Grupo Flor’s Co-founders added to the Upstart 50 List of Bay Area Top Business Creators

The San Francisco Business Times and Silicon Valley Business Journal will honor Grupo Flor’s Co-founders, Mike Bitar and Gavin Kogan as part of the Bay Area’s Upstart 50, which celebrates innovative, disruptive and creative business professionals. The Upstart 50 Event will be held the evening of Tuesday, September 12, 2017, at the Nasdaq Entrepreneurial Center.

Cannabis visionaries, Bitar and Kogan are in good company as the Upstart 50 honorees are comprised of the Bay Area’s top inventors, creatives, backers, and masters – all of whom are driving the creation of the worlds new innovation capital.

Mike Bitar is paving the way for this emerging industry by helping entrepreneurs lease over 2,600,000 square feet of properties in cannabis permitted zones throughout Monterey County. Bitar leverages his extensive experience managing and owning real estate companies, to create Grupo Flor Leasing, a subsidiary company of Grupo Flor that provides cannabis tenants and partners access to extensive political, regulatory, legal, financial and commercial agriculture resources.

“It truly is a great honor to be selected as part of this prestigious group of accomplished innovators,” said Mike Bitar. “I feel fortunate to have this unprecedented market opportunity to shape the landscape of commercial cannabis real estate and work closely with policy makers to help guide the industry forward.”

Gavin Kogan, commercial cannabis attorney, and founding member of California Cannabis Manufacturers Association (CCMA) pioneered the concept of the canna-business ecosystem that connects entrepreneurs to the entire supply chain. Kogan also recognized that industry lacked access to capital and investors lacked a clear path to invest. Hence, the Ag Pistil Fund is born, a subsidiary of Grupo Flor.

“I am exceedingly honored to be included in this cohort of the Upstart 50 business professionals,” said Gavin Kogan. “I’ve been long attracted to solving problems arising from seismic culture shifts. Cannabis presents a virtual bounty of such opportunities. Grupo Flor is designed to stabilize an entirely incoherent, fractured and regionalized California cannabis supply chain.”

The Grupo Flor family of cannabis companies is shaping the future of the market, by inviting visionary entrepreneurs to participate in all aspects of the cannabis industry.  They have developed a vast ecosystem of private equity, real estate leasing, cultivation, manufacturing, distribution, equipment financing and retail operations, providing necessary resources throughout California’s regulated market.  Grupo Flor has emerged as leaders in the local cannabis industry.

Why Ag Tech?

“To a hammer, everything’s a nail,” goes the saying. The problem with the deep focus on a subject is that everything starts to filter through that lens. On the upside, however, is that unexpected connections arise that before weren’t immediately obvious.

Such was the case at the end of June 2017 when 50 or so agriculture technology evangelists from around the world walked off the Forbes Ag Tech Summit tour bus onto Grupo Flor’s cannabis production facilities near Salinas, California. The Forbes Ag Tech Summit is an invitation only event bringing together more than 600 of the most entrepreneurial minds in agriculture to tackle the global food production crisis. The City of Salinas sponsors this summit in hopes of marketing itself the epicenter of thought leadership on this critical and expanding subject.

Grupo Flor, a Salinas based cannabis enterprise of which I am a founder, chose this site because it gave attendees a unique opportunity to tour the entire cannabis wholesale supply chain at one site, from nursery and bloom to processing and extraction, and finally packaging and distribution. Grupo Flor’s attendees, from far-off places like Japan and Poland, were about to get first-hand exposure to processes that easily 90% of California legislators have never witnessed; but that’s a complaint for another blog.

“Yes, that’s correct,” Mark said, in a matter of fact way, wearing a surfer t-shirt and standing in front of an indoor field of stout plants, trichomes glistening, “we recycle 100% of our water; we use the same water 4-7 times before we replenish.” It was little flourishes like this that amazed the attendees, who knew not what to expect, but clearly not detailed attention to sustainability and energy conservation. I’m not exaggerating when I say that after the Grupo Flor tour, cannabis was the belle of the Forbes Ag Tech ball; however, the “why” might surprise.

