I started my hemp business less than 2 years ago with my last $20k. Now we’re moving ~$750k in product a month (retail value) at gross profit margins of 80% to 90%. Just 2 brands, both narrowly focused on a specific subcategory of hemp products.
After sales & operational expenses, we’re clearing about $100k to $200k per month right now. We dump it all back in to the business because we realized we don’t care as much about money as we thought we did. Also, it’s unclear how competition and regulations will shake out-- can we keep this up for a decade?
We don’t grow and we don’t extract. We package product, brand it, market it, and distribute to 750+ retail stores in the south & midwest. We have 2 brands, soon to be 3 next month, and 4 the month after.
We retail grams of outdoor-grown hemp flower for $15. We retail eighths of indoor for $60. We retail 1g D8 carts for $60. How? Brand & channel. Some of you think this is ridiculous or even wrong. My customers disagree, so save it, read, ask, and learn. Our average star rating is 4.8 out of 5 and we don’t do any funny business with reviews.
Several members on the forum can vouch for me, what we do, and how good our products / brands are. @ky_cbd / @Distributionly @Kingofthekush420 / @kcalabs / some others (not sure the last 2 know my username on here). PS-- I don’t reveal who I am or my brands to people on this forum so I can speak freely, and also because some of you are a bit toxic. If you know who I am / what my brands are IRL please help me keep it that way.
Please-- Ask Me Anything about sales, brand, marketing, packaging, and distribution. I’ve learned way too much from this community, and I’ve given too little back. It’s time to settle up. I’m also happy to connect you with design agencies, marketing agencies, freelancers, print companies, packaging companies.
I’ll give you a little bit of background on me, then I’ll share some general advice I think this community needs but doesn’t generally follow, currently. Read as much or as little as you want. This will be a long one. Table of contents below.
- My Background
- Product Ideas vs Distribution
- Raise Your Prices
- Product Selection
- Building a Brand
- Positioning your Brand & Products
- Value Propositions
- Packaging
- Sales - It’s not what you think
- Negotiating
- Customer Acquisition
1. My Background
Before I became a hemp Chad, I managed Marlboro’s / Altria’s largest sales territory by sales ($35M+ annually). This was my first job out of college. I sold & marketed Marlboro, L&M, Parliament, Virginia Slims, Copenhagen, Skoal, Red Seal, MarkTen and more to & in gas stations in the midwest.
I achieved the highest market share growth in the company by (1) busting my ass to market the brands well in stores, (2) build deeper relationships with store owners than my peers, and (3) convincing 75% of stores in my territory to run break-even prices on our brands to drive more foot traffic and profit on other products.
Then I got fired because I stuck my neck out and made a big deal about how the company was treating my friends (the small businesses) vs the big chains (antitrust violations, in my opinion).
So I started studying for the LSAT and accidentally built an online marketing business in the process – I ran a content business on nights & weekends, and worked on it at a WeWork, where I met my first client.
I helped him build his biotech supply business selling fetal bovine serum (FBS) to university labs across the country using cold email (very powerful stuff when done right). All of the doctors emails were publicly available on their university websites and we could make ~$20k on a cold email series to 500 to 1,000 contacts.
Then I picked up a few more clients and some employees. I raised a $500k investment for my marketing business from a hemp client-- private equity group in CA. They made a bunch of promises they didn’t fulfill, defaulted on most of their loan to me, and ran into legal trouble after getting caught with hot product. They went out of business, I had to lay off 12 employees in one day, and my best friend / business partner & I decided we could do it all better on our own with his last $20k. We were right.
I’ve done ECom. I’ve done Google ads. Facebook ads. Ebay. Influencers. Social media of all types. Marketing automation. Email marketing. Event marketing. Print marketing. Packaging. Graphic design. Not much SEO but I know a lot about it.
Lots of different activities in lots of different niches-- I never specialized, which was a huge mistake. But I learned a LOT. I blew a lot of cash chasing stupid things. Every now and then, I made some money.
2. Product Ideas vs Distribution
When starting a business, most people make the mistake of focusing on ‘ideas’. Usually those ideas revolve around product, and not distribution. Do the opposite.
Focus on who will already buy from you, who is likely to buy from you, who you want to sell to, how you will sell to them, and how you can get those same people to keep buying from you for the next few decades. Find your channel, then your product.
