Connected is a vertically integrated cannabis company based in Sacramento, California and one of the most sought after brands in California and Arizona. Founded in 2009 as a heritage company, Connect has been creating iconic lifestyles for over a decade. According to BDS Analytics, Connected Cannabis and their acquired brand Alien Labs now have the highest wholesale flower prices of any major legal market – their average wholesale price for indoor flowers is double the average price in California – but they also have the highest retail price for flowers.
We spoke with Sam Godes, CEO of Connected, to learn more about his move from technology to cannabis, what Connected thinks of the product and his vision for future growth. Sam joined Connected in 2018 after meeting the founders. Before founding Connected, Sam co-founded Box, where he worked for 3 years after their successful IPO.
Aaron Green: How did you get into the cannabis industry?
Sam God: I come from the technology industry. In the mid-2000s, I co-founded Box, a cloud sharing and storage company, with three other friends. We went from four to a multi-billion dollar IPO in 2015. After that I stayed for a few years until I got some peace and quiet to decide what I wanted to do next. I have looked at different industries and businesses, but personally I have always had a real passion for crafts and handmade consumer goods. It’s one of my great hobbies. Whether it was a trip to Napa or exploring different types of high-end consumer products, I really had a deep love and I never knew cannabis could be like that.
When I met Caleb, the co-founder of Connected, he immediately caught my attention by telling me that with their $1 million a year product, they sell more than double what everyone else sells. This piqued my interest because developing a product with such a level of passion and demand is probably the hardest part of building a consumer products business. It’s a great challenge and really impressive that they’ve managed to succeed in what was then a very difficult grey market – it was mid-2018 when I spoke to him, and he’s been building this business since 2009.
Sam Godes, CEO of Connect.
So I started spending time with Caleb and the Connected team and learning a lot about the company. Everything I learned made me even more interested and excited. The way they thought about the product, the way they treated it with reverence and a level of sophistication that I had no idea was impossible.
I was so excited when I learned about the space. I mean, honestly, it’s like the Internet in the ’90s…. Opportunity and excitement. The only difference is that the market has been around for over 100 years: In fact, the gray and underground market for this product is phenomenally mature. And now we’re bringing billions of dollars into the business that’s already going on, and we’re trying to legalize it all at once, which brings an interesting set of challenges.
Initially, I worked as a fundraising consultant and strategist. And a few months later they were looking for a CEO, and in September 2018 I joined them full time as CEO.
Aaron: What industry trends are you paying attention to?
Sam: It may seem elementary, but I think the quality of the product is really undervalued in the national and international cannabis markets in general. The extraordinary weight of regulation in so many different markets means that many products are grown and sold only because operators can. Many markets count the number of producers by the handful, not by the hundreds or thousands as in California or Oregon. And in this environment you have no competition and you don’t see the quality that has existed for years and years and years in this category.
This is one of the things that really sets us apart – quality above all else, but also innovation and time spent on it, and few existing brands on the legal market can claim that. With some of the top brands on the market, it would be similar to stepping into the wine industry one day thinking you are going to be a top brand without any knowledge of the history of the product or the industry itself. At Connected, we have a team that has been doing this for over a decade. We did the opposite: With our team, we have harvested over a thousand crops in our lifetime. We have also recruited specialists from Big Ag and other industries to complement this experience.
Cannabis is a very, very difficult plant to grow at a very high level. These are more high-end wines or spirits than other fruits or foods. I think that’s very well recognized in the cannabis community, and that’s why we get the highest prices on the legal market. I think in the broader world of investment and finance, that moment has not really arrived yet, because the markets for limited licenses are not mature enough and there is not enough competition in many of those markets.
We remain focused on making the best product that feeds our brands [Connected and Alien Labs] and makes them what they are today. This is our main goal, and we believe that this is a space unique enough to not only grow a high quality product, but also to continue to raise the bar for what can be done with plant genetics.
Aaron: What do you think about the selection of test labs?
Sam: The most important criterion is therefore responsibility and compliance. We need to be confident that they are conducting accurate, safe and government compliant tests. From that point on, it’s really about cultivating the partnership. There are many nuances to the relationship with the test lab. You notice these things: Are they responding? Are they sensitive to our needs in terms of timetables or requirements that we have? It really does come down to some extent to timing and cost, for example. B. who can provide the best service at the best price, but it’s really a partnership where you work together to deliver an excellent product. Reliability and consistency also play an important role.
Aaron: According to industry estimates, illegal market activities represent approximately 60% of the California market. How do you think we can solve this problem?
Sam: I think it probably comes down to funding efforts to stop this activity and creating a barrier to entry that encourages illegal operators to invest in crossover. I think the most successful attempts to eliminate them have been well-organized, well-funded initiatives that have allowed former farmers to actually enter a legal industry. You can’t run an industry with such stringent regulation, put up a barrier to entry of a few miles and then penalize long-established farmers for maintaining their operations. If the illegal market continues to be fueled by denial, you won’t get the tax revenue you expect, and that’s what we all want. The starting point should be that every dollar invested in the transformation of illegal markets into regulated markets will always flow back to the citizens of the state in the form of tax revenue.
