EP 31: Sweet Reason Founder Hilary McCain on How She Propelled the CBD Beverage Business with Venture Capital Funding

Hilary McCain is the founder of the first CBD beverage on the US market, Sweet Reason. Her company is all about providing consumers with a calm focus and an alternative to carbonated beverages and alcohol.  Her business had had incredible success with over 1,000  retailers carrying Sweet Reason and their Instagram growing to over 18,000 followers. McCain walks us through her journey in starting Sweet Reason, what inspired her, how she overcame regulation changes, and how she was able to secure investors for her groundbreaking business.

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Transcript

Mimi:
Welcome to the Badass CEO Podcast. This is Mimi McLean. I'm a mom of five, entrepreneur, [inaudible 00:00:08] business school grad, CPA, and angel investor. And I'm here to share with you my passion for entrepreneurship. Throughout my career, I have met many incredible people who've started businesses, disrupted industries, persevered and turned opportunity into success. Each episode, we will discuss what it takes to become and continue to be a badass CEO directly from the entrepreneurs who have made it happen. If you are new in your career, dreaming about starting your own business or already an entrepreneur, the Badass CEO Podcast is for you. I want to give you the drive and tools needed to succeed in following your dreams.

Mimi:
Welcome back to the Badass CEO. This is Mimi, and today we have Hillary McCain and she's the founder and CEO of Sweet Reason. A best selling CBD infused sparkling beverage brand. Hilary launched Sweet Reason in 2018, and has been kicking as a female founder ever since. Including launching a new product in the middle of the COVID pandemic. Hillary, thank you so much for coming on. I'm so excited to hear your story and I love CBD infused drinks, it's my favorite thing. So thank you so much.

Hilary:
Thanks for having me.

Mimi:
Yeah, so I would love to hear your journey about, how you picked from the food industry, how you picked this particular product, a drink versus food, and how you picked CBD.

Hilary:
Yeah. It's funny, I did grow up in the food industry, but I definitely never thought that I would start a food business. If anything, growing up in the food industry should have scared me away from starting a food business or something in the food industry. But I was always really interested in carving my own path and doing my own thing. So for a long time, I had wanted to do something called a search fund, which is essentially a path to entrepreneurship through acquisition. So I went to business school and then post business school, moved back to Toronto and decided to start a consumer facing food focus, search fund, looking for an old school business to buy, think a $20 million in sales old chocolate factory or an old bread factory that you buy essentially with a bunch of bank debt and run.

Hilary:
And just try not to grow the revenue, but just maintain the profitability and pay down your debt over time, et cetera. And I thought that this was a great path to entrepreneurship without having to take all the risks. And it's a very common path post MBA these days. But in my search for a food business in Toronto and in Canada, I got sucked into the food startup world, which is a really wonderful community of people that are so passionate about what they do. A lot of people in the food industry just get into it because they love this thing at home or they discovered the health benefits of chia seeds or of good fats in their diet. And so, it is a really infectious community. And so, I started getting bit by the startup bug. And then in the summer of 2017, cannabis recreational legalization was on the horizon in Canada. So we were a couple months away from cannabis being legalized recreationally.

Hilary:
And I really started thinking about where that market was going to go and what was going to happen and really about how there's such amazing health benefits to the plant, but how they are so inaccessible to so many people that might have health and wellness concerns around smoking a joint and how the future of cannabis was really in cannabis beverages. And how cannabis beverages really will replace how we socialize, how we think about alcohol, how we think about mental health and all the health benefits that can come from cannabis. I really became intellectually obsessed with cannabis beverages and noticed that a lot of the people in the industry were not really consumers. They weren't really consumers and they weren't from the food industry either, so they didn't have food industry expertise to bring to cannabis, they were very much pharma people.

