Green Check Verified: Hi Alex! What brought you to the cannabis industry?
Alexander Leonowicz: I went to law school in Detroit and had two friends that were Caregivers. In 2008, Michigan was one of the first states to allow for medical marijuana. When I was in law school, I was always fascinated by medical marijuana. I learned in my constitutional law class that cannabis was federally illegal, yet you were permitted to grow the plant under state law. It was so interesting to me how these two sets of laws worked together, or didn’t!
When I started at the law firm, I struggled to find work. I was a new associate in a bad economy, and I was always worried I was going to get fired. I got to know more folks in the cannabis space and helped them from a business law standpoint.
” I learned in my constitutional law class that cannabis was federally illegal, yet you were permitted to grow the plant under state law.
That’s really my background: forming companies and helping them run. At the time, attorneys in the cannabis world were mainly criminal attorneys focused on ‘How do I keep my clients out of jail?’ I looked at it more like ‘How do you actually run and form a real company here?’ So I brought it into our firm, which was very taboo. I almost got fired. A lot of the senior partners made fun of me or thought this was the craziest thing, that it was going to get the entire firm in trouble, and rightfully so.
I initially got my start in Illinois. Illinois advanced their medical facilities model faster than Michigan had, beating them to the punch in terms of commercial-type facilities. They allowed for large-scale cultivation facilities to service the medical model instead of small operators growing in a basement. It was really different. So, we helped out with some of the licensing work that was there in Illinois, and as a couple of those companies expanded across the country, I started to learn a little bit more about the industry and how to set these companies up. Those companies kept getting bigger, and eventually Michigan converted their model to the new commercial-style cultivation and processing facilities.
” That’s really my background: forming companies and helping them run.
GCV: What finally persuaded you to pursue your own cannabis business?
Leonowicz: I started to ask, ‘Is this something I could do myself? I’ve done four or five of these for other people, how hard could it be to start my own?’ So, myself and three other individuals that I knew from a past life in the legal world decided to pursue one grow license in a small town called Buchanan, Michigan.
Buchanan was one of the early adopters, and turned out to be a great fit. The city was looking for an industry to help boost their economy. We were looking for a place to settle or ‘root down’.
” The city was looking for an industry to help boost their economy. We were looking for a place to settle or ‘root down’.
In Michigan there’s two governing agencies when it comes to cannabis: there’s the state and the local municipalities. The municipality has to opt-in, which means that they would decide which facilities they want, how many, and where they want them. People would flood in, submit their applications, and there’d be a voting process or some sort of scaling in which they determine who gets the licenses. At the beginning, it was very aggressive; you wouldn’t necessarily hear about cities coming online, so you really had to be quick and nimble early in the game.
GCV: How did Redbud Roots get its start?
Leonowicz: Buchanan is called the Redbud capital because of the Redbud trees that fill the city. They have Redbud Court and Redbud Insurance, etc., so when it came time to selecting the name of the company “Redbud Roots” seemed fitting.
We received one cultivation license and the city was great to work with. But they also had additional cultivation licenses available. We thought, ‘Hey, let’s try it with one Class C, which is 1,500 plants, see how it goes, and if we want more we can always go back to the city because they’re available.’ Redbud was supposed to be one grow, then it became two, then it became three, and now we’re up to about 12,000 plants total that we cultivate in the state of Michigan. It’s a mix between medical and adult-use. We also have a medical and adult-use processing facility. And then we have four retail locations, as well.
” Redbud was supposed to be one grow, then it became two, then it became three, and now we’re up to about 12,000 plants total that we cultivate in the state of Michigan.
GCV: Wow! You definitely grew past one grow operation quickly.
Leonowicz: Yes! We finished our cultivation and processing facilities first, and then focused on retail. A lot of companies in Michigan jumped right into the retail facilities because that was the easiest way in, but if you didn’t have product to put on your shelves it didn’t really make sense to open the store. I think the order in which you open your facilities is a big deal, and I think a lot of people overlooked that. So, if you ask us, ‘What was one of the things you did correctly?’ that would be one of them.
GCV: That is really impressive growth. How big is the Redbud Roots team?
Leonowicz: In December 2018, when we received our first license to cultivate, we had around eight employees, and as of today we have about 93 employees total. For each of the three new retail facilities there will be about 10-14 individuals that get hired, so you’ll probably see an additional 30-35 individuals that get hired in the next three months or so.
GCV: How’s the experience been growing the team?
Leonowicz: A lot of times companies that grow as quickly as ours lose that intimate family feel. When people ask us, ‘What are you most proud of?’ I think our culture, the people and the atmosphere when we come into work everyday. It’s really the best part of our company by far.
You’re in a small town in southwest Michigan where there’s not a huge metropolitan city and not a lot to draw to it, so how do you attract and retain employees? I think it really starts with the culture and the energy. We’ve all had that job where you think, ‘This is the worst job ever’ when you come in every day. What we’ve done is try to create an atmosphere where we love coming there every day, and I think our people do, as well.
” What we’ve done is try to create an atmosphere where we love coming there every day, and I think our people do, as well.
GCV: Have you struggled with a banking relationship in the past?