Aaron: I understand you sell wholesale. Do you sell directly to consumers? Once they hit the shelves, we let people go backwards by exceeding their expectations of what they had before.
Sam: We own and operate three retail stores, so we sell directly to our customers, but currently most of our products are sold through third-party pharmacies.
Aaron: Do you make fresh frozen?
Sam: Yes. On the attachment side we have the inside, the mixed light and the outside. Each year we freeze some of our harvest in the open and then use this fresh frozen product for our live products, such as B. our new live resin cartridge. We feel like we’re not like everyone else because we use our usual ready-made flour, but instead we take that flour and extract it instead of using a simple distillate and mixing in a load of terpenes. We extract all the contents of the plant, from cannabinoids to terpenoids and everything in between, and then you have our living resin patterns.
Aaron: What do you think of the brand identity and the use of the brand to drive up prices?
Sam: The cycle that we have in fact created is that every time we launch a new variety, a new batch or a new harvest, the quality tends to improve. This quality is produced under our brands, and consumers can then associate this increased quality and reputation with these brands. For our next launch, we will have an even bigger platform to talk about products and to supply, distribute and sell products. Once they hit the shelves, we blow back into people’s minds and exceed their expectations of what they had before. This continuous cycle strengthens the brand and the product. From our point of view, the brand is 100% based on the quality of the products. The product will always be our first priority and the brand will always be downstream.
Aaron: Tell me about the alien lab.
Sam: The alien lab was an asset. It’s a company that has really managed to build its brand in the gray market in 2017 and Prop 215 in California. She had an incredible level of quality, a truly loyal and dedicated fan base, not to mention the huge Instagram presence and beyond, where 98% of cannabis is now marketed. We loved the spirit of what the founders brought to the table. In 2018, we decided to enter into a principled partnership with them, leveraging our infrastructure and the systems and processes we put in place, while retaining their approach to growth and their vision for their products. To this day, Ted Leedy, one of the founders, is still the Senior Director of the Alien Labs brand.
Aaron: In which regions are you currently active?
Sam: Our headquarters and facilities are located outside of Sacramento, California, but we have facilities throughout the state. Last year was our first trip to the new state of Arizona. As you may know, importing cannabis products across state lines is not allowed. So if you want a stable product in multiple markets, you really have no choice but to rebuild your entire infrastructure in every state you want to open.
There are many brands that develop and penetrate new markets faster, but they do so by taking an existing product and branding it. This is something we have strategically decided to do, but we will not do it. We have built up a high level of trust with our customers over many years, and so we will only provide products from our brand that match our genetics, culture, style and quality. When we started in Arizona, we did it with a facility that we rented and took over, and now we work with our staff. We replicate the same product that you can get in California, Arizona, which is really exciting.
We launched a program last November that has been incredibly successful. Our partner at the Harvest clinic saw lines of dozens of people coming out: We see ourselves primarily as a flower company, so it was a very calculated strategic decision for us.
Aaron: Are there any new regions you want to talk about?
Sam: We are constantly evaluating new opportunities. I can’t announce anything concrete at the moment, but I can say that we are looking for countries where we believe there is a competitive environment where the quality of the products really excels and is appreciated.
Aaron: Have you noticed any differences in consumer trends between California and Arizona that stand out?
Sam: So far, not too much. We don’t have a subsidiary in Arizona, so we don’t have that many direct contacts. However, we continue to hear that Connected’s customers – as you can imagine, those most interested in our product – are those who are looking for something special, unique, different and of truly superior quality to everything else. Finally, we started in Arizona with the highest price per flower in the state, and we say that’s just the beginning. The market is still so young and immature, both nationally and internationally, that this category will evolve into a truly taste-oriented category.
Aaron: What’s next in California?
Sam: Continuous product growth and development. We want our customers to get more and more incredible products, of different types and categories. For example, ink cartridges were a very big start for us because we don’t really think of ourselves as an ink cartridge company. We see ourselves primarily as a flower company, so it was a very calculated strategic decision for us. We only wanted to launch the product if we could fully reproduce what the consumer gets from the flower. It is unlikely that we will ever market a distillery pen, for example.
Aaron: What would you personally like to know more about?
Sam: As a society, we don’t know much about the cannabis plant. Virtually all important research on cannabis stopped in the early 20th century with prohibition. Meanwhile, we have invested millions of dollars in research and studies for almost every other plant we grow commercially. We understand these assets very well. The science of cannabis has remained stuck in the agriculture of the early 1900s. I have the most interesting conversations about how this plant works, how it is inefficient and why it is so different from all the other plants we know. Our grower comes from Driscolls, the world’s largest berry producer, and even he is often surprised at how the cannabis plant reacts to things that other plants normally take for granted. So the way a real plant responds to different environmental conditions is really fascinating, and I think we’ll learn more about that in the coming decades.
Aaron: Okay, great. This is where the interview ends. Thank you, Sam!