A SPAC formed early last year to build upon the combined power of three California cannabis brands – most notably, the multifarious Caliva – San Jose, California-based The Parent Company (TPCO) (NEO: GRAM.U) (OTCQX: GRAMF) certainly employs any number of cannabis-experienced individuals with mad skills to spare. But the new company still needed a Dr. Frankenstein to stitch together the parts into a unified whole, and to that end the board chose Troy Datcher, who, coming off a multi-decade career at places like Procter & Gamble and The Clorox Company, may not have been the obvious choice for a company whose ambitions will have to meet those of its most iconic partner – Shawn Carter, aka Jay-Z. But the decision begins to make eminent sense when one considers the vision that Datcher and the founders of this experiment in world-class branding are determined to implement. Considering the stakes, it must have been an exhaustive vetting process, but according to Datcher, who spoke at length with CBE during a recent call, the actual outreach was made over social media.
“If you don’t believe in the power of LinkedIn, you should probably start to,” he half-joked. “I got an inquiry; someone sent me a note asking if I’d be interested in talking about a chief executive officer position. And candidly, I was in my dream job at Clorox. I was running global sales for the company during the middle of a pandemic. It was an incredibly challenging time, but the company was 108 years old when the pandemic started, and literally it was built for that moment. It was a really exciting time to be sitting in the seat when there was so much demand across the globe for our brand. I was also general manager of one of the U.S. businesses and I was having a blast, so I really was not looking towards the next chapter.”
“But I got this interesting inquiry, and then they mentioned it was cannabis,” he continued. “I’d been poking holes at the industry as an outsider as it was developing and when I was approached, I decided to listen. I thought it would be pretty hypocritical if I didn’t take a moment to listen to the opportunity, and so I did. As I continued to engage in conversations the opportunity became more intriguing. I got really excited about being a difference-maker in a new company and having the opportunity to have an influence over the industry as it was developing. For 30 years, I’ve had the opportunity to work with some blue-chip consumer products companies like Procter & Gamble and Clorox, and it was exciting to think that I could have an opportunity to shape an entire industry. Toss in Jay-Z and Roc Nation, and it became a very interesting conversation that continues to pique my interest.”
With a career mostly in sales, had he aspired to be a chief executive? “No,” he said, “I actually did not aspire to be a CEO. I’ve always had an interest in making sure that the industries that I participated in cared about diversity and inclusion, especially at the leadership positions. A part of my own personal journey was also to make sure that as I ascended the corporate ladder and gained more responsibility, to bring others along and expose others to the opportunity, and I was doing that in the C-Suite of a Fortune 500 company. I thought that I had reached the pinnacle of my career by doing that. But what I realized in the conversations with others – peers and mentors – as this opportunity came my way, was that this was just another professional challenge. I was convinced by people around me that the experiences and skills I had worked to develop over the past 30 years had shaped me for this moment. So, while I didn’t see myself through that lens, others did and encouraged me to pursue the opportunity.”
Did he have an idea of what TPCO saw in him that would allow them to roll the dice more or less with a novice CEO? “The way it was played back to me, and I asked this question once the process was over – why me? – was that I had broad and deep consumer products experience, and there was a belief in the board that understanding the consumer would be incredibly important as this industry developed. So, I think that consumer-first point of view perspective was helpful, plus I also had big company experience. I’ve worked in a public company setting, I’ve dealt with boards before, I’ve dealt with analysts before, I’ve dealt with key stakeholders, including shareholders, and those experiences gave folks some confidence that I could manage all the key constituents that are important to organizations like ours, especially sitting in the seat that I’m in today. And so, those experiences were really important.
