Charlie Bachtell is the co-founder and CEO of Cresco Labs which serves medical cannabis patients and incites the progressive evolution of the medical cannabis industry. The company went public and raised closed to $400M in debt and equity.
In this episode you will learn:
- Embracing the evolving and revolving realm of politics and legislation
- Charlie’s top piece of advice for other founders
- The fundamentals of a great growth business
- The difference between a Canadian and US IPO
- Why top US companies are getting listed in Canada, instead of at home
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
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About Charlie Bachtell:
As the CEO of Cresco Labs LLC, Charlie Bachtell ensures that Cresco is an industry leader, setting new standards for a progressive, transparent and reputable medical cannabis community, all the while ensuring that Cresco is operating in a professional, secure and compliant manner.
Charlie Bachtell is an attorney with deep legal expertise in regulatory compliance, a founding member of the Illinois Cannabis Bar Association and an Adjunct Professor at the Northwestern University Pritzker School of Law teaching a course on legal and regulatory matters in the cannabis industry.
Prior to founding Cresco, Charlie Bachtell served as general counsel for the seventh-largest mortgage bank in the country and was widely recognized as an authority at the forefront of the regulatory and legislative overhaul of the residential mortgage industry.
Connect with Charlie Bachtell:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have an exciting entrepreneur who is going to share his story with us. We’re going to be learning a lot about the cannabis industry going from regulated to hyper-regulated and building and scaling to something meaningful. I think you’re going to find his story exciting. I definitely did. So without further ado, let’s welcome to our show today, our next guest, Charlie Bachtell. Welcome to the show.
Charlie Bachtell: Alejandro, thank you very much for having me. I’m excited to be here.
Alejandro: Born in Chicago and raised in Arizona. What triggered that move?
Charlie Bachtell: I didn’t have much of a say in it. I think I was three years old at the time, and the family moved out west. It was great. I enjoyed growing up in Arizona. I had the best of both worlds because my extended family was all still here in Chicago, so this was where we spent holidays and vacations. Growing up in Arizona was great, but then after undergrad, I headed to law school, and I wanted to do law school in a big city, so I came back to Chicago for law school.
Alejandro: I know that at an early age, you were able to see your mom also being a rock star in her own field in real estate. I’m sure that you were able to learn a lot from seeing her putting all the effort and energy into building something and creating success. What did you get out of that?
Charlie Bachtell: Without a doubt. It’s one of those things that you absorb because you’re a part of it. I remember having to go to the office with her at 9:00 at night or first thing in the morning before dropping me off at school. Just the intensity that she brought to creating her business, I recognized it more as I got further along in my professional career and had to do the same, but it was a great experience, great role model to have.
Alejandro: Why law? What got you into law?
Charlie Bachtell: I think it was a mix of I did my undergrad in finance, and not seeing a clear path upon graduation with anything that I had too much passion for. I enjoyed my legal business courses that I had taken. Then I also had another great role model, my older sister, who was four years ahead of me. She graduated from Northwestern Law School before that. It looked like an interesting opportunity to continue with an education that had some excitement from the courses I had taken as an undergrad, and gave me the opportunity to come to Chicago, and have a great school to attend and experience living in an urban environment for the first time.
Alejandro: Something really interesting here is that you got the law from your sister, and then you merged that into the real estate that you were seeing from your mom. So you went into private practice. Is that right?
Charlie Bachtell: It’s very true. I never actually looked at it from that perspective before, but you’re totally right. I came out of law school. I went to work at a small practice that specialized in a couple of things, and one of them was real estate. That was something that I’d found a tremendous amount of interest in. Fortunately for me, I was given the reigns to take on a lot more responsibility than I probably should have because the partners of the firm really focused on the other disciplines more. That was their favorite. But real estate helped pay the bills. They were more than happy to have me step in and take a lot of that burden off their shoulders. It allowed me to learn that industry pretty well in a fairly quick period of time.
Alejandro: Then, for seven years, you were involved with all types of mortgages. What were you doing there?
Charlie Bachtell: Yeah, the real estate background prepared me for an opportunity that came up to be in-house general counsel at a company. At the time, it was maybe a large, small mortgage bank called Guaranteed Rate. They had about 200 employees when I joined as general counsel — big Chicago presence, a small regional presence, no real national presence yet, but that was all about to change for us.
Alejandro: Now, that company is in the thousands. Pretty interesting growth too?
