There are big and tough competitions out there in the cannabis industry that small businesses find it difficult to break through, offer their products, and make a name for themselves. Understanding that most businesses in the industry are more or less a startup, David Melnick started his company, Feel State—working with the primary business model to work with independently-owned and operated Feel State branded dispensaries to help the small business entrepreneur. In this episode, he sits down with host, Tony Frischknecht, to share the amazing work they have been doing and some insights on what it is like to be a young operator in the market. David then provides some of the ways you can get your chance at becoming the business you want and work your way to success.
Watch the episode here:
Listen to the podcast here:
Feel State: Helping Small Businesses In The Cannabis Industry Succeed With David Melnick
Thank you so much for coming back. I love to bring more great information for you every time I do an episode. I have some new stuff here for you on this show. Before I get started with my next guest, I’d like to share a little bit with you the challenges of licensing. Some of you may be in that state where there are some roadblocks that are jumping out in front of you and making it hard for you to get a license or next to impossible. When we started out back in 2010, with our dispensary, they didn’t even have a licensing program.It was quiet around the city. We had a small little permit we purchased and it was called a husbandry license. It was the very first thing that any of us at that time had towards licensing. Fast forward a couple more years, as the city and state were putting a licensing program together, we were functioning as a dispensary without a fully-fledged license. We got one, but this took over three years to obtain. It’s rather frustrating because when you have that much time and that span, you know if you’re going to be in business or not at the end of the day.You’re going to have this situation where it’s like, “Now could be the day we’re out of business because we don’t get our license approved.” I know many people that went through the same thing we did. I want to share with you that this has happened in every state. California had its struggles. This has happened throughout the US. I’m bringing on a guest from Feel State, David Melnick. I’ve got some interesting questions to ask him. David, how are you doing?Thanks for having me on.Can you share with the readers a little bit about you and what you’re working on?
My company name is Feel State. We started back in 2019. It’s a small group of us based in Missouri. We set out with the Missouri application in mind trying to go for some dispensary licenses. We’re on the dispensary side. We are not messing around with cultivation or manufacturing or anything outside of our core focus. My personal background is, one of my partners, Max, we started a business together when we were in college. It was a cookie delivery business called Hot Box Cookies. The name is a little forward-thinking back in 2008, but we did that when we were both full-time students. We had another partner with us at that time.
I exited upon graduating from college. He stayed on for many years. He grew it to four locations and had a manufacturing facility. It’s a big success. I went and worked in financial services for a few years and commercial real estate on the finance side. We got back together in 2018 at another cannabis company in Missouri. We worked there for a year and then ultimately decided, it made sense to split off from them. They were more of the traditional vertically integrated model. We wanted to focus purely on one aspect of it.
You had some successes and now you’ve transitioned into Feel State. Share with me what Feel State is about and what you guys are working on?
Our big thing is that we want to promote localized function. Our primary business model, isn’t so much us owning the dispensaries ourselves, but we want to work with independently-owned and operated Feel State branded dispensaries to help the small business entrepreneur and to keep some of the larger players that have the ability to come in and gobble up market share. It’s a tough market out there. What we’ve uncovered is, especially in Missouri, there are lots of people who have licenses that are realizing how challenging it is to open up one of these businesses. We don’t want to see them call it. Everyone in the cannabis industry is more or less a startup. We’re a startup. Even the half of us succeeding are not great.
We want to help mitigate where there is a potential risk for these individual business owners and provide them with the necessary strategic operational and branding support to give them a fighting chance to have a shot at being successful. When you look at the new medical markets, your customer base in terms of patients is relatively small. In Missouri, there are probably 60,000 people. How do you generate enough value in connection with those consumers and the patients to stand out from what will be a crowded field?
What’s the major challenge that you feel the young operators or small operators have to make their mark to get noticed?
