Ray Landgraf, Founder & CEO at ISLAND
Ray founded Island in 2014 with the goal of building a great company around a great brand in an industry with the potential to change the way we live - cannabis. Prior to the cannabis industry, Ray helped build several technology companies. He most recently served as VP of Global Business Development and head of Authentication and Verification Solutions for Dun & Bradstreet (NYSE: DNB) where he was responsible for developing, launching and scaling data-driven SAAS solutions and applications for global commerce and trade.
EPISODE TRANSCRIPT
[00:00:01] You're listening to Thinking Outside the Bud where we speak with entrepreneurs investors thought leaders researchers advocates and policymakers who are finding new and exciting ways for cannabis to positively impact business society and culture. And now here is your host Business Coach Bruce Eckfeldt.
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[00:01:06] Welcome, everyone. This is thinking outside the bud. I'm bisexual. I'm your host. And our guest today is Ray Landgraf and he is founder and CEO of Island, which is a consumer company, cannabis company based in Southern California. Here to learn more about his background, about island and about how he created it and the state of the industry and what's going on in California from a cannabis point of view.
[00:01:27] So with that. Ray, welcome to the program. Hi, Bruce. Thanks for having me.
[00:01:30] So why don't we talk a little bit about your background and get a sense of you and your kind of professional background. And we can talk about island and how all that came about. What was the backstory?
[00:01:40] Sure. So I spent the first five years of my career in asset management and private equity and quickly learned that I liked being on the building side better. It was it was getting disappointingly we'd get to write checks and these entrepreneurs getting to go out and gold on stuff. So in 2007, I hopped ship and went to the other side of the fence and landed in Silicon Valley. And as a technology startup, I was fortunate enough to grow that business. Learn a lot along the way. Accident some some other folks were, as I learned, even more how to weathers others since then. In 2016, we sold one of the businesses that we'd been building for about four years. That one was more of a turnaround than a startup. But we're we're looking at the space and in turn, understanding. We wanted to play next. Along the way, I developed kind of two roles that were a guidepost for what I wanted to spend my time on. And really, that was one who I wanted to spend time with. So team and then to what I wanted to work on, I had an interesting project and feel very fortunate to be a place in my career where we could do those things. But looking looking at that kind of in parallel got into the business back in 2012. My wife's family is fourth generation ag from Washington. And they decided to take a very small portion of a very large farm that they have up there and add a crop essentially to the mix. And so God got into this more as a curiosity than anything interesting that it was a very interesting entrepreneurial space to play. And so as we were looking at what to do next. A few years later in 2016, decided to make cannabis my full time jobs because I saw the entrepreneurial opportunity and got really excited about building in such a wide open white space so that the technology stuff you had been doing had nothing to do with cannabis.
[00:03:31] I mean, this was this was a big shift for you.
[00:03:32] Nothing to do with cannabis. We we jumped around in a couple different things. The very first one was essentially helping small businesses create an online presence before websites were really popular. So kind of like Facebook or business, they'd go in. They'd have a set of tools to publish content, establish a presence, attract Web site traffic and customers got to really have a voice to that consumer that was backed by Barry Diller's IAC. Oh, yeah. And then and then after that got started on another company that Facebook ended up acquiring before we really got to formalize anything or bring a product to market and then found my way over into a turnaround with with an asset that had been acquired out of Dun and Bradstreet, which is the largest and oldest data and a business credit company in the world. Yeah. I mean, the whole SAP platform took what was essentially a transactional business re re architected the entire thing on a new technology platform, made it a monthly subscription and helped businesses access credit and manage manage their credit and credibility online through through that company.
[00:04:42] Yeah. Interesting. So when you looked at cannabis, I guess, how much was this? You know, you've had an access. You can kind of you have a little bit more fun or play around with some ideas versus, hey, this was like this is a great business opportunity. I mean, give us give us a frame of how you originally kind of got into the cannabis space.
