In this episode of the Signals podcast, host Nick Mazing from AlphaSense welcomes guest Matt Melander, a successful entrepreneur in the burgeoning cannabis industry. Together, they delve into the challenges and opportunities of creating and distributing cannabis-infused beverages and edibles, highlighting Matt’s journey in developing the popular LEVIA beverage line.
Matt shares his experiences navigating the uncharted territory of the cannabis market, emphasizing the importance of strong relationships and integrity in an industry that lacks the infrastructure and support of more mature sectors. He also discusses the potential landscape of cannabis consumer packaged goods (CPGs) and whether the industry will ultimately consolidate or fragment.
Finally, the conversation touches on the creative process of crafting palatable cannabis beverages and Matt’s humble beginnings with a SodaStream in a garage to sophisticated collaborations with flavor houses and experts today. This episode offers valuable insights into the dynamic world of cannabis entrepreneurship and product development.
💡Name: Matt Melander
💡What he does: Entrepreneur, Co-founder
💡Company: LEVIA Cannabis Beverages (now a part of AYR)
💡Noteworthy: Matt is a successful pioneer in the cannabis-infused beverage market.
💡Where to find him: LinkedIn
Building a Brand in the Emerging Cannabis Industry. Matt Melander, the co-founder of LEVIA Cannabis Beverages, discusses the challenges and opportunities of building a brand in the cannabis industry. Due to the lack of established infrastructure, businesses need to rely on small-time relationship-based selling and one-on-one conversations with retailers. Matt highlights the importance of integrity and collaboration in the industry, with contributors working together to build a viable future enterprise.
The Evolution of Cannabis CPGs and the Potential for National Brands. Matt shares his thoughts on the future of cannabis CPGs and the possibility of national brands emerging in the industry. While he believes there is a chance for a Coca-Cola or Budweiser equivalent, he also sees value in regional players thriving and creating jobs. He compares the growth of the market to the rise of the craft beer industry, with a focus on product quality and consistency.
The Art and Science of Cannabis Beverage Formulation. From its humble beginnings as a fun experiment with a SodaStream, cannabis beverage formulation has evolved into a sophisticated process. Matt explains how flavor experts from the wine and craft cocktail industries have entered the cannabis space and elevated product development. The process has shifted from being an art to incorporating rigorous engineering and testing for quality control.
Overcoming Obstacles in a Developing Industry
Matt Melander discusses the unique challenges of operating in the nascent cannabis industry. Unlike mature businesses, the cannabis space lacks established infrastructure and solutions, forcing entrepreneurs to rely on relationship-based selling and close communication with retailers.
“So, here’s where it’s very much small-time relationship-based selling. We would go out into the market; we would go to every retailer. We would have one-on-one conversations with the owner, the purchaser, the manager, whomever the deciding factor would be.”
Building the Industry Together
Matt emphasizes the value of collaboration and strong relationships in the cannabis industry. He believes that it’s important for everyone in the supply chain to work together, as they’re not just building brands but also an entire industry.
“We really are truly building an industry, and it takes everyone in all parts of the supply chain to work together to really make that a viable future enterprise.”
Navigating a Changing Regulatory Landscape
Matt shares his thoughts on the potential passage of the Safe Banking Act, which would legalize financial services for the cannabis industry. Although he remains cautious about its approval, he acknowledges the positive impact it would have on the industry’s maturation and acceptance.
“I think the more responsible we can be and open the capital markets can be for the industry, the more mature the industry can become, the more consumers and regulators and any industry participant can take it seriously.”
A New Level of Sophistication in Product Development
Matt describes the evolution of cannabis beverage formulation from simple experimentation to a more advanced process involving flavor experts from the wine and craft cocktail industries. These professionals have helped elevate the quality and consistency of cannabis beverages.
“The very very first product — which was LEVIA — we built that in a SodaStream. […] Now, we’re very fortunate that the flavor houses are far more open to the industry, real beverage experts — whether they be sommeliers from the wine world or mixologists who come from the craft cocktail world.”
- (00:07:30) Matt Melander: “The difference between a beverage and a tincture is about a 20-minute onset time, which is a major, major improvement over what’s been on the market.”
- (00:08:30) Matt Melander: “So, here’s where it’s very much small-time relationship-based selling. We would go out into the market; we would go to every retailer. We would have one-on-one conversations with the owner, the purchaser, the manager, whomever the deciding factor would be.”
- (00:09:00) Matt Melander: “We really are truly building an industry, and it takes everyone in all parts of the supply chain to work together to really make that a viable future enterprise.”
- (00:10:00) Matt Melander: “I think the more responsible we can be and open the capital markets can be for the industry, the more mature the industry can become, the more consumers and regulators and any industry participant can take it seriously.”
