10 Questions With... Harvest Health & Recreation

Departments - Upfront | 10 Questions

CEO Steve White and Cultivation Manager Josh Barnhart get candid about how the multi-state operator is expanding its footprint, as well as future market outlooks, social responsibility and more.

March 14, 2019

Left: Steve White, CEO. Right: Josh Barnhart, Cultivation Manager.
Photos by Brandon Tigrett

In late 2018, Harvest Health & Recreation CEO Steve White told Benzinga that he and his team were setting out to create “the largest cannabis company in the world.” The company is well on its way to achieving that goal: It already is one of the largest cannabis companies in the U.S., a feat accomplished through a deliberate, organic process over the past eight years.

The company holds cannabis business licenses and partnerships in 12 U.S. states, and executed a reverse-takeover that brought it to the public trading floor of the Canadian Securities Exchange in November 2018. (Editor's note: Shortly after publication, Harvest Health & Recreation announced the acquisition of Verano Holdings, bringing the Harvest portfolio to some 200 facilities across 16 U.S. states.)

“For us, that was just addressing the reality of where the market was going and making a decision about needing a different currency to make acquisitions so that we could catch people [who] were ahead of us and then stay ahead,” White tells Cannabis Business Times. “It reflected a fundamental shift in tactic, but not a shift whatsoever in who Harvest is as a company.”

Who Harvest is as a company is a tale that stretches from humble beginnings to more aspirational market-share power moves in an industry that’s normalizing rapidly.

Here, White joins Harvest’s Camp Verde, Ariz., cultivation manager, Josh Barnhart, in a conversation about where Harvest is now—and where the company is planning to go next.

Steve White, CEO, Harvest Health & Recreation

Eric Sandy: One recent headline was your acquisition of CBx Enterprises. Could you describe that deal and how it speaks to your broader acquisition strategy?

Steve White: We believed there are some product manufacturers who have demonstrated they can get shelf space in a competitive market. In addition to that, there’s some human capital we picked up in that acquisition. And Nicole [Smith], who was the CEO of CBx, is a very impressive human being. She is the founder and former CEO of Mary’s Medicinals. So, she had an even longer track record of developing great brands and popular products and overseeing the process by which those products get onto shelves and get into consumers hands. We weren’t as strong there as we were with our retail experience and with our cultivation.

For us to pick up an organization like CBx, we realized we could, within about 90 days, release their products into Arizona, California, Florida and Maryland. That, for us, was a very easy acquisition. We [weren’t] just acquiring [a company], we were acquiring the ability to more quickly generate revenue in a number of additional states.

Sandy: How important to the company is both recruitment and employee retention in management and cultivation?

White: This is not something that’s limited to cannabis, but when you hire an employee, you make an investment in that employee. You train that employee. You integrate them into your culture. It’s really important that you retain them. One of the ways we evaluate our HR department is through retention metrics that we measure regularly. It is particularly critical when you are growing at a rate of nearly 100 employees a month. So, if we’re trying to add that many employees—and of course we’re simultaneously losing [some]—it just makes the recruitment task all that much more difficult.

It’s also really challenging in cannabis when you have to set up complete infrastructure in each and every state. If you don’t have continuity amongst the management team, you’re going to get different experiences and different products in Maryland than you would in Arizona. And that’s not consistent with how we think we need to build a brand in cannabis.

Josh Barnhart: We have a philosophy here, where we don’t just cultivate our plants—we cultivate our people as well. We found that having the right people in the right place really helps us achieve our goals and sets us apart from the rest.

Sandy: How does that consistency and institutional knowledge that we’re talking about here drive the needs and design of the facilities?

Barnhart: I think it drives the design, for future facilities, for basically streamlining our processes from one facility to the next. ... We’re constantly looking to improve operations, and [address] what our consumers and patients really need and what they’re focused on. We know what works here, so we’re going to take that philosophy [to] all of our new facilities we’re designing to create a consistent, streamlined business.

Sandy: In different states, what patient purchasing and product trends are you seeing?

White: What we’re seeing over time is that the maturation cycle in a given state is quickening. Early on, you saw states take a long time to go from flower to the more convenient products. Now that shift is happening much, much quicker.

The historical cannabis user was a smoker, predominantly. You’re now seeing a [rush] of new cannabis users coming into a medical[-only] market, for example. And they trend more quickly away from smoking. That’s [just] one example.

Josh Barnhart, cultivation manager, Harvest Health & Recreation.

Sandy: How does that sales data drive genetics or cultivar selection?

White: From a high level, you start looking at genetics [and] you start talking more in terms of biomass and less about specific, smokable flower. And so, your genetic selection will trend toward those things that will make a better base oil or a better concentrate. You start anticipating where the market is going and what you’re going to use your biomass for.

Barnhart: [Sales data] does drive what we’re doing [in cultivation]. It gives us an insight into what our patients need [and] ... good feedback from [them]. We’re not doctors, we’re not geneticists, so we rely on our patients’ feedback to provide a real quality medicine that is going to be helpful.

