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Business View Magazine interviews Mike Dundas, President of Sira Naturals, as part of our focus on best business practices in the emerging cannabis sector.
In 2012, Massachusetts became the 18th state to legalize medical marijuana, when voters passed a ballot initiative by a margin of 63 to 37 percent. In 2016, they passed a recreational cannabis ballot initiative by a vote of 54 to 46 percent, legalizing marijuana possession and use for residents over the age of 21. The adult-use legislation was finalized by the state legislature, and signed into law by the governor in July 2017.
Sira Naturals is a vertically integrated producer of both medical and adult-use cannabis products. The company operates a licensed cultivation center in the Town of Milford, where it grows high quality marijuana plants. It also has a state-of-the-art lab for the production of a variety of cannabis-infused oils, tinctures, concentrates, and topicals, and a commercial-grade kitchen where it crafts edibles and confections. The company has dispensary locations in Cambridge, Somerville, and Needham, where it sells medical marijuana to state-approved patients, and is currently awaiting licensure for adult-use, retail sales.
Recently, Business View Magazine spoke with Sira Natural’s Founder and President, Mike Dundas, to find out more about the company, and where the legal cannabis industry is headed in the state. The following is an edited transcript of that conversation.
BVM: What prompted you to create Sira Naturals?
Dundas: “We founded this organization in 2013, at a time when Massachusetts had just legalized medical marijuana. After surveying much of the industry in the western states, I saw a need to raise the bar in terms of professionalism in the space. Regulated cannabis, after all, is an industry in transformation from an illicit, underground economy into a regulated marketplace and that transition, in my mind, necessitated a more systematic and professional approach to the cultivation, manufacturing, and retailing of cannabis products. So, my team and I set about trying to design a state-of-the-art cannabis cultivation and products manufacturing facility, and looking for a prime retail space to sell the products that we manufactured.”
BVM: Now that adult-use cannabis is legal in Massachusetts, how have you transformed Sira Naturals from medical to recreational sales?
Dundas: “We’re currently still in the midst of that process. We were operating as a medical marijuana facility, licensed by the Commonwealth, and in order to operate as an adult-use producer, as well as an adult-use retailer, we have to go back to the state and apply for those licenses. We have received our adult-use cultivation and products manufacturing license, and we are now awaiting our retail licenses. So, we’re probably about 50/50, today, and once we get the retail licenses, we expect to expand the adult-use side, and probably end up with about 20/80 medical to adult-use.
“Unlike under the medical marijuana statute, which requires that each license holder be vertically integrated and in control of their entire supply chain from seed to sale, on the adult use side, these license types have been broken out. So, there’s no longer a requirement for vertical integration and that has given rise to a robust wholesale market between manufacturers and retailers, and we are participating in that market, today. On the medical side, someone can walk into our shops and by medical marijuana.”
BVM: What kind of competition is there in the space?
Dundas: “In the early days of any state marijuana program, because the businesses are given licenses by the state, they start off as somewhat smaller marketplaces. Today in Massachusetts, we are operating in a very competitive marketplace. As producers as well as retailers, we compete on all of the things that producers and retailers compete on in other industries: price, quality, and customer service and experience.”
BVM: Where do you get your product from? Do you produce everything yourself, do you import it, or is it a mix of both?
Dundas: “We produce all of the products that we sell, both in our retail stores and at wholesale.”
BVM: On the federal level, cannabis is still listed as an illegal, Schedule 1 drug, and I’ve read that banking has been a consistent problem for legal cannabis companies, forcing them to operate on a cash-only basis. How do you navigate through the thicket of conflicting state and federal laws?
Dundas: “Banking is not the problem that it once was for regulated cannabis businesses. However, the caveat is that it’s still difficult to do business with national banks, chartered by federal government agencies like the Federal Reserve or the Office of the Comptroller of the Currency. Typically, state- compliant cannabis companies will bank with state-chartered banks, credit unions, and smaller banks. We have been fortunate, here in Massachusetts, to have several banking institutions offering business services to cannabis companies. So, our organization has never suffered from the cash-only problem.”
BVM: How did Sira Naturals get its initial financing?
