029 California Cannabis Status Check with Jeffrey Welsh of Vicente Sederberg

Jeffrey Welsh is a partner at Vicente Sederberg and a Co-Founder of Composite Agency. In this episode, if you’re curious about how the industry is fairing, specifically in California, then light one up and listen up as Jeff gives a status check of the California cannabis market state.

[00:01 – 10:50] Jeff’s Story with Cannabis

[10:51 – 17:46] California Cannabis Status Check

[17:47 – 32:16] Money, Legalities, and Getting the Licenses for Cannabis in California

[32:17 – 45:15] California the Poster Child of the Industry

[45:16 – 53:01] The Black Market a Threat to the Legal Market

[53:02 – 56:53] Final Thoughts and Call to Action

Jeffrey Welsh is a partner at Vicente Sederberg LLP, where he focuses his practice on advising companies, brands, entertainment, and media properties, other law firms, and investors on how to navigate the California cannabis marketplace/ Prior to joining VS, Jeffrey worked in Corporate Business Affairs at the largest talent agency in the world, William Morris Endeavor, now WME | IMG, while simultaneously continuing to work in the legal cannabis industry part-time. In this unique position, Mr. Welsh’s goal was to develop an understanding of the nuanced entertainment industry, while concurrently connecting entertainer-advocates with projects and groups actively working in the cannabis space. In 2015, Jeffrey co-founded Frontera Law Group with Luke Stanton. Through aggressive networking and an unrelenting desire to be the first mover in the cannabis-to-entertainment/media space, Mr. Welsh fostered an extensive network with the current and future tastemakers of the entertainment industry to facilitate deal flow between these two industries. In April of 2017, Mr. Welsh co-founded a full-service creative agency, Composite. Composite helps guide and grow brands in the legal cannabis industry and specializes in creative & content production, marketing research & strategy, and product development. By navigating this unique path, Mr. Welsh is sensitive to specific legal issues involved in entertainment and cannabis coming together, such as intellectual property, endorsements, licensing, criminal and civil liability and other business and other legal considerations. Jeffrey holds a Bachelor of Music from the University of Hartford, a Master of Music from the University of Southern California, and a Juris Doctor from Pepperdine University School of Law. Recognized as a thought leader in the California and entertainment communities, Jeffrey frequently speaks at cannabis industry events throughout Southern California. https://vicentesederberg.com/people/jeffrey-welsh

Shayda Torabi has been called one of the most influential Women in WordPress and now she’s one of the women leading the cannabis reformation conversation building one of Texas’ premier CBD brands. She's currently the CEO and Co-Founder of RESTART CBD, a female-run education first CBD wellness brand. And has formerly held marketing positions at WP Engine and WebDevStudios. Shayda is the host of a podcast for cannabis marketers called To Be Blunt, where she interviews top cannabis brands on their most successful marketing initiatives. When Shayda's not building her cannabiz in Texas, you can find her on the road exploring the best

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Transcript

Jeffrey Welsh  0:00  
You're foundationally starting with the local government, right? In California, you need local permission or a local license or local authorization before you're eligible to apply for a state license. And you need that local and state license in order to be a legal operator in the state. Well, at the local level, right, the state regulators haven't given the municipalities any type of guidance, right as to how to effectuate these rules or draft these rules or what type of application process they should write out. And you're dealing with, you know, small governments now during a time of, you know, a pandemic where a lot of municipalities are looking at tough decisions, right regarding potentially, you know, loss of revenue, of course, but, you know, in some cases even you know, municipal dissolution right in smaller cities, which is crazy. And then you're tasking people who know nothing about the plan, right, who have no prior experience, right? Who are overwhelmed with work underpaid, and probably under appreciated.

Announcer  1:12  
You're listening to two B one B podcast for cannabis marketers, where your host Shayda Torabi and her guests are trailblazing the path to marketing, educating and professionalizing cannabis light one up and listen up. Here's your host Shayda Torabi,

Shayda Torabi  1:31  
I don't know about y'all. But California and cannabis are synonymous, whether it's the influence of it in music, whether it's the influence of it from a Hollywood perspective, it's obviously a big piece of culture. And California is the largest legal operating market, which is obviously why it's so fascinating why there's so many brands coming out of California why so many people are in the cannabis industry in California. But California also has, you know, kind of reputation as not a great steward of legalization. Now, today's guest is an expert on that subject. He is a partner at Sunday Cedarburg, which is a top cannabis law firm. His name is Jeffrey Welsh. And we basically sat down and had, I'm going to caveat it right now, a non formal legal base discussion. So none of this should be used as legal advice, just giving you a heads up. But more so really just wanted to peel the curtain back on what's going on in California. I mean, we talked about the black market, why it exists? What's happening in California? why people are pursuing black market products to what it's like to get a license. I have so many questions around is it even possible to get started with a new brand in cannabis. Which by the way, if you didn't listen to last week's episode, I had Libby Cooper on of space coyote and she actually started her cannabis brand in California just two years ago. So obviously, people are starting businesses and starting brands in the space. But it doesn't come without a lot of caution. And so Jeffrey is going to talk us through some of these questions I have and hopefully educate y'all on what he knows and what we can collectively start to address together and just kind of pay attention again to what California is doing. Because what California does not only impacts what happens at a national level, but obviously then back at a state level. So as somebody in Texas, I'm watching what California is doing versus Colorado and I certainly hope Texas doesn't pursue California's rollout. I think there's again, a lot of a lot of things that a lot of consumers just aren't aware of, and a lot of things a lot of industry people aren't aware of. So, without further ado, let's get Jeff on the show. But thanks for tuning in. Hope you guys enjoy this episode.

