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A Conversation with Ray Landgraf, CEO of Island Cannabis

Published: Sep 13, 2019

 
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The cannabis industry is exciting and rapidly changing. Apart from the “buzz” surrounding the product at the center of this business, the cannabis industry offers plenty of career opportunities, especially for entrepreneurs. But with legislation constantly in flux, the legal weed business can seem difficult to navigate.

To better understand the landscape, we’ve broken down a conversation with Ray Landgraf, founder and CEO of Island Cannabis Co. Ray started Island in Southern California in 2014. Below are excerpts from an interview with Ray about the genesis of his company and what it’s like to make inroads into such a hot industry.

On the philosophy behind Island Cannabis Co.

We launched our first product in 2015 focusing on the pre-roll space, which was virtually non-existent at the time, and overall, I just had the goal of building a great company around a great brand that embodies a passion for exploration, community, the outdoors, and inspiring moments of happiness with our customers…

I think there’s a handful of things [that make us special], but overall, it’s been how we approached the market from Day 1: from a long-term standpoint in wanting to build a real business. When we created the brand, we chose what we thought would be appealing to a wider demographic, and cannabis was an opportunity to be a part of people’s lives…We very clearly built our brand around where we saw things going and where the long term opportunity was, and we approached it as starting a lifestyle [brand] that people want to be a part of.

Out of the gate, we had always tested our product, which was a huge differentiator [for us]. [At the time] if anyone was even testing, it was mainly for THC potency so they could claim some kind of high-potency for marketability, which had nothing to do with the safety of the product. So, nothing has ever become an Island product that wasn’t tested for pesticides, mold, contaminants, fungicides, etc. Consumer-safety has always been important to us.

On applying previous work experience to the cannabis industry

Brandon Mills (Island’s COO) and I have [both worked on] multiple startups before, so we’ve been through the chaos that is a startup, and a lot of businesses get crushed during those first couple of years when you’re under-resourced and under-capitalized. You have to make a lot work with very little...When we made mistakes, they were $10,000 mistakes, not $100,000 mistakes, just because we were so resource-constrained, and I think that’s an experience that both Brandon and I have with startups that translates.  

As an organization, [we also] wanted to bring people in who have done interesting things in other industries that could translate to the things we were doing. For example, Kristen Suchanec, our VP of Production, came from Johnson & Johnson. Lindsay Berg, our VP of Marketing, came from Playboy. Our whole team comes from other professional backgrounds, whereas other Cannabis companies still have a lot of legacy players involved. That’s starting to change, and we’re now starting to see investment bankers, people in private equity, management consultants, and other professionals who are good at what they did in CPG or other places come in and join these cannabis teams, or take leadership positions...

On the main challenges facing the cannabis industry

The disparity between state and federal law is still the main challenge that’s impacted things that most businesses take for granted—like access to banking and traditional financing and finding facilities. [Finding facilities] would require paying higher lease rates, so you’d have to buy the building, but when you’re buying [it’s hard to find a bank] to finance that. So there’s no traditional source of financing. There’s an ever-changing regulatory landscape, so even in California, we’ve been through 4 significant regulatory events in the last 18 months that many people in the industry are now starting to call “extinction events.” We’re not through with those yet…It’s just very difficult to run a business in an environment where you constantly have to throw lots of money at new regulatory requirements and there’s not a lot of control.   

[Also], federal legalization means anyone who’s regulated by a three-letter agency [like the FDA] gets to come in and play. So far we’ve been able to build because tobacco hasn’t been in here, because alcohol hasn’t been in here, because Big CPG hasn’t been in here, and because Big Pharma handled pressure a different way. Without that piece of it, there’d be a lot fewer businesses, and it would be a much different landscape because you’d have multi-billion-dollar conglomerates coming in here putting a real budget to work before anyone even has the opportunity to create something like what we’ve created.

On consolidation within the cannabis industry

As far as consolidation goes, it’s very real and happening very quickly. In a lot of ways, I think it’s necessary. In the last 20 years, almost all of the retailers were essentially single, standalone small businesses run like "mom ‘n pop shops, and with the regulatory environment in California, I think it’s extremely challenging for a small standalone business to survive. There are huge compliance costs and federal disparities in law that have huge tax implications. This alone makes it difficult to run a profitable business. So having a larger footprint and being able to centralize things like purchasing, compliance, accounting, finance—instead of trying to spread those same costs with a smaller footprint—makes a ton of sense…

On raising funds and the idea of going public

The fundraising environment has changed over time. When I started the business, I capitalized personally, then we moved on to…a true friends and family round. [After that], we moved into more of the high net worth and office fundraising environment, and right now we’re involved in discussions with more institutional capital. We currently have no plans to conduct an IPO, and we want to build this thing privately as long as we possibly can. A rare thing for cannabis operators, Brandon and I have both operated on executive teams at public companies enough to say that we have zero interest in doing that until it absolutely makes sense...

We’re building a brand when it still feels like we’re in Day 1 of a very large $100 billion industry, so we’re still in the very early innings and the foundation is still not there. With almost everything we’ve done, we’ve had to build the infrastructure that we rely on to grow the business…I think staying private supports the fact that we want to build something special over the long-term. We don’t care about measuring the short-term nature of it.

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