Staff
This is a transcript from an interview held on Sept. 11 at the Green Market Summit in Los Angeles.
Jane Wells: Good afternoon, everyone. I’ve been covering the legal cannabis industry since 2014. I think what’s been amazing for me as a reporter is watching the fits and starts. More fits than starts. Just yesterday, I was in Santa Barbara County, which is issued more licenses to grow pot than any other county in the state of California; 35% of all the grow licenses are in Santa Barbara County. And all of the sudden the wine grape growers and the avocado and citrus growers are having a cow, because they can’t spray; the spray can get on the product, they’re afraid the smell, the terpenes are going to change the taste of the wine.
And it’s become a huge, huge issue. This weekend, I’m going up to Southern Humboldt. My brother-in-law is an OG, they call him. And original grower. And there you have an established industry that has very little interest, generally speaking in compliance as we just heard about. And paying taxes, and having smaller profit margins. And they’re also having to come to terms after generations of being back to the land of the detrimental effects that their grows have had on the environment. So it is a fascinating …
One that is doing well is PLUS Products and CEO Jake Heimark. Jake, tell us a bit about Plus Products and these number one and two skus.
Jake Heimark: So Plus is a company that makes edibles. We make edibles here in California. And what we’ve really focused on as a company is what we call achieving balance. So if you look at whether it’s cannabis, THC, CBD, or hemp; all of these compounds and plants are having a moment right now. And we think the reason why at Plus is that people are overwhelmed. I mean our iPhones and iPads are constantly going off, social media’s made hard to actually connect with one another, and cannabis and hemp seem to have properties of actually calming the nervous system. And so we think at a macro-level that returning to being in the moment and present and balanced is really a powerful driver for this whole industry. And at Plus we make foods because we also believe if you’re going to use something every day, reit’s probably not healthy to smoke it.
Jane Wells: I was wondering about that, because edibles have traditionally been a smaller part of the market. So why did you go in that direction?
Jake Heimark: They still are, right? But at Plus we are building what we call a company our grandmothers could be proud of. So we think that if you’re going to do something every single day… And there’s no science to back this up at all, right? So there’s not much science in the industry in general, but all the indications from every other industry showed that if you keep things up and pull them into your lungs, its not going to be good for you to do every day. So we think edibles are probably a safer alternative.
Jane Wells: What are these two sku’s? You only have three sku’s, so the fact that you have number one and two selling product of California, and you only have three products. Explain… Describe the product.
Jake Heimark: So, we have three sku’s. We have an uplift sour watermelon gummy. It has a ratio of THC and CBD; it’s actually our most THC heavy. It’s five milligrams per gummy which is a lower dose to most people. And it has a really awesome grapefruit flavor on it. And then we have a balance gummy which has a sour blueberry flavor. And it’s less THC and a little bit more CBD. Then we have something called unwind which is a combination of blackberry and lemon, which has somewhere in between the other two products.
Jane Wells: And so what is the range of THC in each products? You said-
Jake Heimark: So we have at the most, we have 5 milligrams of THC; and then at the least we have 3 1/2 milligrams of THC.
Jane Wells: And how many in a tin?
Jake Heimark: There are 20 gummies in a tin. What we’ve really focused on is making sure that every single gummy has the exact same amount of THC in them
Jane Wells: Yeah, how do you… How have you been able to control dosing?
Jake Heimark: A lot of work.
Jane Wells: And a lot of money I’m assuming.
Jake Heimark: Sure. I mean money has helped. We’re fortunate to be well-funded now as a company, but I think that the key that I’ve learned… So my uncle was a food manufacturer, that’s actually how I got into the industry. So I grew up in technology. I used to work at Facebook, and then I knew a lot about e-commerce banking and this industry has a banking problem.
Jane Wells: We’ll get to that.
Jake Heimark: I moved to Denver and went to dispensaries and saw very quickly that people didn’t know how to make food, and my family is from Austin, Minnesota. They made frozen California Pizza Kitchens, Stover’s Mac n’ cheese, all the stuff that makes you sizeable in the U.S.
Jane Wells: They seem to go hand-in-hand with cannabis, too.
Jake Heimark: Yeah. It’s delicious stuff. And so we saw the food that’s being made in cannabis and knew that people maybe didn’t have factories; you can kind of feel off of the food that they weren’t being made in places where other people served. And we thought it would be pretty easy to take food standards and sort of apply them to the industry. We were wrong; it was very hard. But by sort of some elbow grease and adapting machinery and a lot of failures, we finally figured out how to get it right.
Jane Wells: How much did that cost?
Jake Heimark: How much have we spent at the company over the last few years?
Jane Wells: Sure, yeah.
Jake Heimark: Probably 15 million dollars.
Jane Wells: And your revenues for the second quarter this year were 3.6 million.
Jake Heimark: They were.
Jane Wells: Which is 125% year over year growth. And your gross margin’s 20%. So they’ve grown also.
Jake Heimark: They have.
Jane Wells: Are you profitable yet?
Jake Heimark: We’re not. We’re not.
Jane Wells: When do you think that might happen?
Jake Heimark: It’s a good question. So as a founder, we’re always focused on what I call the point in which we go from default dead to default alive. And it’s really an important point for I think any founder, CEO to know about their business. It’s the point at which your cash flow and your projections of your growth make it so that with the margins that you have, you are never going to have to raise another dollar. Because if you’re there with the cash that you have in the bank-
Jane Wells: You’re self-sustaining.
Jake Heimark: … You are in control. I think with the cash that we have in our balance sheet, because we have a healthy one now; we’re now at the default alive point. And so the question is how quickly do we want to move in certain areas. And you know, that’s a constant question for us and the board.
Jane Wells: Small dosing. Why? So people will eat more?
Jake Heimark: So we just launched this new ad campaign in California. We’ve been trying to figure out… and it takes years to figure out how to actually interact with customers and describe the things that we’re all learning together. We call it finding your just right. So, cannabis works for a lot of different things for different people and actually affects people differently. We see our job as making sure that every piece is the exact same. And by making it small, you can choose how much you want to have because you could have multiple of them.
Jane Wells: You have a… This new ad campaign is a million dollars, this new marketing campaign, right? That’s a big spin for a company with the revenue stream that you have.
Jake Heimark: It is.
Jane Wells: I’m waiting, we talked about it a little bit in the last panel to see something other than MedMen billboards outside LAX to tell me about the industry. I mean what are you doing? Where are these ads?
Jake Heimark: Yeah, they’re being placed all over California. There are some billboards, and there are some other moments which we’ll unwrap as well. We just actually wrapped some mini coopers that are super fun.
Jane Wells: Why do you only have three sku’s?
Jake Heimark: That’s a good question.
Jane Wells: It’s like you’re almost doing… It’s counter-intuitive.
Jake Heimark: It’s the opposite of what makes other people… I think people from outside the CPG world super excited. So at Plus, we focus on having a few things that sell really well. And the reason why is customers go to a store, it’s a confusing industry. They’ll buy different things to try what works for them. And at Plus, we really are all about balance. That’s who we are; we want to make it less confusing. They try our products. If they work and they like them, they come back and they buy them again. Coca-Cola did a really good job, I mean it took them how many years to add Coke Zero? So we think- was the… Oh, let’s try orange and lemon, or whatever?
Oh, we’ve had so many bad flavors internally it’s not even funny. That’s why we focus on few… But I think the major thing we got wrong in the beginning was not letting the customers decide what works. We started as a gum company. Gum has all these really great attributes that would make it the perfect edible. It is low calorie, it is fast acting, because it absorbs in your mouth, it is extremely portable, it’s temperature resistant. It’s all these things that… You know, in the attribute list if you’re a marketer. Lie okay, it has all of the things. Right? It didn’t work.
Jane Wells: Why?
Jake Heimark: That’s a good question. I’ve been thinking about this for a few years, right? Because it took us a year and a half to pivot… By the way, the reason it took us so long is because my co-founder Lucy is an amazing salesperson; she just got into every dispensary, and if she weren’t so good at her job-
Jane Wells: You would have figured it out?
Jake Heimark: Yeah, because she kept selling it, and then it wasn’t moving on the shelves. But that’s a different issue. So the reason why I think gum didn’t work at the time is that edibles are scary. Everybody has that cousin or that friend or that story about themselves where they just passed out.
Jane Wells: The Maureen Dowd – New York Times story.
Jake Heimark: Exactly. That brownie that made it so you know, they were couch-locked for four days, which is my favorite term. And so when you combine scary and new, that is not a combination that people are excited about. So until you have actual brand equity, and I think even with where we’ve been at Plus, which is the leading edibles producer, I don’t think we’re at the point yet where we have a real brand. I think those are built over many years. Even then, it’s like are we ready to launch it yet? Maybe. We’ll try at some point.
Jane Wells: So gum may make a comeback?
Jake Heimark: At some point. My co-founders love it. And so at some point, we have to do it again.
Jane Wells: Let’s start at the beginning. You started this business like so many in your… In a Palo Alto garage. Is that just myth or is that true?
Jake Heimark: No that’s… The garage is on Waverly street in Palo Alto. We slept… My co-founder, a guy named Justin, he goes by Crunchie; he lived in my brother’s bedroom and we started it right in the garage. It was fun.
Jane Wells: You worked at Facebook, you worked at other places that have nothing to do with food production. You say it was in the family. Or in retail; what made you decide to do this?