Jeffrey Welsh  4:02  
My name is Jeffrey Welch. Thank you so much Shayda for having me on the show. I'm a partner at the Santa Fe Cedarburg le LLP, the nation's largest cannabis and hemp focus Law Firm. I'm also a co founder of the composite agency, which is a brand accelerant and full service agency dedicated to servicing the cannabis and hemp spaces as well. composites based in Venice, Santa Fe, Cedarburg. I work out of the California office, but we have a presence in Denver, Austin, New York, Boston, and Florida.

So how I got started in the space, I guess, you know, I got introduced to the plant in college I didn't I didn't consume in high school, but really sort of went on the performance route on the entertainment side, you know, got my undergrad and Master's in saxophone performance in Jazz Studies, started on the east coast and then moved out and got my masters at USC. So in college is when I started to consume the planet, playing a lot of jazz Classical music was a way for me to sort of get outside of my own brain. And I sort of discovered, you know, untapped creativity and potential with the plant, but never really viewed that or saw that as an actual potential avenue to pursue professionally. I decided after a couple years of touring and recording in the Los Angeles area following graduating from USC, that I would try my hand at becoming an entertainment lawyer. And so that led me to Pepperdine for law school where I started in 2010. In 2010, I was looking for entertainment internships or opportunities trying to break into the music scene. I'm on the legal side this time. And one of my classmates now one of my business partners, Luke Stanton, had an opportunity to work with a criminal defense attorney in California who focused exclusively on representing cannabis, cannabis clients, you know, back in 2010, the role of a cannabis lawyer was not to help them grow their business, but to keep them out of jail. Right. And I found it I found it fascinating. And, you know, because of my background in music, you know, something we touched on before before this started, sort of, it's a perfect marriage, right? It's cannabis and music is peanut butter and jelly. And I thought, you know, how interesting would this be, and a real differentiator for myself, if I could sort of combine those two passions, you know, in my future career, so spent law school, you know, clerking with this cannabis focus firm in Los Angeles, and upon graduation, knew I sort of had to get the entertainment bug out of my system. And so I decided to take a position as a corporate lawyer with William Morris endeavor, you know, the world's largest talent agency based in Beverly Hills, which was an exceptional experience. But I also felt while I was there, I spent about two and a half years there, that I wouldn't be able to really break through the glass ceiling of, you know, melding, merging the cannabis and music industries, you know, I was at web from 2013 to 2015. So it's a different different time, different place, as it relates to the acceptance of cannabis and, and public acceptance, social acceptance, political acceptance, all that stuff. And so my now business partner, Luke, Stan, and I decided to start a law firm, focused on you know, representing cannabis businesses in the state of California. In 2015. That law firm was called fronteira. We had an amazing run with fronteira. Grew that to be the largest cannabis focused law firm in California, we had a, you know, over 300 clients that we that we represented, and like anything else in life that sort of worked out, I think it was a combination of, you know, timing needs preparation, right? Right. When we started the firm, the industry was eyeing up, you know, the passage of Prop 64 and adult use. And so for us to really solidify a solid reputation in the industry a couple years before the advent of Prop 64, I think really helped secure our places being you know, a meaningful service provider in the space. Fast forward to this time last year, we've been having conversations with the Santa Fe Cedarburg LLC, LLP, I was concerned that a lot of our clients might end up ditching us right as they sort of expanded to other state markets, and I didn't want to lose those clients. And so similar to the advice I say to them in this ever evolving industry, you know, it's kind of evolve or die. And I had to take my own advice. And we decided to, you know, join percent a Cedarburg which we're extremely grateful for, at the end of last year, that just sort of really, really increased our bandwidth, our capabilities, you know, we went from being California only, to really not only nationwide, but international work as well. And we really didn't have a meaningful hemp practice at fronteira. And so, you know, the concept of really adding not just a hemp team, but the preeminent, you know, legal hemp team in the country was extremely attractive to us. And so here we are now, you know, I'm one of the partners in the California office. And also, you know, like I mentioned at the beginning, started composite a talent agency or a creative agency in 2017. And so still working on that assisting clients with anything from you know, marketing initiatives to consumer packaged design work to like data analysis, you know, how they're, you know, who to market their, their products to, and, and a lot of content work as well. And so, I know that was a little more than an elevator pitch about who I am, but hopefully that gave you some some good context.

Shayda Torabi  9:47  
That is the perfect amount of context. I always appreciate whatever anything the guests wants to share, because, again, I like to keep these things, you know, conversational and informative. And so I do think that where you come From is absolutely important for where you're going both for yourself as an individual as well as laying the foundation for where this conversation is going. But ultimately, how what we discuss, you know, applies to the industry. And so kind of With that said, I always, especially with this conversation, being a lawyer, I want to you know, caveat for those listening, our conversation is not legal advice. This is not, you know, a paid conversation. This is just two friends who have backgrounds in cannabis who want to have a discussion. So kind of hope, you will learn from what we are discussing, but don't take it as explicit truth. Should you want to have questions be answered by Jeffrey or his team? I'm sure he'd be more than happy to have a consult with you professionally on those subjects. But we'll kind of keep it you know, easy, breezy. I mean, with that said, there's so much to unpack with what you shared. I think for me, to kind of hone in on where you exist, which is California acknowledging that California is the largest legal cannabis market in the world right now. And with that, I will also caveat especially given hopefully people are listening to listening to my other episodes, I think I mentioned to you I just had Andrew D'Angelo on the show. And he also comes from California as kind of a pioneer in the space. And to kind of call it what it is, I think we can all agree that the California cannabis market sucks a little bit, whether it's on the legal side, navigating things like you're talking about with prop 64, whether it's a person, perhaps like myself, or perhaps like a listener who's a marketer, or brand or who, who has a dream who wants to get into the space, I know you do a lot of content creation and advising on getting started in California as a cannabis brand or business. So what would you say is the biggest legal challenge facing cannabis brands right now? Maybe start with California, but if you can speak to kind of on a national level, just given all that that information? Right. It's like, I think if you're talking about 2014, while it was challenging, it was also new, right? And so maybe there was more, more room for brands to grow, because there weren't brands established. Now we're in 2020, someone wants to start a brand, you know, a pre roll brand. You're competing with dozens, if not hundreds, of brands?