Exception to this rule is truly unique, hard to replicate products that will go viral. But for most products, “if you build it they will come” doesn’t usually hold true. Cannabis is a commodity business. It’s really difficult to make something others can’t replicate.
I sell to mom & pop gas stations & liquor stores. I ultimately sell to their customers. If their customers want my products, they will carry them. The opportunities in hemp will come and go, but I intend to make my relationships stick so I can work with them until we die. Now, when I launch a new brand, I already have ~$200k+ in sales already guaranteed to get me started.
The best new customer is an existing customer.
Further, consider the concept if information asymmetry. Consumers could easily go to hemp facebook groups, pretend to be a business, and ask for free samples all day. Why don’t they do that? They don’t know they can.
Consumers could buy products very similar in quality to mine from online merchants but don’t, because they don’t know about those opportunities and they don’t know the products are basically the same.
Lastly, don’t try to sell in too many channels. Less is more. Focus. Chase too many birds and you won’t catch any. Do one well.
3. Raise Your Prices
It is a huge mistake to try to differentiate on price. There are way richer people who will always beat you on price. And if price is your best value proposition, you aren’t adding any value. You are redundant. You are a rent-seeker.
The right customers won’t care about your price. But you have to add value in other ways. In my case, consumers are willing to pay higher prices, so retailers are, too.
Why do consumers pay higher prices for my products? We never skimp on quality. Consumers & retailers can tell that our products are the grey goose and our competitors’ is the popov / congress. We don’t ship anything we’re not proud of. We take care of you if something goes wrong. You can expect a consistently good experience. Our brands & packaging are sick. We communicate value propositions effectively in our copy. You can always reach our customer service. Etc etc.
We couldn’t offer all of these value propositions in the beginning, but we continue to re-invest profits in better outcomes for our customers.
Low-margin customers aren’t worth worrying about, at all. If you really know the true costs of running your business, you know that after pricing in employees, taxes, rent, commissions, advertising, legal, utilities, travel, etc— your true costs are a LOT higher than simply the cost of product. And what good are you to your customers if you fail to realize this and go out of business?
If you aren’t making 30% to 40% profit after everything (including a reasonable hourly rate for yourself), how will you grow? How will you whether storms like changes in consumer demand and new regulations?
Charge what your product is worth, not what maximizes sales. Do so unapologetically. Don’t even price your products on a set profit mark-up. Certainly make sure you can make healthy profits at a minimum, but charge what the product is worth. Margins will vary across SKU’s and that’s fine.
You lower your prices 10% to get a couple more customers and now all of your customers pay that lower price. Find more customers willing to pay your prices— don’t lower your price.
Even when you lower prices— prospective customers don’t have a 6th sense for it. They don’t just come flocking. You still have to sell. You may as well charge what your product is worth.
The biggest mistake you can make is creating a truly great product and underpricing it. Most of your prospective customers don’t know enough about your product to explain the value to someone else (mitigate this with better copy & positioning). This is why people use price as an adjective to tell others how good something is. They say “I bought an $80 hoodie” to communicate that the hoodie was of exceptionally high-quality. Your price should align with the quality of your item, as should the brand, packaging, etc.
Along the same vein— price serves as one of the strongest placebos. Your price alone is the biggest signal of quality, even before brand, packaging, etc.
Put a shitty product in a great packaging with a great brand and a high price— people will assume exceptional quality. Most people will even after trying the product— Price is that strong of a placebo.
The opposite is also true. Exceptional product with a shitty brand, shitty packaging, and low price will almost always be perceived as poor quality, even after trying it.
Want to maximize revenue on price-indifferent customers, but sell to price-conscious buyers, too? High single unit pricing, lower multi-pack pricing.
Lastly, people care way less about your prices than you think. Deliver equivalent value to the price you charge. Don’t worry that other people sell similar products for lower prices.
4. Product Selection
Stop selling so many different SKU’s too early. You make it really hard to do anything meaningfully well— to add value and differentiate. You’re chasing too many birds and can’t catch any of them.
Product selection is a meaningful value proposition but not the most meaningful, and like price, the big guys will always crush you.
Further, you’re making it really hard to realize economies of scale. Packaging, for example, is really expensive at low volumes and dirt cheap at high volumes. Buy 10,000 labels for the 1 product you can make & sell well, not 500 labels for each of 20 products.