- (00:16:30) Matt Melander: “The very very first product — which was LEVIA — we built that in a SodaStream. […] Now, we’re very fortunate that the flavor houses are far more open to the industry, real beverage experts — whether they be sommeliers from one, the wine world, or mixologists who come from like the craft cocktail world.”
[00:00:00] Matt Melander: The production side is a part of this where I’m hyper, hyper-focused. I actually believe the, the people who own the hard infrastructure are the cannabis companies to pay attention to. Brands are fungible, brands come and go. The average length of a brand right now in California is sub 365 days because so many entrants are flooding this market and the economy’s just not there to support it.
[00:00:35] Nick Mazing: Hello and welcome. You’re listening to Signals by AlphaSense and I’m your host, Nick Mazing. Today we’re going to discuss cannabis products, specifically CPG, or Consumer Package Goods with Matt Melander, a successful entrepreneur in the category with years of experience in developing products, establishing production and distribution, and a successful exit.
[00:00:55] Matt, can you tell us a little bit more about you, your work experience, and what you’re up to now?
[00:00:59] Matt Melander: Yeah, absolutely, Nick. Thanks for having me. So, as you said, I, uh, I have a unique career. I started actually my career in, in financial services and did that for over a decade and all along had this, this kind of nagging feeling that I wanted to be involved with something from the ground floor. And I don’t think there’s anything as much of a ground floor as, as the cannabis industry as a whole, domestically. And really the roller coaster that we’ve been on now, as someone who joined the industry full-time in 2018, in 2018 I founded, along with two other partners, business that became known as LEVIA.
[00:01:33] When we went to the market, it quickly grew to be the number one cannabis infuse in the country, in just under six months. And in that same six months, we started fielding buyout offers from the biggest publicly traded cannabis companies in the country and eventually partnered with one of them and, and sold the business.
[00:01:52] So, it was a wild adventure and took every bit of entrepreneurial desire. I certainly had to, uh, a fledgling idea was $0 and having to find, develop, build a building to build, build an operating system, build a brand, build a product, build a distribution work, you gave it, we had to do it. So, it’s certainly an industry that takes whole host of skills to be able to be successful.
[00:02:20] Nick Mazing: Mm-hmm. So, let’s talk about cannabis CPG products as they currently exist in the market. So, we’ve seen an explosion in consumable products like beverages, like gummies, and so on, as well as cosmetics, like creams and so on. So, what is going on in the main cannabis CPG categories?
[00:02:43] Matt Melander: You’re seeing a lot of product innovation, formula innovation, flavor innovation. Frankly, what you’re looking at with cannabis landscape is something that in its earliest days, the calculus was, “If you made it, it would sell.” I think consumers were super excited to have access to legal regulated and tested product that sometimes product quality was subpar, but the product would sell just because people were excited to have it.
[00:03:14] As more markets have opened, and when I say markets, it’s state-by-state micro-economy. So, as more states have added adult use, you’ve basically seen forced ingenuity. And so, what we’ve watched, which was started as called gummy bears and chocolate bars and some relatively rudimentary formulations of tinctures and whatnot, has started to expand, as you said, to topicals and cosmetics to in, I’ve seen in,
[00:03:40] I’ve seen infused hot sauce, you name it, you can infuse it. Now, does that mean that it’s going to be a commercial success? Probably not ’cause it’s still pretty small market in, in the universal sense. But the focus really has been, the way I like to explain it, if you stay in the middle of the fairway and you figure out where the greatest number of consumers will intersect with these products and you use form factors that feel like universal norms, you have a very good chance of creating something that can survive and, and really flourish in the future.
[00:04:12] Nick Mazing: So, I’ve been involved with CPG in different angles. So, I was, uh, worked on the corporate side with CPGs. I have been on the sales side covering CPGs, buy-side involved with CPGs, and one of the most difficult things for emerging brands is distribution. So, for example, in case our listeners don’t know, every single spot in the cooler at your 7-Eleven is spoken for, every single spot on the shelf at your local CVS is spoken for.
[00:04:43] The employees have planograms. There is no, you can just, your product doesn’t just show up there and it’s notoriously difficult to get in with those national chains. And, you know, I mean, a mega-retailer, they’ll take your slotting allowance, which is basically your rent. They’ll sell through your product and then it’s over.
[00:05:00] They’ll never renew. Right? They’ll take your money and that’s it. And the whole process is ten times harder when you have state-by-state restrictions with cannabis products. And it’s the same thing actually with production, right? If you have an idea for whatever category that’s non-cannabis, you can find a contract manufacturer and, you know, they’ll make you, subject to certain memes, your energy drink.
[00:05:26] They’ll make your pasta sauce, they’ll take your money and that’s it. And production is solved. That’s not the case, obviously, with cannabis products and you have been successful at winning at the production and the distribution game. So, what’s the key there?