“The other thing is that I have a good track record of success,” he added. “I’ve been fortunate to have built some teams with some great talent, and we’ve done some great things in the industries that I was a part of, and I think that stood out. I’ve also been fortunate enough to be recognized publicly for some of those accomplishments, including being named to Ebony Magazine’s Top 100 Influencers in the Black community, and was named to that list twice, and I’ve also been a top 100 Black business leader by Savoy Magazine. Some of those public acknowledgments of the work are about the results, but also my impact on my team’s – and my – ability to attract and develop talent, which was at the forefront of the conversation I was having with the board when we were going through the process. So, I think the experiences that I’ve had, and the fact that I’ve worked at a very high level, gave them the confidence that I could step into this role and do it today.”
It all sounds great, but cannabis isn’t bleach, I joked. Cannabis consumers are unique, covering all demographics and incomes, encompassing all of the different products. With seven months under his belt, how did he manage all the new information, or did he just take things one at a time?
“Interestingly enough,” he replied, “there are parallels between my previous life and this one. Business is business, and when you’re dealing with a consumer you have to listen to their needs first and foremost. They actually shape your decision-making and your voice, so if you can listen to their wants and needs, you’re going to be in good shape. One thing that is very similar between the two organizations is that Clorox has done a great job over a hundred years building trust with the consumer. At the center of their principle of brand building is building trust with consumers and delivering against that day in and day out, and trust also will be at the center of building a meaningful relationship with consumers in this industry. When you’re putting things inside of your body, you need to trust that the person who is providing that has done everything they can to make sure that it’s safe, and that it actually has the effect that is promised and you’re delivering against those expectations for efficacy and performance. I see those things as very similar.
“And here’s another interesting thing,” he continued. “Clorox had over 40 brands, and not all of it is bleach. You have categories like bleach, with a technical, performance-based trust that you build with the consumer, and on the other end of the spectrum, Clorox owns vitamins, minerals, and supplements. That’s a very new industry, and that was added to the portfolio when I was there, and I got a chance to see how trust was so important in connecting with consumers. That wide variety of consumer offerings actually provided a great deal of experience across the spectrum.”
“Another interesting thing about the parallels between the two companies is that there’s some regulatory engagement, though not at the same level,” he concluded. “Obviously, Clorox has been working with government agencies for some time in terms of partnership and influence. This is all new in cannabis, but Clorox had to go through quite a bit of regulatory work to get things approved in order to launch innovations and to make marketing claims, and so while not to the same extent, I’m familiar with the fact that there are regulatory hurdles that you have to navigate, and of course the hurdles are quite a bit higher here than the ones I just left – by quite a bit – but that’s because the industry is still developing.”
I asked if Datcher was comfortable with science-based products formulated in controlled environments, which will increasingly be part of the cannabis oeuvre, as will the government agencies tasked with regulating different parts of the industry. “Absolutely,” he said. “Actually, our Chief Innovation Officer in charge of product at The Parent Company is someone I worked with at Clorox. He was in charge of innovation for Burt’s Bees as well as for the Clorox mother ship brand, and so in coming here, I knew there was really good science behind the product portfolio because it was someone that I had personal experience with who was doing the work.”
A Question of Clarity
I asked Datcher what he found when he arrived at TPCO, and what his first steps were after he joined the company. “One of the first things was to take a hard look at the company strategy,” he said. “If you are clear on the strategy, it guides so many decisions. The strategy is not just about the things you say yes to, but about the things you say no to right away if you’re very clear about that. So, the first thing I did was I brought in friends from the Boston Consulting Group, a CPG-focused consulting group that I worked with during my days at Clorox, where we worked on two strategies together. I sat down with my executive team to really pressure-test the existing strategy that was in place for the company, and we walked away with a much clearer understanding of our path forward, and that is to be world-class brand builders. And importantly, that clarity is now providing the framework for all the decisions that we’re making as a company.”