You see, agriculture works on amazingly small margins, making it extremely difficult to deploy new technologies desperately needed in food production. Black market cannabis, on the other hand, enjoys massive margins, but these fat margins actually retard the need for innovation. Enter regulated cannabis, threatening fat black market margins with taxes, regulations and defined competition. To my surprise, what Grupo Flor’s attendees saw was not just a crop inviting innovation, but actually, a crop maybe having enough margin to encourage adoption.

And there’s the unexpected connection, cannabis offers ag tech entrepreneurs a novel opportunity to deploy innovations critical to global food crisis management. While some saw the Salinas sponsored Summit as little more than a political boondoggle, fostering creativity and unexpected results is not math, it’s risk calculus. Risk calculus is what makes California a top 6 global economy; it’s what enacted Prop 215 and it’s what undergirds our state’s new experiment with regulated cannabis. Is it too much to imagine that in some strange way, regulated cannabis can actually improve our world in ways not immediately obvious today?

Please Send Money

Coming immediately around the bend at California’s cannabis operators is a massive onslaught of regulatory detail that will require millions of dollars to navigate to compliance. Regulators seem to think there’s plenty of cash in cannabis to make this happen from the “starting line” regulations they have crafted. To be honest, I’m not so sure.

Marijuana Business Daily’s Factbook 2016 reports less than 25% of cannabis businesses are funded by outside money; that leaves 75% of all cannabis businesses as self-funded! And more than 50% report they need capital within the next year to survive. While news media insists on showing fluttering cash machines with each cannabis story, it’s my opinion that our industry is gravely underfunded to meet “starting-line” regulation. There is a clear disconnect between the perception of this industry’s wealth and reality; the reality is money is scarce and difficult to shepherd into this industry.

The lack of investment is hardly surprising; here’s a sneak-peak at what investors face: Few cannabis companies have historical performance data (in a black market, data is evidence of illegal activity.) Few cannabis operators use contracts (in a black market, the courts won’t enforce them.) Similarly, few have expertise in scaling business growth (in a black market, scaling invites law enforcement attack.) Say, did I mention the abject lack of banking or credit line access? It’s easy to see why capital is not just pouring into our state’s industry.

Sadly, the fact is that investment capital is critical to the success of our industry meeting “starting-line” regulations. The lack of capital to meet regulatory burdens just reinforces the continued proliferation of the black market. Period. End of sentence. Full stop.

Our government leaders must learn that “more carrot, less stick” is the smarter policy choice for an industry that has for years blossomed in the dark under threat of intense criminal prosecution. What we need are policies that encourage a new investor class; policies that acknowledge investor economic risk is critical to our state’s successful transition from a policy of “ban and imprison” to “tax and regulate.”

There is a clear disconnect between the perception of this industry’s wealth and reality; the reality is money is scarce and difficult to shepherd into this industry.

Some Pre-Dawn Advice

Just before the dawn of California’s regulated cannabis environment a lot remains uncertain, but one thing is dead certain, a great number of today’s operators will not survive these next few years of transition – not because they can’t produce great product, but because they don’t know how to meet the administrative demands of a regulated industry.

While California’s operators are cannabis production leaders par excellence, one thing we are not is administratively prepared. Regardless of how the Sacramento battles resolve over issues of self-distribution, vertical markets or the definition of “ownership” – our industry veterans are just months away from the harsh reality of triplicate forms, detailed process standards and arrogant inspectors. Let me give you a little example of what’s in store for you:

Sometime in 2015, after I had co-founded a high profile California cannabis company, we boldly invited a public health regulator to tour our multi-million-dollar edible manufacturing plant, designed and created to meet the highest food manufacturing safety standards. Before the tour, our industrial chef co-founders stapled an 8.5×11 sheet of paper on a big empty wall. I asked him, “what’s that?” to which without a smile he responded, “our visitor’s policy.” I laughed thinking it absurd. So later, this regulator comes, and tours the facility – seeing state of the art food manufacturing equipment at work producing highest quality cannabis edibles. We were so proud. At the end of the tour as we’re seeing him to the door, he stops and coyly asks if he can take a photo. We say, “sure.” And what’s he do? He shyly walks right over to that silly piece of paper on this huge empty wall and takes a photo of our “visitors policy.” That’s what excited him.