First of all, it’s challenging to get one of these businesses open. What we’ve seen in Missouri is a lot of people are still under the vertically integrated model. It is the best. We are completely against that business philosophy seeing how the different businesses work. They’re so drastically different. If you’re coming into this for the first time, having a narrow focus and doing one thing well is going to give you a better shot at success than trying to spread yourself too thin across the different businesses. Somebody may say you are diversifying. You’re vertically integrated so if one fails the other, but it’s tough. It takes a lot of resources to become a cultivator or a manufacturer. There are many products out there. Just getting going and understanding what it entails to operate these businesses is what we see as the biggest struggles that most people get in the market.
Do you find that there are a lot of people when they’re talking, they’re saying, “I’m starting to grow and I’m also starting a dispensary?” Do they realize that they’re starting two businesses at the same time?Feel State gives small businesses a fighting chance to have their shot at being successful. Click To Tweet
I don’t think so. You can take that to another level if you’re starting or you’re trying to brand or grow ten different strains. Essentially, it’s ten different products or brands that you’re growing as well. Each thing is different. It’s pretty crazy. We see people going to the full vertical. I don’t know if they understand the multiple businesses that they’re trying to run. It’s definitely a challenge that’s interesting to see. Some people are starting multiple brands, which is even more challenging. Some people are combining all their brands on their own, which is a very risky proposition.
If you’re a new cultivator or a new manufacturer, and you’re on the dispensary side, if you messed up here or there, it can jeopardize everything. It’s interesting to watch. We’ve tried to share some missteps that we’ve encountered in the past and seemed to help these new people coming on. A lot of people don’t take us too seriously. We not having any real operating businesses, they’re like, “You’re a theory.” Essentially, that’s true, but you start seeing the bigger players, the MedMens and Acreages, they’re having struggles and they’ve gone the traditional route. They were backed by big capital. No one’s immune to what’s going on and how hard it is to get these things up and running.
What are some of the stories on your journey with Feel State have you struggled with?
One is we didn’t get any licenses we applied for and that was a huge shock to us.
How many did you apply for?
We applied for five. I can step back and give a brief overview of what’s going on in Missouri. There are 2,400 roughly applications across cultivation, manufacturing, dispensary, transportation, security, seed-to-sale, all the jest. The only real competitive ones were cultivation, manufacturing and dispensary. They awarded those licenses at the end of 2019 and the beginning of 2020. We did not get any of our dispensaries. There are 1,200 different appeals in process for our case against the state saying that they’re improprieties or the rules aren’t followed or people act outside their boundaries or conflicts of interest. We’re in line there.
How did you hear about it?
We got an email notice saying, “Your application had been denied.” A little later the scores came out. It was very interesting to see where we scored and then the details behind our score. They had a point system of zero, which was depending on how you answer the questions and then 4, 7 and 10 being you did well. For some reason, we have a lot of zeros even though we answered every single question. They were all answered, in our opinion well at least at the ten level. It will be interesting to see what happened. We weren’t focused much on the scoring and trying to make a big deal out of us being treated unfairly or anything along those lines. It’s like, “We got dealt the cards we got dealt. How do we continue working to build what we’re ultimately going for that’s helping other business owners?”
I have to ask you this because there are lots of different emotions that are happening during this process. When you found out about it, how pissed off were you about it?
We were upset. We immediately got on our computer, found out who won and started contacting them and realizing there’s opportunity out there. There’s a difference between writing a good application and being able to implement that good application. We wrote a great application and we have the ability to implement it. There are quite a few people that had someone write their application and are struggling to implement. That’s common across all states. I don’t want to single out people in Missouri, that’s how it is and this “competitive application processes.”
It’s a lot like building a business plan. You’ve developed this theory on how you want your business to grow. The reality is where you start day one from where your business is, where you start to where it is five years later, it’s to the far right, or to the far left of where you thought it would be. You’re going to find some successes on the way, and hopefully, you hit a big one 5 to 10 years in, but it’s not always guaranteed. This feeling of being lost and, “What do we do next?” It’s great to hear you were like, “We’re going to fight for this. We’re going to go to the appeal.” You decided to pivot and move directions a little bit. Where does that put you? You were talking about setting up and helping some other people that have licenses? You can figure out, “We are still working in the system, but how can we partner up and help these guys succeed against the big guys?”
