- The speaker brought a selection of his favorite edibles and flowers to discuss the consumer experience in the cannabis market
- They distribute products for Northern Emeralds and other brands, as some brands do their own distribution while others use third-party distributors
- Different strains of cannabis have different terpene profiles, which can be identified by their smell and can indicate the type of high they produce (sativa vs. indica)
- The strength of the smell does not indicate potency, but THC percentages on labels can indicate potency
- The market for cannabis products includes flour, pre-rolls, and edibles, with edibles being popular among new consumers and those who prefer a more granular dosing experience
- The concentrate market, particularly through vapes, is growing quickly
- Vapes and edibles provide a more discreet option for consuming cannabis without the smell associated with smoking flower

- Baby boomers are the fastest growing demographic of customers in the cannabis market, replacing prescription drugs for health ailments.
- There is a branding around wellness for cannabis, with CBD products being seen as herbal remedies with medicinal properties.
- CBD stands for cannabidiol and can be derived from marijuana or hemp.
- CBD has medicinal properties that reduce pain and promote relaxation without the psychoactive effects of THC.
- Different strains and ratios of THC to CBD have different effects on the body.
- CBD has been found to be helpful for people with epilepsy and seizures.
- There are various extraction methods for deriving CBD, including solventless and solvent methods.
- Meadow builds software for dispensaries, while Nabus focuses on distribution in the cannabis industry.
- Fundraising in the cannabis industry can be challenging due to the legal and regulatory aspects of the business.

- The company is an ancillary business that provides a system for dispensaries to be compliant and run their business effectively.
- The majority of dispensaries in California are small businesses that did not keep extensive records before legalization.
- The company saw a need for their system in 2014 and applied to YC, eventually raising $2.5 million in funding.
- The cannabis industry in California is growing rapidly, but there is still fragmentation and no dominant brands.
- The legalization process in California has led to a reconfiguration of the supply chain, causing challenges for growers and distributors.
- The state's size and the disconnect between areas with licenses and areas without create additional obstacles for businesses.
- Other states like Colorado, Oregon, and Nevada also have significant cannabis markets, and Canada recently federally legalized cannabis.

- Canadian cannabis companies are investing capital into legal states like California.
- The lack of capital and banking options is hindering the development of a massive cannabis brand.
- Cash is the primary form of payment in the industry, leading to the need for secure storage and banking solutions.
- Delivery operators collect cash on site and bring it back to the dispensary.
- Proposed regulations may allow for an "ice cream truck" model of delivery, where large amounts of product can be transported across the state.
- Distributors play a crucial role in the supply chain, ensuring compliance and collecting taxes.
- Taxes, including cultivation and excise taxes, contribute to the high prices of cannabis products.
- The high prices have led many medical patients to turn to the illicit market for more affordable options.
- The state's regulations and processes have disenfranchised the medical community.

- Brand loyalty exists in the cannabis industry, but people also try out new products based on bud tender recommendations.
- Brands with higher marketing budgets buy out shelf space at dispensaries and push their products the most.
- Regulatory changes have caused some brands to be wiped off the market, leading to a shortage of supply.
- The market is not yet sophisticated, and there is a shortage of capital, making it difficult for brands to build a business.
- Canadian companies are investing in the industry, buying out smaller distribution companies.
- In the future, more states will pass favorable regulations towards cannabis, leading to potential federal changes.
- California may remove the 1 acre cap on growing in 2023, allowing for unlimited size grows.
- The industry is at odds between advocacy and capitalization, with big players like alcohol and tobacco entering the market.
- There may be a lot of M&A activity, and the market feels frothy like the internet.com bubble.
- Exporting cannabis globally is increasing, with contracts being made with Canada and other countries.
- It is unclear where internationally sold cannabis is grown, but it is likely grown locally or imported from South America or Canada.
- The impact of publications like High Times and celebrities like Cheech and Chong on the industry is uncertain.

- The use of humor and popular media like High Times and Cheech and Chong has been beneficial in raising awareness about cannabis, but the messaging needs improvement.
- High Times and other cannabis media companies have played a pioneering role in changing perceptions of cannabis.
- The stigma surrounding cannabis is still high, but figures like Elon Musk, Gwyneth Paltrow, and Whoopi Goldberg are helping to change that.
- Traditional advertising channels like Google and Facebook are not accessible to cannabis businesses, so influencer marketing and newsworthy outlets are used instead.
- The psychedelic movement is following a similar path as cannabis, with a focus on medical benefits and changing perceptions.
- Cannabis and psychedelics are seen as natural substances that can provide relief and a different perspective in a hyper-connected and stressful world.
- The legalization of cannabis has led to a decrease in arrests and convictions, and social equity programs aim to provide opportunities for those who were previously affected by cannabis laws.
- More funding and support is needed to help these individuals succeed in the cannabis industry.

