and pricing strategies and do all this stuff. Right. And so when you look at it from an investment perspective, when you're in a high risk environment, you want high returns on your investment. It's the risk reward. But right now, the way that the cannabis industry is, is that it's a high risk, low return market because of the market compression, the margin compression, all that oversupply. And so who is going to invest in a high risk, low margin industry? People have opportunities all over the place, both in the US and outside, in crypto and bitcoin, in blockchain. You've got other markets opening up, you know, and so there's other options. And so when you're fighting for a pool of funding and you don't have an environment that people are interested in investing in, then you're not going to receive the funds.
Beau Whitney [00:22:38]:
So the correction is partly driven by the oversupply, it's partly driven by the, by the regulators kind of incompetence and then a lack of appeal of investment into the U.S. market. And so investors, as a result, they're going and looking at other markets to invest in that may have greater return or much more predictable or have much more practical policies related to how to deploy a regulatory program in a given country. And so people are, investors are looking at Europe, they're looking at South America, some folks are even looking into Africa. And so, you know, people are like, well, until the US gets its act together, we're just going to go to a different market where we can lay the foundation for success, where it's much more predictable, where it's federally legal or, you know, there's federal trends on and practical, reasonable regulation. And we're going to go there because we can assess the risk and we can.
Greg Dunaway [00:23:48]:
There's a return on the money, we.
Beau Whitney [00:23:49]:
Can get the return. Exactly, yeah.
Greg Dunaway [00:23:51]:
And I think that's a really sad state of affairs. And I'm glad. Beau, like I said, I think I've been at some conferences where you've seen the interest in Europe and you've seen the interest in other spaces and you look back at where we are, where we should be leading and we're not. One question I have for you is you've used a really interesting term and I love it. And you've kind of said, you're kind of out there, Beau, waving your hands in the air, going like, look, are the Canadian failures that we've seen with oversupply, is that our future? And I Wondered if you might explain to us what you're warning us about and how it kind of concretely ties into what happened in Canada and what could happen here.
Beau Whitney [00:24:30]:
Well, I find all this really fascinating because you know, Canada was what, the second country, Uruguay first and Canada was second. And, and they opened up the market, they developed all this capacity for production, they had installed capacity, people were buying up warehouses and making million square foot grows and stuff.
Greg Dunaway [00:24:57]:
Right.
Beau Whitney [00:24:58]:
And I think part of the intention was to develop the brands and then in anticipation of the US market legalizing, then they would be able to flood the market and, and capture, you know, market share. But with the delays in the legal legalization and at the federal level in the United States, that didn't quite work out so well. And so they were massively oversupplied. And then they looked for other markets in order to, to support. So they went to Germany, they went to South Africa, they went to, you know, all over the place, but they just had so much supply that they couldn't really do much about it. They also developed these vertically integrated systems where they would grow, they would process, they would set up retail if they could in the various provinces. Each province was kind of different. So you had that, well look at the US you had multi state operators.
Beau Whitney [00:25:54]:
What do they do? They did the exact same thing that the Canadians did. They didn't learn from their mistakes. So they set up these vertically integrated systems in each state which is hugely expensive. And they got over their skis in terms of their debt structures and the like. And so the Canadians toggling back to the Canadians, they had to divest and they had to refinance. And so what's going on right now with the US MSOs, they're divesting and they are refinancing. And so right now I'm not seeing that they'll have too much refinancing options. There's so much risk out there that somebody will take the money, but it'll be at a very expensive cost to the MSOs.
Beau Whitney [00:26:46]:
So they really didn't learn. So I think they're already there in terms of oversupplying and not having a sustainable model. So what's the solution? Well, you've started to see hints of this in the Canadian market where they go to a low touch model, they subcontract out their supply, they subcontract out their processing, they develop recipes and brands and they deploy their brands with the support of these subcontractors. And so you're starting to see that in the US as well. So there'll be a national mso. They'll contract out growers in various states and then they contract the processors and then they share in the revenue and the share in the profit. And I think that's more the sustainable model, quite frankly. It's kind of like ketchup.
Beau Whitney [00:27:41]:
You know, the ketchup manufacturers aren't the ones growing the tomatoes.
Greg Dunaway [00:27:46]:
Right.
Beau Whitney [00:27:46]:
And so everybody seems to use that analogy. But it's appropriate in this case because right now you're starting to see the hunts of the ketchup or the Heinz in the MSO world starting to go and subcontract out their tomato manufacturing.