That’s where we’re at in trying to finalize some of those relationships in the State of Missouri and beyond. We worked with also two women who applied as social equity applicants in Illinois. We helped them write their own application. They own 100% of the entity. We have no idea of when Illinois is going to announce anything. We want to help as many people as we can be successful entrepreneurs and have a place that we can assist. In reality, especially in some more conservative states like Missouri, people want to know who they’re buying their products from, or who’s coming to operate in their communities. We applied in one city and we were the only people that approached the city council or the mayor saying, “We’re doing this. We want to come to operate here. Can we get your support? Do you have any questions?” We’re still engaging with them because no one else that has a license in that city is doing it. I feel like that’s not the right way to go about it especially if we’re trying to build a new industry, help legitimize it and get people on board.
What feedback are you getting from the city and the cities that you’ve been talking to?
They’re happy that someone’s reaching out to them. They just don’t know who’s coming to operate in their cities.
They sound pretty confused about it.
It’s not like they are against it. If you have a new business starting in your community, you would think someone would reach out to the Chamber of Commerce or anyone and say, “Here’s what’s going on,” especially with something as public and as front and center as a cannabis program. There are a lot of people that are not for cannabis. A lot of people in the cities want to have conversations about what’s going on and who’s coming to operate in their town. A lot large portion of the population won’t be consumers, but you still have to be a member of that business community and that community in general. How are you going to interact with everyone there? That starts with having the first introduction of who you are.
It can be intimidating for those people that have never done things and are always on the up and up in the cannabis world. Do you have a couple of places where you would start when you start to interject yourself into a city or a community and saying, “This is a good starting point?”
What we look for with our applications was, “Who are the people that live in those cities that we want to apply outside of St. Louis where we are? Let’s talk to them. Get the lay of the land and figure out how we can best serve that part of the community. Whether it’s an underserved area or it’s a more conservative city. How do we need to go and approach things to make sure that we’re doing things respectfully and not trying to step on people’s toes or alienate themselves or the program before we even began?”
That’s the approach we took was, before applying in a city outside of where we live, we want to have someone local there that knows what’s going on. It can be a champion, a liaison and partner to help make that connection to that community. That’s ultimately why we like this more licensing or franchising type of model long-term is we want people in those communities running the businesses that know what’s best for the people in their communities. They know what’s best for someone in Chicago or Denver, but if we had people in the ground that know that can help make a more impactful difference when it comes to helping the community and resonating with the consumer.
When you are working with some of these companies, what services are you able to provide as Feel State to help them create a successful business?
We can provide anything they need help with from starting with the application. People may question our ability to do an application, but if they read what we wrote, they’d probably be like, “That makes a lot of sense.” From application to getting the doors open and ongoing. Helping with the construction build-out, training, hiring, all the SOPs, manuals, marketing, or branding. Whatever someone would want assistance with, we have someone, either myself or my partner or someone else on our team that they can reach out to and make sure it’s done the right way. We want our success to be driven by how many other successful businesses we create.People want to know who they're buying their products from or who's coming to operate in their communities. Click To Tweet
How many people are on your team?
For full-time, it’s myself and one other. We have some independent contractors that we can pull as needed and then ultimately, if we grow this big enough, then we’ll expand our full-time team. Maybe it’s a different thing with the younger generation, but people like some flexibility, to the extent we can have people off on an independent contract basis and allow them to go and do whatever they want, as long as they’re helping us out in a way that makes sense.
David, do you have a part-time job on top of your full-time job here?
Besides being a parent to a newborn, no. We’re at this full-time and we’re dedicated. That’s another thing we’ve seen as there are a lot of part-time cannabis business owners and that makes it a little tough. It’s not a traditional thing. It’s not a real estate investment where you can set it and more or less forget it. These things need a lot of hands-on activity to grow it, nurture it and make sure that it’s going to be successful.
What are some of the people that you’ve met along the way that have provided help to you in Feel State?