Harvest Health & Recreation employee Pamela Gonzales harvesting plants

Sandy: Josh, could you elaborate on the role that tissue culture plays in your work and that sense of consistency as the company is expanding?

Barnhart: We’re really excited for the whole process of tissue culture. It’s going to allow us to take our genetics and clean them up. Having tissue culture, we start fresh each time. We know we’re getting the best possible genetics from each strain every time we plant.

As we scale and get larger, it’s very important to maintain that consistency for the patient. With tissue culture, it’s going to allow us to do that—cleaning up any diseases that genetic may have developed over time. We know we have the same genetics time in and time out, so we’re providing the best possible medication for the patients.

Harvest clones in the process of growing roots and being prepared for transplant.

Sandy: How does the company have those longer-term conversations and how do you visualize five-year plans?

White: In five years, I don’t think you’ll see any of the companies you see today. I think they’ll have been acquired [by larger consumer packaged goods companies] once the STATES Act passes, and once the New York Stock Exchange and NASDAQ allow companies to capitalize on the fastest-growing industry in the country. By the time they’re permitted to do that, I don’t know that we will have had the head start necessary to survive that. So, what you do in the meantime, though, is everything you can to get the biggest head start you can in the event that doesn’t happen.

Harvest has a $2.2-billion market cap today. That is, relative to the companies that are looking to get into this industry, really small. We will do everything we can to grow and to compete with the Diageo’s of the world, but we haven’t been around for 50 years and don’t have the deep financial resources [nor] the banking relationships and everything else that some of these other companies have. So, we need to have an eye on how we are positioning our organization for when that transition starts to occur.

Barnhart: This industry is moving so fast. For Camp Verde alone [Harvest’s cannabis greenhouse north of Phoenix, Ariz.], we’re looking to triple in size in the next year or two, in order to keep up with the growing demand in the industry, as fast as it’s going. We’re going to double our greenhouse. We’re going to add an indoor [facility] here, and we’re going to also increase our outdoor grow to keep up with the market.

Harvest’s Mr. Clean cultivar.

Sandy: Steve, could you talk about the importance of taking the company public and what that means for the long term?

White: We were a company that grew organically since its inception. We didn’t do a single acquisition until we acquired [San Felasco Nurseries Inc. in] Florida after our first real capital raise this summer. We didn’t have the option that a number of companies did to go out and buy things. We developed one of the largest footprints in the country using a fraction of the capital that other people were able to deploy.

But what we knew was we were engaged in a short-term-ish land grab. For us to be successful in that short-term land grab we couldn’t just continue to win applications organically. We knew that we needed to also be making acquisitions of other companies, of other brands, like CBx. We needed to do that because at the time we made the decision to go public, capital was not readily available. And oftentimes it is preferable, even if [capital] is available, to use stock in order to make acquisitions.

Sandy: How does Harvesting Hope and that nonprofit’s work and the idea of corporate responsibility fit into the company’s work ethic, and what might that example mean to other companies?

White: At the time we formed Harvesting Hope, there were three things we were looking to address. One was racial inequalities, and how cannabis laws were being applied nationwide. Second was the total lack of research being done. And third was the fact that there are a number of people that [are] just [at] an incredible education deficiency in the world.

We narrowed its scope to pediatric epilepsy, because we realized that cannabis is recommended to patients based on body weight. And so, with limited resources, we believed we could affect the most people by concentrating our efforts on children [by providing monetary endowments and patient care to families in need]. [We are] providing those people also with educational resources and support groups and access to physicians that will have conversations with them about cannabis.

Cultivation Associate Cody Yazzie in the veg room, hand-checking and watering young plants.

Sandy: What goals do you have for the next six months, either for yourselves or for your team?

White: For me, it is now about shaping a conversation. Now you see a number of companies going public and the way that people are measuring these companies to me is extremely immature. About nine months ago, you measured the size and prospects of the cannabis company by their planned cultivation square footage. Today, we talk about the number of states you touch—which, by the way, we are going to, in six months, realize that is just as immature as planned cultivation square footage.

We want to shape that conversation [to be] about really basic things like earnings—the kind of thing companies all over the planet are judged on but for some reason cannabis companies aren’t.

Steve White and Cody Yazzi examining the crop.

You’re going to see the development of meaningful footprints in states that we see have a clear path to profitability. Then we’re going to have to embark upon the effort of getting the world to understand why cannabis is just like every other industry, and at some point, earnings—and doing what you say you’re going to do—matter. I think that’s something we can achieve in the next six months or so.

Barnhart: Whether it’s one month or a year, I always try to focus on increasing production and reducing costs. We are a business, so those things are very important. With the way we’re looking to increase our footprint so rapidly, I’m diving into the employees I have and trying to identify those who can fill the positions that will help us when we grow. It’s difficult to find good people who have the same philosophy that we do, so identifying those people is where I’m looking now.

Editor’s note: This interview has been edited for length, style and clarity.

Eric Sandy is the digital editor for Cannabis Business Times and Cannabis Dispensary.