Home Economy CEO Josh Genderson Discusses Holistic Industries’ Privately Funded Trajectory of Growth

CEO Josh Genderson Discusses Holistic Industries’ Privately Funded Trajectory of Growth

by Team Marijuana News

The way CEO Josh Genderson sees it, the company he founded eleven years ago, Washington, D.C.-based Holistic Industries, is on track to become the largest privately owned and operated cannabis multistate operator (MSO) in the country. Driven by a growth strategy that prioritizes a methodical approach to decision making and a company culture with the mantra, “We want to be the best place to work, shop, and invest,” the manifest success of his strategy had the normally calm chief executive practically gushing during a recent interview, “We have so much organic growth in front of us, we’re opening so many stores and production facilities every quarter, there’s never a dull moment in this business.”

You could almost blink and miss one of the company’s most recent moves, which include the opening last week of a 64,000 square foot vertically integrated flagship facility in Southeast Michigan, the “largest of its kind,” according to the company; the awarding of grower/processor licenses, along with 10 dispensary licenses, in West Virginia; pending license applications in New Jersey, Illinois, and Virginia; and the opening of a new store in Van Nuys, California, deals that build on the already expanding footprint Holistic has established in Maryland, Michigan, Pennsylvania, Massachusetts, and of course, D.C.

Holistic’s path to success could be described as both ambitious and organic, built up patiently but proactively over time by a local entrepreneur who originally cut his teeth on spirits. I was in the liquor business before starting Holistic in 2010,” said Genderson. “I ran an importing company in New York, and then I sold it and took over the family business in Washington, D.C., and grew the business quite substantially.”

Quite literally, the Holistic story would have been much different had it not emanated from the nation’s capital. “D.C. has many anomalies,” explained Genderson, “but one is that it is the only place in the country where you can be vertically integrated in the liquor business. So, I took a seven-year-old family business that my great grandfather started, and my only goal was not to screw it up. I had already had some success in New York, where I learned a lot about culture and about being deep into the community, so, when I took over the business, I created a vertical, took over a retail business and started importing and distributing. But I had always been a fan of the cannabis plant and the business and what it can do for patients, through the lens of medical and East Coast.

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“At the time, D.C. had one of the first medical programs in the country, which passed in 1998, I believe,” he continued. “But another anomaly in D.C. is that we are subject to something called home rule, a hot button issue here that basically means Congress has oversight over our budget. So, there was a blanket no [on cannabis] from Congress from 1998 until 2010. But by 2009, I had grown my family business and was paying close attention to cannabis, and I could read the tea leaves that the House was going to flip. Long story short, we revamped the bill and got it approved, and then Congress approved it and there was an RFA (request for application), and we ended up winning two of the seven grow licenses in D.C. And that was very exciting, to win out over 800 applicants.”

Winning the licenses was just the beginning, of course, but Genderson could not have known what surprises lay in store. “I learned a lot in D.C.,” he recalled. “It made everything happen for me and about a year in, the business was off to the races. We had big brands, good extraction folks, good cultivation folks, and I really thought that was going to be it. But then I met a woman around that time who had a kid with severe, intractable epilepsy. She was a high-ranking federal government employee, and she was desperate. I was not a parent at the time – I am now – but you could just see and feel her desperation, and it was right around the time when people started talking about cannabis therapy for children.”

Multiple seizures a day, I asked. “60 or more,” said Genderson. “It was terrible. I didn’t realize the breadth or depth of the problem. But I learned a lot, and I learned that she had coalesced a group of mothers that all had children with the same condition, and they were all in D.C. and were basically flying to Colorado and smuggling back a non-psychoactive liquid at the risk of their careers. It was mind blowing. So, I had hired a PhD chemist, who is our Chief Science Officer, and he has 30 scientists working for him now, and we started making medicine that we named after her child, Jackson. We ran a trial, if you will, the least clinical trial of all time, but it was very patient facing and we saw so much success. We had like a 97 percent success rate, and success was pegged at 75 percent or more reduction in seizures.

