Seeking Alpha

Transparency Is Fundamental In The CBD Space With Marshall Getto (Podcast Transcript)

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by: The Cannabis Investing Podcast
Summary

Marshall Getto is CEO of Freed Technology, a California-based organic CBD company.

He joins the show to discuss the present confusion in the THC, CBD and vaping markets, the high margins that currently exist in the CBD market, and passion projects.

We also cover what it takes for successful packaging and branding, the importance of clean products and the global CBD market.

Editors' Note: This is the transcript version of the podcast we published Wednesday with Marshall Getto. We hope you enjoy it.

Listen on the go! Subscribe to The Cannabis Investing Podcast on Apple Podcasts, Google Podcasts, Spotify, and Stitcher.

Rena Sherbill: Today, I am very happy to be joined by Marshall Getto, CEO of Freed Technology, a California-based organic CBD company, and one of the sponsors of the recent CWCB Expo we attended in LA. We've been releasing our CWCBExpo interviews over the past couple months, and today's episode is our last from the conference. Freed had a big space at the conference, it turns out right across from the Seeking Alpha booth, so we were able to see firsthand people's interest in CBD and hear Marshall tout the benefits of his clean products.

Marshall also co-founded KMG Imports, a wholesale vape distributor. We talk to him today about the challenges in the THC, CBD and vaping markets, the passing of the Farm Bill and SAFE Banking Act and best-practices for branding and packaging. With the recent release of Q3 earnings in the cannabis sector, we've mentioned a couple of trends over the past couple episodes, namely, that MSOs are outpacing Canadian LPs. Another trend we've seen from these earnings reports has been the sector-wide decline of hemp-based CBD sales.

To be sure, this has had a lot to do with confusing regulations - for instance, just last week, the FDA sent a warning letter to 15 companies for violations, including marketing unapproved new human and animal drugs, selling CBD products as dietary supplements, and adding CBD to human and animal foods. It also published a revised Consumer Update detailing safety concerns about CBD products more broadly. While none of the 15 firms were big players in the space, it still speaks to the confusing CBD marketplace and how much work there is still be done to get consumers, regulators and companies all on the same page.

Another issue in the CBD sector has been inconsistent pricing. It will be interesting to see what the evolution of CBD regulations and companies will mean for that part of the sector. Freed, with its emphasis on organic and clean CBD products, certainly seems to be taking the right approach. So, Marshall's interview today is particularly timely...

Marshall, welcome to the Cannabis Investing Podcast. Great to have you.

Marshall Getto: Thanks for being here.

RS: So, we're at the CWCBExpo.

MG: That is correct.

RS: Tell us your role here, your partnership, what you're doing here?

MG: Well, you know, this year is a year we're rolling out a brand that we've been working on about a year, really longer conceptualizing, because you know, we want to come to this expo, and a couple of others this year and next year to introduce ourself, more broadly to some of the people in the market and show them we are going to be long good-term partners and good actors in this industry. So, that's why we're at this particular expo.

RS: So, tell us about your company, Freed, and what you do?

MG: Right. So, we - basically in 2017, my wife and I, who actually founded the company with me and is much more intelligent, well spoken, beautiful than I am, she - you know we had a lot of friends and family members who were having health issues, and you know, in a lot of cases, they were trying to seek some sort of relief in those issues through cannabinoids. Now, they were not like - so for instance, take my father, okay.

My father was - at the time, he was 83 years old. He has really, you know pretty bad arthritis. So, you know, it's something where if he drove for more than 15 minutes at a time, it would take at least 10 minutes to get out of his car. You know it was - so it was really affecting his quality of life, it was affecting his ability to play with his grandchildren. You know like everything that you don't want to have happened, you know, to you, I mean nobody wants that. He tried tons of different prescriptions and you know, prescription balm, prescription medicine from his doctor.

Nothing had been effective, and one day he comes to me and says, hey, you know, my friends at my coffee group said, I should look into something called a CDB, yes, CBD you got it, Dad. Yes, CBD and it's like, could you help me with that? Sure. So, you know, I started doing some research for him, and I really wanted to find - obviously I want to find something that was - has low THC content as possible because even though my dad used to kind of get down like that, he's in his 80s now so not so much, and you know, I realized it's a pretty confusing market.

You know it's not easy for a consumer to navigate all the information that's out there and the brands and the information that are out there - they're - the ones that are trustworthy, almost are really, really hard to find through these normal Google portal kind of searches.

So, we kind of said to ourselves, you know, here's this great opportunity. We've got people close to us who need these products, we've actually been using some of them, and we think this is a real opportunity to build something that's safe, trustworthy, and healthy.

So, it took a while, but you know that was 2017 where we actually went to this conference that year. We went to a couple other shows that year. Tried to, you know, get our educational level higher on, you know, both CBD and generally Cannabis as a whole. And then, we - 2018 is where we spent kind of building up the capital and getting ready to enter the market and then this year, we launched about three months ago, and you know, it's been really - going really well.

RS: And what are your goals going forward in the market?

