Ep 5: From Compliance Startup to Acquisition — The Shift

with Michael Elkin · The Shift, a podcast by Headquarters

Michael Elkin on founding Cannabis Compliance, global licensing, and what separates operators who last from those who burn out.

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Auto-generated from the episode audio and lightly edited for readability.

0:00 You entered cannabis before most people even believed it would become a real global industry. Looking back, what was the moment where you realized this wasn't a trend, but a massive long-term business opportunity? And given your story, I mean, this is a I I think this is a perfect question for you.

0:16 Honestly, like I when I f I got into this uh I was driving to work one day and I was uh living in a small city in Canada um installing cameras in prisons and hospitals. I was a security integrator and I literally heard on the radio that there was a company that was going to be buying a rundown chocolate factory and turning it into medical marijuana. And that was back in 2013.

0:40 And and at that time I was like a what's medical marijuana? And there's a Hershey factory like literally right beside where I live. So, I think it was like the that that moment when Canada legalized on a medical uh platform back in um in in 2013, I think gave me a little bit of insight. I was like, "Wow, this is this is something, you know, that I grew up consuming. This was something that, you know, my parents uh you know, did smoke back in Woodstock, but then where there, you know, they were like, you know, anyone that's smoking weed is not going to get anywhere." And now here we were as a country getting ready to legalize medically. Um, and that was like my first like aha moment which led me to follow up with the next three years of installing security systems uh into the first legal medical grows in Canada. And then I would say the the second aha moment was you know after Canada got ready to go adult use. So we ran medical for four years. Um, and it was it was when I got a a random DM on LinkedIn from this other gentleman that said, "Hey, you know, I've been following your career over the last 3 years. Uh, and I know you're this security cannabis uh, guru, and I'd love to put a couple of people together and start a firm that would, you know, be this inflection, you know, driver of of actually writing applications." And back at the end of 2016, there was only 50 uh cultivators, licensed growers in Canada on the medical side. And if you fast forward to today, there's over a thousand. So again, I was at the right place at the right time. And then that DM turned into the forming of the compliance company that we started in 2016, which then um went, you know, like a rocket ship. and you know grew from me and three guys to uh 115 employees in three years and writing uh you know regulations and licenses in seven different countries.

2:39 So I think I've had two aha moments sort of like this was going to be something. Um yeah so those are sort of two big moments in my career.

2:49 What when you got that DM? What was your like initial reaction? Were like oh this is interesting. Were you confused? Were like amazing. What was do you remember what was that initial?

2:58 I remember like it's there's a very very first of all I still have the DM so offline I'll send you the the DM. Um and it was like I was very at the time I had spent three years um installing security systems in some of the coldest places in Canada. So some of these early grows were being built in like remote locations. So at when I first saw that DM, I was like I was like, "Oh man, can I really stop like running off to bum nowhere Canada for like three weeks at a time in minus 40° to stand on a ladder and install cameras." So that was my first thing like oh wow I can stop like running around and because at the time he really the the gentleman approached me he's like I just want you to like design the systems you don't got he knew I was in like northern Ontario and like uh southernmost part of like Alberta and really really cool places. So um so yeah so he uh he had he had he had offered me that uh that position and yeah um and then we were off we were we were off to the races and it was actually my um I remember I'd given this giant list of demands that I had wanted. I I really would have left for anything because I was so tired of doing all these installs. And then like in I think in the same DM he was like, "Yeah, for sure. Whatever you want. Like let's let's start this." And then I quit the security company in December of 2016.

4:28 And we had like uh officially launched what was then known as Cannabis Compliance Inc. or abbreviated CCI uh in April of 2017 in Berlin at the first ever ICBC um conference. That was the first time that we had made like a public appearance. We had traveled and we were like and we first started talking about like a full compliance firm that was able to like specialize in writing regulations in any country that it really just boiled down to rules and regulations. And if you had enough smart people in a room, you could figure out how to write an SOP for whatever. So that was the that was the birth of the compliance company.

5:10 Wow. And so so you know when when talk about the obviously you mentioned compliance. So you you've worked across compliance licensing uh security systems, business development now even and the brokering deals. So when you look at all of the experience from your perspective, what separates the companies that actually succeed in cannabis from the ones that burn cash and disappear?

5:36 Yeah. Like it sounds so cheesy, but it's it's like it's life. It's it's like what makes a successful company that I work with is what me what makes me successful. It's relationships, reputation, and execution. It's like who do you know? what have you done with those people? And then what do other people say about what you've done?

5:59 It's like

6:00 it's like that's why people answer my emails. That's why people answer like my phone. It's so like that's what differentiates. It's like what cannabis companies are aligned properly who have the people right working in the companies. What are the reputations in the either state or in the country? I find cannabis you have like one strike. This industry is so tightly knit. It's a small industry in a giant world.