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“It was just the most overwhelming, incredible experience,” he added, and paused before continuing. “The reason I tell this is because that group of moms, along with some policy organization, were really the linchpin for our whole East Coast into Midwest cannabis experiment, if you will. They marched state to state picketing statehouses, demanding medicine, and I followed them, and with my background in wine and spirits, being one of the first operators on the East Coast, and having a good app writer, and growing up in D.C. and understanding legislation and policy, we would go into these states – Maryland, Pennsylvania, and Massachusetts – and we would apply, and we would wait. And, nominally we would win, but we’d win one of three verticals in Maryland, and one of four in Pennsylvania, and one of the first in Massachusetts. So, we were winning these licenses and they were getting built. The average size is about 85,000 to 100,000 square feet of production facility, and then we have anywhere from three to six stores. All the facilities are new, some were old manufacturing buildings, and we collocate all our grow processors, which are all indoor.”

The resolute moms not only galvanized Genderson to action but seemed to inspire him to reflect on the nature of the company he’d founded. “Watching them go to the statehouses and demand medicine, seeing how powerful of an advocacy tool it was on both sides of the aisle, really did change my perception,” he said. “And then, after winning, and not only winning, which was hard, but then building and opening and operating and wholesaling and retailing, I started to realize, my God, not only is there so much potential [in cannabis], and not only is what we’re doing fun and helping people and making people feel better and making their lives better, but we’re helping towns that have been hit hard by the exodus of factories and the opioid crisis, and becoming their biggest employer.

“This is also when the term of art MSO started popping up, in late 2018,” he added. “And the difference between Holistic and the other MSOs at the time was that they were all Wall Street financial engineer people who saw a widget and a ground floor opportunity, and we were advocates and we were passionate about it, and while we were winning licenses, they were buying them, and really jamming these cultures together. They were aggregators and we were operators. And so, we started to get a lot of offers; everybody made us an offer to buy us, and this was when a lot of funny money was flowing into the market. And that’s when I realized that what we were doing was special and a little bit different.”

I asked if he had received any crazy high offers. “I did,” he said, adding that they were not hard to resist. “I make very calculated decisions. Nothing’s too good to be true, and the majority of those companies are not around anymore. And I never did this to be rich. That was never the intention. It was more purposeful than that. Of course, I have a fiduciary responsibility and the right offer’s the right offer, but they just didn’t feel right at the time, and thank God I’ve been proven right.”

Some of that proof can be found in the numbers, which from mid-2017 to today saw Holistic grow from 15 to 700 employees. “In 2018, I think we did $8 million in business, and in 2020, we did $110 million,” said Genderson, adding modestly, “It’s been a lot of growth. First, it requires a lot of care and work, and you have to hire right, and you have to treat people right. And we go about it a little bit differently. We really focus on, no pun intended, growing the company methodically, and that might mean that it’s a little bit slower than some of the biggest public companies, but it helps us ensure quality, and not just quality in terms of the flower, but in the process of products, in the retail experience, and the way we wholesale. You know, we’re on every shelf in every state that we’re operating in, outside of California, and of course, we have our own stores, too.”

I noted that because we are talking about companies that frequently sell the same products to the same people, the qualities that distinguish a given company from its peers are the things we want to talk about, and presumably they want to talk about as well.

“I’m a fourth-generation retailer,” said Genderson in response. “When you ask why I went into California when everybody told me I was crazy – it was too mature and saturated and competitive – I thought two things. One, if you’re good at what you do, you’re good at what you do. And two, people appreciate being treated well, and they appreciate a good experience, a wide variety of products, and rare products. And from day one, I’ve always said one thing, which is: we want to be the best place to work, shop, and invest. I say that maybe fifty times a day and it probably annoys the hell out of everybody, but I say it in that order, because I think if you are the best place to work – which is really hard, and you spend the extra time and money and attention on that – then you have people that care more, and they care about what they’re making more and they care about what they’re selling more, and it makes you the best place to shop and that equals revenue and the best place to invest. So, I wanted to go to California because I think being in a competitive market makes you better than being in a less competitive market, knowing very well that they’ll all be competitive at some point.”