Jake Heimark: I think the short answer is I was looking for something for myself and for my wife. I think really good product companies start from someone needing something that’s not there. I joined the industry a couple months after recreational legalization in Colorado when my dad actually sent me a video of Sanjay Gupta in one of his specials talking about the banking problems. I moved to Colorado, and I’m there at the dispensaries talking to them about how they bank and my favorite thing a dispensary ever said to me was, I said okay I’m doing research on a bank, I’m thinking about doing an auditing company, and the dispensary owner says, “Great. Do you want to see my books?” And I said absolutely. And they said, “Okay, which set?” I said oh my gosh. That sounds wonderful.
Jake Heimark: So I’m visiting all these dispensaries, I’m going around and I’m looking at what’s on the shelves and I don’t like smoking; I think that those truth campaigns worked really well on me for some reason. I’m frightened of it; so I was looking for something that wasn’t that. And that’s where edibles came in, and then the foods that were being made just weren’t very high quality.
Jane Wells: What were some crazy stories from when you said, “Okay, I’m going to do this. I’m going to do this.” It’s not legal federally… When did you start, by the way, Plus Products?
Jake Heimark: So, we’re about four and a half years old, so 2015?
Jane Wells: Did you start in California?
Jake Heimark: We started… I found my co-founder in Colorado and then we immediately moved to California because we didn’t have any money, so we lived in my parent’s house.
Jane Wells: And so you started on the medical side then?
Jake Heimark: We did.
Jane Wells: And then… What did your parents say, by the way?
Jake Heimark: They were oddly supportive. I had had, you know… After Facebook I went to a startup that was started by a 19-year-old; a great company called Gum Road that has nothing to do with food, it’s just happened to have gum in its name. And I had been looking for what I wanted to do next. I think this was the first time that I felt a real calling to do something. My parents were wildly supportive of that. I couldn’t have asked for more.
Jane Wells: What was your start-up money and where’d it come from?
Jake Heimark: It was my dad.
Jane Wells: How much?
Jake Heimark: It was $100,000.
Jane Wells: What?! Your dad gave you $100,000?
Jake Heimark: He did. And he did it as debt and he made sure that he saw every single bill and every single thing that we were doing so he could support the company and its oversight that honestly if we hadn’t had… He’s the chairman of our company now, as a public company.
Jane Wells: Did he get his hundred grand back yet?
Jake Heimark: He did get his hundred grand back before we went public. I think it’s that oversight that’s helping me grow a lot in my role, and my co-founders as well. My mom still does our HR. She’s our head of HR. And there’s a piece to really successful food companies where they’ve always been family companies; whether it’s the Nestle company, or Kellogg’s, or Cadbury. There’s this piece to food companies where every single person in the company needs to care about each other and care about the consumer in a way that you don’t get at non-family companies that I think has led to us being successful.
Jane Wells: Interesting. How do you build a brand? How do you do that; and not only build this brand, but build it into what you plan to be an international brand? You’ve had some experience.
Jake Heimark: I think that it starts with understanding what consumers want and what problem they’re trying to solve. I think anything beyond that is… If you don’t start there you’re going to be in trouble.
Jane Wells: What problem are you trying to solve?
Jake Heimark: For us, it’s … That sense of an overwhelming lack of clarity of being yourself anymore. It’s like an existential on us that a lot of people are feeling. It’s very millennial my dad would say. But it’s real, right? And so I think that that is what we’re trying to solve and help people solve it in a way that takes them not out of the reality that they’re in because there are those brands in cannabis, right? Like just exit me from this space, but actually enjoy that moment again.
Jane Wells: How did you raise capital?
Jake Heimark: We didn’t for a long time. It was very hard. So I came from… I was at Facebook then. I assumed that because of my background and because of Silicon Valley that you know, it’s like you start a company out in a garage and somebody hands you a 2 1/2 million dollar check, which for the most part is wildly true, which is not smart by the way. But every VC in the world would meet with us. We were getting meetings with people who I would never have thought I would get meetings with. And every meeting ended also the same way, which was, this is great. We have federally restricted money, or we have an LP who will put money into you. It always ended with the, oh yeah by the way we can’t touch cannabis. And so it was my parent’s friends. And then it was a group of Canadians. Cause they were the only people investing. They believed in us when no one else did.
Jane Wells: The Canadian companies have a distinct advantage; they can list on the NYSC and the NASDAQ. They can get coverage by Wall Street. All these things that American companies cannot. Have you been approached about being acquired? Would you like to be acquired by a Canadian… Would you move to Canada? That’s a lot, I’m sorry.
Jake Heimark: That’s a lot of questions at once. Right? So yeah.
Jake Heimark: Let me start with… I met my core in an entrepreneur who wants to create products, and there could not be a better environment for that than what exists today. If this were a federally legal activity in the U.S… And the reason why people can’t list on the NYSC and the NASDAQ doesn’t allow people to list, if you have it’s because it’s federally illegal. That environment is an entrepreneur stream because the biggest food company or the biggest food company in cannabis if it were legal federally, would be Kraft. Right? So this is a really fun and exciting time. I don’t think we’re done yet. We have one percent done at the company and a lot ahead of us, and so we welcome, of course, federal legalization. I hope especially that that’s tied with some real criminal justice reform because that needs to happen. I like the environment that we’re in. I’m very happy with where Plus is today.
Jane Wells: Biggest mistakes you’ve made.
Jake Heimark: Made so many. Where do you want me to start?
Jane Wells: With the biggest.
Jake Heimark: Yeah. I’d say the top one is… Actually I’ll give you a story. This is a good story.
Jake Heimark: There’s a… And I won’t name the company. There’s a store we were placing our product that approached us for an acquisition about a year and a half, maybe two years ago. They basically said we’re one of your biggest customers, you’re the best selling product in our stores, we have a much bigger balance sheet than you have. We’re going to either acquire you at your valuation, or we’re going to kick you off our stores and pour so much money into your competitor who we’re going to acquire, that you’re not going to exist.
Jane Wells: Really?
Jake Heimark: We had three million dollars in the bank. That doesn’t feel good. So I wanted to quit the company and sell it to them, because I didn’t see a path out. And the biggest mistake that I made was not listening to my mom and my dad and our early investors who basically said you do not exit when you’re doing the right thing; and if your customers love your product they will support you. It was a couple months later that our biggest investor came in and supported our company. We survived. We’re on their shelf still.
Jane Wells: So you did eventually tell them no?
Jake Heimark: Absolutely.
Jane Wells: You did listen to your parents?
Jake Heimark: A hundred percent. But I didn’t for three months. And that failure to listen to them set our company back because if I just had some clarity of vision I think we would have been able to move even faster; that slow down hurt us.
Jane Wells: If you could do it over, what would you have done differently in building this company so far?
Jake Heimark: Started with gummies?
Jane Wells: Skip the gum?
Jake Heimark: No. I think I’m really proud of what we’ve done so far. If I could do anything differently I think we would have gotten involved on the advocacy part of the industry sooner. I don’t think we realized at Plus how myopic sort of legislatures can be, ad regulators that we trusted that as these rules in California would come to pass, that they’d actually start enforcing people who are doing the things that they were supposed to do; we’d start to be advantaged. We didn’t have a large voice with the state or nationally on those issues because we believed that of course there were going to be incentivized to help the industry grow. It’s turned out not to be the case. So we’re getting more involved in that.
Jane Wells: Yeah, are you surprised at the fits and starts to roll this industry out in California? Which is the largest cannabis market already. And how much of that is the entrenched black market, just like why?
Jake Heimark: I’m not surprised now. I certainly was for a long time; the reason I’d say I’m not surprised now is because the issue is a funding issue. The state has to probably funded the regulatory agencies and endowed them with the ability to actually go and shut down places that are not doing it correctly. And unfortunately, I’ve learned that whether it’s national or local politics, it actually does boil down to money. If that changes I think we’re in a different environment. Right now they’re moving the people in the state government are trying their best. But when you only have 8 people or 16 it’s difficult to shut down. Especially when you want to allow… In California, we have this historical legacy of non-profit cannabis that helped people with cancer and with all these issues that cannabis has been known to help with. So we don’t want to shut down people just because they don’t have a license today. It’s a hard job for regulators, and they’re really trying to do the right thing. But they’re severely underfunded.
Jane Wells: How do you find management? Because you’ve hired people from Quaker Oats and Uber and UPS. The Uber person is probably thrilled that you hired him. Or her. How do you… Has it been hard to find a good management team in something that is still federally illegal?
Jake Heimark: I think in the last 6 months it’s changed. I think before that most people wouldn’t even take my calls. But what’s helped us a ton at Plus is my mom runs our HR. So she’s really good at piercing through someone’s resume to the actual person inside. And again, we’re trying to build a company that is all about family values and doing the right thing; we call it being the nice vice company.
Jane Wells: Nice vice?
Jake Heimark: Yeah, it’s the nice vice company.
Jane Wells: I like that. That’s a good name.
Jake Heimark: Yeah. We could do something. Trademark it. Totally. That’s, you know. I’ve got the…
Jane Wells: I’m going to do… Yeah.
Jake Heimark: Exactly. I’ll give you 30%. No, it’s… My mom has really helped us build around people who want to be around for the long term vision of the company, and as my parents have allowed me to grow in my own role and sort of step back, I think it’s been healthy.
