Smoke Wallin is a true force of nature, even before sitting down to interview him, I couldn’t help being impressed by his credentials. Starting from his time as an Ivy League Wrestler to his present status as President of Vertical, a leading company in the Cannabis field, Smoke has been a leader everywhere he has been. He earned his leadership mantra not through some glossy PR campaign, but through hard work and doing his job.
When he was in the liquor business, his peers thought so highly of him that they made him the Chairman of the Wine and Spirits Wholesalers of America.
Smoke has transitioned to the cannabis field taking with him the lessons he learned in the liquor field and on the wrestling mat.
Smoke and I spoke about a myriad of issues. We spoke about the lessons he learned as a wrestler at Cornell and how they shaped his career, we spoke about the political and social considerations surrounding cannabis, we spoke on his career in liquor, and his present role in the cannabis field.
Smoke is a leader that people will follow. His concepts on brand, sales, and distribution learned from the liquor field translates well into the cannabis field.
Enjoy the interview and get a peek into how a leader from the liquor industry is transforming the cannabis industry!
Irish Liquor Lawyer: How is the cannabis system working right now, you have Nevada where there is a strict three-tier system v. Colorado on the other extreme, where there is basically mandatory vertical integration? What is working best?
Smoke: Colorado is actually not complete vertical integration, it is and it isn’t. Colorado you can make an edible and sell it into your own stores, but there is no distribution concept, every brand has to deliver to every 3rd party store that they are in, which is a less than optimal system. In California the distributor can be owned by a manufacturer or retailer.
In Nevada actually, the three-tier system delivers by an independent distributor. The problem they have, they made it that you had to have a liquor license. None of the distributors with liquor licenses would enter the market because it’s still illegal from a federal perspective and they didn’t want to lose their federal basic permit. So, I think the Governor did an emergency order and allowed non-liquor distributors to get licenses.
Irish Liquor Lawyer: So really the liquor distributors won’t be allowed to get into this industry until they get federal approval, correct?
Smoke: That’s right, nobody is going to risk their federal basic permit to go directly into it.
Irish Liquor Lawyer: You were pretty deep into liquor, what is the biggest difference between liquor and cannabis? I mean you were a pretty big player in liquor, what made you get out of liquor into cannabis?
Smoke: Well I didn’t necessarily get out of liquor, I just sold my last two brands and my distribution company merged with RNDC years ago, but the reason I got into cannabis is obvious. It’s like the repeal of prohibition. It’s a giant industry that is now getting legal and somebody is going to do it.
And with the added benefit of the health and wellness aspects, the whole medicinal side is interesting and can go head to head with pharma, and the whole recreational side that goes head to head or is complimentary to alcohol.
Irish Liquor Lawyer: You started out your career first as a wrestler at Cornell, it’s kind of cool, I could never be a wrestler, I could never cut weight!
Smoke: I seem to have forgotten how to lose weight! But I did know at one point!
Irish Liquor Lawyer: So how did you balance the rigorous academic load of an Ivy league School with trying to lose weight and the fatigue that goes with wrestling?
Smoke: That is what is cool about wrestling is that it’s such a discipline sport, not only is it a rigorous sport, you add in the diet restrictions, it takes discipline, and if you learn discipline in one thing it is fairly easy to apply it to other things. If you are going to keep your academics in balance, that takes discipline as well.
My grades went down when I left the wrestling team. I had too much free time, so I was like, I will just go to the bars. When I had practice and had to wrestle, it was grueling. I had no time to do anything else, but do my work and stay up with classes. When I didn’t have practice, I had all this free time which typically lead to me ending up drinking with my other fraternity brothers.
Irish Liquor Lawyer: What are the biggest lessons from wrestling you applied to your career, because you have been pretty successful?
Smoke: I think being self-reliant, knowing nobody will do it for you. Wrestling teaches you when the rubber hits the road and when you hit the mat, you will win or lose based solely on what you do. So, I have always taken ownership in everything I have done. In any role I have taken, I expect to win, and I know I won’t wait for someone else. That doesn’t mean you don’t have team work, but I became the most reliable guy in whatever I was doing. If they need a go to person, and you deliver, you get the next responsibility. And that’s what happened to me everywhere I have been from the beginning. Every volunteer organization or every board I am on, I end up being President, because if you raise your hand and do it, then everyone is like, lead this thing! To me that’s basic and fundamental but many people don’t take ownership in what they are doing.
Irish Liquor Lawyer: You were at WSWA for a little while, correct?
Smoke: Yes, I was on the board for seven years maybe more than that. I went through all the ranks as an officer, and then was chairman and president.
Irish Liquor Lawyer: What do you think of the liquor model as it pertains to cannabis? Do you think the three-tier model is the best, or do we need to wait and see?
