The Entrepreneurs of an Emerging Luxury Cannabis Market
Canndescent's Instagram page looks like that of a luxury lifestyle company. It features chic people doing yoga, painting, working out, surfing, partying and reading in the bathtub.
Canndescent is a cannabis company. It grows and sells weed. Adrian Sedlin, a graduate of Harvard Business School and the founder and CEO of Canndescent, wants to make pot sophisticated.
"Call us the Courvoisier of cannabis or Hermès of cannabis. We're going after that high-end adult use," Sedlin says to Marcus Lemonis in CNBC's special episode of "The Profit," "Marijuana Millionaires," premiering Tuesday, Aug. 8 at 10 pm EST/PST.
Headquartered in Desert Hot Springs, California, Canndescent is part of a new wave of start-ups looking to capitalize on the recent law change in the state. In November 2016, California passed Proposition 64, legalizing the sale and use of marijuana for recreational purposes, which goes into effect on Jan. 1, 2018. Currently, marijuana is only legal for medical purposes.
Cannabis is also still illegal according to federal law. It's part of what stops big companies from investing in the industry. Entrepreneurs, though, like Sedlin, are enamored by the potential.
Right now, Canndescent nets 65 pounds of dried cannabis flower each time it harvests, which is every 10 days. Canndescent sells the cannabis to dispensaries for $3,000 a pound, which is on the expensive side. Typically, a dispensary pays between $1,500 and $2,500 a pound.
Sedlin justifies the high-end price tag with sophisticated branding (the boxes look like fancy teas) and he claims to sell a superior-quality product. There is no chemical burning smell to Canndescent weed, says Sedlin, and when you break the flower, it snaps perfectly, ensuring a "perfect smoke."
Canndescent sells five varieties of cannabis, with names based on emotional states: Calm, Cruise, Create, Connect and Charge.
"It's making it accessible. It's giving people analogies in their life," says Sedlin. "Your purchase becomes a reflection of who you are."
Lemonis, the star host of "The Profit," agrees the chic packaging is smart. "I give Adrian a lot of credit for simplifying the approach to marketing the product," he says. "I think the name is interesting. I think the packaging is fantastic. And to simplify things like 'calm,' 'create,' 'charge' — those are words that, I guess, yoga enthusiasts can relate to. It has a Whole Foods-esque packaging to it," he says.
Even so, Lemonis is skeptical of the luxury price point. "I'm not fooled by sexy packaging and sexy marketing," he says. "And maybe not to him but to most people, marijuana may be a commodity now, and so price will matter. Margin will matter. Whole Foods, you know that you are getting a superior product. Is the product really superior here? I don't know."
If Sedlin is right about the business's potential, he says Canndescent will be selling $52 million worth of weed per year by 2019. In 2016, sales were $228,000, in 2017 they will be $5.1 million and in 2018, Sedlin predicts sales of $17 million.
And that's just a small sliver — by 2020, the cannabis market is expected to reach $6.46 billion, according to The ArcView Group's 2016 California State Profile report.
Sedlin isn't alone in hoping the weed business does well in California. The nascent market is already bringing economic prosperity to the local economy, which desperately needs it.
Desert Hot Springs, where Canndescent is based, went bankrupt in 2001 and almost did again in 2014. Then, the town decided to become the first place in California to allow indoor pot farming on an industrial scale. The once impoverished town has experienced a renaissance.
"Well, make an example, the city bought a piece of property in 1980 for $5,000, one acre. We just went into contract to sell that for $378,000," says Scott Matas, the mayor of Desert Hot Springs.
Sedlin says his weed business is good for the town. "I mean look, we pay our taxes. We're good corporate citizens. We conform to California law. Every municipal law that we have," he says. "And guess what? I'm gonna be employing 280 people within 18 months."
Even as Sedlin and other cannabis entrepreneurs bring money and jobs to their local community, they still have to push against entrenched stereotypes.
When Lemonis asked Sedlin if he is the first drug dealer to graduate from Harvard, Sedlin responded with a jab at the pharmaceutical drug companies.
"No, there's plenty of 'em in biotech. Go talk to the guys at Amgen and Pfizer. They're dealing stuff — Percocet — all that highly addictive — Xanax — that stuff will mess up your life. This won't."
(This article originally appeared on cnbc.com and was written by Catherine Clifford)