Ellis Smith, American Cannabis

Thank you for tuning in to today’s episode of the Breaking Changes podcast. I’m your host and chief evangelist for Postman, Kin Lane. With Breaking Changes, we explore topics from the world of APIs, but through the lens of business and engineering leadership. Joining me today we have Ellis Smith, co-founder of American Cannabis Company. I really enjoyed exploring the technical and the policy side of the cannabis industry with Ellis, and I find it fascinating to think about the future of this industry.

Let’s start with the basics. Who are you, and what do you do?

My name is Ellis Smith. I am the CEO and co-founder of a company called American Cannabis Company, which is basically a full-service consulting firm that is based out of Denver, Colorado, where, for the last—we are now in our 10th year of business, which I’m pretty proud to say. We have working pretty much every single state, as well as Canada, writing applications, financial modeling, designing and building grow facilities, extraction facilities, and dispensaries, and basically getting them designed and built, getting them open and operated, hired, trained, and staffed. And sometimes we help manage and operate them. We also are owners and operators as well—we do own three dispensaries and a cultivation facility. So we are fully immersed in the cannabis space as a company. So yeah, that’s kind of who we are, what we do in the space.

Very interesting. A good time to be in that business as it unfolds. What’s the role of technology in your world?

This is what’s really progressing our industry right now, and this is what really makes me excited about coming to work every day. What we were doing 10, 12, 15 years ago is so far different than what technology has allowed us to do today. Because I design and build grow facilities, we are always pushed to the limits from our customer base to really bring the newest technology, and it’s fascinating to see what’s constantly evolving year after year. And I mean exponential growth from some of these technologies, which is pretty cool. Our LED lighting is the one that’s kind of front and center, that’s really where we’re seeing this exponential growth year after year, that is just tremendous to see how much improvement we’re seeing with this, and I’m excited to see where we’re going to be in five to ten years with this as far as efficiencies of output and just overall productivity of the lighting.

And then all the way down to, we’re really getting into hardware and software to manage how we are looking at plant growth, how we are really able to measure dry-out from the plant, and really use sensors to tell that plant—or to tell our watering system to bring water to that plant. And really bringing in an element of AI into how we’re growing this plant now. And it is fascinating, it is so freaking cool. I love what we’re being exposed to and really pushing the boundaries of what we thought these plants could do. And now technologies are really allowing us to be smarter, allowing us to look internally even more, and really grasp data and really push the limits. So that’s kind of a snapshot of how technology has really been helping our industry, and there’s so much more out there to explore outside of that. So it’s pretty neat, and I’m very grateful that I’m kind of front and center with this, and that my clients are really demanding that we are looking at this technology and utilizing it. So it makes it fun.

Yeah. One of the fascinating positions I have in technology is, I see the many layers and dimensions, and the lighting—you guys are just basically big high-tech agriculture, that’s it. And that next generation, that’s interesting. But I watch enough industries and I know there’s another dimension too. There’s quite a—like a regulatory landscape that you have to navigate that is also what would ideally be technology-driven, but I know from experience it’s not always the highest technology, the best technology out there, or the best processes. Can you speak to that landscape a little bit?

You bet. And that’s ever-evolving and changing for us. So from a compliance standpoint, regulation standpoint, we always have to track our plants, have to understand where they are, how many we have, and that’s basically how our auditing system works from our staying-compliance side of this. It’s pretty archaic, how they have some of these systems where they do have barcodes where you can scan these tags and kind of get input into your system to manage your plants. Some people don’t have that luxury and don’t have the ability to scan a plant, so they’re literally having to manually enter this information into these systems.

We’re now seeing some great integration with some of these cool ERP systems that are really managing a lot of parts of the business, where they’ve got some great technology and APIs that can work with these regulatory frameworks that states require us to use, to where we can get away from this archaic way of having to hand-punch in numbers or even use a scanner to actually get that. Now we’ve got the ability to, as you cross a threshold, a Bluetooth will identify that this has moved from one space to another, it actually tells you what employee was holding that plant, and really identify the whole step of the process all the way through, and really map that out for you, and really being smarter, really eliminating that human error, and really reducing that extra workflow that is required to go and either scan the plant or actually go and hand-punch that in. It’s now a seamless part of the workflow and allowing efficiencies all across the board. So the regulatory framework has been challenging, but now a lot of these companies have definitely come in and really got smarter with their tech, and the big players that can afford it, they’re utilizing it, and gosh, it’s really—you’re creating efficiency, saving dollars, as we know, by reducing those steps. And yeah, it’s really made a lot of these jobs a lot easier because of that tech.