Charlie Bachtell: Yeah. It was an incredible learning experience. I got into the mortgage banking industry in the summer of ’07. Within a year of Residential Home Landing in the U.S. being the root cause of an economic downturn around the world. It was not status quo. It wasn’t business as usual. The entire universe changed. I can tell people I was part of an industry where I literally saw the sky fall. When your industry is identified as that root cause of an economic collapse, needless to say, things change immediately. That industry went from unregulated to hyper regulated overnight. It was a bit of a patchwork regulatory framework because we were state-charted. Illinois was different than California was different than New York. Now that industry had a ton of negative stigma associated with it. It really made us, I would say, focused on executing on a business model that was heavily rooted in compliance, and also doing the right things: transparency, building trust with a customer base, and again, all under the umbrella of absolute guidance with regulations. But as we get more into the cannabis side of things, you’ll see how that prepared me to change the way that cannabis was being approached as well.
Alejandro: Absolutely. You went from an industry, as you were saying, where the sky was falling to an industry where the sky was opening. So how did you fall into the industry? How did you start incubating the idea for Cresco? You were at Guaranteed Rate for seven years. You had the steady paycheck, the 9 to 5 kind of thing. So why, especially as a lawyer — typically, lawyers don’t go into business, so what happened?
Charlie Bachtell: It’s a great question. Honestly, the story of Guaranteed Rate helps tell the story of Cresco Labs too because not only did we survive that economic downturn, that mortgage meltdown, but our organization thrived in post-regulated mortgage banking. We realized quickly that you weren’t going to fight that momentum. You needed to embrace regulation, you need to engage in the regulatory process, and you needed to do regulation well as a business model. It was an incredibly entrepreneurial environment that we worked in there. We literally saw that as our opportunity to go from being a relatively insignificant regional player to capturing an incredible position in the rebirth of banking. We scaled that organization from about 200 employees to 3,500 employees, licensed and operational in all 50 states, 150+ brick and mortar offices in a four-year span. So, it wasn’t 9 to 5 at all. It was 6 am to 10 pm. It was making a difference, changing the way an industry was going to be looked at and done, and experiencing some incredible success in doing so. When I saw cannabis come across my desk in 2013, to me, it felt so familiar. Again, you have an industry that was going from unregulated to hyper regulated overnight on a state-by-state-by-state basis because all of these cannabis laws are state laws, and they’re absolutely siloed from each other. Illinois is very different than California is very different than New York, etc. And another subject matter that had a tremendous amount of negative stigma associated with it. I would say the vast majority of lessons, and strategies, and experiences that were developed in the mortgage banking space, I found parallels in the way that I thought that cannabis was going to unfold. It felt like I had read the book before, and I knew how it was going to proceed.
Alejandro: At Guaranteed Rate, before you went with Cresco Labs, is where you met your co-founder. Is that correct?
Charlie Bachtell: It is, yeah. Three of us worked together at Guaranteed Rate. Myself, as General Counsel and Executive Vice President, Rob Sampson as COO, and Joe Caltabiano as the largest loan originator there. The three of us worked a lot together on a day-to-day basis, but then, we’re also friends outside of the office. That’s how the idea of this came to be. Alejandro, it was obvious within the first 48 hours of looking at this, it was the most fascinating thing that I had ever seen. It’s rare that you see an opportunity come up that will impact the way that people will think about medicine, impact the way that people think about the criminal justice system was going to be a shift in culture, not only at your local or state level or your country, everybody in the world was starting to think about cannabis a bit differently in ’13. It was right when it was at an inflection point. Then the fourth thing is you wrap that up in a pretty interesting business opportunity. I don’t know how often those four levers line up. That was clear to me immediately that this was something that I need to look at. I also think it’s really important for anybody who is an entrepreneur too. It’s not about spotting the good opportunities. That’s only half the battle. When you can figure out how you can contribute to the development of something that looks like it’s going to be an incredible opportunity, I think that’s where, as an entrepreneur, you’ll find a lot of success is the great opportunity matched up with some experience, some skillset, something that you’re going to bring to the table too to help develop and create that opportunity or maximize that opportunity.
Alejandro: In this case, Charlie, why did it take a few years for you to dive in full-time?