[00:04:57] Yeah. You know, you hear the term green rush thrown in. Yeah. That is not the reason that we got into this. We got into because we thought we could build something special and we had a real opportunity to put a mark on something. So this isn't a new business by any means. Our new industry by any means. Yeah. This industry has been around for a really long time, but the shift from black market into regulated market is creating an entrepreneurial opportunity that just couldn't be ignored. And to be totally frank with you, just seemed like a lot more fun than building another tech company.
[00:05:28] Yeah. No, exactly. Exactly. So give us some details about Ireland.
[00:05:32] I mean, what's why. You know, why the company. How did you kind of choose that particular niche for that particular strategy or part of the market that you you entered?
[00:05:42] Why that market? Why or why that niche? What was the opportunity you saw?
[00:05:45] Sure. So I'm born and raised in California, lived here for thirty nine years. In California, you get access to the plant in very early age. So it was never one of those things that had an extreme stigma for young that like me in other parts of the country. So I didn't really have have any kind of hurdle to jump there. In 2014, I actually started prototyping different products under this island brand concept in response to what we saw happening on the farm up in Washington where commoditization was starting to set in. And it should level and never actually got the brand up into Washington and launch it up there. Instead had an opportunity to have the product and brand in a very select group of retailers in California. So the traction that it was getting there, which was, to be fair, very, very slow at the time, but but enough that we we saw some product market fit and believed that we wanted to spend our time investing in growing, growing this thing. So picking like one step back, we feel like the island brand really speaks to a broad consumer base that was largely being ignored at the time. And we can build a great company around a great brand. Yes.
[00:06:56] Yes. So tell me. So tell me about the brand. So what what is the brand?
[00:07:01] How did you come up with the brand? What is the brand? Not I mean, as you're kind of looking at, you know, where where brands are going in the cannabis space, why this one?
[00:07:10] So I went as a brand was born. There's a couple of reasons. One, at the moment, most of the list of the brands at the time that we launch. So we start in 2014, first product went to market in 2015. The concept of a consumer packaged good hadn't really taken hold in the market yet. It was still largely flower being being purchased over the counter. And dispensaries, you know, makes the closest products that you'd see where the joints that came in a plastic bag and had a couple of an every label on them.
[00:07:40] Exactly.
[00:07:41] And so we looked at it and said, well, this is eventually going to be CPG. The brand should stand for something. We've learned from Washington that a lot of product that was being grown wasn't passing certain health and safety standards. And so very early on, we wanted Ireland, the brand, to speak to a consumer audience that wasn't really being reached at the time. And so that's the reason there's no green color in it. There's no cannabis leaf. We don't have any or any of those things as part of the brand. So really more of like lifestyle positioning. Yeah. And then we wanted to stand for for something special. So at that time that meant actually testing all of the product and making sure that it was fit for human consumption because California didn't have a regulatory environment that that very clearly laid out the black and white delineation between what was safe use Washington state standards and and that allowed interstate and speak to retailers about how we're taking a lot of extra effort to make sure what ultimately becomes an island product is safe for the consumers that they're selling to.
[00:08:44] Yeah. Interesting then. And tell me about the product side as you looked at the at least the initial products or kind of your product development strategy. When what I guess, what products do you choose? How did you come up with those or how did you decide on those? And what is the kind of product ethos or the things that you're focused on from our product point of view?
[00:09:01] Sure. So we started with pre roll that. I think the big driver there was there weren't a lot of other product types then and most of most of what was being purchased was filler. Essentially the ready to consume format. So we saw an opportunity to be early there and really product ties that experience. We today have a line and we do packaged flower free roll and vape and probably the two categories that we're most excited about over the longer term because we see flower ultimately shrinking as a category and bacon pre roll actually taking some of that market share on the beef side. We're really patient about the hardware partner that we chose there with that without really disparaging any other kind of the 5 10 hardware experience was it was a tough one for us to wrap our heads around. I'd be in dispensaries in the early days doing the patient appreciation days and everything got to the point where I was just starting to count the number of customers that would come in to return a battery or or something. And one day I decide to literally start counting every number of customers that came through and then the number that were were there to return 5 10 hardware and it was over 20 percent. And so I did that again several more times and saw similar results and came to the conclusion that we just couldn't build the island brand around a unreliable consumer experience. Yeah, about a year later, we were fortunate enough to to do a deal with Pax. And really believe in the Pax hardware format and what they built and stand by that today. We see less than 1 percent failure rates with Pax Hardware overall. Really, really good, consistent consumer experience. We've done the crazy things where we leave pods and ultra hot cars in the sun. Things are leaking or what might happen and AXA continues to stand up to the test of time.