Jeffrey Welsh  12:27  
Absolutely. Well, at least from the, you know, regulatory side, to me, the biggest challenge in California, which I think is reflected nationwide, as well, is we're a huge market, but there's still the opportunity to legal licensed opportunities that exist don't actually match the market size, which means the black market continues to compete, makes legal operations challenging. And so by that unpacking that a little bit, right, we have almost 400 cities in the state of California. But but less than, you know, I think I think the current number is about 150, you know, have put out legislation for effectuating, some type of cannabis regulations, right, which means that, you know, if you're based in a municipality that doesn't have that doesn't offer cannabis licensure anywhere, you know, in a certain radius, that you're forced to do one of two things, you know, find a partner that's potentially hundreds of miles away, or apply for a license that's hundreds of miles away, or more practically, and more realistically, what's happening is, they'll just continue to operate without a license. And it's not, it's, it's less a reflection of those clients based on my experience, not wanting a license or wanting to operate illegally, it's just that there's a lack of licensed opportunities for them to actually pursue, and when there is licensed opportunities, and a lot of cases, these municipalities don't just issue an unlimited amount of licenses, right. And so what happens is, you know, a small city might issue two or three licenses, right, they might get 50, to 60 to 100 applications for those licenses, which means then the cost to actually acquire licenses is exorbitant. Right. And that also, I think, speaks to this dynamic, why the black market is so competitive, because a lot of our clients when they you know, we have initial calls about getting a license. Hey, Jeff, what do you think this is going to cost? You know, it's it's six figures always, and it's a lot of times almost seven figures, right. And the dynamic that I struggle with is the fact that there aren't opportunities for for smaller brands to really participate and get themselves in the market without having meaningful capital behind them. And and we certainly see that in other you know, states, what we would call competitive jurisdictions, right where the state might only issue four licenses for the entire state. Well, the problem with that, right is that you're dealing with a situation where the rich are getting richer, right? me know a lot of these municipalities they might require A bond are proof of funds of seven figures, in addition to the actual licensing fee, right? In that case, we're not doing the industry any type of proper justice by taking care of the people whose shoulders we stand on, you know, whose life liberty property has been taken from them who were, you know, first, you know, at the tip of the spear 10 years ago. And so that's, that's, to me, one of the most challenging dynamics of working in this space. And that's something that we really sort of, you know, pride ourselves in working, we call them like, low Bono, right? We're pro bono clients, right, really making sure that people who have historically been negatively affected, you know, by the war on drugs, that we're actually helping them out, right. It's easy to acknowledge for me, I'm a white guy, right? Like, I'm not I'm not a person of color, but I can still do it being the position I am I have a responsibility to help ensure that the cannabis industry is actually represented by everyone, not just, you know, white collar businesses who frankly don't necessarily even need, you know, like the additional revenue or opportunity. Right. And so I know, we sort of spun off a little bit there from your additional question, but those are my thoughts.

Shayda Torabi  16:11  
No, I think it's an important point, too, because I'm somebody who, I think if you again, probably would have asked me, you know, high school college me who was a pot smoker and you know, had dreams of maybe one day being a real life, Nancy Botwin, and I liked the idea of legality, right? Like, I like the idea of being able to walk into a Walgreens esque store and purchase products with variety. Also that quality, right? I think when you're dealing with a black market, unfortunately, someone might be doing it, because it's the easiest way for them to get around the rules and the regulations. But there are bad players, obviously, even in legal markets, they're still bad players. So it's not that as explicit, but it is unfortunate that you want legality, but legality also, I mean, you just said what I hear conversation after conversation, I mean, you start to look at every state. And that's a big reality that I've had to, you know, again, you kind of hear about it as hearsay, maybe you've got a friend in another state operating. But really, this podcast and me getting into the business side of running restart has positioned me to just care more and pay attention and just start realizing, oh, shit, there's a lot of dirtiness happening that takes away from what I think a consumer thinks of legality, as it's a much different picture being painted on the business side. And so you, you said what I think is a really relevant point to bring up with that I want to pry a little bit more and get a better understanding from your position. So we know money is obviously a currency, you have to pay to play with that, knowing that let's say there's only so many licenses in a particular municipality. What are these? I mean, I know from Texas perspective, who's essentially reviewing licenses, and I only know personally to the extent of hemp, which in Texas, it is a little bit more accessible to get a license. So nobody is really looking at me versus somebody else and saying, Well, I'm going to award it to you, and I'm not going to award it to you. I can imagine just having money in California doesn't, doesn't check you, you know, off the box. So what are some of those other things that whoever is deciding, you know, you get the license, and you don't get the license? Like, what is the differentiating points that they're looking for?