Hilary:
Anyway, so there was that and then I simultaneously as I was watching this cannabis market grow in Canada I also discovered hemp CBD and learned about all the health benefits of hemp CBD and started tinkering around personally and really became obsessed with these really unique health benefits. CBD has a unique ability to calm your mind and focus your attention. And that to me is something that's very hard, if not impossible to find in other foods and in the food and wellness world combined, it's more akin to meditation and that feeling after you take a yoga class. And the fact that you could get that from CBD was incredible to me. So I decided to start a hemp and cannabis beverage business, which is Sweet Reason today, really CBD being our first line of products but surely we will be in every cannabinoid beverage that is science backed and regulatory approved over the next 5 to 10 years.

Mimi:
That's amazing. So when you launched, how many other CBD beverage companies were there? Because now I see them popping up. I mean, being in L.A. it's almost in every store. So I was just curious and almost every store I go into is a different brand. So was it already a populated industry or were you one of the first?

Hilary:
No, we were one of the first on the market. So interesting that we were supposed to launch in Canada, in Toronto and then what happened was the government had fully said that they were going to carve out CBD from the cannabis act and legalize it essentially. And one month before our first production run, they decided not to. So I started Sweet Reason in January of 20, gosh, what was it? 2018. Our first production run was just in August, we were launching in September and in July they said, "We're actually not going to make this legal."

Mimi:
Oh my gosh.

Hilary:
So I was on a photo shoot in L.A. having the time of my life, trying out edibles, thinking I had the best job in the world and get a call from my lawyer and he's like, "I don't know what to tell you. Against everything that they had advised us, they actually just made your business legal." So we had to very quickly pivot and switch gears. At that point, I had already put personal money into the business. I hired a COO, this incredible COO, we were both so passionate about the opportunity and about CBD beverages. So quitting was really not an option. A lot of our competitors at the time closed their doors and returned money to investors and we decided to launch in New York. Because coincidentally, within the same 48 hours that Canada made that announcement, the U.S. announced that they were going to pass the farm bill.

Hilary:
So it was a big regulatory upheaval and obviously in the CBD space regulations control your every move. So we very quickly pivoted, had to reinvent our whole supply chain, hire a whole new team, distributors, changed the product packaging. Everything was new for the U.S. market because everything is different in both countries because it is a very regulated product. And we launched in New York in December 2018 as the first CBD beverage on the market. Today, it's obviously far more crowded. There's so many beverages out there. There's so many CBD products out there, and I think that's really reflective of the demand from consumers. It is a product and it's an herbal extract that many people in the health and wellness world are like, "Oh, this is what we've been waiting for." Something that really helps address anxiety in our society.

Mimi:
What recommendation would you give to somebody who wants to launch something in the food industry? Because it's really appealing. The food industry is very appealing because you hear these stories where you launch and within three, five, seven years, you're selling at a pretty big number to a big player in the industry. That's typical, right? The exit strategy. So we all hear those great stories, but I have found by just investing and looking at other packaging and food industry companies, it's a tight group of people. To get into the whole foods of the world, right? Or to the Targets of the world, it's who you know a little bit. So do you find that when you launched, having your background in that helped, or what advice would you give somebody who doesn't have that background?

Hilary:
I would start out by saying the background helps, but it just gets you a headstart. It doesn't make the road easier. You can skip the first month, you're not forever wondering how to make this product. In the early days there were people I knew I could call and be like, "How do you make a beverage? Should I do a can or a glass bottle? What are the pros and cons? How does carbonation work?" That sort of thing. So I definitely had a headstart in that way, but I would say beyond that and the initial stages, it doesn't necessarily move the needle once you get past those first few months ...

Mimi:
Right, it's like interviewing for a job, right? You get the interview, but you don't get the job just because you have the ...

Hilary:
Yeah, and if you suck at the job you're still fired, I mean, in most companies you're still fired if you're not good. So my advice to anybody that doesn't have a background in the industry would probably be to know where you should hire people that have industry experience and where that doesn't matter. That's my most practical advice I would say. So for instance, in beverage, it is very important to hire salespeople that have experience with beverage distribution.