[00:10:53] Great. And where in terms of product strategy, just generally going forward, what are the like? As you look at where some of these products are going, what do you think are the future things you're investigating?
[00:11:04] Yeah, great. Great question. So without speaking to format necessarily, I think we were extremely early on the lower potency side, so, so much so that there was a pretty serious headwind since the market really rewards potency and I think still does largely today. Over time, we'd like to see that shift and we kind of look at it as the equivalent of grain alcohol. And in some senses where, you know, you don't show up to a party, you start drinking grain alcohol because it's never clear.
[00:11:32] You know, there are do out one hundred nine year, 90 percent alcohol. Yeah.
[00:11:38] These things should be to have a socially acceptable product where people can consume responsibly. There should be a capability to kind of throttle your intake and make sure that you're enjoying your experience. And so over time, I think we'll see people start to reword the quality of the product overall and and the overall characteristics of the plant and not just.
[00:11:58] Yeah. So I'm curious, with your background and tech and in finance and, you know, a fairly rich, extensive experience of building companies and scaling them and exiting what what parts of that have you, I guess, leverage most or that have been kind of helpful for you most? What parts have had. No, I had had no help. And then what? What has been kind of surprising for you in terms of things you've learned before that you didn't think you were going to apply? But I've ended up being, you know, really key for you in terms of building building this company.
[00:12:28] Sure. So this one's almost like a 40 leg stool in some ways. The experience that I had is is not relevant at all. And in other ways, it couldn't be more relevant. Perfect example of that. I think when you have the kind of growth rates that we're seeing today in our business and the industry in general, there's there's a lot of friction as you grow that quickly. So you're hiring and communications, all of those things just lead to a controlled, chaotic environment without any context of doing startups before. I think I might look at this and say, oh, my God, this is absolutely crazy. But having been through this several times before, I look at and say, well, this actually really isn't any different. What's what I don't think anyone could have really prepared us for was how to deal with the things that we take for granted. So access to capital and banking are very, very challenging. Having to do payroll and cash when you've got 80 employees is really, really tough. So, yeah, we're we're the kind of team that welcomes a regulated environment. We think that ultimately over time, that'll level the playing field and creates an opportunity for us to shine. But the zigs and zags on the road to get there have been extremely challenging and doing that with without some of the core capabilities that other other startups get to rely on, like like banking as an example just just creates an exceptional challenge. Yeah. On the talent side, I think our backgrounds have given us the ability to attract talent earlier and in different ways and maybe some of our competitors. So we've really tried to use that as an advantage and we're really starting to pick up steam there, which is great. But we're also seeing a lot of interest now from people in traditional roles coming into the cannabis space. So recruiters get it and starting to get a little bit easier. And building the team for four for the right people at the right time is starting to get a little bit easier.
[00:14:26] Yeah.
[00:14:26] Anything you've noticed about bringing people from outside the cannabis space into the cannabis space in terms of where what you need to do to get and get them ready or to kind of level them up. What's the what's the transition they need to go through to be successful and highly productive and a cannabis business?
[00:14:43] I say this partly tongue in cheek, but a lot of ways you have to throw logic out the window in this industry, right? Yes. And we've brought real, really amazing people in from from great places. And they've tried to apply the same things that they were doing exceptionally well in other areas to cannabis. And they've just seen lots of breakage points. And so failure or inability to adapt, it has definitely been a hurdle that things just do not work the way that you would think that they work. And there is an aspect to that that is perseverance and really trying to understand the market and put time into finding the ways to solve the problems. And then there's the other aspect of, well, let's just throw up our. And not hide the headwind anymore. We'll come back to that is another point. Knowing knowing which decision to make at which time has been pretty critical.
