Going from the black market to the licensed market can be tough. Yet, this is the path many in the cannabis industry must face as cities become more and more open to cannabis. Sharing his knowledge and experience, Juan Hernandez, the CEO of CVALT (Central Valley Alternative), joins host Tony Frischknecht. In this episode, he tells us what he is doing to make his business grow and thrive, especially in the highly competitive California market. Juan also tells us how he transitioned from the licensed market to working with localities. He also shares how they have set up their systems to be so efficient and what they see in the future in terms of growth. Join Juan and Tony in this conversation as they discuss more.
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The Black Market To The Licensed Market: Working With Localities For Cannabis Business Opportunities With Juan Hernandez
There is a lot of movement in very many states right now. It’s exploding. It gets me more excited each day when I see something coming out on the news. I also like to dig into markets where there is still some opportunity and however competition is challenging in some states more than others versus those states that had more time to legalize and have medical on their books. Those seem to be where the competition is at and there are also some openings for the little guy.
I still believe that even though California is one of those states that has a lot of competition, they’ve also looked out for their growers. We’re going to have a talk with this gentleman who is a local. He is in California. He runs some operations. He’s got a delivery system. They are running out of the San Francisco, Bay Area, Fresno, Tulare and Kern counties. He started off in the legacy market. I love having these types of people on. What I mean is legacy market, for those of you who are not familiar with that term, it’s where the black market started. I like that term better. I’m adopting it at this point. Let’s get to it.
Our next guest is Juan Hernandez. He runs Central Valley Alternative and he’s taken up some big spaces. We want to hear about how he’s doing it, what he’s doing to make his business grow and how he’s thriving in California because it is a highly competitive market. Juan, thank you for being on the show. How are you doing?
I’m good. Thank you for having me.
I always enjoy talking to the guys on the West Coast because they’ve got a lot of challenges always ahead of them. Thank you so much for being on. Why don’t you share a little bit with us about, what started you in cannabis? Where did you start?
I was eighteen when me and one of my buddies decided to grow out in the country. It’s a place called Squaw Valley out here in California. We decided the Prop 215 days.
For those of you guys who aren’t familiar with Prop 215, it was the most advantageous for the medical market because there were really no regulations. It allowed you access is basically what happened and the majority of California had been running like that. Go ahead, Juan. Continue.
You said it right. It was pretty much as long as you had a piece of paper that said you could grow 99 plants, you could go wild. We decided to grow four of those permits out in Squaw Valley.
Have you grown anything before?
That was my first time but he did. He let me know what to do and water them, cut the water leaves off.
He was your mentor and teacher. He was teaching you the ropes.
It was a successful harvest and the first time I ever employed anybody once it was a trimming season.
The day of trimming season in California is a whole different animal. I’ve heard dozens of stories of people would go through the Northern California area. They would go on harvest at the end of every season and that’s what they did for work. It was pretty common. People drift through town, know one person and they get them a job making $20 an hour trimming weed.
It was a very successful harvest. I was very young. I didn’t know how to manage money or put all that money.
How old are you?
I turned 26 in 2021.
You’ve got a few years in the industry. You’re not young, but you’re not old. That’s pretty amazing.As long as you had a piece of paper that said you could grow 99 plants, you could go wild. Click To Tweet
After that, I didn’t really know how to manage money.
What were you doing with your money that you didn’t know how to manage?
I bought a motorcycle that I ended up crashing. I bought cars and Christmas was good that year. It was a good learning experience I feel. That was the first-ever business type thing that I did with cannabis. That opened my eyes to, “There’s money in this.” Whenever you go from paying somebody to do the work for you to be back in the workforce yourself, it puts it in perspective like, “There are other ways to make money than trading your time for it.” Time for money. That entrepreneurial experience never died. Once you get a different type of money, you know it’s out there. You feel like you want to pursue it.
It sounds like you were hooked.
I continued working up until I was in the workforce after I crashed my motorcycle. I messed up my hand. I couldn’t really do any physical labor.
Was your side job physical labor? Is that what you were working on?
When I was growing and had a job at the same time but once I crashed my motorcycle later that year after harvest, I had to do something else. I was looking out for a job trying to figure it out knowing that I was hurt because I didn’t really get my hand fixed. I had to fly under the radar doing jobs without bosses knowing that I was hurt.