Mimi:
Right.

Hilary:
And everybody knows that and everybody thinks that's a pretty undisputed fact I would say. You do not need to hire people that have marketing beverage experience specifically. So I would think about that when you're building your team. But also I would say for the food industry specifically, most people don't have experience in the food industry, they get into it. Most people are passionate about a product that they make at home or they discover the health benefits of, and that's how they get into it. And so, I wouldn't be intimidated by that. It is a very tight community, but that's an amazing thing. It's a very welcoming community, everybody is so excited about what the latest thing is, what the next new thing is. So if you have that, you are more than welcome in that very tightly knit crew.

Mimi:
What have you found to be the hardest part of starting this? What has been your biggest obstacle?

Hilary:
Yeah, I probably would answer that differently pre and post coronavirus. In general, not specific to COVID. I would say that the hardest part of this business and this industry, and the hardest learning, if you will, is that if you are going into an industry that has industry dynamics or barriers that are against you, and that are out of your control, like regulations for CBD, you are facing an extremely uphill battle that you have no control over. And you can do everything right, you can have the best marketing and the best team and the best product and it's still wildly out of your control. I've heard in the past, just with general career advice that you should get into an industry that's a fast growing industry, because you will grow with the industry and there's so much opportunity in that.

Hilary:
I think similarly with new businesses, I wish I knew more getting into this industry about how powerful these regulations were. I certainly was naive to that. And I think that's quite different than there are a lot of industries that are just ripe for disruption, like mattresses before Casper or eyeglasses before Warby Parker, that's not what I'm talking about. In fact, I would say those, again, were ripe for disruption. I'm talking about industry dynamics that you cannot control, that if they don't change would really work against you. I think that that's been the biggest challenge for sure, for us and all CBD companies today.

Mimi:
No, that makes sense. Talk a little about your financing. Have you personally financed this the entire time, if you don't mind talking about it or have you had to bring in angel investors or VCs at this point?

Hilary:
I bootstrapped in the early days, I put in money in the early days, but we raised money pretty quickly. Beverage is a really expensive industry to plan in so many ways. The initial production runs that you need to do are huge. The contracts that you need to sign require crazy legal fees and crazy commitments around the size of the team that you're going to have, et cetera. So we raised money very quickly. Within months of launching in New York, we raised with a top consumer firm in New York called Lerer Hippeau, who led our seed round and we've since raised another round with inside investors.

Mimi:
That's great. Now, can you talk about that process? Was that hard to do that? I mean, you went to business school, so you knew the lingo, but was that still intimidating? Was it hard?

Hilary:
I would say in many ways it was intimidating for sure. I love talking to investors. I worked in that world, I worked in finance and I worked in management consulting before, I have very similar backgrounds to a lot of them. So if anything, it felt like a fun part of the job for me, which is, I think unusual for most entrepreneurs to say that because it is such a distraction from the business, for sure. But I definitely had a headstart because I went to business school and so many investors are business school grads. So, for sure, that helped me. I think one of the benefits of being an entrepreneur that has had work experience is that you do know how to put together a deck. You do know what investors want to hear, you know how to pitch a business maybe better than you would if you were right out of school.

Hilary:
There's, for sure, advantages to that as well. But there are some things that are probably easier for entrepreneurs that have work experience than I would say, raising money for me was one of them. Not to say it was easy at all, but it was definitely harder. There were definitely 100 nos before there was one, yes. We've done two big raises now, I mean, seed stage, but significant raises, and they were both, we talked to over 100 people, for sure.

Mimi:
Oh my gosh.

Hilary:
It's definitely a lot, a lot. Maybe I'm exaggerating, but I don't think so. I mean, at least 50/70. You do talk to a lot of people.

Mimi:
That's crazy. And then as far as when you did that seed round, did you have any income at that point? What did you do about valuation? People are always intrigued by that. Especially when you don't have income at that point or so early on, how are you valuing that company?