Was the company looking for further clarity at that point in time? “I didn’t even debate that as a question,” said Datcher definitively, “I knew the work needed to happen, The industry is so new, and my goodness, so much change has happened in the first 12 months. The commoditization and the consolidation that’s taking place just begs the fact that you had to take a look at whether or not things were still as you envisioned when you started at the company just a year ago. There was so much disruption and so much change that I thought it was only appropriate and I didn’t ask any questions in terms of what they wanted me to do. But I’m such a believer in strategy that it was the first thing that I was going to do when I walked into that building, and I knew prior to joining that I would take a strong look at the strategic choices and whether or not I believed in them, and whether or not I thought they were the right ones that would produce the intended outcome, which for us is to be that world-class brand-building organization that’s focused on the consumer.
“And I have to tell you,” he continued, “that the most exciting part of this is that after going through the review, I’ve challenged some of the thinking of the previous team and gotten great support from the board and executive team. They’ve all signed a voluntary lockout for the next 12 months, and that gives me the runway to build a long-term plan that they have confidence in. And that is really exciting for me as a leader. One of the first accomplishments for me was to declare a strategy, but then to paint a picture where others could see that there’s a path to a much better company twelve months from now if we make the choices outlined in the strategic vision. One way to prove this confidence is to lock up all the equity and to place their confidence in the future, and that’s what the executive team and the board has done, and I’m excited about that part of the plan.”
What had the analysis said in terms of specific steps forward? “For us, it was really just clarity around what capabilities should we own to be brand builders, and what capabilities we are not the rightful owner of and need to find partners to help us execute against those parts of a plan,” he explained.
Did that mean partnering with a manufacturer or a distributor? “Exactly,” he said. “Previously we were doing all of that work, and the question is, how much of that is really worth owning in order to deliver the brand-building results that we expect, and can we find the right partners that can deliver against the quality and care that we put into the work? We should determine whether or not we’re the rightful owner of that capability, or if it’s a capability that we should borrow. That is exactly the exercise we’re going through now, and we’ve identified a couple of key areas already, and we’re going to continue to be doing that over the course of the upcoming quarters.”
TPCO was formed in January 2021, and while it is new, many of the brands it owns have been around for a while. “The SPAC brought together three companies, Caliva, Left Coast Ventures, and SISU Extracts,” explained Datcher. “Caliva, obviously, has been around for a while and had some brands as part of the portfolio. Left Coast Ventures had partnerships that were at the center of their existence, so those brands came over as a part of the transaction, but yes, the brands had been around long before the company.”
In bringing them together under a singular organized plan, did it mean unwinding previous relationships and redoing everything? “It was leaning into those things that made them attractive as a standalone company as well as looking for those synergies that lie in between the seams of organizations,” he replied. “It was a combination of both, I’d say, but the thesis really was that if you could actually own the relationship with the consumer from seed to sale, then obviously you’re learning so much along the journey that it makes you better brand builders, better marketers, better innovators. And also, there’s a cost benefit if you actually own areas of the supply chain from end to end.
“I’ll give you an example of that,” he added. “As a part of the combination of three companies, one capability that was a part of that was distillate extraction, which was the SISU business, but because of the relationship that SISU had with 600 farmers and the ability to capture biomass in the marketplace at a really advantageous price, it actually allowed input to our base that allowed us to deliver a really high-quality product at a significant price advantage in the marketplace. We have a product lineup called [Fun Uncle] Cruisers that has been incredibly disruptive since its launch last summer into the vape category. We now own that ‘quality at a significant price discount’ part of the segment being incredibly disruptive. If you take a look at the top 50 items on vapes a year ago, it was all one brand – I won’t even mention the name, but you probably know it – and if you pull the top 50 now, we have six of those top 50. A part of that is because we’ve been able to leverage our internal operations to deliver a quality product at a significantly discounted price. So, that’s the thesis the company was building on, and an example how we were advantaged by bringing those three organizations together.”