Jeffrey Welsh  18:49  
We actually just finished up a round of licensing for a city called Oxnard, which is, you know, one of the one of the state's largest agricultural areas, I think it's the largest agricultural county in the state, actually. And highly competitive jurisdiction as well. And they actually just after awarding licenses, they said, scrap that we're going to do this whole thing all over again. So to sort of go into your question, you're foundationally starting with the local government, right? In California, you need local permission, or a local license or local authorization, before you're eligible to apply for a state license. You need that local and state license in order to be a legal operator in the state. Well, at the local level, right, the state regulators haven't given the municipalities any type of guidance, right as to how to effectuate these rules or draft these rules or what type of application process they should write it out. And you're dealing with, you know, small governments now during a time of, you know, a pandemic where a lot of municipalities are looking at tough decisions, right regarding potentially, you know, loss of revenue, of course, but you know, in some cases is even, you know, municipal dissolution right in smaller cities, which is crazy. And then you're tasking people who know nothing about the plan, right? Who have no prior experience, right? Who are overwhelmed with work underpaid, and probably under appreciated, right, who are now being tasked to vet? Right 50 applicants say for five licenses. I mean, the way this fleshes out or in real time, it ends up making sense, right? If you have specific if you have particularly good relationships with local government employees, that's usually a leg up, right. Other than that, other than those, you know, relationships, you know, they'll go through a process where I compare these at these competitive application processes, very similar to music, right? That sounds weird, but like, these processes are subjective, right? There are certain aspects that are a little more objective, like the actual application itself. But in any one of these competitive processes, there's always an interview. Right? And so you have your whole team interview, going into the local municipality and doing a presentation? Well, that point, you know, that's really hard to differentiate five of the best presentations, right, like number 10, might be really close to number five. And at that point, the subjective element, I think, plays a huge role. You know, the role we try to play when we help our clients, when we take a lot of pride in doing that is, how can we show that our clients are going to be the best possible stewards of that specific community? Right, and like, looking at the historical context of that community, a lot of times, you know, in our applications, or in an interview process, it's, hey, we want like a lot of you reinforcing that you're going to be providing x percentage of revenues to specific community programs, or you're only going to be, you know, this percentage of employees, you're going to be hiring locally, right? and things like that. But the reality is, it's such a subjective process. And you're dealing again, with people who have no experience, you know, in because there's not a lot of precedent right in in regulated cannabis. And so because of that, there's a host of challenges, some of which, you know, we just talked about, and that just like, add to the already complicated process of just finding a place to get a license, then when you can find a municipality, then you got to win. And there are there are some municipalities that what we call check the box, right? It's simply, hey, you submit your application, the city is very eager to generate revenue from from the cannabis industry. And so you check the boxes and you do everything, right, you pay your fees, they're happy to issue a license. But the dynamic that is more challenging that I see playing out, is really this dynamic and more competitive jurisdictions, which I also also think is a better reflection of what we're seeing nationwide.

Shayda Torabi  22:58  
Yeah, you paint a really Stark but accurate picture of the reality of the people who were in the positions of regulating right wing this this plant or this industry really don't come from this industry. And I'm gonna say it I feel like I just read an article, the woman who is in charge of something in California, she's like the, yeah, the head, she just got, I think, fired.

Jeffrey Welsh  23:25  
She I think she stepped down. I don't actually sat down. Yeah,

Shayda Torabi  23:29  
I wrote an opinion piece on it. It was like, wow, this woman kid, you know, obviously, California again, to kind of call a spade a spade. It's like we acknowledge, I think, as an industry that California hasn't been great when it comes to these licenses. And so I saw that article. And I was like, Oh, you know, what make sense. They have someone in a position to regulate it, but then I was thinking, I wonder how familiar this person was and therefore then trickling down I mean, you talk about some of these smaller municipalities the smaller cities where Yeah, maybe it's really great for growing and the agricultural side. And so of course they want to get in on the industry but their local government doesn't even know how to talk about it, how to understand it and so you have all these different layers that you're you're talking about where it's like can you financially you know, compete I was even looking at one of the applications for Texas for hemp and I think it was something about because I'll just say it we don't have a medical program here. They call it medical, but it's not a true MediCal program. And so I think Texas kind of dipped its toes a little bit but one of the applications was stating not only was it a six figure fee like you you know said it was you had to prove that you had like armed security already you know, on standby that you had already paid for it. I'm like, What the fuck like do do I even want to do that and so it's just it's just funny because on our site to operating now, I what I will call a cannabis CBD dispensary in Texas, you know, our customers have given us that name. I'll take it. You always have As excited people who come in and we're like, oh, I can't wait for the day that this is a real dispensary. Oh, when Texas legalized? Are you gonna flip? And I'm thinking? Are you kidding me? I mean, again, yes, given the first, you know, beginning of our conversation like, like, Yes, I love this plant, I would love to do that. But now me knowing all these ins and outs, it's just it's not to differ people it's just to kind of create a very real picture of you got to do your homework, obviously having the right legal counsel, I think to kind of provide that point to the people that you might be dealing with, from a legal perspective on the government side might not know about the plant to that extent. But I sure hope the people that you're hiring to be your advisors, your legal team, I mean that that should go without saying, but I think people just assume, oh, my lawyer is my lawyer, they can interpret this law, they can make sense of it. Just like you can hire an agency, you could hire somebody to build your website. But we know that cannabis is unique and different. And not just in its disruptive nature, but in how fast this market is growing, and how quick those laws are changing. So kind of another question I have for you is just knowing that the market is moving so fast and wanting to you know, still create opportunity for new healthy competition brands to come into the market. I think it's important to make it accessible for new entrants to come into the market. What does it look like right now, if someone is a new brand who comes to you and is like, I want to make the world's best edible? Is that even a possibility in California today?