- San Francisco requires dispensaries to hire 30% of their workforce from social equity programs and have a certain percentage of their shelf space dedicated to products from these programs
- Consumers should consider not only the effects of cannabis but also who made it and where it comes from
- The founders of a cannabis company drove hundreds of thousands of dollars worth of product across California to learn about the industry and meet people
- Start-up advice, such as doing things that don't scale and building a community, applies to the cannabis industry
- YC (Y Combinator) is recommended for entrepreneurs looking for advice and resources
- The interview concludes with appreciation for the advice and a reminder to stop before having an "Elon Musk moment"

- The cannabis market includes various products such as flowers, edibles, and concentrates.
- Different strains of cannabis have different terpene profiles, indicating the type of high they produce.
- The market is growing rapidly, with vapes and edibles becoming popular for discreet consumption.
- Baby boomers are the fastest growing demographic in the cannabis market.
- CBD products are seen as herbal remedies with medicinal properties.
- CBD has been found to reduce pain and promote relaxation without psychoactive effects.
- Meadow and Nabus are companies that provide software and distribution services for the cannabis industry.
- Fundraising in the cannabis industry is challenging due to legal and regulatory aspects.
- California's legalization process has caused challenges for growers and distributors.
- Cash is the primary form of payment, leading to a need for secure storage and banking solutions.
- Taxes contribute to the high prices of cannabis products, leading some medical patients to turn to the illicit market.
- Brand loyalty exists, but bud tender recommendations also influence product choices.
- Regulatory changes have caused some brands to be wiped off the market, leading to a shortage of supply.
- The industry is at odds between advocacy and capitalization, with big players entering the market.
- Cannabis exportation is increasing, with contracts being made with Canada and other countries.
- Traditional advertising channels are not accessible to cannabis businesses, so influencer marketing is used.
- The psychedelic movement is following a similar path as cannabis, focusing on medical benefits and changing perceptions.
- The legalization of cannabis has led to a decrease in arrests and convictions, with social equity programs aiming to provide opportunities for those affected by cannabis laws.
- More funding and support are needed for social equity programs in the cannabis industry.

David Hua is CEO and cofounder of Meadow - https://getmeadow.com/. Meadow makes retail and delivery software for dispensaries. They were part of the Winter 2015 batch. You can check them out at GetMeadow.com. David’s on Twitter - https://twitter.com/hua

Vincent Ning is CEO and cofounder of Nabis - https://getnabis.com/. Nabis is a cannabis services group. They offer distribution, logistics, sales, and marketing. You can check them out at GetNabis.com. Vincent's on Twitter - https://twitter.com/vcning

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

***

Topics

00:00 - What David brought with him

5:10 - Microdosing

6:10 - What are people buying?

10:00 - Customer demographics

11:22 - CBD

14:20 - Changing vocabulary around cannabis

16:35 - What is Meadow?

17:00 - What is Nabis?

17:15 - Why did they choose to not do cannabis product manufacturing?

22:00 - Fundraising as a cannabis company

25:30 - Why is there not one dominant cannabis company?

29:15 - Legalization across Canada

31:00 - Banking as a cannabis company

35:35 - Taxes

37:00 - Price sensitivity

39:35 - Brand loyalty

42:45 - What will the market look like in 5-10 years?

49:30 - Cannabis media

51:45 - Psychedelics

56:00 - Exonerations and social equity programs

We should start by talking about what David has brought.

Yeah I bought a selection of my favorite edibles which my wife makes.

I figure we would be able to smell a lot of different flowers so you can get the terpene profiles.

I think it's kind of like when you do wine tastings.

I bought some body rub, some oils that we can talk about, some live resin, and also a pre-roll.

And a lot of these products are all available on the market today.

It's about showing you how the evolution of the consumer experience has been.

And these are some of the, I've got it at the green door, which

is right around the corner from this office.

And do you distribute any of these products?

Yeah, so Northern Emeralds, I was actually just talking to Cody this morning about it.

And we distribute, we help with Northern Emeralds distribution.

We share an office with them actually over in Oakland.

We've tried working with Papa and Barclay, but I think they do their own distribution.

So a lot of these brands do their own kind of self distribution.

But then oftentimes a lot of like smaller brands or boutique brands will often ask a third party distributor to help out.

So since you guys have gotten into, yeah, let's break it apart.

I got this particularly because it just smelled really good.

It has this like, like really sweet nose.

So you'll get this like Crazy blueberry nests to it.

This is a northern emeralds gelato You're gonna get like kind of a cheesy Musky, you know type of type of smell there.

And like when you smell flowers that have that citrus feel, you get way more of that uplifting, energizing.

Usually it's like sativas have more of a head high, citrusy, lemony kind of aroma to it.

And that's kind of just like the terpene profile, which is basically just like what you'd imagine is a flavor profile for weed.