Hilary:
Yeah, so we did a seed round when we had five months of revenue, six months of revenue, around then. I would say actually, in retrospect, it's probably easier to raise a seed round pre-revenue because at that point, you're just selling the dream. And if you are a passionate entrepreneur, if you're a good entrepreneur, it's pretty easy to sell the dream. Six months post-revenue is actually a very difficult time to raise money because you can't really sell the dream still because you have six months of reality.

Mimi:
True.

Hilary:
And it always takes longer to sell the product, to hire that person than you think. And so, I would say, if anything, in retrospect I would have raised it pre-revenue. I think that's probably an easier time to raise money.

Mimi:
That's a good point. I didn't think about that. What's the best business tip you have received from somebody or if you were to give a business tip, what advice would you give to an entrepreneur or CEO?

Hilary:
The best advice I've ever been given that I think really still resonates is that it is best easiest to hire the right person right away. In order to solve problems and to grow, you need to have the right team and the right people. And that that takes a long time. It takes a significant amount of effort in interviewing and a significant amount of energy from a founder to really interview someone properly and understand if they're the right person, the right fit for the business.

Mimi:
Mm-hmm (affirmative). Did you use an outside, like a Headhunter or did you do it on your own?

Hilary:
We've hired everybody on our own. I've tried to use Headhunters in the past for, actually, one role and I still [inaudible 00:15:42] on my own.

Mimi:
Right. Has it been hard finding people or you just use through people you know?

Hilary:
I mean, it's always hard finding people because you're picky with your business, but I've been super lucky. We have an incredible team. I think it's probably one of the biggest differentiators of Sweet Reason in our industry is that our team is amazing. Our sales team is amazing and people love working with them. So I think once you hire a few good key people, good people attract good people and that, I think, really has a snowball effect.

Mimi:
That's great. Now, are you guys all virtually or do you have an office?

Hilary:
We had an office pre-COVID. We're now virtual. We are between New York, Toronto and L.A. mostly in New York. There's a few of us in Toronto, but the business is all entirely in New York and L.A. So our whole team is there. It's just the core original people that when we were going to start in Canada that are in Canada and the rest are in New York.

Mimi:
Yeah. And as a CEO, how do you create a company culture virtually?

Hilary:
Oh, that's a great question. It's my biggest challenge on my wins and challenges list with investors every month is how do you maintain culture virtually? It's difficult for sure. I don't have answers at all. I talk to people about this all the time. It's definitely something that I need to prioritize more going forward now that we are permanently in a virtual world. But I think one thing that we've made sure we do is we do see each other a lot. If anything, we see each other more, the team has more exposure now cross functionally.

Hilary:
I saw most people most days or had meetings with most people most days, but not everybody did. And so, now we do have a morning call every morning at 9:00 AM for 15 minutes, just to say hi, and how's your evening and what are you watching on TV? Or what are you cooking? What are you reading and what are you doing today? I think that's really helped actually strengthen our culture and our bond across different people on the team that might not necessarily have exposure to each other.

Mimi:
That's great. Now, I think a lot of people are always intrigued by people's morning routines. Do you have any good morning routine tips or work life balance tips, anything that you can shed light on?

Hilary:
Yeah. My husband commonly makes fun of me for this, because I'm like, "What should my new morning routine be this year?" And he always says, "You are just permanently tinkering with your morning routine." It is my favorite topic, my favorite thing to tinker with and it changes frequently. But yeah, the first thing I would say is I don't really believe that some people just aren't morning people. I think that especially entrepreneurs, you just are forced to build your life around the business. If that means that by 9:00 AM, you need to be ready to go, smiling, energized brains on, you are firing on all cylinders by 9:00 AM, for me, that means I need to wake up three hours before that. I'm not roll out of bed in 20 minutes later walk into a meeting or turn on my Zoom.