Smoke: I believe in the distribution model but more because of economics than necessarily regulatory reasons. In the beverage alcohol business, I can put 350 cases in a truck or I can put 150 cases on a truck and could only get about 22 stops on a route due to drive time between stops. Clearly a full truck is a much more profitable route. So that applies to cannabis too, we are setting up a large distribution system in the State of California, it is a huge state, you need to drive a long way, very high labor cost and lots of rules and if you don’t fill up your trucks, it is hard to pay for that. So, there is an economic imperative that has scale distribution, and that applies in a lot of industries, so I think that it makes a lot of sense. That is why the Colorado system doesn’t make much sense to me. That they don’t even allow it. Now as far as who owns it, I am not convinced it has to be independent from manufacturers. Remember, Gallo owns their own distribution in CA. ABI has their own distribution in a number of markets. It is not that unusual even in alcohol. The real tier separation is between distribution/manufacturing and retail. I do think that there are benefits in a marketplace when the distributor is not necessarily a retailer, but I am also not opposed to the market sorting that out.
Irish Liquor Lawyer: So, you are not opposed to vertical integration?
Smoke: No. Full disclosure, I run a business that is fully integrated. Now we are not doing retail in California, we are doing everything else. We cultivate, extract, manufacture food and beverages and health and wellness products into brands and then distributor them to retail. We are allowed to do retail, we have chosen not to do it. I’d rather have my brands in all retailers and not compete with my customers at this stage.
Irish Liquor Lawyer: What do you think about the price to enter the game being so high that they act as barriers of entry? For example, the prices are high to enter into the Illinois medical cannabis field, do you think having a requisite price is good for the marketplace? Some people like the higher prices because without the higher prices, way too many people enter the marketplace. You could have a repeat situation as in Oregon where there is so much weed that people can’t sell it.
Smoke: Yes, I think that having barriers, look we are a large-scale operator, we are not opposed to higher entry rates, for people to get in. I do agree Oregon has botched their approach by allowing everyone to grow, whoever wanted to grow. They have too much product now in the market.
On the other hand, when I put on my brand hat, I am putting cannabis extract into brands and I want the price to be low, because it’s a component cost of my brand. So, in that sense I don’t mind Oregon, because it’s hard to make money on the flower side. The future is really about brands. You want this to be an ingredient where you get the cost down. So, I am not that caught up in the price of the flower, I think you do want to have some control of the players because you have to regulate them.
When you grow wheat and corn and malt and all the things that go into alcohol, it’s not alcohol until you make it into alcohol. The regulation doesn’t start until the distillery or brewery side of things. In this space, this plant is already potent, it’s post distillation, if you will. So that adds a layer of complexity to tracking and managing it. I think one thing Colorado has shown is that, this track and trace system is very detailed and wouldn’t have been possible in years past without today’s technology. They’re managing a lot of players and they seem to have good enforcement and it’s a working system.
So, on the one hand, less players are good for the people in it because they can make more money. On the other hand, from a regulatory perspective, if done properly there is no reason they can’t manage it with lots of players.
Irish Liquor Lawyer: Are you only in the state of California?
Smoke: California, Arizona, we have partnerships in Ohio now, we have a license cultivation there, and we have a significant investment in the hemp side of the world and CBD, in Kentucky.
Irish Liquor Lawyer: Let’s talk about hemp, now that it is legal, it has really changed the game!
Smoke: Yes. We are investing a lot in that, and I am getting incoming calls from liquor distributors, beer distributors, everyone is looking for CBD products that they can bring into their system.
Irish Liquor Lawyer: I have gotten calls on people asking me about hemp infused products and I am like well we can talk to the TTB because here is the thing, we don’t know until the TTB tells us exactly what they will do on their label approvals and how it will change from the year 2000 Hemp Policy.
Smoke: Right, and right now FDA is claiming authority and that is going to cause some issues in the short term. I think having Mitch McConnell being an advocate for hemp, we are making the case to Mitch that if FDA tries to bottle up CBD and not allow it in food or beverage products because they are doing the bidding of pharma, you are missing a huge market for your state’s farmers and the hemp they are growing. And so, if anyone can reign in the FDA, it is the Senate Majority Leader.
Irish Liquor Lawyer: Speaking politically I don’t think Trump really cares about bottling up cannabis, if he gets re-elected, I think he will legalize it in 2020.
Smoke: I actually think he will do it before then as part of his re-election strategy.
Irish Liquor Lawyer: I have gone back and forth on this, because I don’t think he cares, but his evangelical base may keep him from pulling the trigger.
Smoke: That is always a concern, but the state’s rights issue is pretty strong, and if he wants to flip Colorado and one of his strategies is to flip Colorado next time, he basically has to do it.