And then, he added, their experience in California only further added to a sense of confidence that would spread west to east. “When we went to California, we bought a company with a retail store and a grow, and the company was in disarray,” said Genderson. “There were still great people working there that cared, but it was poorly managed and people were treated poorly, so we gutted the place, redid it and implemented our policies and SOPs and training, and quadrupled revenue in the first year and a half. That’s what really gave me confidence back on the East Coast and in the Midwest that we could do it.”

Of course, there are many differences between California and everywhere else when it comes to cannabis. “When you go into a store in California, any product that you’re looking for, there’s 100 SKUs of every different color, shape and size,” agreed Genderson. “It’s all about quality and price point, and you need to have control of those things, so we’ve been able to leverage our knowledge on the East Coast – I’ve been doing this for a long time on the East Coast – with great people that we’ve brought on board on the West Coast and companies that we’ve acquired on the West Coast.

“We are not cultivating in California,” he said when asked, “but we do have our own brand. We launched the Jerry Garcia brand, Garcia Hand Picked, for which we have production partnerships withbrands jerry garcia logo great, small craft growers throughout the state. We are currently building an 80,000 square foot indoor production facility – grow and processing – but we do have partnerships. It’s all about the quality, and you have to meet a lot of people to find quality.”

I asked if he comes out frequently. “I was out there last week, actually,” he said. “I’ve been out many times, up and down, up and down. I also have great people on the team. We have great M&A people, great product people, and we have a lot of people from California that moved out east. I have spent a lot of time here and I’ve been a fan of the plant for a long time, and when something you’ve been passionate about for so long becomes your business, I think you have a little bit of a head start, because you already know about terpenes and quality and the entourage effect, what the right strain is supposed to smell like and taste like and feel like. Those things are all important. I don’t know that many big successful companies that were founded by people who are not passionate about the product.”

I also wondered if he thought the cannabis business was similar to other markets. “More and more I see it like the alcohol business. That’s the best way for me to visualize and internalize it because that’s what I know,” he said. “As [the industry] gets bigger and more competitive, quality, price point, and branding all become more important. Education becomes especially important, so I think there is a lot of cross over. I think with CPG there’s a lot of cross over, because in my mind, what is CPG but consistency? You buy a Sprite, you open that Sprite, it’s going to taste like Sprite, and it’s going to sound like Sprite, and if you bought a Sprite somewhere that was brown and didn’t have bubbles, you wouldn’t buy Sprite anymore. I think those industries have a lot of similarities, and I think the way telecom used to be, state specific and you weren’t allowed to cross state lines, and the way it’s all playing out now on the federal level, there’s a lot of cross over there, too.

“Like a lot of emerging industries, cannabis is figuring it out, but I do see a lot of similarities to the liquor business,” he added. “Before he joined me, our chief marketing officer was the CEO of the Stranelargest pharma ad agency in the world. It’s a quick story, but he became CEO because Pfizer was one of his accounts, and they asked him to help launch Viagra. And it was challenging, because nobody wanted to talk about erectile dysfunction or impotence, and he spent some time and thought about it, learned the word ED, brought in people like Bob Dole, and normalized it. And $30 billion later, it’s that sort of de-stigmatizationn that made the difference. In cannabis, that’s already occurred in California, but it’s still happening in parts of the East Coast.”

Are there advantages to remaining private, I asked. “I think so,” said Genderson. “There are advantages to both, but thankfully, we’ve always been able to raise capital, and in fact, we just completed a $55 million capital round. One of the reasons you go public is to attract capital, and we’ve been – well, lucky is the word I’ll use, but it may not be the appropriate word. I had some very loyal investors when I started and a track record, and since I started Holistic, everything we said we were going to do, we’ve done. So, when you’re able to do what you say and say what you do, it makes it a lot easier. And I think being private allows you to pivot quicker, allows you to think long term as opposed to just about the quarter, and I think it’s been really good for us to grow methodically, and to be good stewards of capital. You know, we can’t do a $100 million overnight deal, so we have to be thoughtful about it. You have what you have, you spend what you spend, you make what you make, and then there’s what’s leftover?”