And of course, some brands in the portfolio will not make it. “Our brand portfolio has changed over the course of the year,” said Datcher. “We rationalized a number of brands outside of the organization, because they were not good strategic fits long term. That work is still continuing. We actually just hired a new Chief Marketing Officer, Esther Song, who has been on board for about four weeks now. She’s going through a brand audit and helping us determine whether there are gaps in our portfolio, where there’s maybe too much overlap, and that will help us determine the path forward. But yes, there were some areas where we decided that we needed to evolve our focus and streamline, and we’ve done some work around that with brands and stopped some partnerships that were in place prior to the transaction.”
As to how far along the company is in its integration, “It’s an ongoing process,” explained Datcher. “I’d say any company’s existence is the most challenging in the first year. We’re still focused on integration, and that work will continue to get better over time, and our teams are squarely focused on doing exactly that. Since joining the organization, I’ve done a couple of things I thought would be helpful to that extent. For example, we’ve changed our operating rhythms within the company to where we are spending more time cross-functionally together than ever before. I have weekly meetings with our operations team, with our commercial teams, getting every single leader across the organization together for a conversation about the state of the business, and importantly, how we’re going to work together to win. I’m really excited about the result this is producing and the fact that we are uncovering tons of efficiency opportunities.”
California and the World
I asked Datcher if TPCO will remain a California-focused company or expand into other states. “Our efforts have largely been California-focused,” he said, “but we’ll be announcing over the course of this quarter our first out-of-state partnership, and we’re excited about the fact that we’re on the doorstep of making that announcement public. We’ve been very clear that a couple of things must be true when making this consideration, and one is that we have to share the same values as an organization. I’m so committed to ensuring that we are like-minded when it comes to how we treat consumers and the people that are in our ecosystem that we have to find the right partner that’s going to do the same. That’s that trust part that is so important, and that’s first and foremost something we’re working to make sure is true.
“The second thing is obviously that the quality of the product must meet the ambitions we have for our brands, so we’re taking our time and being very deliberate,” he added. “But we think we have identified some of the right partners to expand out of state with our brand. The good news is there’s a lot of interest in our portfolio. We are building a brand for Jay-Z called Monogram that is an ultra-premium product that is carving out a differentiated place in the market, and as organizations look for differentiation, that brand will be at the center of it. So, we’re getting a lot of inbound interest, that’ll be our lead, and we will bring on other brands as a part of the transaction as well. We’re excited about that, and we’re going to do it through an asset-light approach. We’ve been very clear about that part of it, but we’re excited about the conversations we’re having. It all is very dependent on those two principles I mentioned around the keys to partnership, and we are actively engaged in conversations and several states to that end.”
I noted that Jay-Z would obviously expect his products to be made publicly available throughout the country if not the world whenever legally possible, essentially making global expansion an imperative for the company. “Certainly, Jay-Z is not just a domestic brand but a global one, and so there’s an obvious desire to leverage his understanding of his global impact and influence and bring that to people,’ said Datcher. “We’re also incredibly excited about the promise of leveraging Roc Nation, because they obviously can cut through the clutter and shape culture like very few people. Absolutely, there are ambitions that go well beyond California because of that, and again, the great thing about Jay-Z is that he’s incredibly patient when it comes to brand building, because he wants to build a brand that’s going to stand for 100 years. I joke around with him and say, ‘Hey, we’re one-hundredth of the way on the journey, the brand’s been in market for a year.’
“I actually get a lot of questions regarding success and failure of a brand, and I have to chuckle,” he added, “because we’re so early in the stages of development that no one can claim that we’re not on track yet, because we’re exactly where I thought we’d be, especially when you’re taking the time and care to build a brand like we are. And so, we’re excited about the opportunity that we have, not only in the U.S. but beyond the borders, because of that relationship and that impact. It’s just about finding the right partners that can deliver on the promise.”