Yeah. For me, the way that I divide up the tech space is into three distinct spheres. There’s the technology of APIs, there’s the business of APIs, and then there’s the politics. And those things kind of all make for—because you can’t just win it with technology, but technology can help significantly move things forward. But then there’s policies in place that are immovable. And I know in the space, money-wise, you talked about being efficient and saving money, but can you speak a little bit about what the money landscape looks like as far as payments and being able to move that around?

Yeah. And so this has been a big sore on our side for years as an industry, and is finally getting the changes required. Before, it was a cash business. We’re heavily regulated from all aspects, but then they make you do a cash business. No banks will touch this stuff. And so it’s like, hey, we’re trying to be good business stewards, let us use banks, we’re trying to be transparent, you have all this regulation in place. Banks were hesitant. Finally we started seeing these little local trust banks in states kind of buy into this, and that kind of set the precedent that, okay, these little small mom-and-pop banks are going to do this. But don’t get me wrong, they were charging literally a kidney and an arm and a leg for you to run your bank accounts through these things monthly with the fees. I mean, some people had 10, 15 licenses they were operating under, and some banks were charging anywhere from 500 to 2,500 per license per month just to have a bank account. That’s highway robbery, right?

And so now we’re seeing this big shift in change. You’re seeing a couple of platforms out there that are really doing a lot of the legwork for the FDIC bank, saying, hey, we’ll go vet these vendors, we’ll ensure that they’re going to be good players in the space, and then we’ll handle their money as long as you’ll work with us, we’ll be the intermediary. So now you’re seeing these companies, one called Dama, another one called Abaca, these guys are set up in multiple states across the US and have the ability to go in, do the cash pickup, and go deposit at banks close to where you are, so they’re not having to transport this stuff across America, and really creating a network to allow banking to thrive, even though it’s not necessarily in your own backyard, in your own banker that you can go sit down with and have that traditional conversation with.

It is changing. We are seeing in Colorado, where I’m at, a lot of the bigger banks are coming in, they are seeking out these operators, they’re reducing their fees down to minimal, some don’t even have any fees anymore, which is super exciting to see. And so this landscape is changing. We hope to see our federal government really allow us to get away from what they’re making us do now and allow us to have merchant processing, because most dispensaries can’t process a credit card. Some will have a debit card transaction that you can do, or even an ATM where people cash out, but still it’s not a traditional transaction like you could do in a 7-Eleven. We’re still the redheaded stepchild, we’re still treated like we’re bad news. We’re not. We’ve proven, we’ve paid so many billions of dollars in taxes all across North America. Let us get on with this. And banks are finally kind of buying into that and really helping us get away from the past and move into what traditional thinking should be.

Well, and I think there’s a lot of misconceptions, just from years of, I would say, disinformation, but also things are maturing and evolving to a certain point. And it’s not—in my case, literally my grandfather’s grow operation, I grew up on the west coast of the United States, in Humboldt County, southern Oregon. So literally my grandparents were growing pot back in the ’60s and ’70s. But it’s not our grandfather’s grow operation anymore. Talk to me a little bit about your processes. I mean, we mentioned high-tech AG, but this is manufacturing, right?

Yeah, we are. This is manufacturing. I’m glad to hear you say that term, and this is the way I speak. We are bringing in Six Sigma, lean manufacturing, we’ve got black-belt guys trained in traditional automotive manufacturing coming into cannabis and really changing our landscape. And once again, this is what’s exciting for me about this space, is the ever-evolving of traditional industries coming into our space and really progressing how we move forward. It’s the most exciting. I come from a specialty cut-flower industry, I was trained a little bit back in the late ’90s, early 2000s on this lean manufacturing stuff. Now it’s really front and center. This is a business, this is not what your grandparents used to do, and what I used to do back in the ’90s and 2000s when I was in black market. This is now treated like a real business. We’re talking about cost of goods sold. How many growers in your basement are concerned about your COGS, who knows what a COGS is? And so it’s treated like a regular business, it has to be. This is no longer the get-rich-quick scheme like cannabis used to be, very financially stable back in the day. Now it’s like any other business. You’ve got to come in here and treat it that way. You have to pay attention to, what are your labor costs, what are your costs of goods to grow the plant, are you producing what the market rate is at, you know, 50, 60 grams a square foot, are you under that, are you over that? All this stuff matters now, else you’re not going to survive.