And then Indica, on the other hand, is more of like, I think people normally remember it by saying, like, Indi-couch, basically.

It's, you know, you slip into the couch and you just get really lazy.

And yeah, I think Indica and Sativa are like, the ways that people typically like to categorize and like hybrids.

But then at the end of the day, there's so many different varieties of strains that, and nowadays with the crossbreeding of all of them, everything seems to be somewhat of a hybrid strain.

And does the strength of the smell indicate its potency in any way?

I think, so a lot of these have their THC percentages now.

So If you look on the labels, you'll see how potent it is.

This is your, and because this is a resin, you're gonna see like, you see all that's been extracted.

This is like basically all the tricones have been put taken from a flower all the cannabinoids Are extracted and put into this resin And so this is what people use for dabbing.

How many milligrams of THC would be in that?

for the amateur, what do you guys recommend?

So like, I mean, like 5 milligram edible.

This is like brown butter sage, black sesame, cookie cream.

And that's what kind of the new consumers going after.

They're not trying to get blitzed on a dab.

There are people literally doing like 2, 3 gram dabs, full dabs and just like fully

But for what we're seeing in the market, new consumer wants to do more microdosing.

So microdosing, I think, has revolutionized how I think about cannabis consumption.

Because we never knew back in the day what you were really getting.

But now, you know, the consumer can understand how many milligrams it is, smell the profile, understand what's within it, and then kind of build their relative scale on how it affects them.

And most people you know when they get too paranoid or they get a little bit like anxious.

They have to just they're just way sensitive.

Keep dialing it back until you can then add a little bit more.

And what does the market look like these days now?

Are more people buying edibles since it's become legalized in California?

will at least from our standpoint as a distributor, the higher velocity items and the higher volume items that flow through the market are just like flour and pre-rolls still, just because that's kind of the most common base of understanding of what wheat is.

And so people generally buy a lot of these single pack pre-rolls, and it depends on the market as well.

So if you're in the middle of a city, people will buy smaller quantities just because there's a lot of tourists and they want to walk into a dispensary these days when they come visit San Francisco.

And then they'll pick up something small versus like if you're kind of this like brand loyalist in like a more rural area, you'll buy a larger quantity like in denominators of eighths or maybe even larger.

And then edibles are a big part of it as well, and I think it's typically for the kind of newbie weed I guess experiencer and they because they for I guess for edibles the argument for that eventually being a bigger market is that, you know, for people who haven't consumed weed before, or smoked before, they have to kind of get their head around like 2 levels of friction.

1 is just like smoking first, anything, and then second, the weed part.

But for edibles, they eat anyway, so this is just like 1 step away from consuming weed.

Right, but they're like very granular dosing.

I mean, that was great for me when I started getting into this stuff.

But I just find that it's a completely different sensation anyway.

Yeah, you're metabolizing it through your liver.

With edibles, you're looking at typically an hour, maybe an hour and a half.

There's some beverages, like California Dreamin, which is a YC batch, they take, they're quicker.

The category that we see that's growing pretty quickly is the concentrate market, but through vapes.

So like here, here are a couple of examples.

I brought some eras and then within each 1 of these I have a different pod.

know, different pods for different feelings.

That's a little bit more of a, you know, chilling out type of strain.

So when I'm not looking to get really high, but I'm looking to, you know, take the edge off a little bit, that's why I really turn to CBD often.

That's probably the cartridge I switch out the most.

And then I have this Nina Simone here, which is, or sorry, Nina Limone.

This is way more when I just want a little kick up.

And what's great about it is I can take a little bit of a puff and it doesn't smell, it's discreet.

And I think that's what people are looking for.

That's kind of what the edibles do for people as well.

I love it personally, But there are people that have that stigma attached to it that have that, you know, oh, I don't want to smell like weird.

Or my neighbor's going to find out or my landlord.

So it's, you know, I recommend if that's the thing you can go with the concentrates or find a vape like a mighty from stores and pickle where you can store it like you can do a vape without combustion and it's not that smelly.

And in terms of your market, your average customer for you guys in particular, is it across the board growing?

Is there a certain segment where people are really taking it up?

The fastest demographic we're seeing is actually the baby boomers.

They are coming in and they are replacing a lot of their prescription drugs.

There's also this feeling of I don't want to feel old.

Which is super ironic because this is the generation that kind of brought us the war on drugs and supported, you know, this movement that for us, you know, D.A.R.E.

They were like, you know, they were kind of hippies or they knew about it, but they kind of bought into this war on drugs mentality.

And it's funny and ironic that they're coming back to this because of their health ailments and their feelings have changed, which is good.

And I think there's this whole kind of like branding around wellness as well for weed.

Not just the fact that it gets you high, but also there's like CBD effects that kind of have medicinal properties or just herbal.