About his decision making in terms of which states to enter, and how he managed the fluidity of those rsz 1dsc 2647rrrr copy1situations, Genderson replied quickly, “With a great team and an open mind, first and foremost,” he said. “You have to be collaborative and listen to people that know more about something than you do. Then there are a lot of meetings and conversations and a lot of reading, trying to see what everybody is up to.

“When it comes to states,” he continued, “we’ve won licenses by merit, and then the M&A that we do is generally within the state; we’ll buy another store or something like that. And when we think about applying for a new state, we think about it regionally, having regional concentration. So, at the time, Florida was not on the list, because there was too much going on. Since then, it’s become very attractive, and there are a number of people we’re talking to. New York as well has become extremely attractive, and we’re in New York now meeting people, looking at locations, getting ready for the adult use program there. But any state that we’re not in currently that is one you’d think we would want to be in, we either didn’t apply because we were focused somewhere else, or it didn’t fit our geographic footprint. As a vertically integrated MSO, we’re already cultivators, manufacturers, distributors, retailers, and real estate developers, so you can’t do everything, and you have to have some time to pay attention to quality. We will find our way into those states, and we have pending applications in New Jersey, Illinois, and Virginia, but I think our footprint is really good and getting better, and as we open in more states over the next year, we’re going to be the biggest private cannabis company in the country, and that’s exciting.”

As to the eventuality that Holistic will one day embrace the equity markets, Genderson augured, “I certainly have always envisioned building this thing and one day taking it public in the U.S., but I also have a fiduciary responsibility and I take that seriously. So, I am open-minded about the future, but in the meantime, we have so much going on, so much organic growth in front of us, and we’re opening so many stores and production facilities every quarter, that there’s never a dull moment in this business!”

I asked Genderson what are the correct metrics to use when evaluating the performance of an MSO. “I think revenue and margins, and EBITDA, are naturally what people look at, for a reason,” he said. “If you can win a license and build out a facility but you can’t sell your product, that’s not where you want to be. And if you can win a license and build out a facility and sell your product, but you make no money, that’s also not a good place to be. I think management teams should deal with that and that it’s really important. You’ve seen some companies just completely blow up and I think management teams that have good track records are certainly important. I think, like I said, revenue is important. I think having strong brands is important, and I think having a good geographic footprint is important.”

Our time was running out, but I wanted to get Genderson’s view on the amount and risk of overleveraging in the industry, and also the extent to which Holistic was invested in IP and in building a robust genetic library.

“The overleveraged part is the number one scariest thing,” he said, “and that’s why our approach to being private and not even trying to be Walmart has been really successful and important, because you have to be really careful about leveraging something. So, we’re very mindful, and every day we look at our balance sheet and our P&L, at what’s coming down the pike, and it’s all very, very, very important. I think a lot of companies thought money would never run out, and those are companies that aren’t around anymore. Other companies have stockpiled capital, and I think that’s smart, because you never know what can happen in this market. But it’s a little bit simpler when you’re private, and when you’re operating in the black after a period of time, and the industry is only growing, and the customer base and patient base is only growing. So, yes, I do think that’s a very important thing to be mindful of.

“IP is interesting because we can’t really get IP because of its federal status,” he continued. “You can get trademarks and things like that, which is important, and we do have some hyper-medical brands that have gone through clinical studies where the combination has an IP element, but the most important thing that people don’t talk about at conferences or in the public markets world, is genetics and your genetic bank, the variety of genetics that you have, the quality of cultivars. We spend an incredible amount of time, whether its tissue culture or driving up and down the West Coast, paying attention to genetics and being on the forefront of genetics and genetic diversity. Currently, people are looking for THC and the most potency for the least amount of money, but I think that as people become educated, they start to learn about terpenes, about the entourage effect, and that there are other things that make cannabis great. It’s not just maximum potency. And I think the combination of cannabinoids and terpenoids, and the right strains that have the right combination and have to be grown right, is everything and the basis for everything else.”