Charlie Bachtell: The law was passed in August of ’13. Then the applications weren’t released for about a year. So we spent a year preparing, planning, developing the strategy, the mission, putting a team together, doing the entire ground game to make us a viable applicant when those applications were going to be due, which was September ’14. Then we submitted the applications in September of ’14. There were only 21 cultivation licenses that were going to be issued in the fifth-largest state in the country, a very interesting limited license structure. We submitted three just to increase our odds in winning one. There were 158 applications submitted. We ended up getting the highest score, second-highest score, third-highest score, so we got three of the 21 licenses. Those were awarded, I think, in February of ’15. Then that’s when I think it was a week or so later that I resigned from Guaranteed Rate and started running Cresco fulltime.
Alejandro: It’s amazing because when you’re mentioning 158 for the 21 licenses, I’m sure if this were to open up today, it would be in the hundreds of thousands.
Charlie Bachtell: It would definitely be a lot more. There would be thousands of applications submitted. Every one of these states does things differently. Illinois made it pretty difficult to apply. It was expensive. It was a big commitment to even get it across the finish line. That’s one of the ways they kept the applicant numbers lower was, they made it expensive and an incredibly arduous process to get through. But I also think it resulted in, if you look at the cannabis industry today, arguably five or six of the top 10 to 12 companies in the industry are based out of Chicago.
Alejandro: One of the things I wanted to ask you is, it’s amazing the way that you guys were able to spot this opportunity because no everyone else did, and now we’re seeing how all these cannabis companies are spiking on the value they bring to the market, and also on their value itself as a business and the incredible growth that they’re experiencing. How do you spot good opportunities, and how do you know that it makes sense to go at it?
Charlie Bachtell: It’s a good question, and I don’t know that I’m — this is really my first entrepreneurial venture. For me, it was just the stars aligned. I think you have to be open. You have to be observant, and you have to recognize certain patterns that are going to be a part of successful opportunities. For me, it was this, “You don’t have to do a demand study for cannabis.” I think, at the end of the day, cannabis has been around for 5,000 years of recorded human use. It’s a part of society, even though it’s been federally illegal for a couple of generations. But there’s a lot more history behind it. Even as it’s become more socially acceptable in different social settings that maybe it wasn’t 10 to 20 years ago. It still had a federally illegal cloud over it. As you saw states start to develop, fortunately for me, Illinois was the original author of these more regulated, structured compliance-focused versions of cannabis. That was the thing that had tipped me off to the great opportunity, was, now cannabis is starting to look more legitimate. Based on the language of the law, they want medical professionals, legal professionals, people with business acumen to be a part of this. They’re limiting the number of operators that are going to be able to participate to a number that was controllable, and also created that very interesting business opportunity, just simple supply and demand economics that wrapped it all together. I think it’s so important to not only be able to spot the good opportunities, but a good opportunity has to be married with something that you can contribute, you can bring to the table. Otherwise, you might find success, but you’re not going to find the thought leadership, you’re not going to find that positioning at the top potentially leading the development of something if you’re not going to be able to contribute to it and add to it. For me, that’s what I saw in cannabis.
Alejandro: Got it. Definitely, you saw it, and you put the application in it, and all of a sudden, you heard back, and it seemed that you guys had some work to do. What happened there?
Charlie Bachtell: There was a blessing and a challenge all wrapped into one. Like I said, we weren’t planning on winning three of the 21 cultivation licenses, but our applications were successful, and we were presented with the opportunity to have 3 of the 21. The problem was, we weren’t built for it. The business plan wasn’t structured for owning 3 of the 21 from a capitalization standpoint. That was a challenge. We had to go out and solidify the capital needed to execute on building three ground-up from raw land 40,000 sq. ft. cultivation facilities from scratch. We didn’t have all the tools needed to be able to pull that off, but the good thing was we had a good, solid core team with relationships and access that would allow us to fight through and put ourselves in a position to execute on the great opportunity that we’d received. That’s what we did. We like to say for the first that we didn’t become a cannabis company until the first harvest. Before that, we were a capital-raising construction and branding company for the first six to nine months of our existence.
Alejandro: For the people that are listening, what ended up being the business model?
