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Big Pot: The marijuana industry learns from wine

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I am astounded how rapidly the marijuana industry is growing into a bona fide, full-fledged business. In fact, it’s starting to look a lot like the wine industry

My marijuana days—and they were many—happened when pot was illegal. You could get arrested for possession of a joint; I knew lots of people who were. We used to try and guess which would be legalized in the U.S. first, pot or gay marriage. I always figured it would be pot. I was wrong, but not by much.

California began the legalization process of medical marijuana back in 1996, but even today, marijuana is not completely legal, as gay marriage is. However, this November, California voters will probably pass the Control, Regulate and Tax Adult Use of Marijuana Initiative, provided it can get enough signatures to make it onto the ballot, which seems likely. And with billions of dollars at stake, entrepreneurs are lining up to grab their fair share of the profits from an industry that—like wine—offers ordinary people pleasurable respite from their daily toils.

The latest evidence of this is an email I got yesterday. It’s from a high-powered investor relations firm, IRP, with offices in L.A., New York, Miami and Hong Kong. The email (you can read it below) was a press release touting a new company, Kush Bottles, a California company (with whom I have no relationship whatsoever, in case you’re wondering) to help “ease the pain and eliminate the headache of entering this fast-growing, opportunistic market.” Kush “provi[des] cannabis companies across the U.S. with market expertise, proper branding and high-quality packaging that satisfies the stringent requirements of the law.”

What strikes me is how high-level all this activity is. Almost overnight, it seems, we’re talking about the stock market (IRP has a lot of NASDAQ clients, and Kush is listed over-the-counter), and a level of complexity to the pot market that requires wannabe players to hire expert advice. The tone of IRP’s press release is extraordinarily similar to the press releases I get everyday from wineries: professional, articulate, and crafted in the public relations jargon language we’ve come to expect from a press release.

The wine industry discovered years ago that if it wants to play in the Big Leagues, it has to do so with bigtime marketing savvy and media relations professionalism. The marijuana industry, now in its infancy, reminds me of Napa Valley wineries in the 1960s and 1970s, when they were owned by visionary but rather naïve people when it comes to business. Wine took decades to go Big Business. Pot took a couple of years, and the way it sells itself is changing overnight. The day of the mom-and-pop pot cultivator is over. Welcome to Big Pot.

Here’s the full text of the IRP email, if you’re interested.

Dear Steve,

My name is redacted and I am contacting you to arrange one of the first interviews with the CEO of Kush Bottles, Inc. (OTCQB: KSHB) – – a rapidly growing Southern California company that is helping entrepreneurs across the U.S. enter the rapidly growing cannabis industry. Nick Kovacevich, the CEO of Kush Bottles is traveling to New York this week and will be available for any live interviews.

Entrepreneurs all over the nation are eager to enter the legal cannabis market, which could approach $9 billion by the end of 2016, according to massive expansion projections in existing medical marijuana markets, which estimate as much as 99% growth.  More states look to implement medical marijuana programs as doctors and researchers continue to uncover the medicinal benefits of cannabis. In addition to the growing medical industry, four states and the District of Columbia have approved recreational/adult-use programs, which further propel the expansion of legal cannabis nationwide.

Unfortunately, cannabis is still one of the most complex industries within the United States. As the laws evolve, new rules are put into place, making it difficult for cannabis businesses to keep up with the challenging regulations that govern legal marijuana. Growers and dispensaries must understand and carefully follow a multitude of laws that govern their business operations. Packaging, branding and labeling represent some of the biggest hurdles that a business must overcome. If any of those elements are mishandled, the business could be fined and/or shut down.

Kush Bottles, a California-based company, publicly-traded under the symbol “KSHB,” on the OTCQB, at approximately $1.35 per share, was founded in 2010 to ease the pain and eliminate the headache of entering this fast-growing, opportunistic market. This forward-thinking startup is a one-stop shop for any business looking to get going in the legal cannabis trade. Using its first-mover advantage, Kush Bottles is providing cannabis companies across the U.S. with market expertise, proper branding and high-quality packaging that satisfies the stringent requirements of the law – all without incurring massive legal fees.  In addition to saving clients thousands of dollars in legal expenses by helping them navigate compliance hurdles, the company also allows their clients to bring in more sales by using proven branding and marketing techniques to help make their products stand out to consumers.