[00:05:43] Matt Melander: I think it’s a unique question and we’re gonna break it down into a few component pieces, and it goes to the nature of the industry. Uh, as I said a little bit ago, this idea of state-by-state micro-economies creates the necessity that, “I can’t produce a product in New York and distribute it in Massachusetts.”
[00:06:02] If I want to distribute a product in New York, it has to be built and ma, and manufactured in New York. Same is true in Massachusetts, Washington. We’re going, you name the state, you name the market, we don’t have cross border capabilities. So, you create this unique situation where, as a consumer product, you have to own your, your own supply chain.
[00:06:27] And as we continue to slowly mature, you’re starting to see the idea of traditional manufacturing co-man facilities coming into the space, but it’s been few and far between. The restrictions of capital in the system have created a situation where, when, when I got started, there wasn’t a cannabis beverage facility east of Denver, Colorado.
[00:06:50] So, it wasn’t like I had a chance to go and just go to a co-man and be like, “Hey, this is my graphic design. This is my formula. I want a thousand cases a month in perpetuity.” It was, “Nope, go find a dirt lot and build yourself the manufacturing facility and, go raise the capital to do that because there’s no access to traditional financing.”
[00:07:11] So, the production side is a part of this where I’m hyper, hyper-focused. I actually believe the, the people who own the hard infrastructure are the cannabis companies to pay attention to. Brands are fungible, brands come and go. The average length of a brand right now in California is sub 365 days because so many entrants are flooding this market and the economy’s just not there to support it.
[00:07:36] So, as we look at this from my current situation where we actually are building a co-man facility, as that is where the optionality still exists, you can build anything for anybody if you own that infrastructure. You control the supply chain. If you control the supply chain and you make a quality, safe, repeatable product, you’re gonna create consumer confidence.
[00:07:59] And over the long run that’s, that’s certainly the place you want to be. Winning at the register is a whole different conundrum because now all of a sudden you’re not only a production site, you’re also a sales and distribution site. So, all of these things where, when you look at mature businesses, there are
[00:08:17] solutions at every corner and whether it be a co-manufacturer or a sales and logistics platform, or, as you said, slotting fees at, at the retailer, none of that exists yet. So, here’s where it’s very much small-time relationship-based selling. We would go out into the market, we would go to every retailer.
[00:08:39] We would have one-on-one conversations with the, the owner, the purchaser, the manager, whomever the deciding factor would be. Try to get our product carried. And then, from there, it’s a matter of being, frankly, just being good people. In an immature business you’re not, there is no Coca-Cola, there’s no Mondelez, there’s no mega conglomerate that controls the pricing or the flow of product.
[00:09:04] So, our willingness to work with our customers and if they missed payment terms one time on a, wasn’t like we were gonna say, “Hey, we’re never doing business with you again.” We’d pick up the phone and act like humans and say, “Hey, what’s going on?” And you work through it together. It’s really, one of the greatest gifts that the cannabis industry has created is this idea of mainstream business coming back into the fold.
[00:09:28] And that, to me, is how you went on all facets of this, whether it be production, distribution, sales, logistics, any of the above. Your handshake matters and your integrity matters, and you’re working with these folks trying to build an industry. We’re not just building brands here. We really are truly building an industry and it takes everyone in all parts of the supply chain to work together to really make that a, a viable future enterprise.
[00:09:53] Nick Mazing: And now, looking forward, let’s say we get safe banking, which for our non-newest listeners is the proposal for the legalization basically of financial services to, to the cannabis industry. And, you know, you had the guy from, I’m forgetting his name, Kill Bill, I think, on Capitol Hill last week advocating for it.
[00:10:13] So, you have the celebrities on your side, but, you know, let’s say we get that.We can have interstate commerce at some point of time. How do you see the level, the land in the space in the long run? So, in other words, when you look at a mature CPG industry by vertical, you know, you have Coca-Cola and Pepsi very consolidated.
[00:10:30] You look at, you know, you have the Oreos and, you know, Mondelez dominating snacking and so on. So, do you think that this is the, going to be the end state for cannabis CPGs, or do you think it’s going to be fragmented, that you’ll never get a national brand?
[00:10:45] Matt Melander: Well, going, taking, I cross my fingers every day that we can get this through. I think the more responsible we can and, and open the capital markets can be for the industry, the more mature the industry can become, the more consumers and regulators and any industry participant can take it seriously. At this point, I don’t put any weight on safe banking passing.
[00:11:12] I thought last year was gonna be the year and it didn’t get through. So, in, maybe, a 2024 election cycle type issue, but if we get it beforehand, great. It’s a rising tide, lifts all ships as soon as that goes. In terms of the evolution in the maturation of the products and there being kind of a Coca-Cola power player versus local, I actually, I’m conflicted on it.