Will there be more such collaborations with superstars, celebs, or others, along with new brands? “There’s obviously a lot of inbound interest when we are working with Jay-Z and Santana on collaborations,” said Datcher. “That obviously signals trust to the marketplace, and we get a lot of inbound interest. First and foremost, though, those conversations have to start from a place of authenticity. If there is an authentic connection to the plant, if there’s an authentic connection to the purpose and mission of what we’re trying to do as The Parent Company, then it makes a lot of sense. If this is just another revenue stream for a very famous person, probably not the place that will start until we are first looking through the lens of authenticity in order to make that decision.
“And to answer your question, will there be more brands and more collaborations, there is certainly a lot of interest,” he added. “We’re evaluating those today, and I’m excited about some of the initial conversations we’re having, but they must pass the test of authenticity first. And again, very similar to the out-of-state partnerships, they have to be connected to a person, organization, or entity that shares in our beliefs. We’re having those conversations, and we’re excited about the interest, but we’ll take our time in terms of determining who, when, and if we will proceed. As I mentioned, our CMO is going through a brand audit and we’re looking for those opportunities within our portfolio. If they exist and we think there’s a big organization or a person that can help cut through the clutter to drive the message, that’s when we’ll engage.”
A Promiscuity of Brands
I remarked to Datcher that his comments seem to speak to the company’s existing brands, which primarily is Caliva, and protecting the legacy and the future of those brands. Is that the purpose of the audit, to ensure sure that his brand portfolio is working on all cylinders?
“It is, and you know, I have three decades of experience working in a company that had brands in the same category,” he said. “But [Clorox was] very clear on their mission, very clear on the consumer that they were targeting, so there’s that competitive overlap. The worst thing that you can probably have as a company is brands that are competing for the same resources and the same consumers. You want to have a broader appeal, and we’re going through that work now to make sure that our portfolio is pulled apart enough so that we are not competing against ourselves when it comes to consumers. The great news is that at first glance we’ve done a pretty good job of addressing consumers across a wide spectrum of needs, whether it’s price points or form factors, and we just have to continue to stay mindful of the brand’s ambition and its promise and whether or not the things we’re doing to innovate the brand are in line with the way the brand can travel.
“We’ve done some great work to understand how far brands can travel and what forms are authentically connected to the brand, and not every brand can go into every place,” he added. “So not every brand can move into edibles, not every brand will be successful in launching a quality flower, because the consumer has decided that that’s not the role of that brand. We are very conscious of these things, and we’re going to listen to the consumer and allow them to shape the brands that we have as a part of our portfolio, and where we have gaps we will address that, but we want to make sure that we’re being very clear in terms of how and where the brands can travel and be successful.”
This anticipated my next question about brand loyalty and whether it actually exists in the cannabis industry today. “I think people are still in the mode of exploration and experimentation,” said Datcher. “There is a lot of promiscuity across brands in California and I think it’s because people are still searching for the thing that works for them, and obviously brands are evolving every day. If you think about where brands are largely centered in California today, from a flower standpoint, a lot of them are focused on THC-level, and candidly I don’t think that’s going to be the case long-term. If you use the alcohol industry as a parallel, no one buys grain alcohol because it’s the highest percentage that you can get. There’s flavor, there’s brand affinity, there’s lifestyle affinity, and all those things will become true in cannabis just like it is in other categories.
“The industry is new,” he added, “and people are walking into our dispensaries for the very first time, like, what is this all about? As I meet people along my journey and tell them what I do for a living, I have tons of stories of people saying, ‘Yeah, I just went into a dispensary for the first time a week ago, and I’m exploring.’ They’re relying on information from brands, from budtenders, from all sorts of sources in order to make decision, and I think over time there will be dominant brands that emerge. But we’re in such an exploratory phase right now, I think we’re all just trying to figure it out. And there is so much variety today, thousands of brands in California. I don’t think that will be the case in 10 years, but it is the case today.”