Offering high quality innovative packaging solutions while also providing clients with crucial regulatory insight is the magic formula behind Kush Bottles’ success.  The company has proven its model by continuously growing revenues and posting net profits, which is rarely seen amongst other cannabis-related companies.  Furthermore, as a result of using their regulatory knowledge to help cannabis entrepreneurs achieve compliance, they have built an expansive network of growers, processors, and retailers across the United States.  With over 5000 returning customers to date, Kush Bottles is one of the largest suppliers of packaging and ancillary products for the legal cannabis industry.

We would like to offer you one of the first opportunities to interview Nick Kovacevich, the Company’s Co-Founder and CEO.   Nick has tremendous insight into the challenges that face the legal cannabis industry.  He is always excited to share his vision for helping entrepreneurs overcome these challenges and discuss how Kush Bottles has become the industry-leader in cannabis packaging and branding.

I can be reached via email at psugarman@irpartnersinc.com or via phone at 818-280-6801.

Sincerely,

redacted

Vice President, Media Relations

www.irpartnersinc.com


Millennials and brand loyalty: My thoughts

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When Gallup says Millennials are “the least-engaged generation of customers,” with “the lowest level of customer engagement” of any group of consumers in the country, a couple thoughts come to mind.

Those conclusions come from Gallup’s recent study, “How Millennials Want to Work and Live.” Full disclosure: I read this article, which is from Gallup, about the study, and not the long study itself.

The study’s supposition, it seems to me, is that it’s important for companies to earn the loyalty (committed engagement) of customers, who then go on to become “advocates and brand ambassadors” for the companies’ products and services. I certainly “get” that concept: when I was a young rock-and-roller, groups like the Beatles, Stones, Grateful Dead and Led Zeppelin became superstars through the advocacy of people (like me) who heard them very early and told all our friends to check them out. (I never thought of myself as a Beatles “brand ambassador” but in retrospect, I guess that’s what I was.)

These days, the Gallup study warns, instead of creating such “brand ambassadors,” many companies run the risk of “creating brand destroyers who have a host of digital soapboxes from which to air their grievances.” Lord knows that’s true! I myself have been known to go to Yelp to air grievances about restaurants—although not too often, since I’d rather praise than pan. And with Millennials living on their mobile devices, they’re bound to stumble across “brand destroyers.”

Of course, the news isn’t all bad for all companies: Gallup found that “95% of fully engaged millennial customers say they plan to stay with their wireless provider,” a degree of customer loyalty that bodes well for the wireless providers, since “These fully engaged customers are substantially more likely than other customers to say they would recommend their provider to others…”. That’s what every company wants to hear about its customers.

Thing is, most of us ordinary customers have little choice of wireless provider. I suppose that instead of AT&T, which I’ve had for years, I could have Verizon, Sprint or T-Mobile. But in my mind, they’re Tweedledum and Tweedledee: The new boss is the same as the old boss. Do I love AT&T and would I recommend it to my friends? No. It simply means that AT&T does a decent enough job, and it’s not really worth my time and energy to look into other providers; changing wireless providers can be a real hassle. This is especially true of cable T.V. providers in America, a business that I think is monopolistic. I’ve had Comcast for a long time, but that doesn’t mean I love them. In fact, I don’t particularly like Comcast, but I feel rather like they have me over a barrel. So the mere fact that I’m “fully engaged” with Comcast means nothing.

There’s another factor when it comes to those low levels of engagement by Millennials: The younger people are, I think, the less engaged they are with almost any company. Isn’t that true? Millennials may be highly engaged with, say, Instagram, but Instagram is the outlier. When it comes to soaps, or cereals, or pants, or sneakers or toothpastes or bicycles or toilet paper or rock bands or video games or, yes, wine, I should think Millennials are a lot more experimental (or maybe fickle is a better word) than us more-conservative older consumers; we are admittedly less adventurous, but we do tend to be brand-loyal. Naturally impatient, Millennials are reluctant to commit; they want to keep their options open. And who can blame them? They’re young, figuring the world out. They may be in love with Nike today, only to switch to Asics tomorrow. It doesn’t mean they hate Nike, and it doesn’t mean they have any interest in being a “brand destroyer” for anyone.

The implication of all this is that it’s hopeless for a wine company to pin their strategy on earning the undying loyalty of Millennials. And yet, we know that millions of Millennials will eventually end up liking specific wines and wineries, once they get the experimentation thing out of their heads. Wineries know that, which is why they’ll continue to try to appeal to Millennials as “brand ambassadors.” The trick is to actually get it done. My own two cents is that Millennials, not having a lot of money, are looking for bargains and values. Beyond that, I believe they’re “get-attable” (FDR’s word) with the right combination of flavors, packaging and story-telling. And to understand what that means, you should look at the most popular wines in America, not just among Millennials but everybody, and analyze how they got to that exalted status.