MG: So, we're pretty excited. So, when we looked at this market we thought, like I mentioned, you know, okay, so my father wants - he doesn't want to feel any effects from this besides the relief side of things. And we - you know we said this as well, so, let's do - you know we want to do something that gives the best possible benefits. So, something that's more of a full spectrum where we want zero THC so really broad spectrum, right. We want the entourage effect of all the, you know cannabinoids, and you know, we don't want the stripped down isolate that doesn't quite do as good of a job, you know, maybe it's a little cheaper to produce kind of product.

When we started looking at that and talking to - we did a listening campaign. People we already knew who are in the industry and people already selling these products, we really started to think, gosh! You know long-term, when we started to see the mainstream retailers going into this marketplace, we really think this is going to be the product - type of product that they're going to be able to sell on most shelves both, you know, nationally and internationally, and it will be the most - the easiest product to basically have acceptance into a broader market. So, you know, our goal going into the cannabis market is brand awareness and building out a couple more SKUs into our catalog.

But as we go into 2020, it's really, you know, trying to get as many good partners we can, but on the retail and wholesale international distribution levels, and we feel like we're going to. We already see a lot of really great promising things there, and we feel like that's going to be something we can really do.

RS: So, you're looking to grow mostly through partnerships and maybe acquisitions?

MG: Possibly, but I mean acquisitions is a question mark right now. You know, the good news is, as far as funding goes, we're pretty good. We came into this with a healthy amount of funding and we're still good on that. We're already trying to, you know, get some good feedback on the return. So, and, hey, let's be honest, these products aren't necessarily cheap to make, but they are also - you know the margins are extremely healthy in this industry right now.

So, that is a blessing for us right now, and of course, we have to capitalize on that well while that's currently, you know, the case. That won't always be the case. You know good times don't last forever.

RS: Right, that's what they say... Talk to me a little bit about where you were coming from before you got into the space? And then, how it's been to navigate the many hurdles and challenges of the CBD space?

MG: So, my wife has a background as a corporate manager for a pretty large company in China on the sales side of the things. I was an IT project manager and business systems kind of guy for about 15 years. We did start another company in 2014. And that was an imported distribution company, and so, we would import products in from China distribute them through America and that was - you know that was - it was kind of in some ways a good prepping ground for this because we do understand kind of the things that are important to distribution companies, okay, and to retailers.

You know they want to make sure that manufacturers hit all these markers, like can you ramp up to meet my capacity? Are you going to be able to, you know, make sure map pricing is something that's adhered to across the board? Not undercutting me to retailers or whatever? You know all these different, you know, are your logistics in line with what I need and where I can, you know, get a quick turnaround on my orders filled, and you know, all those little things will make it easy to work with someone.

You know that's one thing that's kind of a mantra inside of our, you know, operations and order processing side of the equation, and - you know and so, we're really - that really did lend itself, it's almost like, we almost look at that company that we created, and it's still up and running and is profitable. We look at that as a training ground for what we're doing with Freed.

RS: It's interesting how those things tend to line up sometimes, one thing leads to the next.

MG: It does, I mean, you never know where your life is going to take you. But at the end of the day, you know, if you're doing passion products and you feel like you can put a lot of good energy into it, you're probably going to be pretty successful.

RS: So, talk to us a little bit about, you know, the passage of the Farm Bill. People, consumers, investors alike, I imagine even executives are a little bit confused by all the different kind of regulations and the changes. Talk to us a little bit about how you see that playing out?

MG: Right. So - I mean so the Farm - we were - you know we were - I'm kind of a policy wonky kind of guy, so I - you know I read all those - the boring political back and forth which has slightly become more like, a soap opera, but I really do like to try and follow, hey, what's really happening with bills, you know, because if you are really are following what bills do you have bipartisan support, it's a pretty short list. So, you know, the Farm Bill is something that obviously we were all keeping an eye on for a long time, and you know, we were going - we were planning on launching regardless because we really had faith that that was going to happen.

There was just too much compelling evidence, and to be honest, the moment you started seeing children's lives be affected on a fundamental level, that's when you knew no politician is going to stand there and oppose that. I mean that's at least one thing, and I think most American politicians still share in common as they do have the, they think of the children, you know, mantra.

RS: Let's all hope.

MG: Sometimes to our detriment, but yes, I know it. So, they - you know so we were pretty sure that was, you know, going to pass and we had planned for such, but of course, the FDA comes in with extremely vague language, confusing a lot of retailers, confusing a lot of manufacturers. We hope to see that get cleaned up soon. There are some good signs meaning that both the noises are being made by Mitch McConnell in the Senate. It looks like there's some good activity in the House.

You know, you have a lot of very mainstream brands pushing for this. they - you know people want edible or consumable product. I mean, you know I love - the moment I knew that that was - I felt really good about that. We saw Ben & Jerry's post the picture of their CBD ice cream that most everybody saw. Basically, saying in the post on their Instagram, you know, hey, we're pushing for this because we believe in this product and we - the safety of it is not an issue. You know we really think this is going to be great.