And if he wants to keep the Senate and he probably has to do it too, because he has to have Cory Gardner there. There are enough vulnerable guys in states that already authorized it. This thing is moving so fast, he is smart enough to want to get ahead of it.
Irish Liquor Lawyer: I am excited for the time when we can sue the states on the regulatory authority (laugh)! Because once it becomes interstate, we can potentially sue the states for their protectionist markets.
Smoke: And then California will hopefully, will be like the wine business and we will be able to ship across the country.
Irish Liquor Lawyer: California’s laws are a little quirky, having a labor peace agreement signed before you do anything is absurd to me!
Smoke: California is absurd, there is a lot of absurd regulatory aspects, but it is a really good growing environment. You have nature in your favor.
Irish Liquor Lawyer: When it becomes an interstate commerce market, will California growers be able to sell at cheaper prices? If you look at a place like Massachusetts or Maine, I imagine the soil can’t be great compared to California.
Smoke: You can grow this product all over the place, the issue is the growing season. Santa Barbara grow is 3 harvests a year, you can do a lot more with the same property. It’s the reason why 95% of fruits and vegetables in U.S. come from California’s Central Valley.
Irish Liquor Lawyer: As President of Vertical I am sure you are heavily involved in distribution and the marketing, what is your big function?
Smoke: My big function is to put the right team together to lead our sales and marketing efforts. I have been hiring heavy from alcohol, I have been hiring people from Pernod, Moet-Hennessey, PepsiCo, AB, and Gallo, drawing heavily from that world, they understand the framework, and the mindset which is what we want here. But they are excited about being in a new business. So, it’s getting the right people in place, making sure they are all aligned, and putting a lot of brand deals together, which is kind of like when I was a distributor, I would go get brands from all over the place and make deals as a distributor for the territory, doing that a lot for 3rd party brands and creating our own brands.
When I am not doing that, I am raising money. It takes a lot of capital, and we are always raising money.
Irish Liquor Lawyer: Could you see a day in the future where a vendor is coming down with beer and is also coming down with joints or edibles?
Smoke: Haha, I suppose maybe at some point, I don’t know, I think it will be more restrictive than that for the reasonably foreseeable future. One interesting thing to watch will be West Hollywood, because they issued 40 on-premise licenses and we don’t know what that will look like. Will that be a swanky soho house? It will be interesting to see how the market develops and what works. What is an enjoyable experience? That will be the first step to see what these are like.
The other thing in California, what they did do right is a special event license. You can apply for a special event license to have at a concert or live event. As long as you have a restricted area and properly card people, they can go in and buy and consume cannabis.
Irish Liquor Lawyer: People are going slowly in cannabis, when you look at alcohol, is temperance dead, at the state level it pretty much is, you can’t defend a state law based on temperance, no judge is going to listen to it. It will be interesting when cannabis regulations get challenged for restricting cannabis sales, or restricting advertising, when the state brings out the temperance argument, will judges buy it?
Can you analogize to alcohol and make the argument that temperance should be treated like it is in alcohol?
Smoke: I think that is a good argument, I will surely use it, it doesn’t prevent people from having those thoughts. A couple of articles came out in the New York Times and Wall Street Journal by the same guy that said, “what do you tell your kids about cannabis”, and he is anti. There are people that might as well still be watching the Nancy Reagan “This is Your Brain on Drugs” commercial. They are ignoring vast amounts of research coming out dispelling these old notions. There is still a decent size contingent that are still anti-cannabis, but that group is shrinking rapidly.
Irish Liquor Lawyer: Prediction, where do you see Cannabis five years from now, suppose its legal and interstate, will there still be the stigma that won’t allow it to be balanced with alcohol? What field are we dealing with five years from now?
Smoke: Cannabis has already won over the millennials, generationally, this fight is over. There is no question that they look at this as less bad than alcohol. And there is nothing that can be done.
The wine guys have done the best job of making their product a food and lifestyle thing. They have the least bad perception among the younger generation. But cannabis already won that generation. Just generationally, you and I are getting older, we’re drinking less anyway. The millennials and Generation Z they’re drinking less, they think it is not good for you.
Population is growing and so are premium brands, so it is not like it’s a dire situation. If you are a volume beer guy and price guy, you are pretty worried. There is still a market, but their level of share and growth is not going back up.
Irish Liquor Lawyer: Switching to liquor, what do you think will happen in the Supreme Court case? Do you think they will extend Granholm to retailers?
Smoke: I have no idea, haha, they are making a good argument around it, it certainly is hard not to buy the argument, but there are a lot of people weighing in against it.
Irish Liquor Lawyer: They may dismiss on standing alone!
Smoke: You may well be right, there are enough conflicting cases out there, that they may want to weigh in.
Irish Liquor Lawyer: Even if they limit the decision on the durational requirements, the case will be up again because there are so many circuit conflicts on the wine shipping issue.
End of Interview