In terms of retail, The Parent Company currently operates 11 dispensaries throughout the state. “We’re really excited about the footprint that we have in California from a retail standpoint,” said Datcher. “We more than tripled that footprint over the course of the year, and that was important obviously to drive some scale, but also to blanket the state so that we can learn as much about the California consumer as possible. Those locations help feed our intelligence about what needs there are from a consumer standpoint, and retail serves a really important purpose as a part of that promise. We get a chance to test our products in that ecosystem before we bring them out to the wholesale market. It’s a really great learning lab for us to understand what’s going to work or not, and with the 11 dispensaries, we’re excited about the fact that we have that kind of scale and footprint in California.”
The stores are mostly branded as DELI or Caliva, but there are also recently acquired stores with other names. “I think long term what you’re going to see is us providing a consistent experience with the consumer that includes some of the good from all
of the entities that we have acquired or built over the course of the year,” he explained. “Whether that’s Caliva or DELI, or Coastal (Santa Barbara) or Calma (West Hollywood), we are taking the best of the best to put in those best practices across our ecosystem. I’m a big believer in efficiency, and over time I’d love to get to one umbrella so that we can provide a consistent experience, and obviously there’s marketing efficiencies when you get to one name and one experience.”
As to which retail brand might survive, that information is seriously under wraps. “I would have to kill you,” said Datcher should I find out, but joking, I think.
Can I Have That Delivered?
TPCO also offers delivery services via retail or standalone. “We have six delivery depots, the majority of which are connected to retail outlets, and then we have a couple that are standalone operations,” explained Datcher. “What we’ve seen as the most efficient way to leverage that asset is to have it connected to a regional outlet, so we’re going through some optimization right now in our delivery business and looking to apply best-in-class practices across all six depots.”
Delivery is certainly not going away, but is it growing? “It is,” he said. “California is experiencing some softness post-pandemic and post-all of the incremental funding that was in the market through the stimulus packages consumers were receiving. But while we’ve seen a softness in California retail, delivery has not been impacted as much as standalone retail. Every day people download our app and use it for delivery. As you mentioned, nothing is pointing to delivery slowing down, because convenience is king, and it will continue to play an incredibly important role long-term.
“As we’ve seen in every other industry,” he added, “frictionless ordering and the convenience of delivery continues to build momentum, and I would expect that to continue in this industry as well, especially after people get familiar with the products that they like, and what they would like to purchase. If they no longer need the expert opinion of our budtenders, they’ll leave the ordering up to themselves and have it delivered to their homes. So, I do see that continuing to be a really important piece of the puzzle, and one that we will continue to grow, because once you get exposed to it, it is a life-changer. It’s a game-changer.”
I asked Datcher what he thought about the percentage of TPCO brands versus third-party brands the company should carry on its menu. “We believe that there’s going to be a healthy mix between first-party brands, the brands that we own, and third-party brands, and we are partnering with some of the top third-party brands in California,” he said. “It’s exciting because we are now known to have an ecosystem that is great for partnerships. With our delivery app, with our loving dispensaries and our ability to touch such a broad swath of the California marketplace, a lot of brands come to us, especially when they’re driving innovation and new views. They leverage us to get that news out into the marketplace, and we are excited about some of the things we can do uniquely with our platform that allows us to be incredibly selective on the third-party brands we want to partner with.
“The data we’re collecting about the consumer and their interest in those brands actually allows us to say yes or no to promotional activity and partnerships based on performance,” he continued. “As a result, we know whether or not there’s going to be a new consumer that walks through our door because of the brand that we’re partnering with versus collecting a check from a potential partner because they presented it to us. We’re just getting really smart at identifying brands that move the needle and we know the ones that are true traffic drivers, the ones that have sticky staying power, and we partner with those brands at a very senior relationship level to make sure that we are both aware of our importance to each other.
“We have a target this year to have 30 percent of our sales come from first-party brands, which means that 70 percent will come from those third-party brands,” he added notably. “We want them to be the right brands and the consumer will help us determine which brands are the right ones.”