6:26 Um, and like everybody knows what everybody else is doing and it's like when you over word travels quickly.

6:33 Yeah. So like like that it's something that I learned when we were running the compliance company like we were the most expensive firm and like I would say I would stand there at a table across from someone else and I was like this is what we charge to file the application and we're going to get your application. I'm like and they were like well how do you know that? I said cuz back at headquarters I have 75 of the smartest like regulatory people that are trapped in a room happily uh and they're not here. It's like my job is to to meet you, to give you the comfort that what is behind me uh is supporting you. So, it's really about like what makes those successful cannabis companies are the ones that have great reputations, great relationships, internal and like that the janitor and the CEO mop the floor the same way.

7:23 Like super important. Like there had like that message and culture has to bleed from top down. And it's like you can tell when you can tell when uh when that's not like that.

7:35 Yeah. Yeah. And also I I I assume that you know because of uh everything that you've done and and given that the focus that you've had on relationship I figure that's where your international experience came from as well. like working with all of these different countries, different states, and uh being all around the world and a lot of people outside industry don't realize how complicated cannabis regulation really is.

8:00 Yeah.

8:00 Especially now that we're expanding so much. But you've helped companies across more than 10 countries.

8:06 So, what's one behind the scenes reality about global cannabis that would shock most people? I don't know if it would shock most people, but really like cannabis has always fit into another box that had existed before cannabis. And what I mean by that is like a great example is what's going on in the United States right now. They originally classified cannabis with heroin, cocaine, and opiates. and now they're moving it down to a schedule three in the to the same category as like Tylenol.

8:43 So like these schedules existed right before cannabis was even brought into the equation. So like really if you're in an emerging market that is being regulated, first of all, it's a good thing.

9:00 Second of all, like there's a script. And what I'm trying to say by that is like there's no secret to figure out cannabis regulations. You literally need to like just follow the guideline of the box that it's in. And a great example of that is what's going on in the states right now because we're I'm helping tons of companies go from schedule one to schedule three. Right? M so like in their schedule one when they were with heroin and cocaine and all this stuff like they knew like they have 80% taxes cuz if you have an opioid factory you pay 80% in taxes but you're backed by big pharma so who gives it so like trying to educate the the new cannabis license holders in the states about this and saying like this is exactly what's going on in the states is exactly what's happened in Canada. So I think something that's going to shock that should shock the Americans right now is like this is a direct copy and paste. So the government and the United States government is literally looking for you to take this substance and like place it and hold it and interact with it the same way you would as a schedule one drug. So when you have a schedule even in a schedule one drug like you need to have like a safe facility to store inventory. So, a lot of these I'll give you a great example.

10:24 There's 4,000 license holders in California. There's only 500 of them that are medical, which means there's another there's 3,500 that are not medical that don't hold that will not be able to apply for this DEA unless they uh amend their license. So, like all those 550 something medical holders are already ahead of the game. So, they already have like secure storage. They already they already have those things.

10:50 So what I would say is like in any existing market that is getting cannabis regulated, look at the playbook that already exists and you're all your cheat codes are in there because there's standards, there's SOPs that that exist and you're just essentially taking the API and putting it into that like box. Doesn't matter if it's Tylenol or like cannabis. If you're making Tylenol, you're done your finished product. they want it in like a secure vault or whatever till it's picked up to be shipped to a pharmacy or whatever it is. It's the same thing with with cannabis and and all this re all this regulations that's coming in the states. Um yeah, and I would say and the other thing I would say is it's very hard for lawyers and accountants to write SOPs, standard operating procedures for like deviation. It's it's a game that we played in Canada for a very long time where there was like a few different people, a few different firms that could write an application that Health Canada would deem worthy of a license. And like less than 50% of the time, the ones that got stuck in the cues were all these lawyers, all these accountants, you know, like a lawyer is good in court. He doesn't not a lot of lawyers know like an SOP for destruction of plant matter or understand like transport of tissue culture but like

12:11 you know you have to go to like a subject matter expert and that's really what we developed CCI into you know we hand we hired the most cannabis knowledge people and then when there were none of those left I was like go let's go let's go pull from pharma you know like some of our best sales guys we have from Red Bull from Heineken, from big tobacco and like these regulated industries. So any like emerging cannabis market, I would say like anyone that's looking for licenses, make sure you're aligning yourselves with like regulatory people.