Greg Dunaway [00:28:08]:
And then, and essentially in this model, Bo, just to wrap it up for people who kind of familiar with MSOs, in this model, you know, a lot of these MSOs, for example in Arizona, they're going to own, you know, know, three or four actual physical property grows, employees, et cetera. They're going to divest out of all of that. Right. And if, if it, if, if, if this comes to pass, they'll just say, screw it, we'll sell all this and we'll just go find some of that excess material that's already here and, and, and, and link it up with our brands. Am I hearing you right on that?
Beau Whitney [00:28:34]:
Yeah. And, but eventually the quality will degrade.
Greg Dunaway [00:28:39]:
Right.
Beau Whitney [00:28:39]:
You know, but in Oregon, I looked at this a year or two ago, some of the flour that was being sold was 18 months old, you know.
Greg Dunaway [00:28:48]:
Oh, God.
Beau Whitney [00:28:49]:
And so you've got, you've got a quality issue, but eventually. Oh, and then, then once the quality degrades to a certain extent, then you just extract it. But you're getting literally pennies on the dollars for, you know, what could have been some pretty high revenue generating flour. And now you're just selling it for extraction. So yes, they'll, they'll acquire the old inventory. But I think this is part of the right sizing process, you know, and.
Greg Dunaway [00:29:20]:
Right.
Beau Whitney [00:29:20]:
You know, and if you can, one of the things that is a benefit of national legalization is it creates the same rules for everybody, at least an umbrella or a structure of rules. And then the states can manage it the way they want, but it opens up the market. And what opening up the market does is it stabilizes pricing in the west coast, prices will most likely go up for their supply because they'll have a market for it on the East Coast. And on the east coast they'll have lower prices, but prices will stabilize. And then that will be a more predictable environment for investment. You'll be able to assess your, the health of your company, whether or not you want to expand. I mean, there's a lot of benefit of that stable pricing, and we're just not seeing that right now. There's different regulatory structures and different maturity levels of these markets and, you know, pricing stability occurs in more, hopefully in the more mature markets.
Greg Dunaway [00:30:30]:
Right.
Beau Whitney [00:30:30]:
And so you're going to still see this demand fluctuation unless there's some type of federal structure implemented across the United States.
Greg Dunaway [00:30:37]:
And I guess that kind of puts a bow tie on it. Sorry. But was because I think one of the number one questions that I got when I told people that I was talking to you was, you know, get Bo's opinion about when this nightmare might end, especially for independent cannabis operators right across the United States. You know, it's so hard right now, and I think what I'm hearing from you is we may, and I don't want to put words in your mouth, but realistically, the really painful moment is still going to happen until there's some kind of, some kind of change in regulation legalization. We may, however, maybe there again, not putting words around your boat, but there may be some comfort as the economic things start to lessen as more and more people unfortunately exit the business.
Beau Whitney [00:31:22]:
Yeah, the. I've been in this since what, 2014, right. And every year since 2014, full federal legalization is five years out. And so.
Greg Dunaway [00:31:38]:
Yep.
Beau Whitney [00:31:38]:
And we're still there, you know, and, and so I. My strongest recommendations to, to the folks that I advise and to the rest of the market is, is be disciplined in your approach, know your cost structure, work within your lanes, don't get too far extended and be really disciplined and, and be flexible enough though to take advantage of full federal legalization once it occurs. But don't count on it by any means. And I could, I can't stress enough the importance of community because I've seen a lot of small businesses being highly profitable because they've developed a community, they've developed a network, they've secured demand from retailers if they're a cultivator or a processor. The retailers that are small, mom and pop, they are teaming up with high quality suppliers. And so they're the smaller operators. Smaller retailers are getting known for their quality now. And so there's a model there that you can be quite successful.
Beau Whitney [00:32:53]:
But I think I would characterize this market as a race to the starting line.
Greg Dunaway [00:32:59]:
Right. A race for the reset. Right. A race to see what's going to happen when it happens, which is again, to your point, five years out. I know, and we'll get to this in a second. Bo, I know because of some work you and I have done together that you have an exciting hemp business, but I wondered if you might enlighten us real quick. You've written that you actually are very positive about hemp in terms of an untapped potential. You've suggested a 350 billion market just based on 10 industrial uses.
Greg Dunaway [00:33:34]:
Can you explain why you're rosy on that market and what's exciting about it to you? Well.
Beau Whitney [00:33:42]:
I've looked at the, at the hemp market. I've been doing so since 2017 and I've been, you know, parsing out data, going to departments of ag, trying to work with the usda, although they're not quite there yet, and really getting a feel for the market. And when I, when I really looked at the market, there's tremendous opportunities for fiber and grain and seeds and, but right now the whole focus on the market is on cannabinoids and, you know, intoxicating cannabinoids. And so there's this hysteria going on over the cannabinoid market, which to me is just a niche market relative to the rest of the hemp world. And so. But when you look at fibers for automobile parts, yes, hemp is in automobiles. 20% of Mercedes and BMW car parts are made from hemp. 20%.