Jane Wells: There’s been a lot of push back about cannabis. About whether it’s good or bad; we don’t have the traditional peer review scientific studies for CBD because it… Why would Merck invest in doing those sorts of studies? How long is it going to take for us to have objective proof over the healthful effects of CBD?
Jake Heimark: It’s a good question. My undergraduate degree is in human biology from Brown on the East Coast. So I have very little but entirely incomplete… I know enough to know I know nothing. We’ll put it that way. And we have a chief science officer who came from… I want to say 12 years at the Wonderful! Company doing food research. Before that he was at Merck as well.
Jane Wells: He came from Wonderful!?
Jake Heimark: They’re great, by the way. That’s a great company.
Jane Wells: Well we can talk about their-
Jake Heimark: Consumer packaged goods.
Jane Wells: But their products are amazing.
Jake Heimark: Their products are, and their science is good. Right? So there was actually a pomegranate study that just came out that showed that it helps during childbirth if you drink pomegranate juice. So they’ve had really good science backing all of their products. He is very thoughtful about this stuff. And the core problem that we have as a country is that it is not only against the law to do what I do every day. It is against the law to do research. And as long as that is the case, you’re not going to have any institution that takes federal money take money from those of us who are in the industry who are willing to pay to find out. Because there are so many different compounds in cannabis. If you look at alcohol, there’s one alcohol compound and the reason why wine and whiskey and tequila make you feel differently is because of everything else along for the ride. In cannabis you have multiple inebriating compounds. So whether it’s CBD, THC, CBN… There’s just a whole bunch of lists. We need to do so much research.
Jane Wells: I know they’re doing some outside the country. What do you think the future is with edibles versus smoking with medical, or health and wellness versus recreational?
Jake Heimark: I think as the industry matures people will find that certain things work for different use cases. So if you’re looking for something to take the edge off your day and you’re going to use it every day, in the long run I don’t think smoking’s going to be the way you do that.
Jane Wells: What about vaping? What do you think about this whole “Vape-pocolypse”?
Jake Heimark: Anything that you heat up and pull into your lungs is probably not going to be as good for you. There’s also actually another really interesting thing about edibles; which is they’re digested in your stomach. When that happens… And absorbed through your liver. Some of the compounds in cannabis can do different things in the acidic environment. They can change into other compounds. What’s called the entourage effect by some people in the industry, which is really just a statement that the other things along for the ride may affect you. That may happen in edibles in a different way. Again, we have no science for any of this stuff. We’re really looking into it as both a company and an industry. But I think that, long run, at least our company has placed bets on smoking not being the way that most people will want to consume 20 years from now as they learn how it’s not good for you.
Jane Wells: What sort of innovations are you investing in? For example, edibles takes much longer to be effective. Is there a way to boost that or increase the time lag… Decrease the time lag.
Jake Heimark: Yeah. I mean this is all I think about, right? Is edibles, because that’s what we do. I am a weird black sheep in the industry because I don’t think that the time onset of edibles is a product problem. I think it’s an education problem, meaning if you learn as I have, and we’re trying to figure out how to have marketing messages that work where we can educate customers that if you take an edible to sleep earlier on, you actually don’t wake up groggy. But if you take it just before you go to sleep, my pseudoscience, bad science, assumption is that your digestion slows down so it doesn’t digest and enter your bloodstream as much, so when you wake up, your digestion starts again; you can actually feel some grogginess. I think that there’s a lot-
Jane Wells: There’s a helpful tip.
Jake Heimark: Yeah, there’s a lot of education to be done. And that’s just me right? That’s how it affects me. But yeah. I think that there’s a lot still to learn in the companies like us have a roll in educating. I don’t think that we need to make edibles faster, I think what we have to focus on first as a company… And that is a long run goal. Is still to this day, and this is where Plus, sort of our brand, is all about radical honesty. It was really hard to make sure that every part had the right amount of THC a year ago. Now, we’re focusing on how do we get the other compounds the same and then next is how do we make it even better? But right now, you have companies where you have a chocolate bar that has 20 pieces where one piece of the chocolate bar has all of the THC. That’s not a good customer experience. I don’t care if it passes the loud test.
Jake Heimark: So by solving that problem first, I think that we then get to all of the other stuff. I’ve seen more technology breakthrough claims in this industry than I ever have in other ones.
Jane Wells: That’s saying something.
Jake Heimark: Yeah. There’s a lot of stuff in this industry. Then I’d say that at its core, anything that digests in your stomach is going to be slower than anything that you inhale, because that’s just… If you could fix that you could make a bunch of money for Tylenol.
Jane Wells: Where do you bank?
Jake Heimark: I am not allowed to say that. But we do have a bank.
Jane Wells: Like a bank we would know?
Jake Heimark: If you’re really into banking. It is a federally chartered bank. Part of the agreement is we don’t talk about it. But we-
Jane Wells: But they know your business?
Jake Heimark: They know our business. We’re one of the few companies who’s fortunate enough to open the bank.
Jane Wells: How did you do that? How did you land that?
Jake Heimark: I… It was the company equivalent of a proctology exam. I came out of banking, right? So this is the company that-
Jane Wells: So like, the bank would have to at least be interested, because you would think most federally chartered banks are like not worth it, I don’t care. You can bend over, assume the position, I don’t care.
Jake Heimark: There are sort of three levels of banking in the industry. There’s not banking, or cash, there’s what we call at Plus undisclosed bank accounts, or don’t ask don’t tell. There are a lot of federal institutions who-
Jane Wells: I have a lighting company.
Jake Heimark: Exactly. Have bad compliance programs. And some of those, I think, are deliberate. They’re trying to see what’s going on. But then of course if someone raises an alarm bell inside the company, they shut them all down. There are a few banks who are starting to be involved. At it’s core, the lack of banking to this industry is keeping… Is making it harder for regulators; it makes It harder for consumers, it makes it worse for the federal government, it’s bad for everything but criminals. So that needs to change.
Jane Wells: How long was the process to get them to say Okay?
Jake Heimark: I think it depends on the company. For us it was about 9 months.
Jane Wells: 9 months?
Jake Heimark: Yeah.
Jane Wells: And how about… Is the IRS 280E? Does that… How much does that impact you? The fact that you can’t have many traditional business transactions?
Jake Heimark: So we’re a manufacturer, so we’re fortunate that most of what we do… For those who aren’t familiar 280E basically makes it so that if you are a… Everything after you manufactured a product cannot be deducted.
Jane Wells: If you have a retail store you can’t deduct your rent or your payroll. Anything any other business person could do.
Jake Heimark: It has this really cool history of basically being for people who are taking float planes and driving coke back and forth like the 80’s. Then they sued and they couldn’t deduct planes, because that was bad. And so it’s an interesting situation we’re in where as a manufacture company we’re basically incentivized to not cut any costs in manufacturing because at least we can deduct those.
Jake Heimark: And so I think it leads to lack of long term investment by companies like us if you’re not thinking about- But it does create more jobs. So 280E of course needs to change. But of the fact that we can do what we do legally in some manner with the federal government is nice.
Jane Wells: How many employees do you have now?
Jake Heimark: About 85.
Jane Wells: Oh, really? Okay.
Jake Heimark: Yeah. I have really good healthcare.
Jane Wells: Excellent.
Jake Heimark: Yeah.
Jane Wells: What is the craziest war story of being in the cannabis industry?
Jake Heimark: Oh.
Jane Wells: Like when you first-
Jake Heimark: Yeah, so like we started… When we were first trying to figure out how to sell product to dispensaries we were… my co-founder and I in a car at a Target parking lot with a shopping bag full of gum handed to the distributor. Because we don’t know each other. We met on some weed forum to do it. And that was weird. Probably the weirdest story… And my chief of staff, a guy named Blake, would kill me for saying this, but we once… Before we had a bank account, he contracted for a vault where we could store our cash in. He contracted to pay cash at the Federal Reserve in San Francisco. He called the Federal Reserve like 15 times. He’s very, very organized; they’ve agreed to take the cash, and he shows up at 1 o’clock with about $150,000 in cash. They say, oh sorry we don’t have anybody here to count it today. So he said great, when do they come in? They said, tomorrow. So he said great, so we’ll leave it here overnight, they’ll bring it tomorrow. They said no, no. You have to take it back.
Jake Heimark: The security guards he hired said you’re on your own, dude. You’ve only got us for another hour, we’ve got another job. So he had to throw it in the back of his Subaru and strap a blanket over it and I think it was the most nervous-
Jane Wells: And pray.
Jake Heimark: Yeah, it’s the most nervous he’s ever been, was driving that back. But that doesn’t happen in other industries right? That’s a weird thing.
Jane Wells: No, especially when the federal government wants your money.
Jake Heimark: Yeah, it’s like, they wouldn’t take it but… You know I understand, right? You can’t have a bunch of cash that you don’t own sitting around, so no fault to them.
Jane Wells: Couple more questions and then we’ll open it up just to make sure… Yeah. If you could wave your magic wand… Obviously federal legalization would probably be number one, but if you could change something, what would it be?
Jake Heimark: Criminal justice reform. This industry has been used as an excuse to keep men of color down, and it is an unfortunate part of both CBD and THC. There aren’t enough minority co-founders. And I recognize the irony of me saying that up here on stage; but it is something that is real, and the combination of criminal justice reform and actual support structures for those who have been damaged by the war on drugs is the thing that I would change.
Jane Wells: In the last panel they talked about social advocacy activism equity for it to be authentic. What are you doing about that?