Jeffrey Welsh  26:49  
I would say if that was the goal, you know, of a client of mine and a new brand, I would say, you know, what's your marketing budget, right? Because that's really, to me, one of the biggest meaningful differentiators. A lot of our clients are what we call unlicensed brands. Right, legally operating but unlicensed. And so what happens is you have a brand, you know, you and I come together, hey, you know, we have Shayda and Jeff's, you know, amazing edibles, right? We don't have we can't afford a license, right? We can't afford 250 to $500,000 to get ourselves a license. So we'll work with a contract manufacturer, right, someone who does have a license, and do like an intellectual property licensing agreement, right? Hey, we have our secret sauce, here's our packaging or logo, or formula, you know, for edibles, we're gonna license that to you licensed manufacturer in exchange for a royalty, you know, on this on the sale of goods. You know, that's completely legal to do in California. The reality is, though, it's it's super, really challenging for those unlicensed brands, because the contract manufacturers have all the negotiation leverage without that manufacturer, and there are brand unlicensed brands pounding down the door of those contract manufacturers. And so in order to really, really get a meaningful to be a top tier, you know, product in California, to me, it almost sort of starts with your like business thesis has to involve getting your own license at some point, because otherwise you're splitting your revenue up, you know, immediately as it's sold, right. And, you know, licensing agreements can be very successful, you know, for some of our clients. But that's usually for our clients who have an amazing presence in California and are looking to expand their brand into other state markets. And so for any brand, I work with a ton of brands, so if any of my clients are watching, I'm not trying to put you guys down, you know, we've been through this process that the manufacturers or you know, whoever the licensee is, has that leverage, and the margins just aren't that attractive. Right. And so how do you get to that next step? Well, again, it comes down to money. And, you know, what's your marketing budget? Can you get your product in the eyes of consumers in this year? In particular, it's it's a whole new challenge, right? I mean, we have clients that have come up with new creative ways to, you know, interact with their audience and get consumer traction, because, you know, at least in California, again, I can't speak so much to the rest of the country, but it's, it's such it's driven by like, it's an in person economy here, right. And so, you know, we're event driven, we're very socially driven here. That's how you get your brand out, you know, into the hands of potential consumers, or vendors or customers. And without having events here it means that a lot of our clients are just restricted to you know, social media, and a lot of them don't have, you know, social media in house and in a year that isn't a banner revenue year. You know, they might not also be willing We're able to entertain, you know, hiring a real, you know, agency to help get them to the point where they are getting that type of presence and traction from the consumer side.

Shayda Torabi  30:11  
You bring up an interesting point, though, too, just in terms of I think, navigating the the landscape between in California, right? Because it's legal. So your world versus my world, in hemp, we can play online, it is more challenging, but I can put my products on a website. So we're talking about COVID, right? I could get around the, you know, rules that say your retail can't be open. Thank God, places like California did deem cannabis as essential. So I think that that saved a lot of brands. But I think you still are describing a scenario that for a lot of people who already know that social media is challenging from a legal perspective, I mean, whether you are posting content that is legal, where you live, obviously, social media can decide that it should be taken down. And I think everything you put on the internet, I mean, again, man, knock on some wood, because I put a lot of things on the internet, but you're putting things on the internet that for all intensive purposes, could could legally come back, you know, to bite you in the butt. We do work with a cannabis lawyer here in Texas. And when we were going through, especially some of the stuff for us in Texas that we were been dealing with in regards to the smokeable ban. A lot of my products are smoker bowls, and having to think of how I'm going to, you know, sell something that is non smokeable through my brand, but then my personal page, maybe it's me smoking and the lawyer was saying, We you have you know, I have to be able to defend that you didn't know or you don't know when I'm like, yeah, it's obviously really hard because I'm smoking something, and it's me and my face is here, and then my face is there. And so I guess what I'm just trying to acknowledge is it's a very delicate balance for the brands in California right now, because I think they don't have access to really fully control the brand, unless they're also the dispensary themselves, right, they are relying on someone else to sell their products. And so maybe we can touch a little bit on that, too, from a legal slash your world perspective. I mean, just knowing labeling and packaging is so murky, and I feel like California has been the poster child for getting the rug yanked underneath them. It has it calmed down since you know, the last hub above it, which I feel was the past like, you know, two or three years. Are there other challenges now? Maybe it's evolved from packaging and labeling? Or do you think that's always going to be a challenge as we navigate this legal market?

Jeffrey Welsh  32:58  
It's a great, great question. I think it's starting to settle a bit. You know, I think the reality is, again, kind of going back to part of our earlier conversation. local municipalities don't know what they're doing the people writing the laws didn't really know what they were doing either. Right. And so they made their best effort to touch on Laurie real quick, Laurie Ajax who just you know, kind of resigned, met with her multiple times. She was a wonderful person. I think she was just in a really tough spot.

