“We're not focused on having the biggest footprint in the cannabis space; instead, we're focused on having the most defined and profitable footprint. And I think our track record so far has proven that.”
The cannabis industry is widely perceived as a cash cow and hence has attracted many “milkers” looking to make a quick and easy buck. With a projected market value of $32 billion by the close of 2022, the industry has been literally gushed over by passionate entrepreneurs.
But as research is now revealing, if there’s any quick buck to be made, it’s definitely not from weed.
A recent survey revealed that less than 45% of cannabis businesses are turning in a profit. So much for the green-rush hype; it appears that a lot of due diligence and hard work goes into getting a share of the $32 billion-worth pie.
In this interview, we talked to Aric Klar, founder and CEO of Quality Roots, a profitable and promising cannabis business, to gain a deeper insight into what it takes to succeed in the business of cannabis.
The cannabis industry is one that many would rather not associate with (stigmatized). How did your career path lead you here?
I've always been interested in new, trending things. I think maybe three or four years ago, a lot of people were reluctant or hesitant about the cannabis business, but that perception is changing daily. The industry will never be as small as it is today; it's only growing from here. And, with the research and the proven medicinal benefits, I think the stigmatization of cannabis is becoming a thing of the past. The entire scope of adult-use products is changing; in fact, alcohol sales have dropped since recreational marijuana has been legalized in many states. People still want to have fun and relax, but they're looking for a healthier and safer alternative.
Briefly introduce Quality Roots and the unique role that the company is playing in moving the legal cannabis industry in Michigan forward.
Most operators are weekly, monthly, or even quarterly or annual operators – but we're hour-by-hour operators. We're not focused on having the biggest footprint in the cannabis space; instead, we're focused on having the most defined and profitable footprint. And I think our track record so far has proven that.
We're looking to grow organically. I believe in building relationships with people who can help inspire our internal and organic growth – maybe through partnerships with municipalities or other business owners. We're trying to be the Ace Hardware family model of the cannabis industry. I think our unique, family-based business sets us up for success and allows people to trust us. That's a very important part of this business – trust and validation.
You are a family-oriented business. What are some pros or cons that come with this?
`Being a family-oriented business, we not only have professional but also personal relationships with everybody who works for our company, and we care about each person who is part of our team. We're building Quality Roots – but that's just the name on the outside of the building. What matters most are the people on the inside.
Another pro is that I get to work with my family every day. My brothers and I run the business on a daily basis, and that's exciting. I grew up in family businesses. My dad owned a chain of pharmacies, and my brother Jonathan, my mom, and I owned a chain of toy stores. It's in our blood; we've been able to take everything we've learned from the generations of family businesses before us, and use it to build an even larger business. Of course, we have our feuds sometimes, as all brothers do, but, in the long run, I wouldn't say there are really any cons to having a family-oriented business.
Quality Roots thrived during the pandemic period. Can you tell us how the company was able to do this?
It's all because of the previous business experience our team has and the hard work we all put in – that's what enabled us to be successful. We actually opened Quality Roots during the pandemic. COVID-19 hit right before we were supposed to open our first store – so we had to push back our opening day to April 2020. But we were able to still thrive because we adapted to the times – offering curbside pick-up and delivery services when restrictions were in place. Early on, that was important because people knew that we were being safe.
Our growth can also be tied to a very organic marketing strategy – working with the right community leaders to make sure residents knew we were opening. You have to have the right influence on the right people so they start spreading the word as soon as possible. When friends ask, “Where should I go to buy cannabis?” I want people to answer, “Quality Roots!”
We've been able to cultivate one of the largest cannabis menus in the state – carrying about 50 to 100 brands of flower, pre-rolls, vape cartridges, edibles, concentrates, and CBD products at any given time. We've become known for being the one-stop shop for people's cannabis needs. There's a reason we're called “Quality Roots” – we have quality products, quality people, and quality service.
For an entrepreneur, what are some of the greatest challenges that come with running a legal dispensary?
There are only two real challenges. One is, of course, competition. It's a very cutthroat business because of the product that we're selling. This is a product that is still being sold on the black market, so we not only have to compete with other legal retailers – but we have to compete with them too.
The second obstacle is the IRS Tax Code 280E, which states that “no deduction or credit shall be allowed in running a business that consists of trafficking a controlled substance.” That means that I can't write off anything in regard to overhead, except for the actual cost of goods. In this business, unfortunately, because of 280E, it forces us to be less profitable than we would be if it wasn't for that tax code.
The Safe Banking Act: How necessary is this for the industry and what positive changes will come with this?
The Safe Banking Act has proposed legislation that would protect banking institutions that offer services to legitimate cannabis businesses. A lot of places won't loan to companies like us, so we have to go private for everything. So, if the Safe Banking Act passes in the Senate, it would allow banks to treat us like they would treat any other company.
In terms of regulation, what is the one change that you would like to see to make the industry more “inclusive?”
We need more enforcement in the industry. People not running honest cannabis businesses is a problem across every state, and I think it turns people off from the industry. I will be vocal on that until it changes; enforcement needs to get stronger to protect the ethical operators – the ones who want to do business the right way. Michigan has a Cannabis Regulatory Agency Enforcement Division – but that division needs to be expanded, defined, and executed.
What's next for Quality Roots?
We've had amazing growth over the last three years, and we're only continuing to grow. We have plans to open locations in one or two more states over the next 12 months. We're in the midst of building out three stores in New Jersey. And, in Michigan, we'll be opening locations in Berkley and Waterford by the end of the year, and next year, we have Ypisilanti and Westland locations opening up.
I think raising more capital soon is on our horizon. We are also looking for operators who don't have the time to devote 100% of their time to this industry – people who have other businesses they are running. We want to work with them on the management and service side to help them get their operations up and running in the same way that ours is – allowing them to bring profitability to their facility. I'm very excited about that.