Jake Heimark: Wait and see. We have some announcements coming up at the company. I think that this has to be holistic. If you’re going to do something and it has to be real, it is the thing that my co-founders and I talk about all the time, and that means having the right partners and doing it as a part of your company in perpetuity.
Jane Wells: Best idea someone came up with in this four year journey?
Jake Heimark: I have a co-founder who’s a brilliant chef. He was a chef at two Michelin-star restaurants before he joined the company, he’s amazing. I met him-
Jane Wells: These people!
Jake Heimark: Yeah. I met him at an event. We were in Colorado, right? I was driving from California, I had a caffeine gum to keep myself awake on the road.
Jane Wells: This gum thing keeps coming back.
Jake Heimark: I said to him at a cannabis event, I was like, “Man, someone should really make cannabis gum.” And he was like, “Oh. It’s hard to get the hydro colloids to bind to the cannabinoids. But I think I have an idea. I was like who are you? That was how I met Crunchie. He has this really good idea for a CBD tattoo ink. So the problem with tattoos is that you have long sessions where it’s not the artist’s hand who gets tired, but the arm starts to swell; CBD has natural anti-inflammation properties. So that’s probably the coolest idea. We didn’t do anything with it. He probably hates me that I said that.
Jane Wells: Well you still could.
Jake Heimark: We could. Its hard to commercialize.
Jane Wells: Best advice you have for the aspiring entrepreneurs in this room?
Jake Heimark: We failed so much. I think every founder of any company… And I talked to my friends who are founders… would tell you that the worst idea you can have is founding a company. It is just exhausting and tiring and you fail more than you would ever succeed. And if you also ask them what they’re going to do next after their company, they all go “I had this really good idea.” And so I think the best advice I can give is believe in yourself and don’t give up, and let the support structures around you, whether its your family, friends, or whoever you bring into the family that you create support you.
Jane Wells: And I do have one more question, then we’ll open it up, because it is candy in essence; and a child-proof… What are your concerns about it getting in the hands of kids.
Jake Heimark: They’re large. And that’s why we were one of the first companies to move to childproof containers. We have a tin that’s childproof that we had to go all the way to Europe to find a family company to actually make; most of the childproof containers in this industry are also what I would call adult-proof, and that’s not good either because then people take it out of the container and leave it out. So we focused on something that adults could figure out how to open and children would be confused by.
Jane Wells: And what’s your line? Find your-
Jake Heimark: Find your just right is our tagline.
Jane Wells: Who came up with the name Plus Products?
Jake Heimark: So we are not good at naming things at Plus; our first name was Cannabis Plus Gum, and the we called it Plus Gum, and then we didn’t make gum anymore and it took us still another 6 months to call it Plus. So yeah, that’s how we came up with Plus.
Jane Wells: Where do you get your cannabis and what is happening with the wholesale price?
Jake Heimark: So we have a 40/40/20 rule; so one of our suppliers is 40%, another does 40%, and another does 20%. The only one who we publicly talk about is Emerald Bay Extracts, and that’s because we almost acquired them and it was for public companies. We have to tell people about this stuff. The other companies, they like to keep quiet.
Jane Wells: Is the wholesale price..?
Jake Heimark: The wholesale price, we’ve paid the same wholesale price because we want to keep our people who are making it in business. I can tell you that prices are going down, but we hope they come back up as well. I think that we have a very… At Plus, we think that over time the price of flour and extract will continue to go down. And of course edibles will come down as well, but the further you are from the agricultural product we think there will be some gaps-
Jane Wells: Lag?
Jake Heimark: Yeah. Exactly. And that’s how it works in corn right? So corn’s commoditized, corn syrup, there’s some brands in corn syrup like Aunt Jemima which is delicious. So bad for you though. And then there’s manufactured goods, which in the U.S. all have corn syrup.
Jane Wells: Right, well. King Corn.
Jane Wells: How difficult is it to be CEO in a very volatile sector, where everything you say could make huge… ?
Jane Wells: Have you had to learn to shut up?
Jake Heimark: I wish what said mattered. I wish that was what was moving it around. I think it’s like a crazy person who wakes up and pays a different price for things every day, right? It’s the-
Jane Wells: Is it worth it, I guess?
Jake Heimark: Yeah, so that’s a question about why we’re public. Right? And so the answer is we took a million dollars in the investment round three years ago for about a third of the company because we couldn’t make payroll and our company was completely failed; we were in debt. All of my co-founders had cut their salaries back to half, and somebody came in who was willing to make a million dollar investment with the requirement that we go public by October 30th of last year, or else he wouldn’t make the investment. And the reason why they required it… And this is super esoteric to the cannabis industry, is because they were Canadian citizens who were worried if they ever had a payout from the cannabis industry that the feds would actually seize the money or go back in time later and arrest them because our department of justice has a long arm.
Jake Heimark: They get people in FIFA for weird stuff.
Jane Wells: So they wanted a relatively quick payback.
Jake Heimark: Well they wanted… By going public in Canada, cause they’re Canadian citizens it’s legal for them, its liquidity for them, it was a whole…
Jane Wells: Got it.
Jake Heimark: And so from that moment, we don’t take that kind of money with a gun to your head. They got a 50% dilution penalty unless we went public; you don’t take that kind of money unless that’s your only avenue, right? And so without their faith and believe in us at a time when nobody else… I mean we could not raise a dollar. We would not exist. So…
Jane Wells: Oh, I’m glad I asked that.
Jake Heimark: So then the other question is why take it, right? Because that’s an dilution to take as a young company; it’s because we took my family friend’s money, we took my friend’s money, and we took money from my father and I felt like we owed it to them. My co-founders and I were fortunate enough to have turned a corner on that.
Jane Wells: How do you feel about it now?
Jake Heimark: I’m learning a lot. I’m a 31 year old CEO of a public company, and that’s wild. I think that there’s a … It’s sad that retail investors have basically missed out on all the money that VC’s have made in the U.S., the retail investor basically gets toes, except now finally on some IPO’s they’re knocking back the prices because people are tired of this. I don’t think it’s fair that the really wealthy get to pull untaxed money into a VC fund and keep tripling and quadrupling their money selling the same companies that they owned to themselves.
Jane Wells: I just feel like the real IPO is the IPO… Is the sale share that happens before the actual IPO.
Jake Heimark: Exactly. And we’re a weird company, right? I think we… Or I know we were the first, we may be one of the only cannabis companies to actually do an IPO in Canada and not in our TO. That was A, a mistake, but B, this was more work. But actually, it really put censor on our company that when we do things, even if we don’t like them, we’re going to do it the right way.
Jane Wells: Okay, so final and I’ll stop. Because I’m obsessed with this; if you didn’t have a gun to your head, you wouldn’t have gone public. You wouldn’t recommend going public?
Jake Heimark: Like I said, it’s great to have retail shareholders, I think they drive you to do different things. The retail shareholders drove us to get licenses at a time when California wasn’t clear that that was an important thing. So who am I to tell the market that they’re wrong? So I think it’s great; I think as a brand, a really successful brand should be one where people love the product, and want to own a piece of the company, and we’re all on the same team. That’s nice coming out of social networks, where it’s not clear that the product being sold understands it’s the product being sold; and by the way if you’re not paying for social network, you’re the one that’s the product being sold.
Jane Wells: Oh, that’s a good way to look at it.
Jake Heimark: Yeah. It’s… In this industry, you can buy it and be happy, and everybody along the chain is happy, and so that’s nice. We actually are launching in Las Vegas this quarter, which is exciting because we’re almost at the end of the month, so-
Jane Wells: Soon?
Jake Heimark: Yeah. And the way that we launched in Nevada was by taking… We called it a Navy Seal team from our factory and deploying them there, because we’ve seen a lot of brands as we traveled because we started in Colorado and we go around all these states; it’s the same name of the brand, but it’s a packaging that’s different, it’s a taste that’s different, it works differently and it’s not the same at all. And so it costs us more to do it that way, but this is the only industry in the world where you’re going to have to make Coca-Cola in New Jersey and New York, and it has to taste the exact same, ad your customers traveling between both places, but your product can’t.
Jake Heimark: And if you’re a company who can get that right when other ones are getting it wrong, we think that’s a really powerful statement to your customers. We could be wrong; that’s just the way we think about it.
Jane Wells: By the way, are your grandparents still… Are your grandparents still alive?
Jake Heimark: One of my grandparents.
Jane Wells: Are they proud of you?
Jake Heimark: Yeah, my dad’s mom is still alive. She has Alzheimer’s which isn’t great, which is tough. But my grandfather who was a doctor passed away a couple years ago; he was around at the beginning of the company. He had fought World War 2, [inaudible 00:52:58] on the left and became a doctor. I’ll never live up to that stuff. So I was talking about it before he passed away and he was saying that he’s always wanted to do research into this stuff because some of his patients used it and had great stories about how it helped them. So I think they would be. I think not being on the smoking side is really important. My grandma was a smoker and quit so that would be really important to them.
Jane Wells: When you said that a company your grandparents could be proud of, I was wondering if… How-
Jake Heimark: Yes, so there’s this thing that happens when you go as a company where you have to make this thing called a brand book. I don’t know if people know this about brands, but yeah. It’s like a waste of a bunch of money. No I’m just kidding. It’s a way for you to state as a company what you believe and our first page has a list of all the grandmothers of the people who work at our company, because that… We think about it like every day.