Those “semi-generic” European place names? Let’s ditch them

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In law, the concept of “grandfathering” certain parties into new laws is quite old in America, dating back to post-Civil War days. It occurs, says Wikipedia, when an old rule continues to apply to some existing situations while a new rule will apply to all future cases.” The concept applies across many areas of technology, law and sports. For example, the Green Bay Packers of the NFL are grandfathered out from a rule that prohibits corporate ownership of teams, because their corporate ownership dates to a time before the no-corporations rule was adopted.

When the U.S. and the European Union signed a trade deal, back in 2006, regarding American use of “geographic indications” on wine labels, the deal specified 16 “semi-generic” European place names that could no longer be used on American wines, including Burgundy, Madeira, Sherry, Port and Rhine.

However, under the deal’s terms, American wineries that were using these prohibited place names before March 10, 2006, were permitted to continue to be able to use them; they were grandfathered in. As the Department of the Treasury stated at that time, If there is any question of eligibility for the ‘grandfather’ provision, we will rely on the information that appears in the ‘Brand Name’ and ‘Fanciful Name’ fields on the COLA that was approved before March 10, 2006.”

The deal had a ten-year time period; it expired this year, which led to the parties having to renegotiate it. Politico is reporting that, while both the U.S. government and the Napa Valley Vintners wish for a permanent ban on purloined place names, “the rest of the U.S. wine industry” is pushing to allow “American vintners to keep labeling their products with such regional designations as long as they were doing so before the agreement was struck.” This divide, between the Obama administration and Napa Valley Vintners, on the one hand, and “the rest” of the industry, on the other, “sets up a major showdown” between the U.S. and the E.U.

The Napa Valley Vintners offers a stark illustration of why they’re siding with the E.U. on this one: With the “Napa Valley” mark already appearing on at least one Chinese wine, “How can we go fight for our integrity around the world when the United States doesn’t offer that same reciprocation?” asks a NVV official.

Makes sense to me. I don’t see why we have to have phony European place names on American-made wines. These names may have had a useful purpose in the period after Prohibition, but they no longer do; they are useless anachronisms.

I’m sure that wineries that have used semi-generic places names for decades will have to go through a period of adjustment, if they’re no longer allowed to do so. But the actual wines won’t change, and consumers are smart enough to figure out how to deal with name changes. It’s called “a teaching moment” for the consumer, and you can’t have too many of those. Besides, the historian in me thinks that there will come a day when California (and America) no longer has any of these European place names on labels, and that will mark a significant tipping point in our maturation as a wine-drinking nation, as well as  being a good partner to our European friends. And sometimes, in business, as in life, you have to take your friends’ feelings into consideration, even if it costs you a little.


Unicorn wines, and maybe unicorns in Napa

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When did all this talk about unicorns get so crazy? Suddenly, it’s unicorn this, unicorn that. Fifty-five million results on a Google search, of which this one, published earlier this year in Fortune, is most explanatory: “a unicorn is a private company, valued at $1 billion or more, and they’re seemingly everywhere, backed by a bull market and a new generation of disruptive technology.”

New, over-priced tech companies. Hmm. We’ve seen this before, haven’t we? Back in 2000 we called it the “dot-com bubble,” the catastrophic melt-down of a short era in which seemingly any company that ended with a dot-com enjoyed meteoric growth on the stock market. A good example was a startup called onsale.com. It was popular for a while after amazon.com got too expensive for most people to afford. I should know; I bought a bunch of onsale, and got slaughtered when it collapsed, along with all the other phantom dot-coms.

Now, the word “unicorn” is being applied to wineries. Wine Spectator picked up the term from Twitter back in 2013, quoting Raj Parr’s tweeted definition: “A [unicorn] wine that is ‘rare,’ ‘not seen much’ ‘special bottlings.’ Not always the most expensive but just hard to find.” By 2015, unicorn wines were all the rage in somm circles: the Wall Street Journal said “they confer[red] status not by cost but by the skill—or luck—it takes to acquire one.” Eater jumped into the fray, describing unicorn wines as a new category of wine taking hold in Manhattan—the once in a lifetime bottles that every sommelier dreams of drinking, and bragging about, before they die.” Eater’s list was exclusive to Old Europe, mainly France. You would never find a California wine on a unicorn list, especially not in Manhattan.