[00:15:37] Yeah, I certainly find that this is kind of no judgment factor to it as well. I think a lot of folks coming out of other industries come in here and they get frustrated and then they start kind of judging the industry, judging these other companies, judging the process of saying, well, this isn't professional or, you know, that we can't work like this. It's like now you kind of have to adapt. You kind of have to like, no, not make make it work, you know, get through it. It's an evolving industry. It's just kind of the nature of where we are with some of this stuff. And some people can do that and some people can't. Some people are just sort of set in their ways.
[00:16:06] Yeah. Couldn't agree more. We don't. We don't have to look at this as this bad or negative. That is the state of this industry. And every industry has its own unique challenges.
[00:16:14] Yeah, exactly. So talk to me about the regulation side a little bit and how you kind of manage that. So, you know, the regulation process has certainly there's that the laws and then there's the application of the laws and the changes to the laws.
[00:16:27] Whereas wherever you found sort of the biggest challenges from a business point of view in kind of staying top on staying on top of it, you know, how to implement, to win, to implement. What are your what are your learnings there?
[00:16:38] Well, you can just you can throw a long term planning out the window. So you've got a plan for everything in the short term because you're one regulatory decision away from having all of your packaging inventory be irrelevant or or practices that you invested in on on the manufacturing floor, equipment you invested in. You're not working for the new environment. So it is difficult because long term planning is actually how you pull off some really great successes. And we've had to look at that more as chapters where we still have a long term plan, but we have to continually revisit and check that long term plan as we go through each chapter probably. So, yeah, probably the most challenging thing is just the ever changing landscape of the regulations, not the regulations themselves.
[00:17:25] Yeah, that's just kind of you know, you're never quite sure how long they're going to be in place and what's going to what new ones is going to shift on you. That changes machinery or a label or some part of your process.
[00:17:35] Yeah. So talk to me about the capital side of it. So how I guess what are what are the challenges from an investment point of view from sort of deploying the money that you have? Are you looking for external capital? How does how does that part of it work for you as a as a company?
[00:17:51] So some cannabis is a very capital hungry and capital intensive endeavor. You know, you're inevitably going to make some mistakes not to write some stuff off just due to all of the regulatory changes that occur. So you have to you have to be over budgeted for that. The environment's constantly changing as well. So we've we've had instances where funding has been lined up, lined up, and we've had to delay it because, you know, Jeff Sessions came into office and people didn't know what to do or or the bank account that we thought were going to have opened the next day didn't happen on time and that that created some delays.
[00:18:25] So overall, I'd say that the biggest challenge we've faced on the capital side is kind of the ever changing landscape that the investors also have to wrap their heads around. We spent a lot of time educating some some very well-to-do investors, but that just wasn't there. Our capital challenges are certainly different than many others as well. But we saw an environment where we had to cobble together a smaller financing round with a lot of smaller checks in six months shift to folks wanting to come in and write a single check to take an entire room and then everything in between. Right. And then six months later, that environment changed as as things as things settle down in Canada a little bit. And then three months later, things were back in Canada. And we want to make the right tax again. So like like a lot of life timing is really, really important. And we try not to let any of that stuff bother us where we're not building anything for the short term. This isn't about a flip. This isn't about an exit for us. We feel like we've got an opportunity to build something really special around the island brand now by focusing on the long term and being a little bit over capitalized. We feel like we can roll with the punches and make sure we find the right capital partners to grow for the long term.
[00:19:37] Yeah. And so talk to me about the capital partners. I mean, there's a lot of money kind of coming in and out of that kind of a space right now.
[00:19:43] I mean, what do you find that there are is the money coming in ready for cannabis? Are they not ready for cannabis? I mean, if you're if you're an investor or listening to this or you're thinking about becoming investor in the cannabis space, listening to this, what kind of advice, guidance, thoughts would you give them in terms of, you know, that side of the equation and really making sure you're ready and able to to be a cannabis investor?
