When the founders of Colorado-based Spherex decided to pivot from a business-to-business extraction company to a lifestyle brand with its own line of products, they focused on building a sustainable business with the goal of eventually expanding into new markets. With a launch in California and plans in place to enter the Oklahoma medical cannabis market, the company is quickly realizing this goal.
“People like the brand—they respond well to it,” Spherex Chairman Michael Green tells Cannabis Business Times. “People like our products. We like to make people feel something good with our products, so we want to expand that in a smart way. … What you see [elsewhere] is people just raising money or running out of money and then having to raise money, and we’re on the slow and steady. It’s a marathon, not a sprint. We’re making sure we control our own destiny and can make the choices we want to make that we think are the best business decisions and the best way to bring our products to customers.”
When Spherex expanded its brand into California, the team quickly realized how competitive that particular market can be and decided to take a different approach with its next expansion plans.
“We felt like if we were going to expand again, we should look in markets that are growing quickly, but are not quite as evolved,” Green says. “It took us two years to get our product from the first iteration to where it is today, and we felt like if we could go to markets that were fast-growing and where they’re not quite as evolved and we bring our quality product, then we have a really good chance of being successful and competing in a meaningful way.”
A friend of Spherex’s chief technology officer had relocated to Oklahoma after operating a lab in Colorado, which got the team thinking about Oklahoma’s market as a potential next stop.
“Once the data supported that Oklahoma was the fastest-growing state and a model for deregulation, I think we went full tilt,” Green says. “We’ve got to get into Oklahoma—let’s hit it in a huge way.”
Pax Vaporizers has allowed Spherex to be its first brand partner in Oklahoma, an opportunity that is particularly exciting for Green.
“Pax is a totally different product and a different demographic of user, and I think bringing that product and that experience to Oklahoma users is pretty exciting,” Green says. “We have a great relationship with Pax and we’re a brand partner in Colorado, California and now Oklahoma, and leveraging our relationship with them to allow us to be the first brand partner in the state was very exciting for us. … People get pretty excited about some of the features of the Pax technology, which is a known platform that’s pretty exciting, and some people have never heard of it, … but we’re very excited about Pax in particular, just because it’s a new experience that the Oklahoma market hasn’t seen yet.”
In addition, Spherex partnered with 1440 Processing LLC, a vertically integrated cannabis company, to launch its own line of products into Oklahoma’s market. 1440 Processing is licensed to manufacture and sell Spherex’s products, and the Spherex team has worked with the company to ensure its formulations are consistent with Spherex’s products in other markets.
“[We need them to create] a product that we all are used to and that is consistent with our product in Colorado,” Green says. “We are spending a lot of time working with them to make sure that what comes out is what we want it to be.”
Trust is the most important factor when Spherex vets potential partners in new markets, he says. “At the end of the day, … people will need to do what they say. Cannabis has all kinds of characters, some good and some not good. I think, first and foremost, you want someone that you can trust.”
The team also looked for companies that excel at what they do.
“When you take the next step, you need people that are competent at extraction [and] competent in the lab at formulating,” Green says. “Even if you give someone your SOPs and say, ‘Here’s how we make our stuff,’ [they must be able to execute]. … Just having the manual that says how to do it doesn’t mean you can do it.”
Finally, it is important to select partners who have good a reputation in the market, he says. “They’re coming in and they’re representing your brand. On the label, it’s going to say, ‘Manufactured by 1440 Processing LLC,’ and you want to make sure you’re picking a partner who has a good reputation there.”
Although the economics of the partnership are also important, that should never be the deciding factor, Green says. “Obviously, the economics have to make sense, but it’s not about who’s going to give you the best deal … because if it doesn’t turn out well, that’s not going to do you any good.”
A challenge in any new market, Green says, is finding a balance between bringing in your own sales team and hiring a local workforce to sell the product in a way that is respectful of the local marketplace. Companies should never come off as an outsider, he says.
“Come into the market and understand what that market wants,” Green says. “We’ll take our product and quality, but we’ll make sure we’re doing it in a way that [shows] we’re one of them and not some outsider telling them what to do. I think it’s a balance of [our] sales [team] saying, ‘Hey, we have a great product. We think you’re going to like it,’ but also being sensitive to the wants and needs of that community.”
Creating a consistent product for a new market is always a challenge, he adds, as the company works to find quality biomass and the right source of biomass.
Oklahoma’s sheer size is likely to pose another challenge.
“It’s not as densely populated as Denver [or] Los Angeles, and so you really have to think about sales and how you reach the far end of the state and what that looks like,” Green says. “Part of the strategy is the ground game of having people go into the stores, developing those relationships with budtenders and giving demos of your product. I think managing that team is a little bit of a challenge to make sure we get enough boots on the ground in the state to do the job.”
Spherex has also had to rethink which products to lead with in Oklahoma’s nascent market. While the company initially planned to launch with its half-gram vape cartridges, it has since decided to run with its one-gram carts instead, Green says, based on sales data. (One-gram cartridges are selling at seven times the rate of half-gram carts, he says.)
The company will continue to monitor Oklahoma’s regulations and ensure it is flexible enough to implement changes as the regulatory framework evolves, Green adds, and the Spherex team is also keeping a close eye on market growth.
“I just see the amount of patients growing and I’m paying attention to the sales data in the sense of how much the state is projected to grow this year,” he says. “It did $250 million last year in 10 months, and it’s projected to do $700 million in sales as a state this year. Just to put that in perspective, all of Colorado does $1.1 or $1.2 billion. So, for Oklahoma to be at 65% to 68% of Colorado’s volume in year two when it’s med only is really phenomenal and really gets me excited about the opportunity.”
The Long Game
Once Spherex officially launches its products in Oklahoma in the coming months, it aims to be in 70% to 80% of the state’s dispensaries within six to eight months, Green says. The company also plans to launch its sparkling THC-infused beverage in the state within the next few months.
“I think with a quality product and a quality team, that is doable,” he says. “I think the market is hungry for more products—diversity of products [and] more high-quality products. So, the goal is to go in and be very present.”
The state has licensed more than 2,000 dispensaries, which has caused Spherex to deploy a different strategy than it has in Colorado and California.
“There are more [stores] in terms of population than in Colorado, so I think you have to adjust your expectations,” Green says. “Stores don’t sell as much quantity as individual stores, [but] that doesn’t mean you’re not doing good volume [cumulatively]. It just means that a good store in Colorado could order a lot of product, but there’s not another store within a mile, where in Oklahoma, it might be more like the Starbucks scenario where there are three on every block, in light of how many licenses are issued for the amount of people there. Given that, we want to be a name brand and present in a lot of stores as quickly as possible, and we think it’s doable with being smart about it.”
Published at Fri, 21 Feb 2020 14:40:00 +0000