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Bill Silver-CannaCraft

Author: Bill Meagher
July, 2018 Issue

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From the outside, the CannaCraft offices look like any of the others in the Santa Rosa office park, standard concrete and smoked glass, flat roof and generic. No signage announcing the business. A simple instruction sheet on the door advises guests to ring a bell.

But things change when you hit the chime, and the door releases. Like a pungent breeze the unmistakable scent of marijuana crosses the lobby and embraces you like a college friend’s hug.

And the changes keep coming. The office of CEO Bill Silver, Ph.D., is not far off down a wide hall that in a former life might have been a roadway. His suite is large, but not pretentious. A desk with a couple laptops reside next to the windows. A conversation area with a coffee table, a couch and leather chairs greet guests. The whole place has a pronounced Asian vibe, composed and still. A large votive candle burns on a counter and the world’s smallest Zen garden sits on the table. 

In the middle of the couch is Silver, his companion a steaming cup of tea. He’s dressed this day in black jeans and a black long-sleeved pullover, but he isn’t making anybody think of Steve Jobs nor Johnny Cash.

The 53-year old Silver is decidedly his own cat.

The former dean of Sonoma State University’s School of Business and Economics, Silver’s office doesn’t scream reformed academic and for that matter neither does Silver. He comes off as smart and easy to talk with, as at home listening to a story and telling one. You don’t picture him in the classic sense, standing and delivering from notes, lecturing 300 kids worried about how they’re going to pay off their student loans.

But Silver was at SSU for the better part of the decade, shaping minds and raising millions of dollars to fuel the university’s aggressive expansion. He had a hand in raising better than $20 million in donations and grants for the university, not an insignificant amount of cash for a state school in California. He was instrumental in bringing the Wine Spectator Learning Center to SSU. The 15,000 square-foot center opened in May and features classrooms, common areas and a wine business library. The new facility came with a price tag of $11 million, $3 million of which came from the voice of the wine industry the Wine Spectator, which included branding consideration.

The naming rights inclusion demonstrates how the university has moved towards more business-based concepts since Silver showed up from the University of Denver. “I actually took some heat from some of the faculty when I said we need to run the business school like a business. It’s not how educational institutions have operated in the past.”

Silver also rode herd over an expansion of how the school of business and economics and is run, which included an executive-in-residence program, giving students access to executives in the business world. He also ground the program in the current environment and mixing it with the more traditional academic teachings. The enrollment of the business programs jumped by 40 percent while Silver was dean, though taking that number apart might demonstrate that pursuing a Bachelor of Arts in business simply grew in popularity apart from the program or its leadership.  

Nevertheless, moving from a place where final exams and bowtie wearing professors are replaced by cannabis extraction standards and tie-dye t-shirts is too delicious to pass by and there was no shortage of media coverage of Silver’s departure. It was framed as abandoning the grapevine-covered halls of academia in favor of offices where another type of leaf was prevalent, and Silver protests gently. 

“I was on leave,” he begins, setting the record straight. He goes on to say that he was taking a planned break from teaching and that he had met the founders of CannaCraft, Ned Fussell and Dennis Hunter while doing some consulting for them. They were engaged in discussions about their business and where the company might go and how it might get there. Silver characterizes Fussell and Hunter as “scary brilliant.”

The more he learned about the business and the industry, the more intrigued he became. That fascination must have been a two-way street because the standard consulting gig morphed into an offer to steer the CannaCraft boat. It should be noted that Silver will be back in the classroom at SSU, but he no longer has to concern himself with the responsibilities of being a dean.

Silver is not your typical top-down CEO, directing policy or making critical decisions in a vacuum. He says his job at CannaCraft is essentially putting the vision of the founders in play, handling the business nuts and bolts so that Fussell and Hunter can use their talents in ways that help the company grow.

The company

CannaCraft makes and wholesales Care by Design medical cannabis products, AbsoluteXtracts vape cartridges and Satori edibles. It has 150 employees and while the privately-held company doesn’t talk about its finances, like any proud CEO, Silver boasts of doubling revenues year over year. CannaCraft is located in a building that formerly belonged to Medtronic, a medical instrument company. It came complete with space for research and development as well as a pair of 10,000 square-foot clean rooms.

While content to lead the company in a collaborative way, it’s clear that Silver is putting his stamp on the business. He hired Matt Kulczyck, a chef who worked for Thomas Keller of French Laundry fame producing sweets. At CannaCraft, he heads up the company’s edible program.  

While medical cannabis has been legal in California since 1997, it has taken the better part of two decades for the sector to iron out operation standards as well as regulations of how California patients may interact with cannabis and how that product can reach those patients.