Greg Dunaway [00:34:43]:
I had no idea.
Beau Whitney [00:34:45]:
And then you've got plastics, you've got, and then on the grain side you've got animal feed and human feed. These are very, very large markets and there's already a presence for hemp in those markets. It's just more a matter of developing the infrastructure and then growing the market and then replacing some of the traditional suppliers with hemp suppliers. And it's quite doable. The, the proof of concept has, has been proven time and time and time again. So I'm very bullish. Maybe not so much on the, on the intoxicating side.
Greg Dunaway [00:35:24]:
Right.
Beau Whitney [00:35:24]:
But definitely on the fiber and grant side. Now that's not to disparage the, the cannabinoid side of things. When I did a survey of 40,000 businesses across the United States, I determined that conservatively, it was a 28 billion dollar market. And this kind of blew people away. Originally, people were looking at the output from Charlotte's Web and then applying a certain level of consumption to consumers across the United States, and they were coming up with like a 2 billion dol dollar market. And so when I came out with my 28 billion dollar handle people were like, no way, we don't, we don't believe you. And so when I, and I'm always very open about my methodology and, and people are like, huh, actually, yeah, that makes sense now. And so I, I was really kind of reluctant about getting into examining the cannabinoid market, but the more I do, the more fascinating it gets.
Beau Whitney [00:36:31]:
Now, there initially wasn't much of an intersection between the marijuana market and the hemp market, and so I was somewhat dismissive of that, the competition and the concerns of the higher THC cannabis operators. But now with the increase in THCA flower distribution, with more of these intoxicating products hitting the market, I can definitely appreciate the concerns of the cannabis market because of the potential competition. Now this competition, if I were to place any blame on it, would be as a result of the regulatory structure. Because if you have high taxes and high barriers to entry and limited access, then people are going to look for other options in order to, to, you know, have the same effect on, on, you know, to, to address whatever ailment or, you know, issue that they need addressing.
Greg Dunaway [00:37:41]:
Find that loophole.
Beau Whitney [00:37:42]:
And so, so, and with lower prices and greater access, then people are certainly going to purchase hemp intoxicating products. And so there's a substitution effect. And because consumers are extremely price sensitive, regulators and legislators can price the consumer out of the market. And by default, they'll either push them into another state market, they'll push them into the Alyssa market, or push them over towards hemp. So the whole state by state interventions that are occurring at the legislative level, these are not going to be effective, in my opinion, because the states are trying to address an issue that can only be solved at the federal level. And so really we need Congress to step up. We don't need entire bands. We need reasonable approaches.
Beau Whitney [00:38:41]:
And I think the higher THC adult use and medical market can learn a lot from the distribution models that hemp has already created, because this is how you get legal participation. I mean, you couldn't go from a couple of billion dollars to 28 billion dollars overnight unless you had reasonable access and good distribution channels.
Greg Dunaway [00:39:08]:
Seven elevens, right? I mean, yeah, that's the potential.
Beau Whitney [00:39:11]:
Yeah. And, you know, there's all this discussion about access to, by the youth of these intoxicating hemp products. But I've actually submitted a public records request to the Arizona attorney general because she's been stepping up enforcement against hemp operators. And I was like, okay, how many of these have had violations? How many of them don't check IDs what is your compliance rate? And for some reason the Attorney General just is not necessarily willing to provide that data.
Greg Dunaway [00:39:47]:
I wonder, Bo, I wonder what's in that data.
Beau Whitney [00:39:50]:
But I looked at some Washington compliance data and cannabis operators do a very good job, you know, 95, 97% compliance. But when you talk about alcohol, it's in the 70s, checking IDs. If you're, if you look at tobacco, it's, it's higher 83 to 85. And vapes are about the same thing. So, you know, I think if there were a public safety issue, there needs to be greater enforcement on the alcohol side, more so than on the, on the intoxicating hemp side or on the cannabis side. So, you know, and there's, but right now there's just no data. There's a lot of emotion and a lot of claims, but no data to back it up. Right.
Beau Whitney [00:40:34]:
And it doesn't mean that Youth Access is not happening. It certainly is, but we need the data to make sound policies because you may, policymakers may tend to overcorrect on this. And you know, it's, I think their intentions are good, but they're just doing it. They're taking a sledgehammer to a problem that really needs kind of a scalpel in order to address.