I agreed and added my own concern about the CPG nature of the industry, and the fact that some cannabis brands did not always put their own flower into their own jars but did not say so, leaving the consumer/patient not knowing exactly what they are purchasing.

“And that’s why we operate in markets where you have to produce your own, and you don’t have that luxury,” said Genderson, adding that Holistic also has its own breeding programs. “It’s a huge part of what we do, and in places like California, when you go in and you see the Garcia brand, we pay homage to the cultivator, and there’s no pretending. In fact, not only do we pay homage to the cultivator, but we also highlight them in a web series. We talk about these small craft cultivators that are growing us a product because it is important. Consumers want to know [about the farms], and understandably so.”

I asked about the retail experience, and a sad future filled with sterile Apple-themed dispensaries. “I think there will be something for everyone,” he countered wisely. “There will be the wine store my family built that was all about quality, and there will be the Apple stores, and I think the right consumer will end up where they are supposed to be. But I will leave you with something that I talk about all the time with my team. Because again, I come from the wine business, where we have two completely polarized examples.

“I’ll use DRC, Domaine de la Romanée-Conti, and Yellow Tail,” he continued. “DRC is produced in Burgundy, on the most expensive plot of land in the world, with this limestone soil and every vine has 15 grapes on it, and all the nutrients and the terroir and everything goes into these 15 grapes, and then the grapes are hand-picked and gently pressed, and the winemakers are the greatest winemakers in the world. And that is as class as you can possibly get. Then you have Yellow Tail on the other end, which are these big, lush bushy vines with thousands of grapes, and everything is machine picked and pressed and made. And you have wine in both bottles, but DRC sells for $10,000 a bottle and Yellow Tail sells for $8 a bottle.

“In cannabis,” he compared, “you have ultra-craft, and you have living soil and solventless extracts, and all this super-high-quality stuff that that you or I would want. But the unfortunate thing today is that the mass-produced indoor flower that’s good {don’t get me wrong) but way more mass produced, is packaged in jars and sold for 50 bucks an eighth, and the super craft flower is packaged for 65 bucks an eighth. The disparity in quality is so different but the price points are so close, so it’s way harder for that craft grower to make it, whereas the craft wine, over years and years and years, has become a collectible, if you will. The $10,000 a bottle wine allows the artisan to keep doing what they’re doing. It’ll be interesting to see how that shakes out in cannabis. It may take partnering with someone like me that really cares.”

I asked Genderson if it is a zero-sum game for MSOs in the cannabis space, or does each have its own destiny with a pie big enough for everyone? “There’s so much room, and there are so many potential consumers that aren’t consumers yet,” he replied. “From Walmart to your local farmer’s market, there’s something for everybody, and I don’t think that they’re all mutually exclusive. I think you can have them all, and my hope is that that’s what you’ll see.”

Finally, and before Genderson left to celebrate the birthday of his 102-year old grandfather, I asked which of the company’s brand names he wanted cemented into people’s heads – Holistic, Liberty, or one of their product names? “Holistic is the parent company, which is important for people to understand, certainly in the investment world, because it’s the parent company that drives everything else,” he said. “Liberty is the retail brand, so if a consumer lives in a state where we have retail, that’s what I want them to remember.

“But the product brands are important too,” he added. “We have brands for every consumer category, and there’s something for everyone, whether its Garcia Hand-Picked or Strane, which is our plain white tea of cannabis brand. Within our brands, we have value, premium and mid-market [options], but we also have a hyper-medical brand that’s gone through clinical trials for doctors to recommend for people who are not experienced with or have never used cannabis. So, I think those are all very important.”

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