CannaCraft’s approach to its Care by Design products seeks to set the brand apart by producing products of exacting standards so that patients using the company’s sublingual spray at an 18-1 CBD-THC ratio today, can buy the same exact product at the same dosage six months from now.

The Satori edibles are formulated in the same way, where quality ingredients are more like a religion than a mantra. The strawberries used for the dark or milk chocolate strawberries are imported from France because they are sweeter than those found here in California. On the other hand, the almonds and raisins used are local.

The company supplies more than 500 dispensaries across the state and its business model centers on establishing its brands as dominant in a nascent industry. “We are the brand leader in California. We want to grow nationally and internationally,” says Silver.

The company’s founders add color to a company that is in a colorful industry. Dennis Hunter was active in the cannabis industry as a grower in the Emerald Triangle in Willits before the sector had the benefit of licensing. He grew the plant and sold it to dealers. But in 1998, he was arrested and in 2002 he served seven years in prison for unlawful cannabis cultivation.

In 2016, Hunter had another brush with the law as CannaCraft was raided by dozens of Santa Rosa policer officers. The police had been tipped that the company was using butane to extract cannabis oil—a dangerous and illegal method. The police seized about $500,000 in cash as well as $2 million in equipment. Hunter himself was briefly arrested, though he was never charged with an offense.

Though the tip was bogus and in fact there was no butane in the facility, the raid injured the company in more ways than one.

The raid cost the company in lost production as it had to build new extractors from scratch and missing out on revenues from the down time. The company settled with the city over the raid this spring, paying out $510,000 in civil penalties.

“The raid is part of our company history and there is no harboring of ill feelings or blame. It was a learning experience for us, and it was a demonstration of how important transparency is,” says Silver, who was not a part of the company at the time of the raid. “While they took all of our equipment, what they didn’t take was our packaging. People in the industry helped us and within a week we were back up and running a little. There is something special about the way people in this industry look out for each other.”

The industry

Like all chief executives, Silver can break down the numbers. But the numbers that represent the current cannabis industry are daunting, even for Silver.

Let’s begin with some ideas about the value of the industry. Oakland-based Arcview Market Research, the premier cannabis data operation, said that the market was worth almost $10 billion last year. And it projects that value to grow to $57 billion by 2027. Wall Street-based Cowen & Co. is even more enthusiastic, putting value at $75 billion by 2030.

California is widely regarded as the most valuable cannabis market in the world, despite the rocky start that has dogged the beginning of adult use sales in the Golden State. Statista reports that California sales of cannabis is bud to $6.59 billion by 2025. That number was released before the state of California revealed that it made just $34 million in tax revenues for the first quarter of 2018 because of the confusion of state and local regulatory processes.

On a national basis, 29 states and the District of Columbia have legalized the use of cannabis for medicinal purposes. Nine States and DC have laws allowing adults to purchase marijuana from licensed dispensaries for recreational purposes. California, of course, became one of those states Jan. 1, though just one in seven cities or towns allow the sale of some sort of cannabis, according to the Californian, a publication that covers the cannabis sector in California. Locally, Sonoma has a number of outlets, while Marin has but a single dispensary and Napa is still waiting.

Nationally, 63 percent of the country’s voters favors simply making marijuana legal, according to an April poll of registered voters by Quinnipiac University, the highest total ever. Medical pot has the highest approval with 93 percent of those surveyed saying it should be legal.

From a traditional standpoint, there are 17 U.S. companies that make up the Marijuana Index, with a market cap of $7.45 billion. In North America there are a total of 356 companies listed in the U.S. and Canada. Cannabis companies in Canada make up 75 of the 279 companies on the Canadian Stock Exchange or CSE, leading jokers north of the border to dub the exchange the Cannabis Stock Exchange.

Just nine cannabis stocks trade on the New York Stock Exchange and only one is listed on Nasdaq, and none of them are U.S. companies that either grow or sell marijuana. The vast majority of the companies trade on one of the platforms that belong to OTC Markets Group, a place that gives companies not-ready-for-prime-time market exposure.

Institutional capital has stayed on the sideline as investment banks can’t get into cannabis because of the federal laws. Some capital has come from private equity firms, a handful of hedge funds and family offices. But most cannabis companies started with money from friends and family.

There is one other number that needs a breakdown, the Drug Enforcement Agency Schedule 1 roster of drugs. The DEA ranks drugs according to the danger of abuse, medical use and a number of other factors. Schedule 1 represents the drugs that the DEA feel are most dangerous and require federal law enforcement personnel to participate in interdiction. The drugs on that roster include heroin, LSD, ecstasy and marijuana. From the DEA’s perspective cannabis has no recognized medical use despite the Food and Drug Administration’s approval of GW Pharmaceutical’s anti-seizure drug Epidiolex in April.