You couldn’t afford to lose your job at that time, is that right?
Yup. I ended up working at cheese company.
Were you making cheese?
I wasn’t making the cheese. I was packing after. It was the finished product. I ended up working my way up to QA and I did that for a year and I ended up getting laid off from that job. I remember they got a new machine that did some of the tests that we ran on those cheeses. I was replaced with the machine but that experience in the QA gave me something to add to the resume. I applied to a different company with the same criteria. That’s where I started making some good money and had some extra cash that I’ve always wanted to continue in some type of business. That was the time where Prop 215. I want to say maybe a year and a half before it went to Prop 64. I saved up some cash.
You were growing the entire time that you had this on other jobs or did you stop?
I stopped after I harvested. That was one and ended up not growing the next year. I continued on the workforce.
How come you didn’t continue at that point? You did the one and you stopped?
That’s a good question. I can’t remember what it was. I think it was because Squaw Valley was too far from where I was working. I think it was not the season because we were growing outdoor. There would be some time between the next season but I saved up some cash and I wanted to open up a dispensary. I ended up leasing a place and out here in the county lines and I was getting everything ready. I got my shelves, the display cases, all that good stuff, flower and cartridges. I am pretty sure it is still now very accessible. If you don’t know somebody that could get it, everybody knows. I ended getting some flowers and concentrates.
Why did you decide to go medical instead of just going back to the legacy side of things?
It was the legacy because I had no license.
This was earlier times. Are you thinking it was 2014, 2015?
It was probably late ’14, early ’15. I was getting ready to open.
What did you need to open at that time?
I know you needed a city approval for all of that or you needed a local approval. I think that was pretty much it.
How did you open at that time because it sounds like you opened up something?
I almost did. One of my neighbors had a friend over at the place that I had got where I was going to open up. He had a friend that was a sheriff or something to do with law enforcement. He was a cool person and the cop wasn’t trying to kick the door in or whatever. That was his friend but what he did was he contacted the county.
He basically said, “There’s going to be somebody opening a store here soon. Come check them or something.” He sold out a little bit on that.
I was about to open. I had barred up windows. I did all kinds of things to that place. I think it was month to month. I don’t think I had any contracts like that but I got a call from the county saying, “We caught wind of what you’re trying to do. Just a heads up, you need a permit and you’re not able to open.”
How’d that make you feel?
I was fucked up.
You had a lot of money invested already, I’m assuming. How much money do you think you had into it by then?
I think it was around $10,000 but $10,000 back then was like a million to me.
That’s all relative to your situation.
I was stuck with a lot of weed.
You’ve got all this product. You’ve got no place to sell it. You’ve got no license. What’s your next step? What did you do?
I’m sure a Weedmaps is very big.There are other ways to make money than trading your time for it. Click To Tweet
They’ve been around a while for sure. If you guys aren’t familiar with, Weedmaps, just Google it and you’ll be able to see. They’ll pop up all over the place.
I’ve seen that they had a lot of listings, a lot of delivery businesses. I got to get rid of this price anyway. I ended up getting a listing. Back then, you didn’t need anything. They weren’t as strict as they are now, where you need all that. While I still work in my 9:00 to 5:00. That’s how it started. That was the start of Central Valley Alternative. That’s where the name came about. Back in the Prop 215 days, you’ll see a lot of dispensaries have an alternative in their name. That’s where the name came about. I ended up putting my listing up. I’m a bit computer savvy. I created a website on Squarespace and through some research, I also got our POS system. It helps you get your inventory in place and have a place where you can put your products. It’s like an online store. I did those two things. I connected the website. You got the icon on Weedmaps and I started pushing that way.
Once you’re switching over, you’ve had this since the city is not letting you open up. You then find Weedmaps and you start selling through Weedmaps. I take it online connection or a text or something like that through Weedmaps. Is that how you’re doing it? Is that your connection or is it through Squarespace? Did you have that all set up already?
I think I already had it set up. This year we started taking phone calls as far as people placing their orders through a phone line. I already had the workspace website.
Having the phone direct since you’ve just started the phone, has it been a big boost to your business? Has it been a couple? What have you noticed?
I have definitely seen the increase in sales and also people want to know they’re buying from people. It’s not the website. There are people on the site. As far as the customer service, it has definitely helped out a lot. I should have done that a long time ago.