Shayda Torabi  33:29  
quick break to say thank you to restart CBD for sponsoring this podcast, restart. CBD is a brand my sisters and I founded in our hometown in Austin, Texas, we operate a retail location as well as an e commerce store and you can browse our wide range of CBD products at restart CBD calm. Again, thank you to restart for allowing me the time and resources to put on to be blunt, I hope you'll check them out for your CBD needs. Let's go back to the episode. Well, that's the problem, you get put in this position to govern something that you maybe don't fully understand. And you're doing the best you can. But obviously, it's not always in the best interest of those

Jeffrey Welsh  34:10  
involved. Just pivoting, you know, to the packaging, labeling side of things, because those regulators, you know, wrote trying to write legislation for 40 million people, right. And inevitably, that's gonna satisfy everyone, right? And then they start to realize those products started to get out to, to market, we're going to need to pivot some issues specific to you know, child proofing, or certain, you know, labeling issues. I believe that's beginning to sort of settle a little bit. You're absolutely right. The past two years, you know, there's been clients that have ordered six figures worth of packaging that they couldn't use. And, you know, in some cases, these were very successful brands. I don't care how successful you are. I don't care if you're doing 40 million in revenue. a six figure order down the drain hurts right and most company aren't doing 40 million in revenue, right? That's packaging. It's basically worthless, right? All of a sudden, to no follow up to no fault of ours. It's just this unforeseeable, you know, these unforeseeable changes. I do think that's beginning to settle a little bit. We've just speaking of like crazy new marketing rules, though California is now proposing that cannabis, billboards can't be on like state highways, that across state lines, that, that that I don't think that's going to affect groups as it might affect a small percentage of the industry, right, groups that are doing really well, they can afford, you know, highway billboards anyway, which you know, billboards aren't expensive marketing spend. So that's a fraction of the commute. That's, that's the most recent example, you know, things are still changing. I do think that's going to settle a little bit, kind of as we move forward here. And in California, specifically, we're looking at this agency consolidation in July of 2021, which I think will eventually really help things, right. There's three governing bodies in California cannabis, they're all merging into one. And once that happens, I think that that, that will help, because those three agencies also don't communicate very well with each other. And then there's lots of I would, I would say, if I can say one more thing on this point, the most the most interesting thing to me that that that California is really yet to weigh in on is this attractiveness to children issue. A lot of California brands, you know, there's, there's a real big one, that's like, baby blue is amazing, right? amazing products, you know, you're not supposed to use like cartoons and bubble letters, right. And I'm not pointing that group out specifically at all, they're one of many, many groups that, you know, have childish images like cartoon II, but you know, bubble letters, things like that. And the state really hasn't weighed in on that point at all yet, despite To me, the law being very clear that, you know, certainly no, like cartoons are allowed. There's lots of regulated brands with cartoons on them right now. Bubble letters can not not consider good, bright colors not considered good. There's a lot of brands, and it's not just you know, the one I didn't mention that fit that description. And I think it's interesting that, you know, we saw that in the tobacco space, right, like back in the day with Joe Campbell. Right. And, and so I don't think that's an issue that the state's going to really, because they don't have the resources, because they lack the tax revenue, because the black market, so competitive, right, to meaningfully enforce this stuff, but I do see, at some point, you know, 510 years, maybe down the line, that there's maybe a few examples before then. But I do see it being a bit of a longer time before, you know, examples are made, you know, of groups that are really, you know, pretty obviously crossing that line. And so that, to me, is something we're gonna probably see, not soon. But, you know, the next couple years,

Shayda Torabi  38:09  
you paint a picture of a very fine line that I think, you know, I will admit, as a brand, again, operating in Texas, while the law for us is still very gray, especially when it comes to hemp legality federally statewide, etc. You know, we have to be good stewards anticipating what the hammer looks like when it comes down, you know, and so just to like, pointed out further, you talk about there are these people in these positions whose job is to enforce but the reality is, there's so many offenses, what do you pick out first, and then you kind of look at it in the grand scheme of things and the placement of where cannabis is or isn't so for us, you know, they just regulated hemp in texas a couple months ago, but I heard there's only three people at the state level who are who are regulating it for all of Texas, and three people. So so like, yes, do I want to do things the right way? Because should someone come knocking on my door? should someone check my packages? should someone you know, download my CFA and then test my products? Like does what I say I'm selling actually line up? Am I following the laws per my state or my local you know, municipality? Yes. However, the flip side then is, hey, maybe nobody's gonna catch me. So let me just kind of see how I get away with this and see what happens and when they open up licenses for us, I mean, again, my my brand, my personality, I was like, Okay, let's get a license. Let's be first in line like let's do this the right way. And then I was on some, you know, kind of mind meld kind of calls with different industry people in Texas, and they were saying, oh, certain people are going to wait to get their license until someone actually comes and knocks on their door and says, Hey, you don't have a license you shouldn't be operating. And I was like, Damn, okay, like, we're gonna be like that now, and not that one is the right or the wrong approach, I think we're all a little bit, you know, out for ourselves trying to protect ourselves. I think that's where this podcast for me is a sweet spot of, you know, sharing, but also learning, and then ultimately making the best decision for me and my brand. It's not that everything that we talked about, or everything that we share is explicitly the right Avenue or the right application. But it's, you know, Oh, that's interesting how that's playing out. And so were you saying that shows me some similarities in Texas is hemp market, even though it's, you know, same, same, but different. And