The main person we’ve worked with is a girl named Emma Chasen. She is out of Portland, Oregon. She’s probably the smartest person we’ve come across when it comes to cannabis science and understanding different perspectives on how to treat the plant and to interact with patients and customers. She and her business partner, Matt Taylor are by far the most important people that are helping us consistently, helping to craft our message, manuals and things along those lines. There are many people that we’ve interacted with. Another great person that I don’t even know how my partner got hooked up with her is Roz McCarthy from Minorities for Medical Marijuana. He interacted with her and we’ve been trying to do what we can to help her and her organization.
We’ve presented a couple of their boot camps. We are trying to find good people and help any way we can. We are creating a network of individuals that can all work towards creating a better cannabis industry and the society in general, that’s what we’re going towards. I could talk for days about the people on our team, maybe they don’t want me to mention their names. I want their names mentioned. Finding the good people is tough, but once you do find that, you’ve got to keep doing what you can to make sure that you’re creating a relationship that’s mutually beneficial as possible and trying to help as many people as we can.
The hard part about it from my perspective is the fact that it’s not only one of the biggest industries that are thriving. It attracts so many different walks of life because a lot of it is the money aspect. I know that you try to focus on your patients, which is awesome and I know that’s our stance when we were building our medical marijuana business. It’s easy to get lost in the shuffle. Dealing with regulations that are changing constantly, you can tend to get into this constant reaction mode. In new states, they could be changing weekly. There are stuffs that will change, that will eliminate businesses. Do you have some association groups that you’re diving into?
The main one in Missouri is MoCannTrade. We’ve helped them out by providing some information. We’re a member of their organization. It’s tough with these new states where a lot of the rules and the regulations are unknown. There’s no precedent of how they’ll be enforced or what the true intent is. Everyone’s learning as you go. People criticized to a degree the government entities that are running these programs, maybe some of it is deserved. Also, you have to remember that they’re starting a brand-new program from scratch. Even if states before have done it, it’s still very unique to each state based on the laws and the regulations that have to be followed. It’s not a seamless transition that most people expect.
There’s no manual that has been written for this.
It’d be the same with any new industry or new government entity. They’re all going to be messed up. That’s how it is. It’s a startup industry.
One thing I want to point out that you came across that is very valuable for people to understand is that the regulators, it’s the first time for them too. Going back to the beginning of our discussion, when you have those relationships that you’re going through, as you’re working out different agreements on how regulations should be played between the business and the government in place, it’s vital to have those relationships now that you’ve cultivated over the last 12 or 24 months. If you have an issue that you can call and talk to these people and they go, “David, we know you. You came to us in the beginning,” and it provides that transparency that is nonexistent when you don’t go out of your way to make yourself known.I’ve seen that happen a ton of times around Colorado is the gentlemen, such as yourselves that put themselves out there, a couple of years later, they come back and they go, “Let’s talk to David.” They’ve been doing some stuff and you can become this conduit from the regulator’s side to the licensee side. For those of you out there that are in this transition, the amount of power it almost gives somebody like you is incredible. You’ve got the ear of the regulators and they’re like, “This guy is straight up. He’s been doing a lot of stuff.” They keep hearing your name. They start bringing you in for discussions. They probably haven’t happened yet, but keep your ears open for that. This is what you start seeing happening when they start opening up to the business owners. We talked about a franchise-type system. You’re going to have a lot of different business owners that you’re going to be talking to all the time. Have you thought about what you can do as a collective?We thought about that.What about a goal?
Going across state lines, you can’t really do too much collective activity. Our whole big thing is trying to help these small business owners by generating economies of scale where we can. The easiest aspects to do that are more the ancillary service sides, like technology, branding, marketing, training and things along those lines. It’s the small costs that do add up. If people have products they want to buy from certain cultivators or manufacturers, go ahead and support those areas of manufacturing. We would hope they’re producing good quality products. The patients will determine that. We want to give people the flexibility to operate this business themselves and provide them with the backend niche and value-add that will add up over time. The one thing we haven’t talked about is my partner used to run an online ordering delivery platform, similar to Uber Eats and Grubhub. His real passion is home delivery from dispensaries to the consumers.