12:43 Yeah, makes sense. Also, that that is actually one of the things that we as a company also are really really focused on like especially when we're hiring people for uh for the job. The main thing is like you can be a professional as much as you want. you can have a bunch of experience all around the world with everything. We need someone that has cannabis experience, specific cannabis experience, because outside of that, it's going to be very hard for you to get into understanding what the cannabis market is right now. And um that is something that I really uh feel like is one of the things that also sort of kind of makes us stand out from other um standard outsourcing companies or whatever it is cuz it's like we need specific guys that had cannabis experience

13:31 period and that's it. I think that's extremely important. Um so help me out with this next question because I I wanted to make sure that I have my facts straight. So, um, you were part of CCI before it was acquired by Deloitte, right?

13:45 Yeah. So, I was part of the founding team. So, it was me and three guys

13:49 and

13:51 Yeah. Sorry. Sorry. Go ahead.

13:52 No, no, go ahead.

13:53 Yeah. So, I wanted to because this is obviously huge milestone, right? This is extremely big. What did the experience teach you about where cannabis is heading from a corporate and institutional standpoint? Because a lot of conversations that I had with a bunch of people from the industry is like how the corporate is affecting cannabis vice versa and you know what's going on with the whole cannabis culture/cannabis spirit and stuff like that and that's what I wanted to to hear from you as well. I mean like again you have no choice with when all these countries are regulating or are legalizing

14:32 um like you have to adult up and again it goes back to this whole thing that's going on in the states right now like if you want to take advantage of this adult use market and and you know expenses and taxes and safe banking then you need to like follow rules and regulations. So like like this is it's you're on the bus or you're under the wheels with this.

14:57 This train is going and you like it's like it's I don't want to say the black market and legacy is going to ever like not exist. I just think that there's room for like like there's nothing there's there's culture and there's everything that exists in California in a regulated market never went away because it was regulated. So what I would say is like there's further regulation coming, right? I mean the states are going to legalize eventually. They'll do interstate commerce. Eventually they if they get their standards in order will be able to be like Canada, you know, I think it I forget what the number was 4,000 40,000 metric tons shipped into uh international markets from Canada. Um but again like those those license holders in Canada pay their taxes. uh you know they're they're they're they're on the they're they're like grownup businesses. So what I would say is you know the corporate world is coming um and you either are going to be a part of it or you're going to be left out of it.

16:04 So and I think this first thing in the states is a first indication of who's going to be like I don't want to register for this because I'm seeing it now. I have a lot of California companies that I'm dealing with. They're like, "No, we don't want to. We don't want to give our information to the DEA and they're going to do this and they're going to that." I'm like, "No, you don't understand. Like, this is what it takes to get banking." You know what I mean?

16:23 Like, do you want to still have the duffel bags under your bed and garbage bags on your windows and worry about who's coming to your door or do you want to have Canada and like have the government write your purchase orders for your wholesale business? Like, that's that's the that's the way it's going to roll out here, right? like so you you either adult up and get you know and and again like there's there's a lot of benefits with this with this changeover. So I wouldn't say as much as it's going to be like corporate cannabis as as it is regulated cannabis.

16:56 So you know I think you have to pick your battles with what you what you want to like die on the sword for if that makes any sense. And also I mean it's a very speedy market and if you you also have to be fast in every aspect of it whether that's you know like new things coming into it whether that's the current things that are sort of expanding changing moving you have to just make sure you're following. If you're not then you're out and uh and I think that you really made a very good point there.

17:21 It's like at the end of the day you're not you might not even have a choice. So you win it out.

17:28 That's why it goes back to my whole like relationships thing is like you're it's so important about like who you're talking to, right? Like who's advising you, who you're talking to, whom you're selling to. It's it's everything. That's why like I have this other saying, you know, you're the average of the five people you surround yourself with. So like choose wisely, you know, like you got to who am I spending my time with? Who am I like tying my, you know, ty what I tie my horse to? That's the saying. Anyways, yeah, it's just it's super important because again, you have like one shot in in this industry and yeah, you want to be around doing this for a while.

18:06 No, I I completely agree. And uh also, you know, speaking of uh the relationships and and ultimately again the the way that you're sort of everywhere in the industry. So as someone who talks to operators, brands, investors, executives, uh, and so on constantly through Canna Broker, when you look at everything and when you, you know, go off fish a little bit in the future, where do you honestly think the cannabis industry is headed in the next 3 to 5 years, who's going to win and who's in trouble? Um, if if we take away this aspect of what you talked about just now, which is, you know,

18:42 follow don't follow and stuff like that.

18:44 Yeah. wellestablished brands, multi-state brands, multi multi-country brands, brands that have established uh retail footprint that understands supply chain that understand what it takes to pack like 50 cases of like three and a half mylar bags, you know what I mean? Someone that understands how to ship 100,000 vape carts wholesale on a pallet to here to there. I think once the states gets their stuff in line, I think once Germany gets their stuff in line, like you're going to see like a full like supply chain of CPG like goods and and and and trade and commerce. And I think, you know, you'll you'll have like supply chains that'll be international.