Jeffrey Welsh  40:42  
to clarify, like, I don't think it's a bad thing to toe the line, right? As a lawyer, my job is to press the brakes in the car, right, and make sure everything's safe and comfortable. As an entrepreneur, you know, as well, right. And someone who has other businesses, right, my part of me wants to put my foot on the gas, right. And, and working with clients for so long in this space, you couldn't have your foot on the brake and be, you know, if you wanted to meaningfully carve out a presence, right. And so towing that line intelligently and thoughtfully, is how you establish credibility and and get yourself noticed in the space. Right. I just think, to me, that's a fascinating dynamic, particularly for a lot of our clients who are meaningfully toeing that line, or going past that line after after listening to our vice and saying, Thank you, thank you. But look, you know, we might really need to generate revenue aggressively now to fund this other project that we're doing. And we're not too concerned about the regulator's for the foreseeable future, because we're in the middle of a pandemic, they don't really know, they can't really get their their stuff together quite yet. They're not generating the tax revenue we need, we're going to take a calculated risk after consulting with you, and making sure the risk we're taking isn't too crazy. So that I mean, that's one of the things I love about this space, though, too, is, you know, working with people that I have a ton of respect for entrepreneurs who are really willing to make those types of risks, you just don't you don't see those types of risks in traditional industries, and people that are doing it, you know, thoughtfully and in a calculated way, again, I'm not advocating or saying it's a good thing to try and break, it's not trying to break the law, it's interpreting the law in a way that they feel they can, you know, avoid regulatory scrutiny. That's one of the most exciting things to me, because there is very little legal precedent, right. And so it's not like we can point to, oh, you can't do this, because of, you know, this case, 10 years ago, in this case, five years ago, this case 30 years ago. It's it's we're creating, you know, the rules and the dynamics, you know, as with each day that passes, and as a lawyer, you know, we're most of my traditional legal colleagues, right, are in very settled industries, right, with very specific precedent and case law, that makes my job on a daily basis, a lot more interesting, because we're helping to figure out new issues for our clients really on a daily basis. And so I just wanted to make sure to clarify like, that's not a To me, it's not a bad thing. It just, it needs to be thought through, right, it needs to be calculated, it can't just be brazen, and because you're not paying attention, and because or because you don't care. Right, and that's a different conversation.

Shayda Torabi  43:26  
No, I would plus one, everything you just said I think that's to not give legal advice, but to you know, kind of corroborate that is advice we've been given. And that's advice that I believe and would take for myself caveated, again, with you do need to do the research, you do need to know the risk. And you need to know what that cost is. And so whether it's a financial costs, whether it's a you know, I don't know, a legal costs, like there are going to be the ins to the gangs. And I do think at some point, you know, things are going to get sorted out where there is proper regulation, I think, for better or worse, because obviously, we are trending towards legalization and all accounts. And so it's going to come people are going to start understanding this plan. They're going to start seeing patterns state to say what is safe, what is not safe, what can we say? What can't we say? But I agree with you, I think just reflecting on our own brand. I mean, I oftentimes feel like I have a target on my back. But at the same time I wouldn't have it any other way. Because if you're in the front, you're everybody's looking at you which is a scary place to be I will acknowledge it doesn't come without caution. But it is just something that I think everybody you know, who's listening has to kind of gauge for themselves how risky they want to be. I also think time to market is a key thing too. You know, if I had launched my brand now two years after Texas's stuff going on much different scenario much different, you know, hoops I'd have to jump through. But man, it was a while Wild West in 2018 2019? And who's who do you look to tell you otherwise? So you just kind of have to look left look right realize nobody knows what the fuck they're doing. And, you know, hopefully get some good legal advice, and then proceed with caution or proceed without the caution. But what I really want to wrap up this conversation, because we're almost at time, but I while I have you, I am really curious because I talk a lot about it just acknowledging the black market. What is what is the black market to you? If you were to explain it to someone, why is it a concern slash threat for the legal market? If it is one, in your opinion? And is it going away anytime soon?

Jeffrey Welsh  45:47  
The black market to me in California is really a reflection of what we sort of already discussed. It is a reality in our space, it's not going away. And to me, it's less of a reflection of a desire to not participate in the legal industry. But the reality that the combination of lack of licensed opportunities, coupled with cost of entry to the legal marketplace, coupled with once you're in the mark, legal marketplace, the actual taxes, which we really didn't touch on in California are insane, right. And so, as an entrepreneur, again, a lot of our clients, they're just like us, right? Just because they're an unlicensed operator or an illegal operator doesn't mean they're bad people, they just have families and bills to pay to. And they might not have, you know, most of most people don't have six figures to start a business, right. But when I started my law firm, I had 2500 bucks to my name, and I put all of it into my law firm. And, you know, we grew that into the seven figure business, which was amazing. But, you know, I didn't have that right. as a as a, as a law school graduate and new lawyer. You know, I couldn't have gotten into the cannabis industry, right. That's what I wanted to do in my heart and soul, I would be right there with with the still the majority of the industry, right? Um, I usually don't like to compare, you know, cannabis alcohol too much, because they're so different for so many reasons. But as it relates to, like, legislative timeline, and sort of social timeline, you know, I think I could be wrong on this. So if someone needs to fact check me, it's fine. But I believe it was 10 years, you know, after prohibition ended before legal alcohol sales, exceeded black market alcohol sales. And you know, we're still only a couple years into this experiment in California. And with each, you know, legislative process that passes, we have new state markets that open up and because the black most of the country, right, gets its cannabis from California still. Right. And so, yes, we just had South Dakota legalize amazing new jersey just went rack amazing. You know, but there's still a large swath of this country, right, who has needs and demands, and the black market is going to be there to fulfill those demands, until the government sort of figures out how to rectify that issue. And to me, that's, you know, why I'm really proponent advocate for really more of just to let the market compete, you know, until we can really drop the federal curtain meaningfully. Just Just let people compete and let you know, the marketplace dictate. I think that that would take the black market away incredibly quickly, right. Because as a consumer who used to buy black market weed and college, because there was no legal marketplace in Connecticut, where I went to school, even at the time, I would have loved some transparency about what I was buying. Even as a 1920 year old kid, I knew I'm not super comfortable buying unmarked Bag of Weed. I don't know where this was grown. I don't know what it is. I don't know if it has pesticides in it. Right. And at this point, with how much education there is now in the space, I, you know, I have I have family that live in non medical and non adult use states. And they complain to me all the time. How do we know what we're smoking? And they like, take a picture and send it to me. I don't know. I sound like I'm not a strain Genie. Right? Like, I can't tell you what that is. I might say, oh, that kind of looks like you know, GDP or like, maybe I don't know, you know, but I think you know, people want that transparency, right. And so I think until we really get to meat, which I'm hopeful happens in this administration, upcoming but we shall see. And even if it does happen, this administration, again, it's going to take it's going to take a long time. Time, which is great job security for me. But at the same time for our clients, you know, my heart really goes out to them. Because our clients who are really doing it right and want to do it right now are competing with a beast, right? Like an impossible force, right, that's going to exist and persist for for a long time. But you know, it's the reality that we live in, operate in. And it's something that we can't ignore, you know, that that we have to deal with?