Greg Dunaway [00:40:59]:
Bo, you mentioned a little bit of this earlier, but it really speaks to kind of our audience here. I wondered if you could circle back. You have such a unique vantage point about operators across the United States. If you are an operator, particularly in cultivation. And let's say they came to you and said, Bo, you know, we've, we've read your research, we know we've got a hard correction, we've got a hard time. What kinds of advice are you giving to that operator? Whether it's maybe technology or just general business advice for these operators that are looking to make it through post correction.
Beau Whitney [00:41:32]:
Well, what I would suggest is that they, well, I've got some data, so call me up, I've got data.
Greg Dunaway [00:41:39]:
Right, right, right.
Beau Whitney [00:41:41]:
You know, shameless self promotion there, but not at all. But what they really need to do is to understand the regulatory environment, really need to parse out, you know, what is the supply capacity, you know, how much of a market do they actually have? Is there an opportunity to be a new entrant? And in some states there's just, I've done the investment analysis, you know, using my predictive model on how many licenses can the market sustain. There's some markets that there is no market for new investment, just zero. Like Oregon but in other markets that are nascent, that are growing, that have reasonable tax policy and reasonable regulatory policy and is still growing and capturing that legal demand, there's most certainly opportunities. So it's really my advice to those that are looking to enter into this market is to understand what sector you're going after and really do a deep dive into that and see if there's actually opportunities. And then if there are, then don't count on pricing being the same forever. Build into the models, pricing declines to see what the bottom line is and to know what your exit strategy is even before you enter into the market.
Greg Dunaway [00:43:11]:
Yeah, I think that's, that's great. And Bo, I want you to give people, we're going to go back to selfless self, selfless promotion here. Go ahead and tell people, tell people about the kind of clients you have. Tell people about, I mean, I know it, all the wonderful data and insights you can give people and then, and then as a little tease for maybe another conversation down the line, maybe tell people about some of the hemp stuff that I've been lucky enough to see as well that you're up to.
Beau Whitney [00:43:36]:
Yeah. So it's Whitney economics.com and I give most of my reports away for free. There's been a lot of folks that have generously sponsored the reports. I don't bias if somebody sponsors, I don't necessarily bias it. I'll, you know, I'll say you get what you get and you don't throw a fit. But you know, I've worked with large governments. I've worked with big investments, investors, investment banks and the like. I've worked with smaller operators and I've done valuations, I've done market analysis reports.
Beau Whitney [00:44:19]:
I've really, you know, whatever is in demand at the time, then I'm usually, I've already started looking at it two years before. And so I've always, I've got this data and I'm just anticipating these business questions. For example, one report that is due out here imminently is a, is a THC beverage report. And so I started looking into THC beverages both from a marijuana model and a hemp model almost a year and a half ago and was just interviewing group after group after group and looking at the supply chain and everything like that. And so now THC beverages is a huge topic. And I think that I've got really strong global state models, legal and total addressable market, so stuff like that. But even smaller operators have benefited from my, you know, from my analysis. And then also I do Legal expert testimony.
Beau Whitney [00:45:27]:
And so now that the bro hugs are breaking down and people are starting to sue each other, then. Then they bring me in as an expert to say, well, here's what the data really says. And I bring in a lot of data into those. So I'm just a data guy, but I look at it from a business perspective and I try to answer things. How does that affect my business? Not right now. A lot of data providers say, here's what's going on now and here's what's happened in the past. What differentiates Whitney economics is that we say, this is what it means for you in the future, and that's really where we set ourselves apart. There's not a whole lot of analysts, if any, that are doing this.
Beau Whitney [00:46:15]:
And so now I'm taking that. You know, I've got models for the illicit market and the legal market from a supply and demand perspective for every state, and now I'm doing that for every country. And so I'm doing country reports. I'm doing business and political risk analyses based upon some World bank and CIA models on risk. So we're doing. We do a lot, but I've got a tremendous team that works with me, and I couldn't do it without them. And so it's really the. The podcasts and the fact that I'm in quoted in the press seven times a day, that's all a result of the efforts and contributions of not only the team, but the rest of the community as well.
Greg Dunaway [00:47:03]:
Well, Beau, it has been an absolute pleasure on behalf of the whole team here. We're thrilled to have you. My advice to anyone who has not had a chance to interact with Bo, reach out. He's very generous with his time. And if you are in this business and you're not reading or following Bo on LinkedIn, do it. He's very generous. Like I said, probably too generous with his insights. So thank you again, Beau.
Greg Dunaway [00:47:23]:
Much appreciated.
Beau Whitney [00:47:24]:
Thanks for the opportunity. Yeah, I really appreciate it.