So how do we adequately prepare for this Kafkaesque future of ours? Along with legal counsel, hire administrative support immediately – and I don’t mean your ex-partner’s sister’s friend who just finished a business class at community college. I mean hire an expert in business processes – someone with experience in how to build business processes, how to document those processes and most importantly, how to implement those processes. Processes (a.k.a “SOPs” or Standard Operating Procedures) are critical because at a minimum processes and systems ensure consistency, which in turn promotes employee and consumer safety.

The good news about compliance processes is that it’s not hard. The bad news is that it’s painfully tedious and is a cost center that won’t drive revenue. For those reasons it’s so is often ignored until it is too late. Remember – regulators could give a rat’s ass about your revenue, your high quality product or your marketing brilliance. What excites regulators are written processes that are well implemented. To their mind, if your processes are in place and followed, their departments goals of promoting employee and consumer safety is accomplished.

The reason I seize on processes is because above all else, thinking about processes will force you to think in a way that regulators think, which is the first step to maturing into the post regulation environment.

If you don’t know anything about business processes, you would do well to read up on the subject now – as they take a lot of time to develop, and you don’t have a lot of time. Here are a few resources to orient you to this subject that will be so critical to your surviving this transition to a regulated market:

For Entrepreneurs

Most cannabis entrepreneurs share three core desires: (a) to further compassionate care & patient marijuana access, (b) to pursue social justice goals, such as dismantling the violent Prison Industrial Complex, and (c) to play a meaningful part in building an entirely new American industry from scratch. All of us share these desires and each core desire shows up as primary at different times in our entrepreneurial lives, as well as at different times in the evolution of our industry.

It’s critical to understand how our industry is decidedly different and why it attracts a different breed of entrepreneur. Our industry did not arise from the easily understood commercial desire for wealth or technological evolution. Rather our industry was born from the activism of the LGBT community’s response to the institutionally ignored AIDS epidemic of the 1980’s and 90’s. Medical Marijuana was and is instrumental in easing the suffering of Americans living with HIV and AIDS. This tragedy energized California’s Prop 215 and became the catalyst to opening up the conversation on bringing an end to the long failed drug war waged against the American people.

These roots characterize our emerging industry, inform how we treat each other and with compassionate intelligence guide our future endeavors. Few of us will again likely have an opportunity to build an entire industry from the ground up. Therefore, it is imperative we do so thoughtfully and with conviction. Along this path, we are fortunate to have business leaders and professionals to support this difficult effort and tremendous growth.

WHAT KIND OF LAWYERS?

Criminal lawyers are different from Commercial Lawyers. Criminal lawyers assist individuals caught up in law enforcement actions. Commercial lawyers assist entrepreneurs build sound business structures to avoid personal liabilities. Due to the drug war, Criminal lawyers were the first on the scene and instrumental in carving out the court cases that defined the early shape of our California industry. Commercial lawyers came later, Gavin being one, and helped early entrepreneur’s efforts survive law enforcement encounters and legitimize their commercial endeavors for the benefit of patient collectives.

Contact us if you are seeking a commercial attorney with cannabis related expertise or want a referral to a criminal attorney with cannabis related expertise in your area.

WHAT KIND OF ACCOUNTANTS?

Again much like lawyers accountants are often specialists, and those who are well versed in the intricacies specific to our industry are better able to serve cannabis entrepreneur needs. First and foremost is circumventing the application of Internal Revenue Code Section 280(e), a left-over from the cocaine-high days of the 1980’s. Section 280(e) essentially strips cannabis entrepreneurs from being able to write off their expenses, thus rendering such business endeavors in the red and leaving entrepreneurs financially crippled. IRS Code Section 280(e) and the Federal government’s threat to banks willing to handle cannabis financial transactions are the two key weapons used to injure and inhibit the inevitable growth of the cannabis industry. Like commercial attorneys, accountants can manage your needs remotely.