19:29 I think Canada's going to play a huge role while the United States gets all their stuff together. That's why I have a huge interest right now to bring a lot of American brands into Canada. and then start immediately exporting those brands on the German and the medical platforms. But the German and the medical platforms are looking for established brands that have stories to tell that they can then start telling these stories to to markets that don't exist, right?

19:56 So I think that's hugely important is like get your like company story together, be existing in legal markets and as many as you can um and have like good relationships in those markets because like those international markets will come looking for the stories to tell

20:15 and and Mike, so when you talk to brands that you see have potential to to become one of these

20:23 and How accepting are they of what you're suggesting, of what your idea is and what you feel like is is what's going to be good for them. How hard it is for you to negotiate them or or or make them follow what you're saying?

20:41 Like right now, not at all. Look at the brand lineup for Mary Janes in Berlin in June. Every freaking sticker that's on this wall is is at Mary Jane's and there's no adult use market in Germany.

20:58 It's it's medical. So, like every single one, every single brand that I'm talking to and I'm I'm speaking to the Wizard Trees and the Preferred Gardens and the Alien Labs, like that from my experience is like that's the pathway now is get into Canada, get into a few hundred stores, build that brand because in like three years like we there's going to be some type of hybrid in Germany, whether it's through consumption lounges and pharmacies and this and that where like they will they'll we'll be exporting pallets of of like finished goods. into Germany for distribution.

21:33 So that's that's my like that's what I'm that's why I go to California lately. Uh in at the ICBC show in April, there was a ton of brands that we're speaking to now. Um so they also see the writing on the wall and and even as the states does this whole rescheduling, they're still like 3 to 5 years away from being able to move anything out of their country. I think at best interstate to ship stuff from California to Michigan. Yes, that that's going to happen and the DEA is going to regulate it. But again, Canada was medical for almost 5 years, then it was adult use. States is doing the same thing. It's the same playbook.

22:10 Yeah. Yeah. Yeah. As you said, copy paste all over.

22:13 Copy paste. There's a DEA portal application the same way Health Canada had a DEA portal application. It's hysterical. I'm literally living through that saying if I was able to go back in time knowing what I know now. This is literally me going back to like 10 years ago or whatever it is, knowing what I know now. That's why it's really funny for me that that's why I'm going to California next week. I'm sitting down with I think 10 of the biggest brands, excuse me, to like really explain to them. I'm like and we and we've been talking to a bunch of them over the last like three, four weeks and they're like, "Yeah, this is what it says." I'm like, "I know. This is what they said." They're like, "We have to do all this." I'm like, I know. This is exactly what we did. So, yeah, it's it's it's it's a it's a fun place to be right now.

22:58 Yeah. But it's also good for you because you've been there.

23:01 Amazing.

23:02 It's amazing.

23:03 Yeah. I love that.

23:04 It's amazing. I was on a phone with an MSO this morning who was like, "Our lawyer said this." I was like I was like, "Can you can you get your lawyer on your phone with me? Our he doesn't want to talk to you." I'm like, "No, no, no." Like I was like, "What is it?" Because they don't want to charge me or like he doesn't want to talk to you. I'm like, he's scared of me. The I'm like,

23:23 yeah, because any again, it's it's lawyers are are very well in a in a court of law. They're very bad in a pharmaceutical grade facility.

23:32 Same thing with an accountant. Take me an accountant when I get an audit, not when I got a a regulator knock on a door and ask me to see SOP for this and can you pull up camera 4 for growroom 3 uh two weeks ago. Like that's where you have to have like proper compliance knowledge.

23:51 Yeah, makes complete sense.

23:53 Uh Mike,

23:55 as always, it was extremely extremely useful talking to you because

24:00 yes,

24:01 a bunch of knowledge just came out and like, okay, I love every single thing uh about this one. Can you tell whoever's viewing where they can find you on social media?

24:11 Yes, for sure. First of all, thank you so much. And I think I have to make my way out to Serbia. Wink wink. Right. That's that's Yes.

24:18 You probably very soon. So yeah.

24:20 Okay. Good. Uh you can find me on Instagram, the Canna Broker. So that's no E. It's the Broker. I'm on LinkedIn, Michael Elkin. Um and yeah, you can catch me any like major trade show that's happening over the next like six months in North America. Um and yeah, really thank you so much for the opportunity speaking to you and um love the connection. the extreme pleasure of my guy and uh really looking forward to meeting you again in person. Enjoy the rest of the day and we'll chat soon.