In any industry, launching your business is often the most difficult and daunting step of entrepreneurship. For people in the cannabis industry, added bureaucracy, regulatory requirements, and constantly changing rules can make that process even more difficult. Enter Jonathon Goldrath, an investor and serial entrepreneur whose firm 317 Opportunities leverages the expertise of its founders to help entrepreneurs break into and succeed in the cannabis industry.
In this Q&A, Jonathon discusses the values that he prioritizes when partnering with a new company, shares stories from launching medical cannabis businesses during the early days of a new market, offers his advice for entrepreneurs who are seeking investors and/or considering a new career in cannabis, and more!
Ganjapreneur: What does 317 Opportunities bring to the cannabis space?
Jonathon Goldrath: We bring expertise that spans the entire spectrum of starting and managing a “plant touching” business in limited-license cannabis programs. My partner Peter and I took 3 businesses from license application to ramp-up to exit in some of the most competitive and highly-regulated medical marijuana markets in the United States including Pennsylvania and Ohio. We did all of this with no existing markets on which to base our business model. Our businesses were often the first of their kind in these states. 317 Opportunities now shares this perspective with local partners in states that are launching or expanding their cannabis programs.
How has your experience in the world of traditional finance shaped your experience in the cannabis industry?
My experience in traditional finance ended up proving invaluable for emphasizing the importance of two things – Process and Compliance.
Creating defined and detailed processes is key to building a scalable business in the cannabis industry. It starts with the license application where you have a very short amount of time to put together what ultimately becomes a several hundred page technical document. This drafting process takes discipline and organization. It reminds me of my investment memo drafting experiences in traditional finance. The same importance of process applies to the actual operations of a cannabis business. When you figure out what works you want to be able to replicate it and capitalize on it. As such, you have to design processes (Standard Operating Procedures) that are comprehensive, measure and utilize data, and are easy to implement. This is akin to the importance of process in underwriting investments in traditional finance. Without a replicable process for investment underwriting any success that you experience is probably more attributable to luck than skill. With Process we utilize data to find out what works and why it works – rinse, wash, and repeat.
The importance of Compliance was constantly emphasized to us in traditional finance. Our day-to-day work was under the purview of half a dozen regulatory agencies and cannabis is no different. Perhaps the cannabis industry faces even more regulatory scrutiny given the fact that it is still federally illegal. A focus on compliance is not just important to stay out of trouble but also to grow your business. Making sure that you are ahead of the curve will help with regulatory approvals and your path to market.
Unsurprisingly, Process works hand-in-glove with Compliance as you need to design all of your processes with regulatory compliance front of mind.
When considering new projects and partnerships, what do you look for most?
First, we analyze the market. Each state’s cannabis program is its own ecosystem and we look for certain characteristics that we find attractive to operate in including total addressable market, barriers to entry, level of regulation, market fragmentation, etc.
Assuming the market is one we that find attractive, the most important thing we look for in our new projects is good local partners – people with the character, integrity and drive that is required for a successful cannabis business. Human Resources is the hardest of the cannabis business from both an investment and operational standpoint. Good talent is hard to come by. We are often competing with much larger and better capitalized industries for talent. Additionally, cannabis is still filled with people who were illicit market operators that have carried those practices over into the legal markets. When we find the right partners this makes us all the more excited.
Do you limit how many projects you will take on at once?
Yes, we do. We typically do not take on more than two projects at once given the amount of time and effort they take. The industry got itself in a lot of trouble a few years ago with people going on flag planting exercises and spreading themselves too thin. We would rather see one or two projects do extremely well than six do just ok.
What role do you take on personally with new 317 Opportunities projects?
We run a very lean shop, it’s just two people. Both of our responsibilities are really soup to nuts — business development, advisory work, portfolio management, etc.
Having gone through the process of applying for and successfully being awarded a state cannabis license, what advice do you have for others who plan to apply?
I would give people three pieces of advice; 1. start early; 2. stay organized; and 3. be original. When an application comes out you will have a very limited window to get your ducks in a row for submission so to the extent that there is any ground work you can do a head of time I would strongly recommend it. Once the application process is underway it is easy to get lost in it. For that reason, it is important to have a clear process for drafting and staying organized. Finally, its important to be original and authentic in your responses. At this point in the industry, a lot of people use application consultants that have been recycling the same application content for multiple clients for multiple years. It’s important to show what differentiates you versus the competition through unique content. Lowest common denominator is not enough in these extremely competitive processes.
How does 317 Opportunities assist clients in the acquisition of licenses?
We form a true partnership with local teams. A partnership not just to create the best application but to create the foundation for an incredible business should we win a license. This is comprised of a wide range of activities including; market analysis, team recruitment, writing Standard Operating Procedures based on real world experience, capital formation, site design, Board of Directors roles, and M&A advisory.
As Deseret Wellness establishes two medical cannabis pharmacies in Utah, are you involved in the planning and execution, and if so what is your role?
As a Board Director, I am very involved in the high-level strategic direction of the business. Our Market President and his staff handle the day-to-day operations. We found and hired him and the other key employees as part of launching the business. My current responsibilities are primarily capital raising, brand development, and regulatory affairs.
What is one piece of advice you would offer entrepreneurs seeking to raise capital in the cannabis industry?
Find investors that can be value-add. Sometimes this is someone who is local and knows a lot of the key stakeholders in the area in which your business will be located. Sometimes it is a person with specific industry expertise that you can use. I would also consider the use of a modest amount of debt in order to minimize dilution of your hard earned equity. Whereas debt was unheard of in the industry a year or two ago it is becoming more and more available today. We actually launched a fund called FocusGrowth Asset Management to capitalize on this opportunity.
Is it harder to know when to exit a project in a volatile industry like cannabis?
It is extremely hard given the regulatory uncertainty and capital markets volatility that we see in cannabis. I have seen this industry go from feast to famine several times over the last five years. You will never be able to time the market perfectly but there are a few things you can do to help your decision making process. Maintain patience and discipline. Write down your goals and model your financial projections from the beginning. It is fine to reassess these things with new information from time to time but I would measure your decision to exit against these goals on a regular basis. More generally, I still think we are early innings in cannabis and if you can hold onto your business in a limited-license state I think it is well worth doing so.
How should cannabis entrepreneurs be thinking about their exit strategy in the context of the prospect of federal legalization?
It depends on where in the supply chain your business lies. I think federal legalization is still a little ways out and once it is passed it is going to take a while to work itself out with respect to the patchwork of state and municipal regulation that we currently find ourselves in. The businesses that are most at risk from federal legalization should be thinking about a medium term exit. These are cultivation businesses in places where it does not necessarily make sense to grow cannabis (i.e. cold climates in the northeast).
What are you most excited about in the cannabis industry right now?
Adult-use legalization coming to my home state of New York!
Where can people go to learn more about you or to get in touch?
Thank you, Jonathon, for answering all of our questions! Click the links above to learn more.