You got to grow in baby steps. It happens when it happens sometimes. I look at this list of counties that you guys are in. You guys have a lot of coverage. I was doing some research and said, you guys are extremely fast. How have you set up your system to be so efficient and how have you created that?
We set it up to where the ice cream model rings a bell. We have drivers that have products from them whenever on our backend. We’re able to task those orders to those drivers, depending on who has that product on them and that’s how we’re able to cover so much area and being so efficient.
How big is the delivery force that you guys have?
We serve from Oakland all the way down to Bakersfield. Off the top of my head, I don’t know how many drivers but we have enough to cover the whole area.
Did you guys start in 2017?
We started in 2016 we kicked things up as far as the delivery service.
What have you seen the benefits of strictly having a delivery service without having a brick and mortar?
It’s less of a risk as far as like people knowing where you are.
Do you mean security-wise?
There are stories of brick and mortars in Oakland that got broken into during the riots and having a delivery business where people don’t know where you are, it’s very beneficial but a dispensary is definitely in the works.
Are you guys working on creating one right now?
Yeah. We just passed to the third phase of our local city out here. We’re going to be getting ready to launch a storefront here pretty soon.
Do you imagine you’re going to be doing one and everything will be delivered outside of that? Are you planning on doing several stores? What’s your business plan moving forward?
I definitely want to not stay complacent and just one city. There’s a lot of opportunity in different cities. I personally have found that there’s a lot of opportunity in the Central Valley because it’s the slowest place where things are very turning over. People are getting rid of that stigma, whereas in San Francisco, it’s a lot more heard of. A business in the Central Valley will boom more than a business out in the Bay or LA, where it’s a lot easier to get.
I think it’s talking to entrepreneurs and getting their thoughts and people that are trying to get into cannabis, keeping that in mind. There are a lot of places where things are moving slow that provide a lot more opportunity because people don’t know the rules. There is still that stigma that’s created. They’re keeping it out at bay as much as possible. You’ve been working with the localities. As you’re working through these issues, what are some of the things that you’ve learned doing it?
That they’re people like us, as cannabis is more openly accepted, city officials see that. You don’t hear about people going crazy smoking weed. They are aware that this is not a safety hazard. I’ve learned that there are people too. They see what’s going on in different cities and they’re working with what time they have. I noticed that cities sometimes feel like they’re working slow but they have a lot of things on their agenda. It’s not cannabis. I learned how you talk to people in those types of environments.
What have you changed when you have these discussions with them? When you’re talking to like a local or city official?
I think now I can talk a little bit more through experience and you have a lot more confidence because you’ve been in the space. I remember being in my earlier twenties and go into these city hall meetings and trying to change their mind as far as this is around the corner. It’d be good to change your ordinances and get on the ball. It can help bring in revenue for the city. Back then, I knew that was about to happen but getting that voice style was very difficult.
Were they intimidating at first?
I remember the first time I went to go to a city hall meeting, I stuttered. I made a fool of myself. I didn’t get the point across. It was definitely an experience. That’s what it takes. If you’re in a city where things haven’t moved, that’s what it takes. That’s what the big boys are going to be doing. They’re going into these local cities and helping change the narrative and change those laws so that they could open up businesses. You could do the same thing. That’s what I try to do.
I like how you said to change the narrative and that’s a lot of this. It helped craft the narrative and to the locals. I don’t know if you grew up in that area or not but I know there’s when people start seeing Juan’s face, they start seeing them show up to meetings, they start seeing them talk. Maybe he’s not the most eloquent when it comes out, but they start to see you more and more. They start looking at you as a human and not like a criminal.
Because I think that’s the scary part for a lot of you guys that are either/or in the black market or the legacy market. That’s a big thing to overcome. I saw dozens of people not even make that move over. I’m guessing you being back in that market, you probably still have a couple of friends that they’re doing their own thing still and they don’t want to deal with the hassle that it is or the work that it takes to become legitimate but there’s the other side of this. How does it feel to be legitimate?
It’s a much better feeling to employees and corporate decisions as far as how you’re going to increase your revenue as opposed to worrying about, “Am I going to get my door kicked in this month?” You sleep better at night knowing that you’ve jumped through the hoops and got licensed. At the end of the day, that’s what you want because you want something that you could pass down to your kids one day. A business that runs itself and it’s better to be on the other side of the fence.