You’ve got a lot of big businessmen in the space, people spending a lot of big dollars to play here, and they’re very sophisticated. And some of these mom-and-pop small growers we see in these smaller markets, they have an uphill battle to fine-tune process, procedure. And don’t get me wrong, these guys grow great cannabis, they’re crafted at what they do, but some of them may lack that acumen that it takes to compete at this next level. And so this is where, as a consultant, I’m really doing my part to educate these smaller mom-and-pop-style, craft growers, because there is a place for them to thrive in this space. I don’t want this to be all the big—what I call Walmart weed and Budweiser weed. I don’t want those big players to be front and center and ruling the industry. There’s a great place for these micro-brewery-style craft growers to fit in and play in this space as well. I take it personally to come in and give these guys the tools to really be able to play in here and create a sustainable lifestyle. Because that’s what it is, it is being sustainable with your business model, as price fluctuations go up and down, as you follow the trends of the outdoor harvest every year. All this is going to impact what happens through the price per pound from an indoor, outdoor, and just the commodity of cannabis overall. And so you better have your game on, you better know what the heck you’re doing, because it’s sophisticated, it really is. We are bringing in high-tech technology, AI, to grow the plant. This is no longer getting water out of your well and pouring it on the plant and saying, man, I crushed it. It’s so much more analytics. But man, we are nerding out now, that your grandparents would be psyched to see how nerded out we are on this stuff, because we are passionate about the plant, we are consumers, we are growers, we are a part of this lifestyle. And at least I, and who I surround myself with, we thrive in really bringing the next best technology to really improve what we’re doing, because this is a business now, it is becoming a commodity. So sophisticated, it really is.

And I know a lot of people I grew up with in southern Oregon and northern California are nervous about the Walmart and Budweiser and taking the heart and soul out of the industry. So do you feel like technology and kind of solidarity amongst these mom-and-pops is how they’re going to be able to compete against the big companies, or is it just inevitable that the big companies are going to win?

No, I think we’ll see, just like the craft beer and even the craft liquor game, there is a way for these small players to come in and make a mark, differentiate. It’s all about genetics, as we know, having a hold on your genetics and not letting it out, and having unique flavor profiles, terpenes, all these things that can really differentiate. Having a message behind an organic-grown product, what we call Clean Green Certified in our industry—this is a great way to differentiate as well, and bring a higher-quality product to market, because you’re bringing the USDA standards into this even though we can’t follow that yet. So I think there’s definitely a way to stand out, not be that Walmart weed, because no one likes Walmart weed.

I’m not going to name a name, but I was at a very large dispensary group in California this past week looking at their six-acre greenhouse facility, and they got great flower, they got great-looking—we’re looking for facility, team members, everything was on point, but the overall end product and the integrity didn’t really meet my expectation, it was kind of subpar. And I started asking around to people about this farm, and they’re like, yeah, they’re not necessarily known for quality. And you’re like, okay, I get that, I don’t want to align myself and my client that I’m working with with a brand like that. And so it’s important for me to understand that I don’t want to fall into that same category, I want to find something that has more integrity behind it and put my name behind something like that. And so there’s a big sea of people out there growing, and they’re all doing a pretty good job, the market responds well, but some of it doesn’t necessarily meet my personal expectations, as I have a very high bar of what I’m looking for. I’ve been doing this stuff for well over 25 years, I have a background in specialty cut-flower industry, so I know the plant very well, and I know what’s out there, what’s available to me, and so I won’t settle for anything less than that. And so this is what we have to really educate our industry on, to look beyond what they’re seeing, because 90 percent of what they’re seeing is what they think is all out there, but there is something different for them to look at, and just be a more conscious consumer. That’s what we’re really trying to target, is that conscious consumer.

Yeah, makes a lot of sense. Got to keep the quality there. And I think the liquor, the alcohol industry, beer, wine—I mean, what do you enjoy the most? I think the micro-brewery, the ones that still have a little heart and soul, that’s just going to translate to the cannabis industry, and people are going to know their brands and know the people they trust.

That’s it. I mean, even the Cookies brand, even though they’re a huge, massive freaking brand, he’s got a unique story that the masses love. And so I think there’s ways to kind of piggyback off what he’s done.