When you’re talking about economies of scale and trying to make it more reasonable for these guys, have you talked to executive-type or council? Are you working on stuff like that for attorneys or CPAs?
That’s our biggest expense. We’ve seen the problems that a lot of cannabis companies face on the frontend of not having the appropriate legal representation or accounting procedures in place. That was something from the very beginning that I’m like, “We’re not going down this path.” The first thing I did when we were going out is like, “We’ve got to find a bank that will work with us if we get a license.” We got that. It was having CPA firm onboard, making sure that they’re reviewing our financial statements on a quarterly basis, having a good cannabis attorney. Also, having a good franchise attorney as well. Keeping that infrastructure that’s what we wanted to set as the foundation to allow us to go out and maneuver around is knowing we set things up as best we could. We try to protect ourselves where we can and making sure, if we do get audited, our books are very clean and people are going to be able to see all the documents to know where things are going and keeping it as open as we can.
For those of the readers out there that are starting a business or in the middle of it, and they’re trying to figure out licensing, how much can they expect to spend with an attorney as they go through this process of let’s say in 12 to 24 months?
If they go through the appeal process that raises it quite a bit and the application fees differ. You’ve probably got to set aside $50,000 to $100,000. What I counter with that is what Illinois was good with their social equity program. They had their fees up to $3,000. There were some companies that were offering dispensary application templates for a reasonable price. We were able to come in and add our information to it for free. The people we applied within Illinois, spent nowhere near that amount of money. Under a normal circumstance, they’re probably looking $50,000 to $100,000, depending on who you get to write your application or if you’re doing it yourself.The only way you can learn about the business is by getting into the business. Click To Tweet
It can become overwhelming, especially if you’re by yourself. You’re like, “Where am I going to come up with a $100,000? I haven’t even opened my doors yet.”
We had some outside investors and we’ve put a lot of capital in ourselves. It’s a huge risk. We’re committed to seeing this through to the end and keep going. We’re able to save a lot of money and hopefully, we can save money for others in the long-term as well. We can do a lot of the business side of things ourselves. My background and my partner’s background, we both graduated with a Masters of Accountancy. Even though we have a CPA firm reviewing our financials, I don’t need to hire someone. To allow the operations, the strategic planning and how to train, hire, setting up that template. We can do it ourselves, but we need some help on the outside. That’s a lot that we can offer to people to help them try and keep costs down.
We had some pretty good CPAs and accountants along the way, but I realized in the end, how valuable they are for the end. When I say the payout, it’s night and day. If you’re going to go with a bookkeeper that is used to normal business, what are your odds of success if you don’t invest in them?
We have a tax person that likes to question every single expense like, “Prove to me why you can deduct this under 280E.” It’s challenging, but that’s ultimately what you need to do because you don’t want to get stuck. If you get audited and a lot of cannabis companies get audited, you don’t have to spend money on the backend. Why not do it right the first time?
We were at an event with the City of Denver several years ago and they told us that 100% of us were going to be audited. They straight up said that to us and it blew my mind. I was like, “What?” They said, “It’s coming.” One of the main reasons is they’re trying to learn like we are. The only way they can learn is to get into the business. Whether or not you’re doing anything that’s incorrect in accounting. They’re going to do it anyhow. You might as well have your ducks in a row and expect. I learned a long time ago that reactionary times can be devastating to your business and they can also be extremely stressed. Finding that out sooner than later is much easier mentally as you grow and move forward.
I’ve been a part of a lot of businesses that are very reactionary and that’s the trend. How do you be more proactive and be able to handle the downturns that are coming? We had some long list of contingencies in place in the event we did win the license and now we’re working our way through that list. It’s like, “How do you plan for the worst-case scenario? If the best case happens, you’re better off for it.”