Like it's kind of seen as somewhat of like an herbal remedy or something like that that helps your general day-to-day lifestyle.

Can you break down CBD for people who aren't in the know?

Yeah, so I think it stands for cannabidiol.

And it basically comes from, you can actually derive it from 2 different plants, like marijuana and hemp.

And so the hemp-based CBD is legal and you can sell that anywhere.

So you can get it at like Costco if you want.

I've seen like hemp lotion and like all that sort of stuff.

But then there's also just CBD products that are derived from marijuana that can be sold in dispensaries.

And essentially what it is is it's, for I guess the layman, it's THC without the effects of getting high.

And it'll have medicinal properties that essentially will reduce pain.

And it'll basically generally make you feel a little more chilled out.

And you know, otherwise you won't feel too much of an effect of getting a high of THC.

The crazy thing about CBD is if you look at, I don't know if you watched that CNN special, Weed from Sanjay Gupta.

But essentially, CBD was really helpful for people with epilepsy and that had seizures.

So there's a group called the Stanley Brothers on Colorado that are growing Charlotte's Web.

And what's crazy is if you looked at the history of cannabis growing, a lot of it was bred for potency.

It was also bred for smell, but people didn't really understand the science around what was in it.

And so with the legalization of it, with the requirements of lab testing, they started finding other cannabinoids.

And CBD, THC are 2 of perhaps hundreds of cannabinoids within the plant itself.

So you're seeing research on THC-V, THC-A, CBN, CBG.

All these different cannabinoids are helping people identify ways to help them in their life.

And with CBD, especially if you just take it from hemp derived, the problem is you don't have this, what they call the entourage effect.

And what that pretty much means is each of the cannabinoids kind of help each other with the effect.

And so that's why when you look at something like pop and Barclays like 3 to 1, and you're putting this on sore spots, it has a better effect than if you were just gonna get a CBD lotion.

Yeah, and like products nowadays, apart from just being strain-based, as what you would normally buy back in the day, you're like, I'll buy some Blue Dream or some of this, and based on strain, now a lot of products are ratio-based or effects-based.

So they'll have higher THC content to lower CBD, or one-to-one, or up to 10-to-one.

And that's just driven by becoming more mass appeal, right?

Because the customer goes in the store and they're like, I want to feel this way.

I think there's I think the lexicon is is continuing to build.

And I think it's kind of like wine, right?

Where you have your percentage of alcohol, but then you have your tannins and kind of how it smells.

I think that next frontier is really gonna be around the terpenes, right?

You're gonna have your THC and CBD percentages, but if you put this red Congo against this lemon meringue the smells are completely different and you're going to feel a little bit different as well.

And you know that's just how I've been human trialing myself.

How do you derive the different strains or rather the CBD for instance?

Like how do you pull the CBD out but not everything else?

Yeah, so there's a number of extraction methods now that's kind of bucketed into 2 categories.

You have solventless and then you have solvent.

So solventless is kind of like with Mellows.

She uses actually this gold seal red conga leaves through an ice water extraction.

So it's basically you take the flower and you trim, you run it through cold water and ice, and then you sieve out the runoff into bags.

You dry it out and you have this hash that hasn't been extracted with anything else but just water and some movement agitation.

Then you have CO2, you have BHO, which is butane, you have alcohol distillation.

And so they put the flour through there, they actually rip apart everything.

They take away the terpenes, they take away the cannabinoids, and then they reconstitute it at the end of it to bring it back to what it is.

And so when you look at something like a 3 to 1 CBD or THC to CBD, they most likely extracted it, probably CO2.

Then they measured it, see what the concentration was, and then they put it back to the ratio that they wanted.

So, Meadow builds software for dispensaries, But we spend a lot of time with our dispensaries understanding the products, understanding inventory, helping them with compliance.

And I think everyone at Meadow is pretty passionate about cannabis in general.

So yeah, we're very much software based and working with a lot of people within the supply chain.

Okay, and Vincent, similarly, you guys aren't making anything.

Exactly, So the company's called Nabus and we basically do distribution, like licensed distribution.

So we'll basically just move product at a wholesale level in the supply chain.

And what caused both of you to not get into manufacturing but the actual higher level of the business?

I think, for me at least, it's a pretty capital intensive side of the supply chain, just because you need to buy all the equipment and machinery and have the expertise to produce everything.

And that was not something that I was born with or came with.

And so a lot of people who do manufacturing will essentially white label for a lot of other brands.

And for us, we actually had friends who were manufacturers, who are manufacturers, rather.

And that's a lot of the ways in how we got introduced to a lot of the brands that we work with today.

So distribution was a much lighter weight business for us to be able to start up.

See all Y Combinator transcripts on Youtube

Cannabis Startup Founders David Hua and Vincent Ning on Legalization, Banking, and Industry Trends