CA: Cannabis Farmer-CEO Raising Capital, Navigating Complex New Market

Photo Credit: Robin Abcarian

Jamie Warm worked at California’s first cannabis dispensary while attending college in Santa Barbara, sparking a career that’s positioned him to take entrepreneurial advantage of the state’s newly legal commercial marijuana market – the nation’s largest.

“The cannabis industry has been my only source of income for my entire adult life. It got me through college. I opened a dispensary after college,” says Warm, 33, who later sold his dispensary, purchased a cannabis farm and eventually co-founded Henry’s Original, a boutique cannabis cultivator and distributor.

While parent company Heritage Holdings of California has been in business serving the medical marijuana market since 2015, Warm launched the Henry’s Original brand last year as the state prepared to legalize marijuana for adult recreational use on New Year’s Day 2018.

“At our core we’ve always been cultivators, and it hasn’t always been necessary to put brand names on the flower,” the CEO says. “We’d just sell the flower to the dispensary.” With the advent of legalized marijuana for recreational use, however, the enterprise, current raising a Series A venture capital round, needed to create a brand to win shelf space. “That’s really the scalable aspect of the business.”

The vertically integrated, Mendocino County-based cannabis company comprises a wholesale nursery that sells to licensed cultivators; five leased, sustainable family flower farms, including Warm’s; a processing facility, where the product is trimmed and packaged; and a distribution center licensed for adult and medical use, which takes the product to 80 dispensaries in the state, and a retail storefront that sells cannabis flower and plants, Warm says.

The business, employing about 55 people in the winter and 80 in the summer, markets what it calls handcrafted, small-batch, “artisanal heirloom cannabis” – premium smokes and jars of pure flower.

Its nursery, which sells Clean Green-certified cannabis plants to farmers, is the foundation of the business,  Warm explains.

Warm believes his company’s 17 state licenses and ownership of its own supply chain will help Henry’s compete in California’s complex, highly regulated cannabis market, which one firm projected would exceed $5 billion this year. Regulation has driven up costs, pushing many people out of business, he says, noting that California cannabis operators are subject to varying local ordinances.

“You have to be very well-funded to be in business,” the CEO says.

Warm’s business broke even last year, looks to be profitable this year, and is about halfway through a $4 million Series A round, he says, declining to name the investors or disclose revenue yet. While cannabis tech companies draw significant investor interest, he says, “there hasn’t been a lot of venture capital money in the plant-touching world.”

Auxiliary businesses like software, packaging, lighting and fertilizer are seen as financially safer than the heavily regulated plant-touching companies, which – despite state legalization – remain in violation of federal law, Warm notes. Plant-touching businesses tend to rely instead on seed and family-and-friends money, he says, calling his own family “extraordinarily supportive.”

Henry’s Original – named for a cannabis farmer Warm met years ago – plans to use its venture funding to hire more C-suite executives and key administrative people, and to add more automation to its greenhouses and processing facility, Warm says. The company also has a fairly substantial marketing budget, he notes.

Longer term, Warm aims to make Henry’s Original attractive as a potential merger-and-acquisition target, and says he will focus on the company’s supply chain, retail influence and real estate.

The venture appears to be making progress in a market that’s taking a toll on many growers.

While California legalized medical marijuana roughly two decades ago, the regulatory system that became effective on Jan. 1 governs both medicinal and adult recreational use, requiring various state licenses for cannabis production, distribution and sale, as well as compliance with local laws.

A February California Growers Association report, citing regulatory cost barriers, indicated that fewer than 1 percent of the state’s cannabis growers had received licenses, and quoted one cultivator as saying many have been pushed into the black market.

An Arcview Market Research and BDS Analytics report found that while California presents great opportunity, a “tangle of regulatory burdens” and high taxes threaten to diminish the potential.

The federal government, meanwhile has taken a stern attitude toward state legalization, although many cannabis entrepreneurs downplay the threat.

U.S. Attorney General Jeff Sessions issued a memo early this year allowing federal prosecutors to enforce U.S. laws against marijuana in states that have legalized the product – reversing a relatively hands-off Obama administration policy.

Recently, Sessions, citing the opioid crisis, urged federal prosecutors to seek the death penalty against major drug traffickers – a tactic some experts say could apply, technically if not practically, to state-approved marijuana businesses.

Warm says his business is focused on staying compliant in California, and he expects federal authorities to change their stance eventually. “We’re much too far down the path to turn back now,” he says. “The momentum created at the state level is irreversible and will lead to widespread regulated legalization at a federal level in due time.”

While Henry’s Original has positioned itself “to maximize the opportunity,” the market brings  a new problem to solve every day and constantly changing regulations, he says. “It’s concerning to see the amount of family farms going out of business.”

As for Henry’s Original’s ability to succeed and raise capital in California’s challenging market? “I would say it’s a mix of community support, the right team, a great product, understanding of the business, and timing,” Warm says.

He and business partner Joshua Keats, who have a combined 30-plus years in the industry, worked at the county level to build local government support and trust over the past few years, inviting officials to the nursery, farms and processing facilities. “It is essential to be in a local municipality that supports the industry and wants to see their businesses succeed,” he says.

Warm also credits the product and the company’s vertical, farm-to-consumer structure, as well as  his team, from growers and nursery techs to processors, packers and administrative staff.

“This is a special time for the cannabis movement and we will never see a moment in history like this again,” Warm says. “That sentiment is recognized and everyone is working hard to make this a success story.”