Dundas: “Under the Massachusetts medical cannabis law, we were required to be a non-profit organization. And non-profits don’t allow equity ownership. Essentially, the only type of financing that was open to us at the time was debt financing. It was very difficult. We didn’t own any of our own buildings or assets; we were leasing our buildings; and with the type of working assets that we had to buy – things like pots and dirt and grow lights that depreciate faster than used cars off the lot – it became a very, very difficult financing pitch. Back in 2013, when I was making the rounds, everybody wanted to take the meeting, but once I explained to them what the nature of the business was, and the nature of the collateral, and the nature of the loan structure without opportunity for equity, and that cannabis was still Schedule 1, federally, the answer always came back, ‘No.’
“It turned out that I was looking for a very ‘boutique’ type of investor. On the one hand, it probably had to be an individual of very high net worth, who could take that risk and not have to worry too much about it, and, at the same time, and probably more importantly, it had to be an individual who saw over the hill on cannabis, and really believed in the healing powers of medical cannabis, and also believed that there was a future for this industry. And I was very fortunate in finding several of those folks who provided seed funding for the organization.
“Nowadays, funding has become much less difficult. It’s still not super easy, but it’s much less difficult than it was back in those days. In 2017, the Massachusetts legislature passed, as part of its adult-use law, a provision that allowed these former medical non-profits to convert to for-profit organizations. So, today, we are a corporation with an equity structure. But those early days were very difficult and it was tenuous for us to get financing.”
BVM: I’m curious to know if pilferage is a major problem for Sira Naturals. How do you protect against it?
Dundas: “The state provides a high degree of comprehensive security regulations, the breach of which is punishable by the taking of your license. So, all of us in the regulated cannabis space really pay an extraordinary high amount of attention to our security apparatus – not just video cameras that surveil every inch of the facility, and training programs for onboarding folks, talking about how the penalties for even taking the smallest buds are not just reported to the state but also to local police, and that there are strict and swift punishments for that; but also in what they call the ‘seed to sale’ tracking and control systems for the products that we produce.
“It sometimes leaves me scratching my head at the technology that we put into just ensuring that every last gram of cannabis product that we produce, we are able to track not only from seed to harvest in the cultivation process, but from harvest all the way through the downstream manufacturing processes. Each time a batch is moved from one room to another, that batch is tracked and weighed. Each time it’s broken into a sub-batch in order to go into production for a certain product, that sub-batch is weighed and given a new bar code tab – all the way through to the end of the process where every single item is given a bar code. So, at the point of sale, we can take a package of cannabis-infused brownies, for example, and take that bar code and have an audit trail that takes it all the way back to the seed or cutting from which that plant was grown. So, all of those mechanisms, together: electronic security, seed to sale tracking, very comprehensive education and training of our employees, has led to very, very tight security and no shrinkage at all.”
BVM: What does the future look like for Sira Naturals and the legal cannabis industry in Massachusetts?
Dundas: “The municipal process is really where the game is being played in cannabis. The way that the state law is structured, you have to get approval from your municipality before you can go to the state for a state license. And because of that structure, you really have to have a very tight ground game in terms of reaching out to your community, making yourself known, talking to local elected officials, and making sure that your project has buy-in from all stakeholders in your community. And that has proven very difficult for many operators. It takes time, effort, and skill to get that done. That’s part of the reason we’ve seen a little bit of a slow rollout of the adult-use program here in Massachusetts, because lots of folks are still struggling with that local ground game.
“But I think that the regulated cannabis industry has a very bright future – both medium and long-term. And I hope that Sira Naturals will play a significant role in that future here in Massachusetts. We have 170 employees, today, and we are growing rapidly; we expect that to balloon to about 300 within the next 12 months or so. We’re currently expanding our cultivation and manufacturing capacity; we’re looking to expand our wholesale footprint, as well as get our three dispensaries up and running for both medical and adult-use. And we expect that we’re going to see growth – not just for our organization, but for the industry as a whole, moving forward.
“You look at the regulated cannabis in Massachusetts, today, and you’re taking a snapshot of an industry in development – probably in the second or third inning – and we have plenty of game to go. That’s how we see it.”
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AT A GLANCE
WHO: Sira Naturals
WHAT: A producer of medical and adult-use cannabis products
WHERE: Headquarters in Cambridge, Massachusetts