[00:11:38] I want to say, “Yes. There will naturally be some players that rise to the top.” Will they ever get to the size of really these multinationals? I, I, sort of lead me to say no. But at the same point then some of the entrepreneur who wants to see the American dream succeed. So, if it becomes a super regional business and,
[00:12:00] and success is that you own New England, or you own the Southeast, or you own the Southwest. That’s awesome. I think that exists to, uh, if you look at things rung down from the Coca-Cola or Mondelez’s equivalent, and there’s nothing wrong with that. I mean, I, I look in the New York, Boston area, Dr. Brown Soda’s been around forever. It’s got a cult following. But it’s, it can’t compete with Coca-Cola on a global stage. If you see it, you’re like, “Wow, that’s a really great family business. It’s a great quality product.” People care about their ingredients. They, they care about the, the sanctity of what they’re doing.
[00:12:34] So, that’s where I’m a little bit hesitant to say yes or no. I’d love to see, even if it is just in a regional play, that national outfits come together and create really quality, essentially barriers to entry for others so that you have to keep your product to a suit, a certain level, so there’s a, known playbook and we know it’s going into these things.
[00:12:59] Those conversations are certainly happening. Because away from the adult-use side of cannabis, we’ve seen the rise of, of hemp-derived Delta 9 and, and other synthetic cannabinoids, frankly, of Delta 8 or Delta 10, these, these lab synthetics. I think that that gets away from the point of the, this is a wellness industry at its core, wrapped in a CPG conundrum.
[00:13:19] It’s a, it is a wild calculus when you actually get into it. But speaking specifically to hemp-derived Delta 9, which is, which is federally legal, from 2018 Farm Bill, basically the, the qualifier is that your inputs are below 0.3% THC by dry weight volumes. So, it’s us, ostensibly industrial hemp that is the input.
[00:13:42] You’re seeing groups together from all corners of the country who are hemp advocates, trying to set that baseline of product quality and consistency. The testing is going to be as rigid as it is in the adult-use space. The dosing is going to be known. The additives that you can and cannot use are gonna be known.
[00:14:02] And for people who are familiar with the rise of craft beer market, this is what Jim Koch did with Samuel Adams back in the eighties, was he created a level of care, went into these products that people couldn’t just come forward and call their product craft beer, or eventually it was cider and hard iced tea.
[00:14:20] You use the regulators as your friend and together you build an industry. So, however, that shakes out, well, do we have a chance of having a Budweiser, a Coca-Cola in this space? Absolutely. If that doesn’t happen and we end up with a hundred super-regional players that are all really viable businesses and they’re additive to their community, even better because that’s more jobs and that’s more of an opportunity for everyone to participate in the industry.
[00:14:47] Nick Mazing: Mm-hmm. And one last question that I have is, and I, I’ve been involved with beverage development, and it’s the actual taste, right? So, so, you have some kind, you know, you have a base, right? And then you have the, basically the stuff you’re writing on and it’s, it, like, the, some of the stuff is just absolutely horrible.
[00:15:05] Right? So, how did you end up formulating actually a successful project? You have, like, a large focus group or like what went on there?
[00:15:12] Matt Melander: I wish I could say that it was that sophisticated, that we had anything resembling a focus group. The very first product, which was LEVIA, we built that in a soda stream. So, as I said, there was no infrastructure. We couldn’t go and do a test batch and run some nominal amount of cases and come out into consumer’s hands.
[00:15:31] It’s also part of the nature of the regulated industry. So, we started with the one liter soda stream, and we would play with flavors and play with the inputs and say, “Oh, that one’s still tastes like bong water.” Or, “That one doesn’t have enough carbonation.” And I jokingly called it rapid prototyping to try to make it sound way more official than it was.
[00:15:52] But it wasreally just trial and error in a garage. I mean, it was, it was the classic startup story of coming out of a garage and succeeding at commercial scale. Now, we’re very fortunate that the flavor houses are far more open to the industry, real beverage experts, whether they be sommelier from one, from incoming, from the wine world, or
[00:16:15] mixologists who come from like the craft cocktail world. Like, these people are starting to pay attention. They’re far better at this than I could even hope to be. And then, together we, uh, we build the formulas at, at batch size and then scale the math to production batch size. So, um, it’s a lot more, at the beginning it was a lot more art than science, and now the science is taking over and, and,
[00:16:37] you know, we, we get process authority letters and, and pasteurization from engineers. This is, it went from being a fun experiment with the soda stream to now being just as, uh, as rigid as, as most, most other product development.
[00:16:51] Nick Mazing: Matt, thank you for joining us.
[00:16:52] Matt Melander: Thank you very much, Nick.
[00:16:55] Nick Mazing: This was a fascinating conversation with Matt Mallender, a successful entrepreneur in the emerging cannabis space. We discussed cannabis beverages. We discussed cannabis edibles, we discussed product distribution and quite a bit more. Thank you for listening.
[00:17:08] This was another episode of Signals by AlphaSense.