Contact us for a referral to a qualified cannabis accountant serving your needs.

WHICH CANNABIS CONSULTANTS?

Consultants generally have expertise in specific areas of our industry and thus require a bit more care in selection. For example, an indoor cannabis grow expert may not be the best fit for an endeavor seeking to build out greenhouse operations. Similarly, a business start-up has different needs than an established company solving growth problems. We’ve assembled a team of consultants in different areas that commonly serve my client’s needs:

  • Banking
  • Indoor, outdoor and hybrid grow operations
  • Business plan development & implementation
  • New business financing
  • Edible development & production
  • Extraction business models
  • Marketing
  • Political Advocacy

Contact us if you would benefit from consulting services in any stage of your business development.

Cannabis Conflicts 101

With our industry roaring forward into 2016 under the new Medical Marijuana Regulation & Safety Act (the “Safety Act”), there is a literal frenzy of partnerships, licensing relationships, distribution deals and all manner of business relationships being struck throughout the state. I know because I’ve struck some of those deals, and guided others.

With lovers, friends and business partners, you are first met with a “best face” and over time – true faces are revealed. Unfortunately, the disappointment arising from such revelations can lead to conflicts. These conflicts aren’t just between cannabis operators, they are often between cannabis operators and non-cannabis businesses like landlords or vendors.

READ THIS: no matter how righteous your position in a dispute – a cannabis operator cannot count on a fair shake in our judicial system at this time in history.

Prohibitionist ideology is absolutely up there among the black birds sitting on the wire watching our “pot” frenzy below – just waiting for a dispute to bubble up to their courts. How fair do you think your fight would be in a court battle with your traditional commercial business? Also, It is well known among attorneys that judges and juries can often punish both sides of a dispute if they don’t like either of them. The way that looks is both parties spend in excess of $100,000 each fighting a court battle and in the end the winner is granted $1.00 in damages.

The point is important for two prime reasons: (1) your business interests could be unjustly crushed because of prejudice at court; and (2), judges often follow decisions made by judges in other courts concerning similar disputes. Put differently, prejudiced courts not only threaten you unfairly, they unfairly threaten our burgeoning industry in its infancy.

So, my form of advocacy on the subject is to encourage us all to add mediation and arbitration clauses in our business contracts until our culture and its judiciary matures on the subject of cannabis.

A mediation clause in a contract requires the disputing partners to submit the dispute to a professional (usually a retired judge or lawyer) skilled in the art of helping disputing parties come to a settlement between themselves. This professional does not decide who is right or who is wrong; rather, the professional helps the parties negotiate between themselves an agreement that avoids court. Mediation is successful 90% of the time, so it’s worth considering.

A “binding” arbitration clause in a contract requires the disputing partners to submit the dispute to a professional private judge (usually a retired judge or lawyer). In arbitration, the parties elect and privately pay for the professional judge – and in that way, can ensure their judge is not prejudiced against cannabis. The decision of the professional judge becomes a judgement that the courts must then enforce. While courts can exercise their prejudice at that stage, I believe the risk is greatly reduced, at least certainly in terms of influencing other court decisions down the road.

Mediation and or arbitration are typical contract clauses, and it is quite normal to have one or the other or sometimes both. In our case of cannabis, I suggest both, where the parties agree to first mediate and if that fails, then arbitrate. This is particularly so if one of the parties is a non-cannabis party and has the unfair advantage at mediation to threaten prejudice at court if the mediation negotiations stall.

One last point here for my young community: a contract that addresses dispute resolution does not equate to distrust. I was shocked to once have a sophisticated business person state we probably shouldn’t contract in the first place if I felt there was a need to discuss dispute resolution. Obviously I won’t say who, but suffice it to say the statement ignores the fact that most relationships, business or other, run into troubled waters at some point and a sound dispute resolution policy can keep the wheels on the deal.

In my view, given the infancy of our industry, keeping our disputes out of court is paramount. Dispute resolution discussions are probably the best tools to accomplish that goal. If you won’t include these discussions for your own safety, at least consider it part of your duty to advocate for the safety from prejudice in our courts.