Yeah. And I think that story—your tech to kind of dial things in, but that story is really going to matter when it comes to this as well. You said the strains behind—so the story, the strains, and then that technological edge is probably going to be what sets you apart and allows you to remain competitive in this space.

Absolutely, absolutely.

So what’s your biggest challenge as a company this coming year? What are you investing in, what’s top of mind for you moving forward?

We are—I am working with a client that is landing and expanding. He is targeting multiple states right now, we’re designing, building large-scale facilities for him, specifically around Clean Green Certified, in this organic perspective. He will be the largest doing this, and we feel it’s a great way to differentiate for him. So for me, I’ve got a lot of energy into that. My company also is pursuing acquisitions this year. We did an acquisition last year of three dispensaries and a grow, and this year we’re continuing to land and expand as well. And so I’m just trying to find the right partners. I’m in the relationship game, and I’ve got to be able to show up and enjoy who I’m working with and see eye to eye with our core values first and foremost, and understanding that, when we take our step forward, that we can align, and what we look like for our two-to-five-year goals. And so for me, I’m out shaking hands, kissing babies, and trying to align myself with the right folks where I feel that warm and fuzzy kind of enjoyment being around them, and the ideas we’re kicking around, we’re doing business together.

Like I can say, last week at this six-acre facility I went to, the head grower was complete—to me, didn’t want to have anything to do with me. Why the hell would I want to bring my business there? And I got enough of my partners about this, and be like, I did not get the warm fuzzy feeling, why am I going to waste my time on this? I’m in the relationship game, that guy is obviously not. So we’re not looking to do business like that. And so for me, that’s my biggest thing, is just finding the right people. All I’m trying to do is find good people to do good business with. As easy as that sounds, it’s pretty hard to do, actually. So that’s my obstacle, is finding good people to do good business with.

Yeah, I can imagine. There’s a lot of—I don’t know, filtering’s the right word—but it’s an industry that has a lot of, you know, characters that you don’t want to be around historically. But then I think it’s also attracted a bunch just as it’s exploded and grown, so you got to really do that extra work to be able to weed out, unintended, the people, the undesirables, and the strains, the ones that aren’t going to be good for your business. So it makes a lot of sense.

There’s a ton of snakes out there. And I’m from the south, we say we show up with our snake boots on every day, and we’ll just wade through the snakes and figure out which ones are the good ones and which ones are the bad ones.

Yeah. Well, I think it’s an important industry, the front line, because I think it’s been in the shadows for too long, and I think technology is going to help level the playing field a little bit in some good ways, but also maybe some not-so-good ways depending on how it plays out. But it’s good to see it move from being criminalized—or still in some areas, I guess—moving from being criminalized to being something people can actually get behind and support. So, good work.

Thank you. Appreciate it. The landscape’s changing. I got multiple clients that are very religious, that are preachers. It goes to show you that now you can’t label these cannabis users anymore, what you thought it was. We are a whole different—we look different, we have a whole different personality. It’s everybody. It really is. Anybody can be a consumer. It’s fascinating times.

Well, in my experience it always was, it just was a lot harder, to see it. And sadly it destroyed a lot of lives. I mean, I know you’ve seen it in your time as well. So it makes me happy to see where it’s at, because literally I grew up with Blackhawk helicopters up and down the rivers at a certain time of year, and that was just the norm in the ’80s, the ’70s and the ’80s. And so to see it become a real, full-fledged business, I think, we’ve come a long ways as a country, so it’s good to see.

It’s about time, and we still have a long ways to go. And so I appreciate you giving us this platform to tell our story and really kind of paint a different picture, because I think people don’t necessarily see how progressive we have become as an industry. So I appreciate this platform.

Yeah, no, I think that was really my goal here, because I want to introduce our tech audience to this reality, but vice versa, also show that it’s matured and grown up and there’s a lot of—you know, it’s big AG tech and manufacturing. I think people need to see it for what it is. So I appreciate your time. Thank you for showing up and sharing your story. And feel free to reach out in the future, and as you guys do anything really interesting that you think people would want to hear.

Appreciate it. Thank you again so much.

Thank you. I really wanted to thank Ellis again for stopping by. I really learned a lot. You can find more on Ellis on LinkedIn, you can visit the American Cannabis Company at americancannabisconsulting.com, and you can subscribe to the Breaking Changes podcast at postman.com/events/breaking-changes. I’m your host, Kin Lane, and until next time, cheers.