Shayda Torabi  50:29  
No, I appreciated that because I've, like you said, I thought we'd found the black market myself, you know, you don't have that, what we now champion, which is education, transparency, understanding, now even talking about it beyond just indicus ativa hybrid, we want to know, the terpene profile, we want to know, you know, the different cannabinoids that are present. all that to say, I think people don't really truly understand what the black market is, or why it's operating in the way that it's operating. And I appreciate you highlighting. It's a lot of regular people who have good intentions who want to be in the industry who just can't navigate it, but but regular people also, you know, transcends into everybody. I mean, I just was reading an article, a pretty major edible company coming out of California, one that I love, just got caught for having a whole, you know, black market front, and I was explaining it to a friend because they were like, Oh, that's crazy. Why would they even have a whole separate operation and I'm thinking because of taxes. Because of you just packaging labeling, they're having to go back and forth. The legal fees, the licensing, if they're in control, the license themselves, the licensing, if they're not in control the license themselves are at the mercy of somebody else. It's just, again, I don't want to scare people with these conversations. But my intention is to really just help provide real time dialogue around what the fuck is happening in our industry, so people can start to make the best educated decisions for themselves. And, and I like that you also included that kind of history, comparing but not comparing it to the alcohol industry of, you know, prohibition, and, and this black market is going to linger. And that's I think, something that consumers don't realize as well, I think because of how popular and mainstream cannabis has gone. Again, they just assume like I did have a friend Arizona became legal. And, you know, she, she does medical stuff for a pretty big greenhouse grow in Arizona, and said that the next day at their dispensary after rec legalization, they had people showing up and she's like, that's not how it works, the law isn't changing tomorrow, you can now buy it, you know, there's a process that it takes. So I think consumers are excited. But as the market is still kind of settling, you know, it's like we built the house, we're so excited want to have the house party, everybody come over, but the foundation has to settle, you know, you got to kind of tidy up the closets and things like that. And so I I really appreciated this conversation because I just think California in particular is a leader for better or worse. And I think while it is in a tense challenging situation, currently it does sound you gave me some hope it sounds like things are shifting for the better, which is what we all you know, hopefully, are aspiring for,

Jeffrey Welsh  53:25  
we got to help each other as an industry, you know, a lot of lawyers and clients in the space, you know, just kind of, you know, all the regulators are horrible. It's like, Look, man, they're doing their best, right? And, and if that's our approach and attitude, then things aren't going to get better faster, right? If we're there as a resource and a support beam, you know, for them, then things are gonna things are gonna move faster. But I did that before we wrap the example you provided about the operator in California. It's so interesting, because a lot a lot of our like the industry, right? is funding legal operations with a black market gray market operation because they have to it doesn't horrible people it doesn't make them horrible criminals that No, it's just, that's how they what that's what they have to do to survive in this in this marketplace. And it doesn't mean they're these horrible, like trying to cheat the system. No, like it's people not really having that context of the system here and yeah, it's just that what I like, I hate using the black the term black market. So synonymous so but I just don't it I feel like it conjures up images of, you know, really bad people and like nasty like criminals, right? And it's just, they're farmers. They're farmers who want to pay their mortgage and make sure their kids have food, you know, like that. That's like that's most of it. I'm not gonna say that's all of it. But that that's that's a lot of it here.

Shayda Torabi  54:47  
Well, I appreciate you taking the time to have this conversation. Again, none of this is legal advice. This is just some personal opinions, but I really appreciated it and look forward to sharing this episode.

Jeffrey Welsh  55:02  
Likewise, she pleasure was all mine. Thank you so much for having me and happy holidays to you.

Shayda Torabi  55:09  
Oh, California cannabis.

I am just so grateful that I was able to have that conversation with Jeff, I am very fascinated by what is obviously going on in California because they are not only perceived as the leader, I mean, Colorado legalized first, but California, just in my opinion, and also by the numbers physically operates a much larger scale of legal cannabis. And as somebody who lives in a non legal state, obviously, eventually, my hope is that Texas would full on legalize. And so we are looking at states that have done the legalization process, and hopefully learning from them. And so, again, just my curiosity is very piqued with California, what they're doing, what brands are coming out of their space, and just wanted to get a better understanding. So I'm really happy that Jeff was able to come on the show and answer a lot of my questions. I hope that they were some of your questions too. I know I'm not alone in that. But if anything else comes up please don't hesitate to reach out you guys know I love to learn from you. I love to talk communicate. Let's be more connected, so we can be on the same page and help push this plan forward faster. Thanks again for listening to another episode. My name is Shayda I'm signing out until next time,

Unknown Speaker  56:23  
bye.

Announcer  56:28  
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