5. Building a Brand
The concept of a ‘brand’ literally came from branding cattle. Cattle are marked with brands so ranchers can tell them apart. The same is true for product brands.
You brand a product so buyers know they get the same quality & experience every time they buy. ‘Brand equity’ builds as more buyers become more confident they will continue to get the same quality & experience.
Reputations are built over a long period of time. It’s difficult if not impossible to establish a good reputation widely in a short period of time. It is impossible to do so and be trusted fully and impenetrably in a short period of time.
Wonder how a poorly designed brand got so big? Great distribution, for starters. More importantly— they consistently delivered on their promises.
Brand is about consistency, not trickery or anything else.
6. Positioning your Brand & Products
We’ve covered much of this in previous sections already.
Consistency is key. Quality of product should be consistent with quality of packaging, quality of brand design, the channel the products / brand is promoted in, and the products’ / brand’s prices relative to other alternatives in the channel (IMPORTANT — don’t worry too much about what happens outside your channel).
Further, your brand identity should be appealing to the people you want to serve. This should be obvious. But, it’s hard to get right. Get to know the people you seek to serve much better. Stop assuming so much about what they really want and wondering why you can’t sell shit no matter how low you set your prices. Talk to them, ask open-ended questions, listen intently, and take notes. Pay careful attention to the words they use as those will be useful in your marketing copy.
Also, if you try to appeal to everyone, you will appeal to no one.
And lastly, the flex is real. Look at AirPods. Quality product, quality packaging, quality brand, and a price that is consistent with the previous 3 items. Everyone knows you can get better headphones for cheaper but then your friends wouldn’t know you’re better than them.
Stop assuming your prospective customers are more reasonable / objective than they are. Stop trying to change their minds. Sell them what they want.
The 5 P’s of marketing: Product (or Offer), Promotion (how you market it), Placement (where you sell it / channel), Positioning (consistency of price, identity, quality, etc in relation to who you serve and the competition *in your channel), and Price. Notice price is just one of 5 components— stop lowering it.
7. Value Propositions
Less is more. Differentiate your brand / products on one on just a few key value propositions, not 20— which won’t just lose everyone’s attention fast, but most people won’t even understand.
You probably can’t even afford to fulfill promises of 20 KVP’s. So again, focus on the 1 or 2 ways you can afford to differentiate in a meaningful way.
8. Packaging
You already know how I feel about quality of packaging from previous sections. If you’re selling something worth buying and you’re selling it for what it’s worth, don’t skimp on packaging.
Easy ways to demonstrate quality beyond great design work include finishes like soft touch coating, spot UV gloss, and hot foil, and general quality of material— glass not plastic, thicker boxes vs thinner, and generally avoiding bags and blisters.
Rule of thumb is to spend 5% of your price on packaging. That’s at scale, though. If you’re small, you will have to spend much more.
Unit pricing on printed materials falls hard & fast with volume. Some things can be ‘gang-run’ together to meet volume thresholds, and other things can’t. If you’re small, it’s best to buy pre-made packaging and apply labels, instead of going the custom ‘printed-on’ route.
Do you have designs, a designer on your team, a freelance designer you trust, or a design agency you already work with? Packaging companies will generally give you die-lines, and a designer needs to lay designs on to those.
At small scales, you want to…
- Keep it all under 1 brand to reduce design expense
- Keep SKU count low
- Put labels on plain, standardized packaging
- Keep labels all the same size and paper type, so they can be gang-run (use a standard size— don’t insist on anything custom)
It costs practically the same amount of total money to buy 5,000 labels as 1,000, so you may as well to get unit costs substantially lower. Why? There’s a minimum amount of profit printers need to make on a job. At small scales, you’re paying them to set-up machines, prepare files, etc. you’re not paying for paper and ink. You can get label costs down to $.01 at scale.
We love LightningLabels. Talk to them. At really small scales, it may be best to use VistaPrint. Or SmartPress.
For packaging, start with MarijuanaPackaging. Everything on MP and more can be found on Alibaba / AliExpress but shipping will take longer and it’s a more intense process (Alibaba, at least). For faster shipping & lower MOQ’s, look at DHGate, specifically for listings with free DHL shipping. You can add ‘free dhl’ to your search query. For bags, check out ClearBags.com 1
I can connect you with an international-based designer who does great work for cheap. Or, you can find your own highly talented but stupid cheap international designer on Behance (search for products like yours and find profiles of designers making designs you like), or using 99designs. I found my first one on 99designs.