Jane Wells: Good afternoon, everyone. I’ve been covering the legal cannabis industry since 2014. I think what’s been amazing for me as a reporter is watching the fits and starts. More fits than starts. Just yesterday, I was in Santa Barbara County, which is issued more licenses to grow pot than any other county in the state of California; 35% of all the grow licenses are in Santa Barbara County. And all of the sudden the wine grape growers and the avocado and citrus growers are having a cow, because they can’t spray; the spray can get on the product, they’re afraid the smell, the terpenes are going to change the taste of the wine.
And it’s become a huge, huge issue. This weekend, I’m going up to Southern Humboldt. My brother-in-law is an OG, they call him. And original grower. And there you have an established industry that has very little interest, generally speaking in compliance as we just heard about. And paying taxes, and having smaller profit margins. And they’re also having to come to terms after generations of being back to the land of the detrimental effects that their grows have had on the environment. So it is a fascinating …
One that is doing well is PLUS Products and CEO Jake Heimark. Jake, tell us a bit about Plus Products and these number one and two skus.
Jake Heimark: So Plus is a company that makes edibles. We make edibles here in California. And what we’ve really focused on as a company is what we call achieving balance. So if you look at whether it’s cannabis, THC, CBD, or hemp; all of these compounds and plants are having a moment right now. And we think the reason why at Plus is that people are overwhelmed. I mean our iPhones and iPads are constantly going off, social media’s made hard to actually connect with one another, and cannabis and hemp seem to have properties of actually calming the nervous system. And so we think at a macro-level that returning to being in the moment and present and balanced is really a powerful driver for this whole industry. And at Plus we make foods because we also believe if you’re going to use something every day, reit’s probably not healthy to smoke it.
Jane Wells: I was wondering about that, because edibles have traditionally been a smaller part of the market. So why did you go in that direction?
Jake Heimark: They still are, right? But at Plus we are building what we call a company our grandmothers could be proud of. So we think that if you’re going to do something every single day… And there’s no science to back this up at all, right? So there’s not much science in the industry in general, but all the indications from every other industry showed that if you keep things up and pull them into your lungs, its not going to be good for you to do every day. So we think edibles are probably a safer alternative.
Jane Wells: What are these two sku’s? You only have three sku’s, so the fact that you have number one and two selling product of California, and you only have three products. Explain… Describe the product.
Jake Heimark: So, we have three sku’s. We have an uplift sour watermelon gummy. It has a ratio of THC and CBD; it’s actually our most THC heavy. It’s five milligrams per gummy which is a lower dose to most people. And it has a really awesome grapefruit flavor on it. And then we have a balance gummy which has a sour blueberry flavor. And it’s less THC and a little bit more CBD. Then we have something called unwind which is a combination of blackberry and lemon, which has somewhere in between the other two products.
Jane Wells: And so what is the range of THC in each products? You said-
Jake Heimark: So we have at the most, we have 5 milligrams of THC; and then at the least we have 3 1/2 milligrams of THC.
Jane Wells: And how many in a tin?
Jake Heimark: There are 20 gummies in a tin. What we’ve really focused on is making sure that every single gummy has the exact same amount of THC in them
Jane Wells: Yeah, how do you… How have you been able to control dosing?
Jake Heimark: A lot of work.
Jane Wells: And a lot of money I’m assuming.
Jake Heimark: Sure. I mean money has helped. We’re fortunate to be well-funded now as a company, but I think that the key that I’ve learned… So my uncle was a food manufacturer, that’s actually how I got into the industry. So I grew up in technology. I used to work at Facebook, and then I knew a lot about e-commerce banking and this industry has a banking problem.
Jane Wells: We’ll get to that.
Jake Heimark: I moved to Denver and went to dispensaries and saw very quickly that people didn’t know how to make food, and my family is from Austin, Minnesota. They made frozen California Pizza Kitchens, Stover’s Mac n’ cheese, all the stuff that makes you sizeable in the U.S.
Jane Wells: They seem to go hand-in-hand with cannabis, too.
Jake Heimark: Yeah. It’s the delicious stuff. And so we saw the food that’s being made in cannabis and knew that people maybe didn’t have factories; you can kind of feel off of the food that they weren’t being made in places where other people served. And we thought it would be pretty easy to take food standards and sort of apply them to the industry. We were wrong; it was very hard. But by sort of some elbow grease and adapting machinery and a lot of failure, we finally figured out how to get it right.
Jane Wells: How much did that cost?
Jake Heimark: How much have we spent at the company over the last few years?
Jane Wells: Sure, yeah.
Jake Heimark: Probably 15 million dollars.
Jane Wells: And your revenues for the second quarter this year were 3.6 million.
Jake Heimark: They were.
Jane Wells: Which is 125% year over year growth. And your gross margin’s 20%. So they’ve grown also.
Jake Heimark: They have.
Jane Wells: Are you profitable yet?
Jake Heimark: We’re not. We’re not.
Jane Wells: When do you think that might happen?
Jake Heimark: It’s a good question. So as a founder, we’re always focused on what I call the point in which we go from default dead to default alive. And it’s really a important point for I think any founder, CEO to know about their business. It’s the point at which your cash flow and your projections of your growth make it so that with the margins that you have, you are never going to have to raise another dollar. Because if you’re there with the cash that you have in the bank-
Jane Wells: You’re self-sustaining.
Jake Heimark: … You are in control. I think with the cash that we have in our balance sheet, because we have a healthy one now; we’re now at the default alive point. And so the question is how quickly do we want to move in certain areas. And you know, that’s a constant question for us and the board.
Jane Wells: Small dosing. Why? So people will eat more?
Jake Heimark: So we just launched this new ad campaign in California. We’ve been trying to figure out… and it takes years to figure out how to actually interact with customers and describe the things that we’re all learning together. We call it finding your just right. So, cannabis works for a lot of different things for different people and actually affects people differently. We see our job as making sure that every piece is the exact same. And by making it small, you can choose how much you want to have because you could have multiple of them.
Jane Wells: You have a… This new ad campaign is a million dollars, this new marketing campaign, right? That’s a big spin for a company with the revenue stream that you have.
Jake Heimark: It is.
Jane Wells: I’m waiting, we talked about it a little bit in the last panel to see something other than MedMen billboards outside LAX to tell me about the industry. I mean what are you doing? Where are these ads?
Jake Heimark: Yeah, they’re being placed all over California. There are some billboards, and there are some other moments which we’ll unwrap as well. We just actually wrapped some mini coopers that are super fun.
Jane Wells: Why do you only have three sku’s?
Jake Heimark: That’s a good question.
Jane Wells: It’s like you’re almost doing… It’s counter-intuitive.
Jake Heimark: It’s the opposite of what makes other people… I think people from outside the CPG world super excited. So at Plus, we focus on having a few things that sell really well. And the reason why is customers go to a store, it’s a confusing industry. They’ll buy different things to try what works for them. And at Plus, we really are all about balance. That’s who we are; we want to make it less confusing. They try our products. If they work and they like them, they come back and they buy them again. Coca-Cola did a really good job, I mean it took them how many years to add Coke Zero? So we think- was the… Oh, let’s try orange and lemon, or whatever?
Oh, we’ve had so many bad flavors internally it’s not even funny. That’s why we focus on few… But I think the major thing we got wrong in the beginning was not letting the customers decide what works. We started as a gum company. Gum has all these really great attributes that would make it the perfect edible. It is low calorie, it is fast acting, because it absorbs in your mouth, it is extremely portable, it’s temperature resistant. It’s all these things that… You know, in the attribute list if you’re a marketer. Lie okay, it has all of the things. Right? It didn’t work.
Jane Wells: Why?
Jake Heimark: That’s a good question. I’ve been thinking about this for a few years, right? Because it took us a year and a half to pivot… By the way, the reason it took us so long is because my co-founder Lucy is an amazing salesperson; she just got into every dispensary, and if she weren’t so good at her job-
Jane Wells: You would have figured it out?
Jake Heimark: Yeah, because she kept selling it, and then it wasn’t moving on the shelves. But that’s a different issue. So the reason why I think gum didn’t work at the time is because edibles are scary. Everybody has that cousin or that friend or that story about themselves where they just passed out.
Jane Wells: The Maureen Dowd – New York Times story.
Jake Heimark: Exactly. That brownie that made it so you know, they were couch-locked for four days, which is my favorite term. And so when you combine scary and new, that is not a combination that people are excited about. So until you have an actual brand equity, and I think even with where we’ve been at Plus, which is the leading edibles producer, I don’t think we’re at the point yet where we have a real brand. I think those are built over many years. Even then, it’s like are we ready to launch it yet? Maybe. We’ll try at some point.
Jane Wells: So gum may make a comeback?
Jake Heimark: At some point. My co-founders love it. And so at some point we have to do it again.
Jane Wells: Let’s start at the beginning. You started this business like so many in your… In a Palo Alto garage. Is that just myth or is that true?
Jake Heimark: No that’s… The garage is on Waverly street in Palo Alto. We slept… My co-founder, a guy named Justin, he goes by Crunchie; he lived in my brother’s bedroom and we started it right in the garage. It was fun.
Jane Wells: You worked at Facebook, you worked at other places that have nothing to do with food production. You say it was in the family. Or in retail; what made you decide to do this?