[00:20:04] I think it goes without saying that everyone who's interested in investing in cannabis should be prepared for an extreme amount of due diligence. So I just wouldn't recommend getting involved unless you're prepared to put the work in on the due diligence and really understand the point that you're making. That said, we've kind of migrated from, I think, what was your high net worth individuals and angel investors to the family? This crowd and those guys were we're really getting educated the last couple of years as they kind of got educated. We saw some some smaller funds take form. And so the early innings of institutional capital and I think now we're starting to see larger institutional capital players really take an interest in the space and get educated.
[00:20:51] So it's really the other thing is I remember about 18 months ago, I was doing calls with family offices all over the United States. Probably I'd have to go back and look at the data, but probably something like 15 to 20 states. We'd talk to family offices. And as we saw things shift kind of around summer last year, we just saw a lot of that get aggregated into New York and having raised money and Sandhill and Silicon Valley and gone through that process on the on the tech side. You always hear about how that aggregation occurs in New York. And it was really interesting just to see that vacuum created and see New York do what what it does best. Yeah, that that is now at least in a lot of folks in California's world become like the center of financing for the future.
[00:21:38] Yeah, it's it's an interesting kind of dynamic that we've certainly seen here. What do you think? I mean, give us a sense of timing and how the next 12, 24 months of kind of that side of the business is likely to play out. I mean, where do you how how quickly do you think the market is going to develop for the funding side?
[00:21:56] I think it's going to happen very, very quickly. We're seeing large CPG guys take interest. We've already seen alcohol and tobacco make some pretty significant moves. I think that that was put it squarely on the radar of a lot of the big guys in New York. And and what we're seeing here in California today is, is a lot of interest in consolidation. So there's a lot of a lot of money sitting on balance sheets in Canada. There's a lot of money sitting on balance sheets and ancillary industries and in private equity firms. And I think a lot of that money is going to be put to work very, very quickly.
[00:22:33] Yeah. So let's talk about the market a little bit. I mean, we're kind of still in the state by state situation in the US. You know, Canada's coming online where I mean, how do you see this kind of playing out? And as you think about or as the you know, the future possibility of federal legalization of the cannabis market in the US, how does that impact your strategy, the brand? I mean, give me a sense of how you kind of frame that or how you think about it.
[00:22:56] Sure. So we believe federal legalization is is really a win, not an F.. The disparity has gotten pretty ridiculous with how many states have state sanctioned activity in some way, shape or form. So at some point, the folks in Washington are going to make a change when that happens, you know, we can throw throw darts there. We've always thought that we wouldn't see a lot of this acceleration happen until we got closer to federal legalization. And I think if I could kind of correct that statement and go back a few years when we developed the hypothesis, I would nudge myself to think more about the anticipation of federal legalization and what that does to the marketplace. And I think that speaks more accurately to the environment that we see now with her, where almost everyone agrees that it's imminent and going to happen at some point. Whether that's two years or five. Does it really make. Does it really matter? Because they've moved beyond the risk tolerance to get comfortable that they've got to make bets now or they're going be making. That's a much bigger valuations later and didn't really want to do that.
[00:24:01] Yeah. What are the. What's the impact for a company like yours on on federal legislation? I mean, where how does it change the business model or the business dynamics?
[00:24:09] And then your strategy will in some ways it really helps because it clears the path and remove some of the hurdles that we don't get access to. The other businesses that aren't in the cannabis industry have access to it. So it does help in some ways, in other ways.
[00:24:23] It brings a lot of the big players into the space a lot faster. And I think, you know, if you're if you're in the same kind of position that Ireland is in now, you've got to be thinking about getting bigger, faster or where, you know, there's there's definitely a competitive threat to not responding to that.