9. Sales - It’s not what you think
Most people think great sales people are wildly charismatic, tricksters or even fraudsters, and expert negotiators. Or they think sales people make / have lots of friends.
The last part is kind of true. Relationships are crucial but don’t try and make friends off the bat. Your prospective customers don’t care who the fuck you are. They only care about what you can do for them. That changes over time as relationships form over long periods of working well together.
You get new customers with unique, well-positioned offers. Or, through referrals.
Almost any business where all customers are new customers is a shitty business. The best new customer is a new customer. Think about how you can keep selling to the same people for the next few decades.
You keep customers by keeping promises. Over-promising & over-delivering. You keep customers by communicating well (responding quickly, and communicating thoughts clearly & concisely). You keep customers by being an expert in what they sell and what they need.You keep customers by going above & beyond to fix problems when they inevitably do occur.
Set proper expectations. Stay organized. Tell the truth.
Great sales people are ultimately just great advisors and / or great outside project managers. They make shit happen without you lifting a finger. You can always rely on them (within reason).
Extroverted people are better at one-and-done / wam-bam-thank-you-mam cold sales.
Introverted people are better at long-term, relationship-based, knowledge-based sales (this is where the big money is).
My experience with sales reps in this industry has been quite fucking poor. Can’t trust anyone, can’t rely on anyone. Most lack real knowledge. Most don’t listen.
If you sell B2B, the quality of your sales people and general quality of service is often everything. I leave companies with good products / low prices for better service, reliability, and advice all the damn time. I virtually never leave / switch for price.
For an example of the ideal salesman, look at Ryan Bellone – behind @kcalabs – generous with information, reliable, trustworthy, organized, etc. Doesn’t get any better.
10. Negotiating
I don’t negotiate my prices, and I don’t haggle others, either. It’s a fool’s game.
Retailers are used to haggling in my business. We make it clear right away that prices are set, and what volumes they have to buy to get better pricing. They come to appreciate that they don’t have to negotiate— that no one is getting back-room deals better than what they get. It is what it is. What they see is what they get. It’s easy to buy from us.
You should be prepared to negotiate terms on larger deals and get contracts in place. Lawyers are worth it. Don’t assume your handshake deal won’t go wrong— they almost always do. Don’t assume you won’t get divorced— most people do.
Don’t sneak shady shit into contracts. Contracts are expensive to enforce. Use the contract review process to transparently ensure you and the counter-party understand every facet of what you are agreeing to. If you can’t do this without throwing the deal, you didn’t have a deal in the first place. The best counter-parties expect & appreciate this process.
All you need is the contract in a google doc. Invite them to suggest edits and comment on specific parts. Encourage them to have their lawyer review it.
Where possible, write / pay for the agreement and bring it to them. That way, you get to set the anchor for all terms. You set the point at which you negotiate from. Novices think you should never speak first— never state the price first. False. Set the anchor.
11. Customer Acquisition
As with everything else, less is more, don’t chase too many birds or you won’t catch any, etc.
Experiment to figure out what combination of product, identity, channel, price, and promotion works profitably, AND scales.
I’m not going to go deep on any ‘growth hacks’ because it varies too much, and frankly, it’s usually what you figure out here that is your secret sauce. More important than product. I’m certainly not sharing the methods I use now.
What is important for the purposes of this post is that you understand is the CAC vs LTV relationship.
CAC = Cost to Acquire a Customer
LTV = Lifetime Value of a Customer
Your true profit margin is the net profitability of a new customer minus the the cost to acquire them. Yes, you should be spending money to ‘buy’ customers. Don’t be a cheap fuck, especially here.
Now, another consideration is how much profit you net on the first sale. Big brands will spend many times first sale profit to acquire a new customer and make it back over the lifetime of the customer, but if you don’t have deep pockets you can’t do that. You have to focus on keeping CAC lower than first sale net profitability.
The lower it is, the more profitable you are, and the faster you can grow to serve more people, and the more resilient your business will be to supply / demand & regulatory risks.
Conclusion
What did I miss? What did I leave you wondering?
Please-- Ask Me Anything about sales, brand, marketing, packaging, and distribution.
for the awesome insight good stuff !!!