You brought up revenues. Would you mind sharing with us what you guys did in gross revenue for 2020 as a company?
I want to keep that private.
Let me ask you this. What growth have you seen in quarter one this year compared to last year? What growth difference have you seen?
We’ve definitely had to hire more drivers. We’ve increased a lot. During COVID, we tremendously grew because people didn’t want to go out.
Are we talking double the sales, triple the sales?
I would say double. Looking back, whenever I was selling out my apartment and now it’s been life-changing.You definitely don’t want to stay complacent in one city. There's a lot of opportunity in different cities. Click To Tweet
Selling out of the apartment, you obviously didn’t have stuff like ePayments. I noticed you had that on your website. Can you share with me how the ePayments work and are they easy? I don’t see a lot of people that have set one of these up yet.
With ePayments, we’re working with a company called Alt Thirty Six. We’ve been with them almost around the same time we got licensed and ePayments is you connect your bank account with Alt Thirty Six. It’s an electronic transfer. Whenever you make a payment, it comes out as an electronic or like a wire transfer.
Are there any extra fees on that like a wire transfer fee or anything or do you guys pay it? How does that?
I believe it’s like $2 and something cents. It’s small but it’s almost like an ATM fee. I always look at it like that and it’s pretty simple to use. You set up an account. We’ll send a pay request, you accept the request and that’s pretty much it.
You guys have been doing this for a few years. With the ePayments and cash, how much are you seeing as a company? Is it more cash or more ePayments?
We definitely see a lot more cash than ePayments. If we would accept debit cards, it wouldn’t increase that difference.
Because through that ePayments you can attach your credit card too, right?
Just the bank. That’s the reason why it’s not doing as well as cash because people are iffy about linking their bank accounts, especially with Cannabis.
People are scared of cryptocurrency. It’s the same thing.
Once they’re linked and they know this is actually a safe payment method as opposed to cash, they stick to ePayments after they tried it once.
Have you taken some of your quality assurance, quality control background that you’ve learned and applied it to this business?
I always thought about that early when I was starting the delivery. To answer your question, yes. Because of the attention to detail that whenever you’re in QA packaging, expiration dates and all that. I use that in the delivery business because back there was a lot of like a flower wasn’t packaged. If you had your jars and made them presentable, you know people notice those little things. Cartridges as well, you know what black market cartridges look like.
You can look at the packaging and you can tell pretty quickly like, “What’s this?” This one question is running through my mind. What’s your strategy with opening a store and why do you need a store?
Looking at the culture behind our company is very important because as a business, the culture within your company you could see it. There’s not a retail store that you could go to. There’s a certain culture and I feel like we do have a culture but people can’t really see it all delivery. Nobody sees the person greeting you. I feel like it’s the next step for us to open up a dispensary. Here in the local city, I feel like the city is going to benefit a lot because we’re going into a location that part of the city needs an uplift. If there’s somebody that’s going to go in there and make changes for the better, it’s definitely going to help.
It sounds like you want to support your community, is that right?
There are a lot of reasons why opening a store is an option and you always want to grow as a company. A mixture of ambition and knowing that you can help somebody out.
You had mentioned before you have a partner. Is it just one partner or more than one?
What part of the business is your area of expertise? What do you handle?
The day-to-day operations. We’ve both created the system where the business runs itself. We oversee it. We see ways where we can improve.
You guys both work on that together or does he run another part of the operation?
He handles a lot of the purchasing of the products. He’s a good friend. He’s my mentor. He’s definitely helped out a lot.
Are you guys close in age or he’s a bit older?
He’s a bit older. He is not twice my age.
Nobody knows his name. He didn’t share it but he’s close to twice your age. Is he like in his 50s?
I want to say maybe 30s or 40s.
You don’t know exactly. Maybe he’ll read this and he’ll tell you.
It’s crazy how we met too. As I was working my 9:00 to 5:00 while I was getting the dispensary, he was actually the plant manager for the company that I worked for.
The cheese company or the other company?
Both of them were cheeses companies. I was this young kid. I didn’t know much about business and he holds a very high title. I knew he had a lot of expertise or a lot of experience in the business. He’s running a multimillion-dollar company already. He definitely knows something that I don’t because he’s already become successful and I would go up to his office and ask him for advice on little business questions that I had. I would never tell them what it is or what the business was about because it was still Prop 215. It was still illegal. I kept it as just the business. One day, I go in and give him my two weeks’ notice. I told him I was losing money by coming to work.