Hilary:
And I think that really is driven by necessity. So I always joke with friends who say they're not morning people, I'm like, "You just have to force yourself. Everybody would prefer to sleep longer. Nobody hates sleep." So I wake up around 6:15 or 6:30. I read the news for 45 minutes, which I'm actually currently tinkering with or trying to change. And then I go for a walk with my husband for about 30 minutes, we walk our dog, come home, meditate, shower, get ready for work and get into my day. I'm trying to change it now because I realized in retrospect, looking back on 2020, I spent so much time reading the news.

Mimi:
Yeah, I'm the same way.

Hilary:
I don't know that I would call myself a news junkie, but I do read the news for 45 minutes every day minimum. And I don't know what I got out of it, and I don't actually feel more informed than the next person. I think it's very important to be informed, but the news these days is just moving so fast that you can't really actually be informed on a subject. So I'm right now, testing out this thing where I've stopped reading the news, bad week to stop reading the news, but I've stopped reading the news. So now my tweaked morning routine is I get up, I work out, then I do the dog walk with my husband and then I come back and I'm reading my book over breakfast for 20 minutes.

Mimi:
Right, do you feel better? Do you feel a difference?

Hilary:
Oh my God. I Googled, January 1st, I was so curious about this all of 2020, so January 1st, I Googled how to stop reading the news. And if you read about all these blog accounts of people doing it and saying, "A, I read way more books, way more, I'm way more informed. And B, my mood is way better because I'm not so depressed starting the day." So I'm interested in it, but I'm on day five.

Mimi:
We'll see how long it lasts. It's true. No, I'm more of a night person reading the news and I find this week I've stopped and I've been so much more productive for work and sleep.

Hilary:
Yeah. I'm a bit scared about becoming uninformed and irrelevant, but I also- ...

Mimi:
But anything that's important they're going to tell you. I think my husband called me, he's like, "Are you following what's going on Wednesday?" And I was like, "No, I have no idea what's going on." He's like, "How do you not know?"

Hilary:
Wednesday was a great example. Then I read the news and I watched CNN and I was like, "Okay, I know there's something crazy going on, I can engage with it." But I mean, I feel like at this pace you could read a book a week. If you think about that, trade off both in how much you could read and how much happier for me reading makes me then reading the news, I'm interested.

Mimi:
Now are you a paper or a digital person? How do you keep track of your life?

Hilary:
I float between the two. I am currently a digital person and I use one of the to-do list apps, but when things get crazy and overwhelming, I always come back to paper. If my to-do list gets too long, I end up being like, "Okay, here's really the five most important things I need to do today." But generally I'm a digital person, I think, especially with notes and almost everything's digital these days.

Mimi:
That's good. Where can people find your drinks?

Hilary:
Yeah, you can order online at drinkssweetreason.com. We have two key product lines. One is our sparkling waters, which are your daily go-to, 10 milligrams of CBD. You drink them all day long and they're perfect for that mid-afternoon slump, for when you just need to stay calm before a meeting. And then we just launched our evening blend, which was our first line extension. We launched it in the middle of the pandemic, which was crazy, but a much needed beverage for 2020. It is the highest dose CBD beverage on the market. And really, it's a totally new beverage for the alcohol alternative space. So most alcohol alternatives on the market today mimic the taste experience of alcohol, but not the feeling of alcohol, not the functional effect of alcohol. And we thought that there was a perfect opportunity to use CBD to mimic the effect of alcohol and to layer it with other calming herbs and adaptogens that also had science backed calming effects.

Mimi:
Oh, that's great. I'm going to try that. That sounds awesome. What's your favorite flavor?

Hilary:
Oh, I couldn't pick. It's like picking your favorite child. But if I was pushed to, I would say in the sparkling water group, my favorite flavor would be Strawberry Lavender and Evening Blend, my favorite is Palm Blush, although most people order our sampler packs online. And then at retail, we're sold in New York and L.A. and you can find us at over 1,000 retailers between those two cities.

Mimi:
What retailers in L.A.?