The DEA scheduling is often referred to as the federal prohibition, and both cannabis companies and investors are anxiously awaiting cannabis being removed since that will allow traditional investors to enter the market and will turn on the spigot to more capital.

But some people are waiting for the change for a different reason. Changing the drug’s federal status will allow universities, clinics, hospitals and medical researchers to begin exploring cannabis for medical purposes, something highly restricted under its current status.

Count Bill Silver in that group.

The guy

Cannabis has been used to treat cataracts, seizures, as well as inflammation, loss of appetite, pain, and nausea associated with the treatment of cancer.

Silver knows something about cannabis treating patients. His mother-in-law, mother and his son, Benji, have all been treated for cancer and all of them suffered with the nausea and pain tied to chemotherapy.

While at the University of Michigan doing his undergraduate work, Silver inhaled. But it wasn’t until cancer hit his family that he began learning something about cannabis from an efficacy standpoint, and as he consulted with CannaCraft he learned much more.

“I couldn’t understand why we weren’t finding out more about how it could work to treat patients, why would we not want to learn more about it,” he said, sounding a bit like a college professor.

It’s the medical side of the business that seems to drive Silver’s intellectual curiosity. He brings up GW Pharma’s recent success with the FDA as an encouraging development for cannabis in general, but more importantly for how the plant can help people.

For thousands of years practitioners of Eastern medicine have used plants and nature as ways to directly treat diseases rather than the traditional Western reliance upon using chemicals to treat symptoms. For Silver, the Eastern way of looking at things fits like a glove.

He has long studied the martial arts that includes Tai Chi and Kung Fu and has traveled to China. “The martial arts help me to stay centered, both physically and spiritually,” he says.

While there are many CEOs across the country who have a black belt in debt financing or reducing head counts, Silver actually has skills in the martial arts to go with the Ph.D. from the University of Washington.

A father of three, Silver is married to Adrienne Silver, a pediatrician with Kaiser Permanente. He has a potent sense of humor as demonstrated by his LinkedIn profile. It claims among other things that he is a “World Navigator, Infinite Learner, Professor of Risky Business, Shaolin Monk, Winery Explorer, Knight of Gondor, Hitchhiker, Physician’s Assistant and Taught Benji, Zach and Ari how to train a Dragon.”

He says that colorful description of his skill set was inspired by the need for creative copy to go with his recent book, Way of Zing: A Guide to Aligning Work & Life, which he wrote with Mark Nelson of the Nelson family of companies. It was published last year.

The tome is full of helpful guidance not so much about the idea of balancing your life and your work, but rather incorporating the things that matter into how you pursue your life. From the book, “Imagine living a life where you are doing exactly what you are meant to do, pursuing all the things that truly matter in your work and in your life. Are you living this life?”

Show me another dean of biz school in America that writes that paragraph.

Silver isn’t a normal executive, which is meant as a compliment. I spend a fair amount of time during my day speaking to business execs of every stripe including CEOs. They frequently go out of their way to school you on their successes, minimizing their setbacks or finding reasons that are not attached to a giant arrow pointing at them, as to why a particular strategy did not turn out so well.

If the cannabis industry was a person, it would be a rugrat, trying to figure out how to walk. It’s a mix of old school guys like Dennis Hunter, who Silver describes lovingly as OG (or Original Gangster), and new money. And those in that mix are trying to figure how to move the industry from a place where people make Cheech and Chong jokes to someplace where people will view marijuana in much the same way as they see wine and one day medicine.

Silver thinks wine and marijuana have much in common. “At the end of the day, people relax with a glass of wine,” he said. “Recreational or medical cannabis, what is it? Relaxing and having fun is good for you.”

The future of the cannabis is unclear at this point, though some educated guesses certainly have the ring of truth. Once federal prohibition is removed, industries like tobacco, liquor and pharmaceutical will pour in with both wads of capital to invest and buyout fever to move on consolidation plays. Liquor conglomerate Constellation Brands, which owns Robert Mondavi Wines, is already in the mix. It owns about 10 percent of Canopy Growth, a Canadian-based cannabis giant. AbbVie Pharmaceutical already has one drug, a synthetic form of cannabis to treat nausea, in its portfolio.

And of course, investment banks like Goldman Sachs and Morgan Stanley are poised with business plans in hand, waiting for a nod from the feds to get into the green rush just as soon as that pesky DEA (Drug Enforcement Administration) issue is addressed.

Silver is smart enough to know that predictions beyond the simple observations above are at best a fool’s errand. “There is no roadmap for this industry going forward.”

Again, not your off-the-shelf chief exec. He was smiling when he said it, without a trace of fear in his eyes and maybe just a smidge of irony in his voice.



 

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