Jake Heimark: I think the short answer is I was looking for something for myself and for my wife. I think really good product companies start from someone needing something that’s not there. I joined the industry a couple months after recreational legalization in Colorado when my dad actually sent me a video of Sanjay Gupta in one of his specials talking about the banking problems. I moved to Colorado, and I’m there at the dispensaries talking to them about how they bank and my favorite thing a dispensary ever said to me was, I said okay I’m doing research on a bank, I’m thinking about doing an auditing company, and the dispensary owner says, “Great. Do you want to see my books?” And I said absolutely. And they said, “Okay, which set?” I said oh my gosh. That sounds wonderful.
Jake Heimark: So I’m visiting all these dispensaries, I’m going around and I’m looking at what’s on the shelves and I don’t like smoking; I think that those truth campaigns worked really well on me for some reason. I’m frightened of it; so I was looking for something that wasn’t that. And that’s where edibles came in, and then the foods that were being made just weren’t very high quality.
Jane Wells: What were some crazy stories from when you said, “Okay, I’m going to do this. I’m going to do this.” It’s not legal federally… When did you start, by the way, Plus Products?
Jake Heimark: So, we’re about four and a half years old, so 2015?
Jane Wells: Did you start in California?
Jake Heimark: We started… I found my co-founder in Colorado and then we immediately moved to California because we didn’t have any money, so we lived in my parent’s house.
Jane Wells: And so you started on the medical side then?
Jake Heimark: We did.
Jane Wells: And then… What did your parents say, by the way?
Jake Heimark: They were oddly supportive. I had had, you know… After Facebook I went to a startup that was started by a 19 year old; a great company called Gum Road that has nothing to do with food, it’s just happens to have gum in its name. And I had been looking for what I wanted to do next. I think this was the first time that I felt a real calling to do something. My parents were wildly supportive of that. I couldn’t have asked for more.
Jane Wells: What was your start-up money and where’d it come from?
Jake Heimark: It was my dad.
Jane Wells: How much?
Jake Heimark: It was $100,000.
Jane Wells: What?! Your dad gave you $100,000?
Jake Heimark: He did. And he did it as debt and he made sure that he saw every single bill and every single thing that we were doing so he could support the company and its oversight that honestly if we hadn’t had… He’s the chairman of our company now, as a public company.
Jane Wells: Did he get his hundred grand back yet?
Jake Heimark: He did get his hundred grand back, before we went public. I think it’s that oversight that’s helping me grow a lot in my role, and my co-founders as well. My mom still does our HR. She’s our head of HR. And there’s a piece to really successful food companies where they’ve always been family companies; whether it’s the Nestle company, or Kellogg’s, or Cadbury. There’s this piece to food companies where every single person in the company needs to care about each other and care about the consumer in a way that you don’t get at non-family companies that I think has led to us being successful.
Jane Wells: Interesting. How do you build a brand? How do you do that; and not only build this brand, but build it into what you plan to be an international brand? You’ve had some experience.
Jake Heimark: I think that it starts with understanding what consumers want and what problem they’re trying to solve. I think anything beyond that is… If you don’t start there you’re going to be in trouble.
Jane Wells: What problem are you trying to solve?
Jake Heimark: For us, it’s … That sense of overwhelming lack of clarity of being yourself anymore. It’s like an existential on we that a lot of people are feeling. It’s very millennial my dad would say. But it’s real, right? And so I think that that is what we’re trying to solve and help people solve it in a way that takes them not out of the reality that they’re in, because there are those brands in cannabis, right? Like just exit me from this space, but actually enjoy that moment again.
Jane Wells: How did you raise capital?
Jake Heimark: We didn’t for a long time. It was very hard. So I came from… I was at Facebook then. I assumed that because of my background and because of Silicon Valley that you know, it’s like you start a company out in a garage and somebody hands you a 2 1/2 million dollar check, which for the most part is wildly true, which is not smart by the way. But every VC in the world would meet with us. We were getting meetings with people who I would never have thought I would get meetings with. And every meeting ended also the same way, which was, this is great. We have federally restricted money, or we have an LP who will put money into you. It always ended with the, oh yeah by the way we can’t touch cannabis. And so it was my parent’s friends. And then it was a group of Canadians. Cause they were the only people investing. They believed in us when no one else did.
Jane Wells: The Canadian companies have a distinct advantage; they can list on the NYSC and the NASDAQ. They can get coverage by Wall Street. All these things that American companies cannot. Have you been approached about being acquired? Would you like to be acquired by a Canadian… Would you move to Canada? That’s a lot, I’m sorry.
Jake Heimark: That’s a lot of questions at once. Right? So yeah.
Jake Heimark: Let me start with… I met my core in entrepreneur who wants to create products, and there could not be a better environment for that than what exists today. If this were a federally legal activity in the U.S… And the reason why people can’t list on the NYSC and the NASDAQ doesn’t allow people to list, if you have it’s because it’s federally illegal. That environment is an entrepreneur stream because the biggest food company or the biggest food company in cannabis if it were legal federally would be Kraft. Right? So this is a really fun and exciting time. I don’t think we’re done yet. We have one percent done at the company and a lot ahead of us, and so we welcome, of course, federal legalization. I hope especially that that’s tied with some real criminal justice reform because that needs to happen. I like the environment that we’re in. I’m very happy with where Plus is today.
Jane Wells: Biggest mistakes you’ve made.
Jake Heimark: Made so many. Where do you want me to start?
Jane Wells: With the biggest.
Jake Heimark: Yeah. I’d say the top one is… Actually I’ll give you a story. This is a good story.
Jake Heimark: There’s a… And I won’t name the company. There’s a store we were placing our product that approached us for an acquisition about a year and a half, maybe two years ago. They basically said we’re one of your biggest customers, you’re the best selling product in our stores, we have a much bigger balance sheet than you have. We’re going to either acquire you at your valuation, or we’re going to kick you off our stores and pour so much money into your competitor who we’re going to acquire, that you’re not going to exist.
Jane Wells: Really?
Jake Heimark: We had three million dollars in the bank. That doesn’t feel good. So I wanted to quit the company and sell it to them, because I didn’t see a path out. And the biggest mistake that I made was not listening to my mom and my dad and our early investors who basically said you do not exit when you’re doing the right thing; and if your customers love your product they will support you. It was a couple months later that our biggest investor came in and supported our company. We survived. We’re on their shelf still.
Jane Wells: So you did eventually tell them no?
Jake Heimark: Absolutely.
Jane Wells: You did listen to your parents?
Jake Heimark: A hundred percent. But I didn’t for three months. And that failure to listen to them set our company back because if I just had some clarity of vision I think we would have been able to move even faster; that slow down hurt us.
Jane Wells: If you could do it over, what would you have done differently in building this company so far?
Jake Heimark: Started with gummies?
Jane Wells: Skip the gum?
Jake Heimark: No. I think I’m really proud of what we’ve done so far. If I could do anything differently I think we would have gotten involved on the advocacy part of the industry sooner. I don’t think we realized at Plus how myopic sort of legislatures can be, ad regulators that we trusted that as these rules in California would come to pass, that they’d actually start enforcing people who are doing the things that they were supposed to do; we’d start to be advantaged. We didn’t have a large voice with the state or nationally on those issues because we believed that of course there were going to be incentivized to help the industry grow. It’s turned out not to be the case. So we’re getting more involved in that.
Jane Wells: Yeah, are you surprised at the fits and starts to roll this industry out in California? Which is the largest cannabis market already. And how much of that is the entrenched black market, just like why?
Jake Heimark: I’m not surprised now. I certainly was for a long time; the reason I’d say I’m not surprised now is because the issue is a funding issue. The state has to probably funded the regulatory agencies and endowed them with the ability to actually go and shut down places that are not doing it correctly. And unfortunately I’ve learned that whether it’s national or local politics, it actually does boil down to money. If that changes I think we’re in a different environment. Right now they’re moving the people in the state government are trying their best. But when you only have 8 people or 16 it’s difficult to shut down. Especially when you want to allow… In California we have this historical legacy of non-profit cannabis that helped people with cancer and with all these issues that cannabis has been known to help with. So we don’t want to shut down people just because they don’t have a license today. It’s a hard job for regulators, and they’re really trying to do the right thing. But they’re severely underfunded.
Jane Wells: How do you find management? Because you’ve hired people from Quaker Oats and Uber and UPS. The Uber person is probably thrilled that you hired him. Or her. How do you… Has it been hard to find a good management team in something that is still federally illegal?
Jake Heimark: I think in the last 6 months it’s changed. I think before that most people wouldn’t even take my calls. But what’s helped us a ton at Plus is my mom runs our HR. So she’s really good at piercing through someone’s resume to the actual person inside. And again, we’re trying to build a company that is all about family values and doing the right thing; we call it being the nice vice company.
Jane Wells: Nice vice?
Jake Heimark: Yeah, it’s the nice vice company.
Jane Wells: I like that. That’s a good name.
Jake Heimark: Yeah. We could do something. Trademark it. Totally. That’s, you know. I’ve got the…
Jane Wells: I’m going to do… Yeah.
Jake Heimark: Exactly. I’ll give you 30%. No, it’s… My mom has really helped us build around people who want to be around for the long term vision of the company, and as my parent’s have allowed me to grow in my own role and sort of step back, I think it’s been healthy.
Jane Wells: There’s been a lot of push back about cannabis. About whether it’s good or bad; we don’t have the traditional peer review scientific studies for CBD because it… Why would Merck invest in doing those sorts of studies? How long is it going to take for us to have objective proof over the healthful effects of CBD?