What did he say to you when you said you were losing money?
He was curious about what type of business is it. I told them towards the end. After I quit, it was when things really changed. If you have a business and you work in a day job, quitting your day job is one of the scariest things you can do when you’re transitioning over to doing your business full-time.
What’s going through your head when you’re deciding to quit before you put your two weeks in?
Either I’m going to make it work or I’m going to go back to work.You want something that you could pass down to your kids one day a business that runs itself. Click To Tweet
I want to give you this though because I think this is a really big thing. If you’re in your mid-twenties, I can’t think of a better time honestly to take a risk. I did it through my twenties and lots of different odd jobs. It’s something about now where you’re at and getting into your 30s. You’re almost further ahead when it happens. I’m in my early 40s. I’ve seen this progression. What happens is all of a sudden it starts working and you’re like, “Oh.” I’ll say this out there. When I say working, you’re able to eat and you’re able to pay your rent.
That’s pretty good.
When it starts working, you’re like, “How did that change your life?”
It didn’t change my life until 2019, when we actually got licensed. Once weed out the shadows, it would be a lot more open. We were able to put billboards and that’s when different money came in where you have a lot more eyes on you. You have a lot more clients. You have a lot more business. You’re not worried about surviving your word about living but you can breathe better.
The opportunities that it’s opened up for you, I imagine, have been tremendous at this point.
It’s definitely opened a lot of doors and you start to notice people have the same entrepreneur spirit and that, “I’m going to make this work regardless of what happens.” Having those conversations with other entrepreneurs is different than having a conversation with a coworker you’re working next to that doesn’t have the same vision and ambition as you. Networking has helped out a lot in our personal growth.
How does Juan do networking that’s been successful for him?
Pre-COVID, it was a lot easier. You have the best festivals and the high times.
You guys have a lot of different events out in California. I’m sure you visited a lot of those.
With those events, you could either go, get super-duper high or you can socialize with the people.
Things have changed since COVID’s hit, but I think people are adjusting. What are you doing now to continue networking since we’ve gone through the lockdown, and I know these ages, the podcasts a little bit but we’re looking right around springtime of 2021? What have you changed moving forward to connect with people?
A lot of connections have been made pre-COVID but as far as right now, we’re barely going to start opening up. That’s when I’ll be going to these Hall of Flowers. That’s a very big event. That’s probably the last event that I went to. I think Gary Vee actually spoke in one of those. If you’re in the cannabis industry, those shows are probably the best places where you can network.
The Hall of Flowers one, is that what you said?
Yeah, because it’s all businesses that are in the industry. All the connections.
I haven’t been to that one yet. I’ve been to a lot of them, especially with MJBizCon but where’s that one located at usually?
This one’s in Santa Rosa.
For those out there that are wanting to get started in cannabis, is it too late for them?It's always the people that you grow with that become somebody. Click To Tweet
That’s the only way to get started is to get started. Start with what you have, start with the people that you know. A lot of people say, once I know this person or if you’re in the black market, the people that are you working with side by side, those are the people that could get licensed. They could have a different network than they have now. It’s always the people that you grow with that become somebody.
That’s a good point. There’s a ton of guys that we were all nothing and all of a sudden people started popping and you’re like, “I know him.” It was because you were in the trenches with them. You guys were buying the product from each other or you guys were putting deals together. If we put our money together, we can save on this and we’ll buy a large chunk or whatever. These are things that happen because it’s well said when it comes down to the guys around you and the growth that is happening around you.
These are some of the guys that you’re going to be depending on to create opportunities for yourself. Thanks for being on the show. Juan, it’s great stuff happening. The delivery business has always been great. At least you have that happening. For you guys out there that are reading and you’re like, “I want to start a delivery business.” What would be one thing that you would point them in the direction and what they should look out for? What should they do?
Build a website.
There you go. Get good with your computers or find somebody that is good on computers and build your website and get that thing up and running. Juan, thanks so much for being here. Thanks for reading and we’ll see you next time.
About Juan Hernandez
From the black market to the licensed market. CVALT short for Central Valley Alternative has endured and flourished after facing wave after wave of adversity.
Juan (CEO) & Clif (CFO) made it a mission to get licensed and continue to bring value to the legal cannabis market.
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