Most recently, here’s Wine Spectator again, with Dr. Vinny asking the question, “What is a unicorn wine?” and pointing out that the opposite of unicorn wines are “first-growth Bordeauxs, or ‘cult’ California Cabernets.” Interesting. Not that long ago “cult California Cabernets” were the hottest wines in the world, coveted by everybody. Can it have been only eight years ago that the San Francisco Chronicle called Aubert, Ovid and Sloan “six cult wines to covet”? Today, you won’t find them on anyone’s unicorn list. They’re more like your great-grandfather’s wine than something the cool kids drink.

By the way, the hashtag #unicornwine still gets a lot of play on Twitter, although the category finally seems to be opening up to include California wine—as long, that is, as it fulfills the requirements of being rare and impossible to get. Someone tweeted a link to an Instagram post from “Mcvino82,” who posted this pic of an Inglenook 1978 Petite Sirah with the hashtags #unicornwine and (funnily) #whereisfreddame.

So a nearly 40-year old California Petite Sirah just might qualify as a unicorn. Story time: Years ago, I was on one of my first assignments for Wine Spectator, to interview a wealthy rock-and-roll lawyer who lived in the Hollywood Hills and was a bigtime wine collector. As I pulled into his driveway, a UPS truck was unloading case after case of Dominus, Dunn Howell Mountain, Opus One, Petrus, Tignanello—you get the idea. As we shook hands I tried to make small talk and said, “Man, I see you like the good stuff.”

He pointed with his chin to the stacks of cases on his driveway and said, “That? Nah, I hate it.”

Wow. “Then why do you buy it?” I asked, mentally doing a financial calculation of the cost.

“Look,” he explained, “those are what I call ‘pissing wines.’ You know how, when you’re kids, you have contests to see who can piss the furthest? Well, ___ and ___ [and here, he mentioned some real Hollywood heavyweights] invite me to their homes, and they serve Petrus ’66, so I have to invite them here and give them Petrus ’64.”

I took that in. Then I asked, “So, if you don’t like these wines, what do you like?”

“Ahh!” he grunted, grabbing me by the elbow. “Let me show you.” He led me to his backyard, where he’d dug a storage cellar into the hillside. Rummaging through the racks, he pulled out a bottle. It was a Petite Sirah from San Benito County whose producer, even on that day 25 years ago, was long defunct. “This is what I like!” he exulted.

“What do you like about it?” I asked.

“I like it,” he replied, “because no one else can get it!”

That was the rock-and-roll lawyer’s unicorn wine. So, you see, there’s nothing new about the concept, only the word. And while we’re on the topic of fantasy, it looks like Napa may be getting ready to allow marijuana dispensaries within the city limits. It’s far from a done deal, but I can see a time when upscale tasting rooms selling sips of unicorn wines will also offer unicorn weed to inhale, leading to the very real possibility that tourists emerging from these establishments, staggering down the street, may visualize actual unicorns.

Unicorn2

Photo credit: goodmenproject.com


U.C. Davis V&E grads off to a promising start

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Speaking at U.C. Davis last night before a group of graduating students and faculty was really a thrill. As I told the audience in my opening remarks, to me, UCD’s Viticulture and Enology Department is like the Vatican City—not in a religious sense, of course, but as the spiritual center of winemaking in California, probably in the U.S., and as one of the greatest places to learn winemaking in the whole world.

As a budding wine reporter in the late 1980s and 1990s and on into the 2000s, many were the times I telephoned one of the famous professors there, to interview him or her for a story: Anne Noble, Andy Waterhouse, Mark Kliewer, Carole Meredith, James Wolpert, Linda Bisson, Roger Boulton, James Lapsley, Andrew Walker. These were often for articles of a technical nature, and I was always a little apprehensive that my ignorance of technical topics would bore these learned men and women. But they were patient with me, and I hope I didn’t make too many errors in my reporting!

Even before I was a wine writer, I was reading books by the likes of Maynard Amerine and Vernon Singleton, figures who were as historic, to a wine geek like me, as George Washington or Benjamin Franklin. I knew about Dr. Olmo, who created the “Olmo grape varieties,” although I never had the opportunity to interview him. I was aware of UC Davis’s history, its importance in the evolution of the California wine industry, and how nearly every winemaker I ever met in California seemed to have graduated from there. So in my mind, UC Davis’s V&E Department loomed large, and still does.