It’s easy to get into cannabis going, “All I do is have to grow this amount of plants and we’ll profit.” A lot of people forget about all the in-between here and there are so much that it takes a lot more to be successful than growing a few plants here and there and selling it to the end-user. Gentlemen like yourselves and many others that are in the industry realize that and they develop processes like SOPs. All these things I had to learn along the way.If you have a franchise system where you have layers upon layers of everything that needs to happen in these companies, they’re going to be more successful. If you’re learning from some stuff that truly works. Just because it’s a cannabis business, it doesn’t make it that much different from any other business. You’ve got to implement these things that other industries use. I love the fact that you guys are like, “We’ve already got our plan B and we’re utilizing it.” As your future goes along and as you grow, what’s the ultimate for Feel State? Where do you see yourself in the next few years?
Our goal has never been to be the biggest cannabis company. We want to grow smartly, strategically and provide as much value as we can to the people that we work with. If it’s a more limited number and they’re doing well, that’s great. Maybe that will lead to more opportunities. At the end of the day, it’s hard to know where we ultimately see this going. Is it us operating this forever? Maybe. Is it ultimately selling the company to someone else? Maybe. I don’t know. Our focus is over the next few years, “Let’s go and grow this company in the best way we can and generate the most amount of value to the people we work with, the consumers and the communities. We’ll be able to reassess at the end of that period and be able to be in good condition to take some strategic and direct one way or the other.”
I want to give people an opportunity if they’re interested in talking to you more about, “How can we create a partnership or a franchise with you?” Also, learning about more of the systems you have in place. I know there’s a lot of detail that there’s no way we could have covered in this episode. If people want to reach out to you, what’s the best way to do?
You can email me at David@MyFeelState.com. You can find us on LinkedIn or Instagram or Facebook. If you send a message, I’ll look at it. Those are the best ways. We’re always happy to talk to people about what we’re trying to accomplish and who we are and our background. We give advice and have conversations. Our big thing is trying to help educate businesses, the consumers and the public. That’s what we’re doing through our social media platforms. The more people we can reach out to, even if it’s one person at a time, that’s a value to us.
There are some interesting stuff happening. You brought up social equity before, and I’ve been working with Chris Nani on the stuff he’s been working on. Fortunately, that’s how we met. I appreciate that. David’s been following and working with Chris. For how long have you guys known each other?
It seems like a long-time. I saw a post of his on a LinkedIn, we reached out and we’ve had some good conversations.
When you start talking and seeing all the posts counseling, it feels like, “We’ve known each other for a year.” Even if it’s only been a few months. I’m in the same boat as Chris. What I do know is that the tools that he’s created in the book that he’s written are they’ve created a sense of awareness for people out there that can consider themselves social equity licensees, and applicants. If you go back to a couple of my episodes with Chris Nani, you’ll get more on it. David understands enough that he knows some of the shortcuts through the system. This is huge especially getting reduced licenses, finding the states that have these programs in place or are building these programs is huge.I urge you to reach out to David or Chris Nani as well. I know Chris has got an application experience too. Both of these individuals should be able to help you through this. See a lot of the big opportunity that over the next few years is going to explode these licensing programs because of it. Please feel free also to reach out to me at PlantProblem.com. David, thank you so much for being on the show. I wish you success in moving forward and working and helping these smaller guys get up because I know it’s a lot of work. I appreciate you being here.
Thank you very much for having me. It’s a pleasure. I’m glad to have come on and talked about this for a little while. Hopefully, we’ll do it again.
- Feel State
- Minorities for Medical Marijuana
- Chris Nani – previous episode
- LinkedIn – Feel State
- Instagram – Feel State
- Facebook – Feel State
About David Melnick
David Melnick is currently working in the legal cannabis industry with a focus on developing an innovative retail experience as well as an independent consultant providing financial and strategic assistance to businesses. Prior experience includes working in the commercial real estate and investment management industries. Skilled in strategy, corporate finance, business planning, project management, and accounting. Obtained a Masters of Accountancy from University of Missouri-Columbia, College of Business and am a Certified Public Accounting (inactive) in Missouri.