Will that array of third-party brands include ones from small cultivators or purveyors? “It will,” said Datcher. “It’s a combination of top-tier, established brands, but consumers are always looking for something new, so it’s our job to have an ear to the ground on the next up-and-coming grower and operator so that we can put them in front of our consumer. We also have a social equity program where we are exposing social equity entrepreneurs to our ecosystem and our consumers.
“There’s a young man out of Oakland named Jessie Grundy, who owns a brand called Peakz,” he added. “We’ve invested in that brand, and importantly we put Jesse’s brand in our ecosystem, so you can find him in our stores as well as on our delivery app. I was at a dispensary opening this past weekend in Oakland in fact, and it gave me a big sense of pride when I was running through their brands and asking them about local brands that they support, and they mentioned Jessie and Peakz. That’s a really exciting place to be, and so it’s a combination of those big brands, but also how do you unearth these opportunities with up-and-coming entrepreneurs and give them a space to showcase their brand and be a part of this really exciting emerging time in the industry. That’s why it’s so important to be in tune with the consumer and try to anticipate their needs and be in front of what’s next.”
Grows and SKUs
The Parent Company currently operates one grow site. “It’s an indoor facility with 20,000 square feet of canopy, and we dedicate the majority of it to our brands,” said Datcher. “We have some other partnerships, but the majority of our needs are met through the cultivation that we do.” The company has no plans to add more cultivation. “We have some work to do to continue to drive efficiency from our current operation, so that’s our current focus.”
On the subject of manufacturing, R&D, and product development, I asked how many SKUs the company currently has. “That’s a good question,” said Datcher. “Let me answer by saying too many. That’s the exercise we are going through now to be a more efficient company. We have a new supply chain lead, Rodney Bonds, who speaks my language and I love it. He is all about efficiency, and you can get into some inefficient practices when you’re facing consumer needs if you’re not smart about managing SKU count and complexity. It can really get away from you, and so we have a very aggressive target to reduce the number of SKUs we have, because we’ve faced the consumer without previously being informed by the data. We’re doing a better job of that today than we ever have before, and it is allowing us to get really clear on the number of items that we need to offer. The current number is astronomical actually, and it’s something that we’re paying a lot more attention today than ever before.”
Isn’t it also inevitable that in the process of bringing three different brands together, they will have some overlap? “Absolutely, that is part of it,” he said. “Your philosophy as an organization also is a part of it. If you need the hottest new strain from every single brand, you can imagine a number of items flowing through your system. But once you determined the top brands that you want to work with, and the value that they bring when you do exclusive drops with them, it’s worth the complexity with those brands. So, I think we’re just being a lot more choiceful now.”
For genetics, TPCO partners with others, and if needed will collaborate with these companies on developing new products “We do have a supply strike team that is a combination of product, manufacturing, and cultivation, and is informed by an understanding of what’s coming next,” said Datcher. “These folks are really in-tune with the industry. I mentioned our connection to SISU and the fact that they have a relationship with over 600 farmers in California. The intel from that is so critically important to understanding what trends are emerging, and the strike team sits together and will plan and coordinate over the course of the next 12 months what our strategy will be around strains and partnerships based on what’s new and what’s next.”
Economies of Scale, and the Storm Clouds of Recession
Our time running out, we pivoted to the company’s most recent earnings report and economic conditions overall, and specifically what the plan is for achieving the 20 percent reduction of cash operating expenses identified as a target in the report.
“We announced publicly three areas of focus to impact our reduction in operating expenses over the course of the year, with more to be announced incrementally in the coming quarters,” said Datcher. “We’re at the stage now where we can talk about at least three of those things publicly. One is that we’re outsourcing our wholesale distribution, so while we’re going to maintain the relationship with dispensaries on our own, we don’t have to drive the trucks around the state of California. We’re going to outsource that wholesale distribution piece and will be making that announcement in the next couple of weeks.