Dr. Boulton, who holds the Stephen Sinclair Scott Endowed Chair in Enology Department of Viticulture and Enology, was kind enough to give me an hour of his time. We toured the Robert Mondavi Institute and the nearby Jess S. Jackson Sustainable Winery Building,

BoultonDr. Boulton and the Jackson Sustainable Winery

both remarkable structures and centers of study and innovation, and both of them superb testaments to the legacies of two remarkable men. Then it was off to the Sensory Theatre, in the Mondavi Institute,

Theatre

for our actual tasting and talk. We went through five different clones of Pinot Noir all from the Cambria vineyard, in Santa Maria Valley, and all made identically, so that whatever differences there were had to come from the clones. That was interesting, and served the point of showing how different people discern different things in wine—even people of great education and training. Our conversation about the intricacies of marketing, critics and related topics became so involved that one of the event organizers had to cut it off, because time was up and the official program called for the presentation of awards to some of the top students. But afterwards, they had a most excellent barbecue on the lawn, and fortunately some of us were able to continue the conversation.

What a smart young group of future professional winemakers these grads are. Really brilliant, so well educated and conversant in the world’s wines. And they’re just getting started: most of them are now off to summer internships, in France, Chile, Napa Valley, all over the world—and then to their first jobs. Armed with such an excellent education, and with such smart, inquiring minds, they are a reassurance that the future of winemaking is in good hands.

 


As the Grand Crus are identified, prices will go even higher

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Those who read this blog and hear me speak know that I have been predicting the discovery or uncovering of small, stellar blocks within existing great vineyards in California and Oregon—blocks that can be called “grand crus” were we to adopt that French terminology. This process will take decades, but clearly it’s underway.

I have argued that this evolution of a vineyard into greater and lesser blocks or climats is inevitable. It happened in France and in Germany, and for the best of reasons: grower/vintners, usually monks, discovered over hundreds of years that some sites were naturally superior to others. These, they gave special names to, and when a market-based system of supply-and-demand replaced the old feudal system, these special blocks were prized, and priced, the highest.

Why this development is inevitable and unavoidable is because of the nature of wine: something in it, and in us, makes us sensitive to the slightest differences. We seek those differences, make judgments as to their relative merits, collectively decide which blocks are the best, and reward them, as the free market allows and even encourages.

Is this rewarding, this hierarchizing, justifiable? Is it based on true qualitative differences in the wines, or is it only the critical perceptions that we know can be shaped by marketing? Undoubtedly, a little of both. Great marketing cannot make a silk purse of a sow’s ear. It can, however, take two silk purses, both near each other in quality, and make one Prada and the other Sears.

As if in evidence of this line of thinking, Domaine Trimbach, the well-known Alsace winery, just announced that, for the first time, they are taking advantage of Alsace’s Grand Cru appellation system to market their wine, something they have been reluctant to do until now. Why? [W]e cannot today escape the grand cru any more because with all the media, with all the fuss and the buzz and whatever around the system,” says Jean Trimbach. Around the world, he argues, people know the names of the Alsace Grand Crus and demand them. The implication is that it’s not because a Grand Cru is better than a regular Alsace AOC wine, it’s because people “know exactly what the top grand cru[s] are, so you cannot escape the grand cru game any more.”

The grand cru game…is that all it is, a game? Is there any relevance to inherent quality? Or have the Alsatians, like the Bordelais and the Burgundians, been hoisted on a petard of their own making?

Being a fair-minded journalist, I must admit that the answer is not that simple—although we all wish it were. Those of us reared in this “game” of comparative terroirs have it emblazoned into our DNA that some plots are better than others. To deny that this is true is one of the few heresies of wine connoisseurdom. This is why land in Vosne-Romanée is much more expensive than land in Beaune, why land in Oakville is much more expensive than land in Paso Robles, even though, in a blind tasting, I can assure you that some Paso Cabs would give Oakville a run for its money.

Indeed, such is the power of appellation—or, I should more correctly say, the awareness of appellation—that we have a situation in which the price for an acre of “the choicest land” in Napa Valley is now $310,000, up a remarkable $40,000 over 2014.

“The wine grape vineyard market continues to operate in a universe of its own,” says an expert in land prices in yesterday’s Napa Valley Register, referring to a phenomenon known as “the pedigree of the parcel,” in which the “pedigree” is conferred as much by subjective factors as objective ones—and perhaps even more so.

Once a vineyard has been prized so astronomically, there’s only one direction to go: To find little pieces within the vineyard that can be priced even more astronomically. This is the basic duty of capitalism: to test what the market will bear. And, as another expert in the Napa Register article said, “Actual sales [i.e. prices] can go even higher.”

In other words, unless there’s a bubble—and I don’t see one coming—we’re in for more and more expensive wines from California and Oregon at the highest levels. There’s nothing to stop it. It is, indeed, inevitable.


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