Hilary:
We're at Lassens, that's probably the best known one, but a lot of independent retailers. CBD, even though it's everywhere, it's still very much in independent retailers.

Mimi:
It is, yeah, I agree with you. Okay, to end, what piece of advice would you give either someone who's thinking about starting their own company right now, or just got started launching their business?

Hilary:
I would say probably what everybody else says, which is not that unique of me, but you really need to be so passionate about an idea and you need to be so passionate about it and committed to it long, long, longterm not looking to exit within five years. That you are willing to shape your life around the business. I don't want to say give up your life and sacrifice everything for the business because being an entrepreneur is incredibly rewarding. It's incredibly flexible. You have so much control of your life and schedule, which a lot of people will say is the key to happiness at work is just control over your schedule, but you really are forced to shape your life around the business and to do everything in favor of the business.

Hilary:
So I would say that, which I think you would do here a lot. And then the other one that I think people do talk about but is less focused on is I think entrepreneurs have to have this fundamental sense of optimism. That is just so important in their ability to survive entrepreneurship and to really look at problems optimistically and know that there is a solution to everything that they just have to find it and that they are able to solve it, even if they've never done it before. And that really takes a very deeply rooted sense of optimism.

Mimi:
I love those two pieces of advice. It's like having another child, it's like having a child, right? If you don't have a child, it's like either having another child or having a child where you're in it for the long haul and no matter what happens, so I totally agree with that. And I do think it's that sense of it's going to work out and no matter what, you just got to be a problem solver, right? You're going to have problems every day, so just figuring that out. Those are great pieces of advice. Thank you so much. But anyway, yeah. So I'm super excited to try your Night Blend.

Hilary:
The reviews we've had on it are luckily insanely positive. I'm so grateful. We're actually only selling it online right now. So it's explicitly available on our website, but I'm so excited to get it into stores in L.A. in New York and across the country.

Mimi:
What percentage are your sales online versus in the stores?

Hilary:
It's constantly changing because of COVID. Before COVID it was 90% retail. So obviously, 90% retail and heavily weighted towards New York. So obviously COVID was a rude awakening for us. But now all businesses, we are really focused on growing the online channel. So today, it really depends on the month, but we get as close to 50% in sales online.

Mimi:
Do you really? Good for you. That's great. Because your margins are actually higher too, right?

Hilary:
In beverage, they're not because it's so expensive to ship beverages. It is tougher in beverage. Honestly, I look at online as a marketing tool for us. It's really just about getting people to try the product. But the future of the business will still be in retail.

Mimi:
Now I don't know if this is true, and I want to tell people, anybody who's listening, if you wind up going online and buying her product and they're not carrying it in your grocery store, if you ask your grocery store, right? If enough people asked don't they then go to the distributor and ask for it?

Hilary:
Yeah, for sure.

Mimi:
You can help Hillary out. If you order the product and you love it and your grocery store doesn't have it, or any of your local whatever restaurants, whatever, coffee shops, that's where I go. They have them at the coffee shop. Ask them because then they'll ask their distributor to start carrying it if they get enough people asking.

Hilary:
Yeah, definitely. If enough people ask, they realize that a lot of people want it and that definitely helps.

Mimi:
Mm-hmm (affirmative), mm-hmm (affirmative). Well, thank you so much, Hillary, for coming on. I can not wait to try the night product. So I'm super excited about that and I really appreciate your time and the best of luck to you to 2021, make it be super prosperous for you.

Hilary:
Thank you, you too. It was so nice to meet you.

Mimi:
Thank you for joining us today on the Badass CEO Podcast. Please visit us at the badassceo.com to get your top 10 tips, to be a successful CEO. Also, please join us at the Badass CEO community Facebook page, where all entrepreneurs come together to share their journey. You can also email me at mimi@thebadassceo.com. I would love to hear from you. And if you can leave a review for the podcast, I would be so appreciative as it helps others find us. Until next week, go follow your dreams.