Leonowicz: We’ve definitely struggled. At the firm I was at before I came to Redbud, the biggest portion of its practice was banking, specifically credit unions in Michigan. So, when I transitioned to Redbud full-time I thought, ‘If anyone’s got a leg up in the banking world it’s clearly me. I know all the players, I know what they’re doing.’
Even with that, I struggled to find a house that we could actually utilize for Redbud. There wasn’t anybody doing it. Small credit unions have said, ‘This isn’t the industry we thought you guys were in. You have to go elsewhere.’ All the way up to the TCF’s of the world and those institutions that are saying, ‘Listen, we love what you’re doing, but we just can’t be affiliated with a cannabis company.’
” We love what you’re doing, but we just can’t be affiliated with a cannabis company.
It was challenging, and it was tough to find a banking partner that didn’t gouge you in terms of pricing. So, we were very lucky and very happy to find our current credit union, and we’ll continue to work with them for the foreseeable future because they were there from the beginning. They were there for us when nobody else was. That really went a long way for us, and I think that’s why we enjoy working with them.
GCV: You mentioned that you had some banking partners, but that they didn’t last too long. What was the biggest struggle there?
Leonowicz: I would say the uncertainty of it all was a big struggle, not knowing when our account was going to be closed and when we’d be asked to shift. We were constantly worried about the interruption our business that a closed bank account would create.
I think it’s one of those portions of a business that is so often overlooked because it’s so simple and streamlined for most ordinary businesses, but it’s one of the biggest challenges that cannabis companies face, especially out of the gate.
” I think it’s one of those portions of a business that is so often overlooked because it’s so simple and streamlined for most ordinary businesses, but it’s one of the biggest challenges that cannabis companies face, especially out of the gate.
GCV: What else would you tell people about what it’s like being a cannabis entrepreneur?
Leonowicz: I would say that the regulatory challenges that you face day-to-day just being a cannabis company are extreme. Every single thing that you touch or do – because of the fact that you’re cannabis – is challenging. Things such as your payroll; ‘How do I get my employees paid through a standardized payroll company?’ There’s not a lot out there that will work with cannabis companies. Construction, too; it’s hard to find a construction loan or bonds or someone that will just do business with you because they’re scared of the blowback to their financial institution.
If I had to send a message to financial institutions, it’s more of an awareness to say, ‘Every single thing that we touch and do is difficult already. So, for a financial institution that’s seeking to gain more cannabis businesses, the fact that you can make the process easier and a little more streamlined and with great communication, that’s really going to be attractive for large-scale operators such as Redbud Roots.’ If you can make our lives a little bit easier, especially when everything else is so difficult, that will go a really long way with a company like ours.
” If you can make our lives a little bit easier, especially when everything else is so difficult, that will go a really long way with a company like ours.
GCV: Do you think it’s important for a financial institution to understand how cannabis businesses operate?
Leonowicz: Yes. A lot of institutions now come out to your facility and meet you in person, which I always thought was probably the smartest and the best thing they could do. Most people think it’s just a bunch of guys sitting around smoking weed with some lights hung up, and then when you walk in you’re like, ‘Woah, this is a totally different operation than I was anticipating.’ Understanding the business itself and the intricacies that go into it, albeit licensing or operations or cash flow, really getting your hands in the dirt with it all, I think it would be great for financial institutions to understand how this new industry or business works and operates. Then you can start to cater your services appropriately, understand where gaps are, and really get to that endpoint where you’re making folks lives a little bit easier because you understand how they work. I think it’s just good business.
” I think it would be great for financial institutions to understand how this new industry or business works and operates.
GCV: We’ve spoken to many financial institutions that are very surprised by what they see during their first few site visits. We’ve heard a few say that they felt like they were in a doctors office and that it was not at all what they had imagined. You can tell when their perspectives start to shift.
Leonowicz: There’s another individual on our team who has a long story with cannabis and began utilizing cannabis when he was younger to help him with various medical aliments. Somebody recommended cannabis oil to him, and when he couldn’t find the dosage that he liked or the right strains he began experimenting and learning how to create his own medicine.
There is a good percentage of folks that utilize cannabis for medicinal purposes, and when you can start to understand that you’re helping people alleviate pain that they ordinarily have to deal with on a day-to-day basis, that’s a really powerful thing. It’s truly one of the pillars that Redbud was built on.
” When you can start to understand that you’re helping people alleviate pain that they ordinarily have to deal with on a day-to-day basis, that’s a really powerful thing.
Now, adult-use is 50 times the market of what medical is in a state like Michigan. There’s 7.1 million people over the age of 21, and there’s only 300,000 card holders. That’s massive compared to any other state in the country – I think Michigan is second for its cardholder population – but 300,000 people versus 7.1 million people… that’s a big difference in terms of your overall marketplace. We’ll always be a medical-focused company, but you can’t ignore the adult-use market and continue to survive.
GCV: Do you like doing business in Michigan? Has it been a positive experience?
Leonowicz: It has. I look at it from a legal and regulatory standpoint, so that’s a different set of eyes. In terms of what the state has done compared to other states, I really think they’re doing a fantastic job, and I don’t say that lightly. Nobody gets it perfect out of the gate. There’s always rules and changes that don’t make sense, but overall from a 10,000 foot view, I think they’re doing a pretty good job.