Jake Heimark: It’s a good question. My undergraduate degree is in human biology from Brown on the East Coast. So I have very little but entirely incomplete… I know enough to know I know nothing. We’ll put it that way. And we have a chief science officer who came from… I want to say 12 years at the Wonderful! Company doing food research. Before that he was at Merck as well.
Jane Wells: He came from Wonderful!?
Jake Heimark: They’re great, by the way. That’s a great company.
Jane Wells: Well we can talk about their-
Jake Heimark: Consumer packaged goods.
Jane Wells: But their products are amazing.
Jake Heimark: Their products are, and their science is good. Right? So there was actually a pomegranate study that just came out that showed that it helps during child birth if you drink pomegranate juice. So they’ve had really good science backing all of their products. He is very thoughtful about this stuff. And the core problem that we have as a country is that it is not only against the law to do what I do every day. It is against the law to do research. And as long as that is the case, you’re not going to have any institution that takes federal money take money from those of us who are in the industry who are willing to pay to find out. Because there are so many different compounds in cannabis. If you look at alcohol, there’s one alcohol compound and the reason why wine and whiskey and tequila make you feel differently is because of everything else along for the ride. In cannabis you have multiple inebriating compounds. So whether it’s CBD, THC, CBN… There’s just a whole bunch of lists. We need to do so much research.
Jane Wells: I know they’re doing some outside the country. What do you think the future is with edibles versus smoking with medical, or health and wellness versus recreational?
Jake Heimark: I think as the industry matures people will find that certain things work for different use cases. So if you’re looking for something to take the edge off your day and you’re going to use it every day, in the long run I don’t think smoking’s going to be the way you do that.
Jane Wells: What about vaping? What do you think about this whole “Vape-pocolypse”?
Jake Heimark: Anything that you heat up and pull into your lungs is probably not going to be as good for you. There’s also actually another really interesting thing about edibles; which is they’re digested in your stomach. When that happens… And absorbed through your liver. Some of the compounds in cannabis can do different things in the acidic environment. They can change into other compounds. What’s called the entourage effect by some people in the industry, which is really just a statement that the other things along for the ride may affect you. That may happen in edibles in a different way. Again, we have no science for any of this stuff. We’re really looking into it as both a company and an industry. But I think that, long run, at least our company has placed bets on smoking not being the way that most people will want to consume 20 years from now as they learn how it’s not good for you.
Jane Wells: What sort of innovations are you investing in? For example, edibles takes much longer to be effective. Is there a way to boost that or increase the time lag… Decrease the time lag.
Jake Heimark: Yeah. I mean this is all I think about, right? Is edibles, because that’s what we do. I am a weird black sheep in the industry because I don’t think that the time onset of edibles is a product problem. I think it’s an education problem, meaning if you learn as I have, and we’re trying to figure out how to have marketing messages that work where we can educate customers that if you take an edible to sleep earlier on, you actually don’t wake up groggy. But if you take it just before you go to sleep, my pseudoscience, bad science, the assumption is that your digestion slows down so it doesn’t digest and enter your bloodstream as much, so when you wake up, your digestion starts again; you can actually feel some grogginess. I think that there’s a lot-
Jane Wells: There’s a helpful tip.
Jake Heimark: Yeah, there’s a lot of education to be done. And that’s just me right? That’s how it affects me. But yeah. I think that there’s a lot still to learn in the companies like us have a roll in educating. I don’t think that we need to make edibles faster, I think what we have to focus on first as a company… And that is a long-run goal. Is still to this day, and this is where Plus, sort of our brand, is all about radical honesty. It was really hard to make sure that every part had the right amount of THC a year ago. Now, we’re focusing on how do we get the other compounds the same and then next is how do we make it even better? But right now, you have companies where you have a chocolate bar that has 20 pieces where one piece of the chocolate bar has all of the THC. That’s not a good customer experience. I don’t care if it passes the loud test.
Jake Heimark: So by solving that problem first, I think that we then get to all of the other stuff. I’ve seen more technology breakthrough claims in this industry than I ever have in other ones.
Jane Wells: That’s saying something.
Jake Heimark: Yeah. There’s a lot of stuff in this industry. Then I’d say that at its core, anything that digests in your stomach is going to be slower than anything that you inhale because that’s just… If you could fix that you could make a bunch of money for Tylenol.
Jane Wells: Where do you bank?
Jake Heimark: I am not allowed to say that. But we do have a bank.
Jane Wells: Like a bank, we would know?
Jake Heimark: If you’re really into banking. It is a federally chartered bank. Part of the agreement is we don’t talk about it. But we-
Jane Wells: But they know your business?
Jake Heimark: They know our business. We’re one of the few companies who’s fortunate enough to open the bank.
Jane Wells: How did you do that? How did you land that?
Jake Heimark: I… It was the company equivalent of a proctology exam. I came out of banking, right? So this is the company that-
Jane Wells: So like, the bank would have to at least be interested, because you would think most federally chartered banks are like not worth it, I don’t care. You can bend over, assume the position, I don’t care.
Jake Heimark: There is a sort of three levels of banking in the industry. There’s not banking, or cash, there’s what we call at Plus undisclosed bank accounts, or don’t ask don’t tell. There are a lot of federal institutions who-
Jane Wells: I have a lighting company.
Jake Heimark: Exactly. Have bad compliance programs. And some of those, I think, is deliberate. They’re trying to see what’s going on. But then of course if someone raises an alarm bell inside the company, they shut them all down. There are a few banks who are starting to be involved. At its core, the lack of banking in this industry is keeping… Is making it harder for regulators; it makes it harder for consumers, it makes it worse for the federal government, it’s bad for everything but criminals. So that needs to change.
Jane Wells: How long was the process to get them to say Okay?
Jake Heimark: I think it depends on the company. For us, it was about 9 months.
Jane Wells: 9 months?
Jake Heimark: Yeah.
Jane Wells: And how about… Is the IRS 280E? Does that… How much does that impact you? The fact that you can’t have many traditional business transactions?
Jake Heimark: So we’re a manufacturer, so we’re fortunate that most of what we do… For those who aren’t familiar 280E basically makes it so that if you are a… Everything after you manufactured a product cannot be deducted.
Jane Wells: If you have a retail store you can’t deduct your rent or your payroll. Anything any other business person could do.
Jake Heimark: It has this really cool history of basically being for people who are taking floatplanes and driving coke back and forth like the ’80s. Then they sued and they couldn’t deduct planes, because that was bad. And so it’s an interesting situation we’re in where as a manufacturing company we’re basically incentivized to not cut any costs in manufacturing because at least we can deduct those.
Jake Heimark: And so I think it leads to lack of long term investment by companies like us if you’re not thinking about- But it does create more jobs. So 280E of course needs to change. But of the fact that we can do what we do legally in some manner with the federal government is nice.
Jane Wells: How many employees do you have now?
Jake Heimark: About 85.
Jane Wells: Oh, really? Okay.
Jake Heimark: Yeah. I have really good healthcare.
Jane Wells: Excellent.
Jake Heimark: Yeah.
Jane Wells: What is the craziest war story of being in the cannabis industry?
Jake Heimark: Oh.
Jane Wells: Like when you first-
Jake Heimark: Yeah, so like we started… When we were first trying to figure out how to sell product to dispensaries we were… my co-founder and I in a car at a Target parking lot with a shopping bag full of gum handed to the distributor. Because we don’t know each other. We met on some weed forum to do it. And that was weird. Probably the weirdest story… And my chief of staff, a guy named Blake, would kill me for saying this, but we once… Before we had a bank account, he contracted for a vault where we could store our cash in. He contracted to pay cash at the Federal Reserve in San Francisco. He called the Federal Reserve like 15 times. He’s very, very organized; they’ve agreed to take the cash, and he shows up at 1 o’clock with about $150,000 in cash. They say, oh sorry we don’t have anybody here to count it today. So he said great, when do they come in? They said, tomorrow. So he said great, so we’ll leave it there overnight, they’ll bring it tomorrow. They said no, no. You have to take it back.
Jake Heimark: The security guards he hired said you’re on your own, dude. You’ve only got us for another hour, we’ve got another job. So he had to throw it in the back of his Subaru and strap a blanket over it and I think it was the most nervous-
Jane Wells: And pray.
Jake Heimark: Yeah, it’s the most nervous he’s ever been, was driving that back. But that doesn’t happen in other industries right? That’s a weird thing.
Jane Wells: No, especially when the federal government wants your money.
Jake Heimark: Yeah, it’s like, they wouldn’t take it but… You know I understand, right? You can’t have a bunch of cash that you don’t own sitting around, so no fault to them.
Jane Wells: Couple more questions and then we’ll open it up just to make sure… Yeah. If you could wave your magic wand… Obviously federal legalization would probably be number one, but if you could change something, what would it be?
Jake Heimark: Criminal justice reform. This industry has been used as an excuse to keep men of color down, and it is an unfortunate part of both CBD and THC. There aren’t enough minority co-founders. And I recognize the irony of me saying that up here on stage; but it is something that is real, and the combination of criminal justice reform and actual support structures for those who have been damaged by the war on drugs is the thing that I would change.
Jane Wells: In the last panel they talked about social advocacy activism equity for it to be authentic. What are you doing about that?