[00:24:41] Yeah. And as this market grows, I mean, I'm fascinated by brands, because I think that's a you know, it's this very dynamic part of the industry right now. You know, as as we kind of bring on more and more segments of the market and particularly more segments of the market that have not been traditional cannabis users. How we talk to me about how brands are going to play a role in this or or why brands are important from your point of view in terms of development of the market, not only trump this aside, but from a consumer point of view.
[00:25:08] Sure. I think if you look at CPG broadly, brand is really important. A lot of consumers make decisions based on brand because brands is supposed to mean something. That's the equity that's created in that brand. Quick sidebar on that as well. You have companies like Brand List that are literally flipping that on its head, but they're doing it in a way where brand is becoming a brand.
[00:25:28] Exactly.
[00:25:29] I am so, so very much a conundrum, and in some ways I don't I don't think this looks any different than the more mature CPG industries we play today. So brands that are able to communicate what the brand stands for and to speak to an audience I think will end up winning in the long term. I think there's largely we're still very much in in commodity mindset today because especially in California, the black market's been around for a very, very long time. There's some deeply ingrained consumer behaviors that aren't going to shift overnight, and especially given the financial tradeoff between easily accessible product and highly taxed products so that it's up to the brands to kind of make their mark and identify what they speak to their audiences and and why they have a connection with that audience with Ireland. We were really trying to speak to the audience that we felt was being ignored in the dispensary market at the time, which was which was people like like me and you and didn't necessarily wake up every morning and grab the bong and play video games all day. No, not not that that's the entire market. There's an entire medicinal aspect of the market as well that lives on on cannabis as a medicine.
[00:26:47] But having spent a lot of time in dispensaries, I think we'd be kidding ourselves if we didn't buy for Kate the audience into people that really like getting high and stoned and people that find real medicinal value in it. Yeah, and I think it's up to the brands to speak to those audiences and then the new audiences that emerge. Ireland was really meant to be a lifestyle brand that could speak to that broader audience that may not use cannabis everyday all day, but looks at cannabis as a special part of their life. So with Ireland, we wanted to make products that created moments of happiness. We have a commitment to a purpose across everything that we do, whether that's our product or our packaging, our consumers, our employees. Ireland, Ireland, too. To me is a very accessible brand. Doesn't need to be explained. It can be viewed as a state of mind and really represents an opportunity for people to take pause and in their daily busy lives to reflect on the kind of growth that they want to do personally on cannabis is as it as a tool to lead a healthy and happy life.
[00:27:46] What do you see as the next big market? If you look at the current cannabis users who who are the core of the incoming segments of this market that that you see happening over the next 12, 24 months in terms of new new frontier for the cannabis market share.
[00:28:03] So cannabis has such broad applicability that I think it really speaks to it or it could speak to anyone in any demographic or geographic area. I think what we're seeing in some of the data and states that are a little bit ahead of California as far as regulated markets concerned or least released some of the data, we're like, wow, that's interesting is just how how it's used to baby boomer and the generation above them. So. So cannabis is actually skewing pretty heavily as part of as far as new entrants and participants skewing pretty heavily into the 50 plus crowd, which is which is kind of interesting now. And there's not a there's not a ton of brands that we feel are really speaking to that audience very well today.
[00:28:48] Yeah, I would agree. Yeah. It's one of the fascinating things about cannabis as ends up touching so many different people. So for so many reasons that the opportunity to create these kind of segmented strategy is this is quite expensive.
[00:29:00] We look at it a lot like beer and wine. I mean, there's all applicability and accessibility and there's thousands of beer brands and thousands of wine brands. But there there are some brands that have captured more consumer audience and market share than others. And the same thing will happen here.
[00:29:17] Some of the pleasure, if people want to find out more about you, about Ireland, what's the best place to get that information?
[00:29:22] The best place to go is www.island.co and learn about the team, the products, the brand. What we're building and Bruce, thank you for the time has been an absolute pleasure.
[00:29:33] Yeah. Thank you for being on. I'll make sure that those links are shown out so people can click through and get it right. It's been a pleasure. I've learned a lot and I really appreciate it. Wonderful. Thanks, Bruce.
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