Now, we also are excited about there being further regulation. We want quality control and standardization on manufacturing practices because we know we're doing the right thing as far as we are prepared for. You know, they - if it's - if manufacturing standards are put in place to assure a certain level of quality, consistency, like we're really prepared for that because of who we are partnering with on the raw product level and how we have that chain of custody from seed to finished. And so, we're pretty excited about how that's going to play out actually.

RS: Talk to us a little bit, it sounds like that's one salient thing that investors and consumers can look for as a company that's willing to put it out there, you know, and address and adapt to all the different kind of regulations I guess, and the moving benchmarks.

MG: Right. So, I mean if you look at how we - one thing I love when I - when we started looking at this was, wow! So, few of the companies are transparent. You know, so we have everything from mass spectrometer tests to HPLC tests all over our website. We're showing - you know you can scan the QR codes on every single one of our packages, and at least to those COA for that batch like we believe that level of transparency is fundamental both to - for consumers, retailers, and distributors to show them that we've got their back and that we're making sure to be as open as possible with what's in our product, and we think that that best practice is going to be something that - you know will lead us to being on the right side of the history when it comes to future regulation changes.

RS: And, you know, the Safe Banking Act just passed.

MG: Right.

RS: How do you think that affects the CBD market?

MG: That is such a good question. You know, I really - you know that is - I mean you know that's kind of one of those things that I wish I had a crystal ball when it comes to something like that. The rubber meets the road over on the regulatory side, and you know - and so, so much time the legislative side is the spirit of the law and how it's really going - how that's really going to be applied to every day manufacturers, consumers, marketers, vendors, retailers, we just don't know yet. I mean, I wish I could predict that, but I don't have a lot of great insight on that.

RS: But you think it's definitely on the upswing, like it's a sign of the times I guess.

MG: Right. And I think what you're seeing kind of - I mean I think anything with this like, for instance, with the negative vape news in that market, that's obviously going to push for greater transparency and regulatory, you know, control. So, ya.

RS: So, you're a little bit in the global market. Talk to us about what you see there. How do you see it playing out? Do you think there's areas to focus on more than others? Or…

MG: Well, I do. I mean, you know, it's interesting when we invest. So, again, we did just launch. We've already had a lot of really great inquiries from different parts of the EU, Canada, different parts of like, basically Southeast Asia. It's really interesting where the enquiries are coming in from, and boy, some countries are easier to work with than others.

I mean some countries just have a lot more reasonable list of requirements before we go in. And so, at the end of the day, it's just going to be simply easier there. I mean, I - you know, I don't know if that's going to be always the case. Some of them seem like they're only easy because they haven't gotten around to making the hard rules. And so, literally a couple of months from now, that could all change and then we could have to have a certain level, you know, we'd like to hop through a few more hoops for some of those. Well, our team is really pretty positive that we can start working with certain partners in certain areas very quickly, and to be honest, we just want to make - we have to do our due diligence before we leap into those markets, make sure our brands are protected inside those markets, that's really important now.

RS: And then, we can end with this. Talk to me a little bit about, you know, it's talked about, I must say, especially in the sector branding and packaging.

MG: Right.

RS: Talk to me a little bit about how you - what went into that for you guys considering you just launched and how much those two affect each other?

MG: Well, I think that's - for us that was a - I mean if we did one thing right.

RS: Yes. I'm going to say I'm looking at it right now, and it is really - it does catch the eye, and I'm not just saying that because you're sitting here.

MG: Yes. no, I appreciate that. If we did one thing right, I think it was we asked ourselves a real - you know, first you start with the name, right, and we had to ourselves a real fundamental question. You know, why are people seeking CBD products? Why is my father, why do his friends, why do our friends, why do our family members want these CBD products? And, the reality is so stupidly simple in some ways, they want to be freed.

You know they want to be freed from their anxiety; they want to be freed from their insomnia; they want to be freed from all these different issues that they're having, and they're not finding that relief through western medicine, traditional medicine, I should say, or, you know, or whatever. So, you know, that's how the brand concept came about and the packaging concept where we really - it was a - it was trying to strike a fine balance, which we - we came very close to hitting I think, which was inviting. It can basically - you know it won't turn off a millennial and it won't turn off, you know, someone's who's in other demos either.

You know we see that because literally at these shows, we see a grandmother bring her granddaughter into the booth and the grandmother runs a health and wellness store, it's like, oh! I got to show you this stuff and runs over to our - to our product shelf and grabs like the gummy box and, you know, we did a lot. You know, we thought who are fond of that and to see their reactions and see if they have that. They feel the openness, the organic feeling, the welcoming feeling, the trusting sensation because we do dot all the I's and cross all the T's on that packaging. You know it's exactly what we wanted. So, I mean we're going to keep improving on it, everything, you know, has been improved on, but that's what the kind of thought that went into it. We want to make it as broad as possible for our audience.

RS: Awesome, Marshall. Well, thanks for taking the time. Great to talk to you.

MG: Rena, it was a pleasure.

RS: Great.

MG: Thank you for having me.