Jake Heimark: Wait and see. We have some announcements coming up at the company. I think that this has to be holistic. If you’re going to do something and it has to be real, it is the thing that my co-founders and I talk about all the time, and that means having the right partners and doing it as a part of your company in perpetuity.
Jane Wells: Best idea someone came up within this four-year journey?
Jake Heimark: I have a co-founder who’s a brilliant chef. He was a chef at two Michelin-star restaurants before he joined the company, he’s amazing. I met him-
Jane Wells: These people!
Jake Heimark: Yeah. I met him at an event. We were in Colorado, right? I was driving from California, I had a caffeine gum to keep myself awake on the road.
Jane Wells: This gum thing keeps coming back.
Jake Heimark: I said to him at a cannabis event, I was like, “Man, someone should really make cannabis gum.” And he was like, “Oh. It’s hard to get the hydrocolloids to bind to the cannabinoids. But I think I have an idea. I was like who are you? That was how I met Crunchie. He has this really good idea for a CBD tattoo ink. So the problem with tattoos is that you have long sessions where it’s not the artist’s hand who gets tired, but the arm starts to swell; CBD has natural anti-inflammation properties. So that’s probably the coolest idea. We didn’t do anything with it. He probably hates me that I said that.
Jane Wells: Well you still could.
Jake Heimark: We could. It’s hard to commercialize.
Jane Wells: Best advice you have for the aspiring entrepreneurs in this room?
Jake Heimark: We failed so much. I think every founder of any company… And I talked to my friends who are founders… would tell you that the worst idea you can have is founding a company. It is just exhausting and tiring and you fail more than you would ever succeed. And if you also ask them what they’re going to do next after their company, they all go “I had this really good idea.” And so I think the best advice I can give is to believe in yourself and don’t give up, and let the support structures around you, whether it’s your family, friends, or whoever you bring into the family that you create to support you.
Jane Wells: And I do have one more question, then we’ll open it up, because it is candy in essence; and a child-proof… What are your concerns about it getting in the hands of kids.
Jake Heimark: They’re large. And that’s why we were one of the first companies to move to childproof containers. We have a tin that’s childproof that we had to go all the way to Europe to find a family company to actually make; most of the childproof containers in this industry are also what I would call adult-proof, and that’s not good either because then people take it out of the container and leave it out. So we focused on something that adults could figure out how to open and children would be confused by.
Jane Wells: And what’s your line? Find your-
Jake Heimark: Find your just right is our tagline.
Jane Wells: Who came up with the name Plus Products?
Jake Heimark: So we are not good at naming things at Plus; our first name was Cannabis Plus Gum, and the we called it Plus Gum, and then we didn’t make gum anymore and it took us still another 6 months to call it Plus. So yeah, that’s how we came up with Plus.
Jane Wells: Where do you get your cannabis and what is happening with the wholesale price?
Jake Heimark: So we have a 40/40/20 rule; so one of our suppliers is 40%, another does 40%, and another does 20%. The only one who we publicly talk about is Emerald Bay Extracts, and that’s because we almost acquired them and it was for public companies. We have to tell people about this stuff. The other companies, they like to keep quiet.
Jane Wells: Is the wholesale price..?
Jake Heimark: The wholesale price, we’ve paid the same wholesale price because we want to keep our people who are making it in business. I can tell you that prices are going down, but we hope they come back up as well. I think that we have a very… At Plus, we think that over time the price of flour and extract will continue to go down. And of course edibles will come down as well, but the further you are from the agricultural product we think there will be some gaps-
Jane Wells: Lag?
Jake Heimark: Yeah. Exactly. And that’s how it works in corn right? So corn’s commoditized, corn syrup, there’s some brands in corn syrup like Aunt Jemima which is delicious. So bad for you though. And then there’s manufactured goods, which in the U.S. all have corn syrup.
Jane Wells: Right, well. King Corn.
Jane Wells: How difficult is it to be CEO in a very volatile sector, where everything you say could make huge… ?
Jane Wells: Have you had to learn to shut up?
Jake Heimark: I wish what said mattered. I wish that was what was moving it around. I think it’s like a crazy person who wakes up and pays a different price for things every day, right? It’s the-
Jane Wells: Is it worth it, I guess?
Jake Heimark: Yeah, so that’s a question about why we’re public. Right? And so the answer is we took a million dollars in the investment round three years ago for about a third of the company because we couldn’t make payroll and our company was completely failed; we were in debt. All of my co-founders had cut their salaries back to half, and somebody came in who was willing to make a million-dollar investment with the requirement that we go public by October 30th of last year, or else he wouldn’t make the investment. And the reason why they required it… And this is super esoteric to the cannabis industry, is because they were Canadian citizens who were worried if they ever had a payout from the cannabis industry that the feds would actually seize the money or go back in time later and arrest them because our department of justice has a long arm.
Jake Heimark: They get people in FIFA for weird stuff.
Jane Wells: So they wanted a relatively quick payback.
Jake Heimark: Well they wanted… By going public in Canada, cause they’re Canadian citizens it’s legal for them, its liquidity for them, it was a whole…
Jane Wells: Got it.
Jake Heimark: And so from that moment, we don’t take that kind of money with a gun to your head. They got a 50% dilution penalty unless we went public; you don’t take that kind of money unless that’s your only avenue, right? And so without their faith and believe in us at a time when nobody else… I mean we could not raise a dollar. We would not exist. So…
Jane Wells: Oh, I’m glad I asked that.
Jake Heimark: So then the other question is why take it, right? Because that’s an dilution to take as a young company; it’s because we took my family friend’s money, we took my friend’s money, and we took money from my father and I felt like we owed it to them. My co-founders and I were fortunate enough to have turned a corner on that.
Jane Wells: How do you feel about it now?
Jake Heimark: I’m learning a lot. I’m a 31-year-old CEO of a public company, and that’s wild. I think that there’s a … It’s sad that retail investors have basically missed out on all the money that VC’s have made in the U.S., the retail investor basically gets toes, except now finally on some IPO’s they’re knocking back the prices because people are tired of this. I don’t think it’s fair that the really wealthy get to pull untaxed money into a VC fund and keep tripling and quadrupling their money selling the same companies that they owned to themselves.
Jane Wells: I just feel like the real IPO is the IPO… Is the sale share that happens before the actual IPO.
Jake Heimark: Exactly. And we’re a weird company, right? I think we… Or I know we were the first, we may be one of the only cannabis companies to actually do an IPO in Canada and not in our TO. That was A, a mistake, but B, this was more work. But actually, it really put censor on our company that when we do things, even if we don’t like them, we’re going to do it the right way.
Jane Wells: Okay, so final and I’ll stop. Because I’m obsessed with this; if you didn’t have a gun to your head, you wouldn’t have gone public. You wouldn’t recommend going public?
Jake Heimark: As I said, it’s great to have retail shareholders, I think they drive you to do different things. The retail shareholders drove us to get licenses at a time when California wasn’t clear that that was an important thing. So who am I to tell the market that they’re wrong? So I think it’s great; I think as a brand, a really successful brand should be one where people love the product, and want to own a piece of the company, and we’re all on the same team. That’s nice coming out of social networks, where it’s not clear that the product being sold understands it’s the product being sold; and by the way if you’re not paying for social network, you’re the one that’s the product being sold.
Jane Wells: Oh, that’s a good way to look at it.
Jake Heimark: Yeah. It’s… In this industry, you can buy it and be happy, and everybody along the chain is happy, and so that’s nice. We actually are launching in Las Vegas this quarter, which is exciting because we’re almost at the end of the month, so-
Jane Wells: Soon?
Jake Heimark: Yeah. And the way that we launched in Nevada was by taking… We called it a Navy Seal team from our factory and deploying them there, because we’ve seen a lot of brands as we traveled because we started in Colorado and we go around all these states; it’s the same name of the brand, but it’s a packaging that’s different, it’s a taste that’s different, it works differently and it’s not the same at all. And so it costs us more to do it that way, but this is the only industry in the world where you’re going to have to make Coca-Cola in New Jersey and New York, and it has to taste the exact same, ad your customers traveling between both places, but your product can’t.
Jake Heimark: And if you’re a company who can get that right when other ones are getting it wrong, we think that’s a really powerful statement to your customers. We could be wrong; that’s just the way we think about it.
Jane Wells: By the way, are your grandparents still… Are your grandparents still alive?
Jake Heimark: One of my grandparents.
Jane Wells: Are they proud of you?
Jake Heimark: Yeah, my dad’s mom is still alive. She has Alzheimer’s which isn’t great, which is tough. But my grandfather who was a doctor passed away a couple years ago; he was around at the beginning of the company. He had fought World War 2, [inaudible 00:52:58] on the left and became a doctor. I’ll never live up to that stuff. So I was talking about it before he passed away and he was saying that he’s always wanted to do research into this stuff because some of his patients used it and had great stories about how it helped them. So I think they would be. I think not being on the smoking side is really important. My grandma was a smoker and quit so that would be really important to them.
Jane Wells: When you said that a company your grandparents could be proud of, I was wondering if..
Jake Heimark: Yes, so there’s this thing that happens when you go as a company where you have to make this thing called a brand book. I don’t know if people know this about brands, but yeah. It’s like a waste of a bunch of money. No I’m just kidding. It’s a way for you to state as a company what you believe and our first page has a list of all the grandmothers of the people who work at our company, because that… We think about it like every day.