“We’re also going to optimize our delivery operations,” he added. “As I mentioned earlier, the ones that are connected to retail outlets are more profitable than ones that aren’t, so we’re going to look at our operations on delivery. And we’ve publicly discussed that we’re going to reduce our payroll expenses over the course of the year. Those are the starting point of the initiatives, but more are to come, and it’s important to note that every decision you hear from us in the future will be guided by the strategic choices that I mentioned earlier in the conversation. Strategy will inform the capabilities that we need to own versus outsource, and we’re continuing to evaluate that over time, but those are the three areas we talk about publicly.”
And if we do go into recession, will TPCO be able to move forward with its plans no matter what? “Absolutely,” said Datcher. “And the way that we’ll manage through any recession, and the challenges presented by that – and I do think all signs point towards a recession over the course of the next 24 months – is one, our product portfolio needs to be adaptable to the consumer trends when it comes to price and impact. Having a wide variety of offerings, some at a lower price point all the way up to the higher quality product, and having that those options across your portfolio, allows you to then pivot and actually capture consumers wherever they are on the spectrum. That’s one thing that is really important about having a suite of products and a brand portfolio of products, that you can capture the consumer wherever they may move.
“The second piece of that,” he continued, “is developing the right loyalty programs in times of economic challenges. What I’ve seen in my 30 years of being in consumer products is that the right loyalty program conveys value. There’s a reason why people choose you versus others. Instead of people searching around for the best deal, do you have the right, sticky platform for them to stay engaged with your brands because there’s a reward for them to do so? I think loyalty will be a big part of this equation, and it’s something we’re working on as a company. I’m excited about that, because I’ve seen it pay major dividends when you have the right program to keep consumers engaged.”
I had one last question on this topic, about inflationary pressures. When I look at California, I see a lot of pressure to keep prices low in dispensaries because of competition and high taxes, and yet that pressure seems to be at odds with rising costs for operators. How does TPCO deal with that?
“I do think that’s a challenge,” said Datcher. “So, managing inputs, making sure you’re eliminating all waste, making sure that if you can’t be the best owner of a capability at the best value, outsourcing that work to someone that can do a better job, all of that is important. Keeping a mindful eye on costs and complexity during challenging times is what is most important, and we will continue to focus there and on finding ways not to give away margin, but to focus on execution and the excellence behind operations to deliver the value that that bolsters our bottom line.”
And finally, I asked Datcher to describe the qualities that most distinguish The Parent Company from its competitors, and if he wanted to share what keeps him up at night? “I think the language we use to describe who we are differentiates us versus others,” said Datcher. “The fact that we are consumer focused, and the language we use to describe the work we’re doing is incredibly different from others. I think the challenge is that we’re kind of mired in the rest of California in terms of performance, but as others continue to listen to how we’re talking about brand building and the fact that the words and pictures match what we say brand building is and what we want it to be and the actions we’re taking, that to me is the true differentiator.
“There is another piece to that that is important, which is talent,” he added with emphasis. “That is going to be one of the true differentiators between us and our competitors. Am I attracting the best talent in the industry to join us on this journey, and are we on our way to revamping our executive team to reflect that part of the promise? I’m so excited about the leaders that we’ve added over the course of the last couple of months. I’ve got a big announcement I’m making in the next two weeks, and folks in the industry will understand that we are building something interesting here because of the technical people that are joining us. Finally, I would add that the three things we talk about a lot – trust, authenticity, and stewardship – are also critically important and are the lens we look through when making decisions. That to me is a big differentiator as well.
“As far as what keeps me up at night,” he said to conclude our conversation, “it’s the fact that government officials and regulators don’t do the work we do every day, so there’s an operational disconnect between how things work versus how some people may see it on paper. I’d love for these legislators and regulators to come walk in my shoes for a week. They would learn a lot, and they wouldn’t make some of the complicated regulatory changes or implement regulatory barriers to our success as an industry if they sat in our seat for a few days.”
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