Charlie Bachtell: The business model was always going to be focused on the consumer-packaged goods aspect of this. Cannabis was going to be transitioning from this commodity, this unbranded raw material commodity that everybody was familiar with into this highly regulated third-party tested, certified, child-resistant packaged, tamper-evidenced seal-cased consumer packaged goods. That was the focus for us. That was what we saw that was changing. That was going to be different. That was going to allow this industry to stabilize into a CPG and not just be a commoditized agricultural industry. But, again, the original business model for us was 1 out of the 21 in Illinois, not 3. Being able to execute on that, though, and figure it out, then almost by default, also put us into a leadership position in the development of this new industry. No other group had received three licenses. There were a couple of others that had two but most only received one license. We became this de facto leader in our home state. Our home state, though, that highly regulated compliance-focused model started to become the foundation upon which further, newer state laws across the country started to be based. Again, now, you have us being thought leaders and the whole position in a home state. That also then put us in a position to be seen as leaders in the further development of this industry across the country.
Alejandro: Talking about growth, you were touching on it earlier, but, wow! At the start of 2018, you guys were about 100 people. Then by the end of 2018, you guys are 500 people. How are you able to manage that level of growth without losing on some of the key essence of the culture?
Charlie Bachtell: Then, if you fast-forward a year, we ended ’19 with about 1,200 employees. The growth continues to stretch us, but it’s one of the things we enjoy most about this is building a fundamentally sound organization in a hypergrowth industry. It makes you remember and focus on the foundational elements that are acquired in any strong, successful, and long-term viable organization, which is your people and your culture and training. I would say that I don’t know that we’ve mastered it or found perfection here by any stretch of the imagination, but it’s remembering what makes us successful and continuing to focus on it, which, I think, is also leading to our continued success and our continued growth.
Alejandro: In terms of being able to finance that growth, too, how much capital have you guys raised to date?
Charlie Bachtell: In the aggregate, in the equity side, we’re in 200+. Then most recently, we executed a credit facility in the amount of 100 million that we have access to now. So a few hundred million dollars to create the assets in the platform that we’ve created and are executing.
Alejandro: Tell us about this process of going public from the Canadian Stock Exchange.
Charlie Bachtell: It’s a little bit different than the U.S. exchanges. For those that aren’t familiar, it’s a very weird, interesting dynamic that exists. The U.S. operators that are regarded as the best operators in the space, most fundamentally-sound businesses, true, real revenue, some of us, even the positive, great business models, we’re not allowed to participate on the U.S. exchanges, on the Nasdaq or the NYSE because of the federal legality in the U.S. However, our Canadian counterparts, Canadian operators that do not have operations in the U.S., they only operate in a country where they are in compliance with Canadian federal laws. So the Nasdaq and the NYSE are comfortable allowing them to list and have access to our U.S. capital markets. So we’re on the Canadian Securities Exchange. That’s where you’ll find most of the premier U.S. companies until something occurs in the U.S., whether that’s legislation providing protection in the banking area, and the U.S. exchanges or a change to the federal legality. That’s when we’ll be allowed to transition to the U.S. exchange.
Alejandro: Very interesting. I know that when it comes to the transactional side, you guys have also been very active on the acquisitions. How do you see the acquisition strategy on the buy-side as one of the key elements of your growth?
Charlie Bachtell: For sure, and it’s a great question. The overall growth strategy boils down to a couple of simple but fundamental things. In an industry where you have the state-by-state-by state nature of the laws in the regulatory structure, having the most strategic geographic footprint is very important because you cannot ship anything across the state line. It’s having licenses, and having operations in the states that you’ve identified as being strategically significant becomes very important. Then, it is having meaningful material positions in those states. It’s not enough just to have a small retail store in a state of 13 million people. You need to have market share; you need to have market penetration; you need to be in a top-three leadership position. Those are the parameters that we designed for ourselves. When you’re looking at creating that strategic geographic footprint, there are two ways to acquire it. Either you participate in application processes when the state is going to issue licenses, or you’ve got to buy your way in. Some states have already had their application processes, so you’re not going to have the opportunity to win your way in. You’ve got to do M&A. For us, we’ve done a good job of doing both. We won licenses here in Illinois, and in Ohio, and in Pennsylvania, but then we’ve also had to execute on M&A in states like Massachusetts, Arizona, Nevada, where they’re not having additional application processes, but we definitely identify those states as strategic states.
Alejandro: Typically, on acquisitions of this nature where you not only have the integration, which is a beast, but then also you have to culminate within that integration all the regulatory aspects as well, so how do you guys think about integrations with this being a process that you’ve done multiple times?
Charlie Bachtell: Very good question because not all M&A integrations are created equal. Some can be nice simple bolt-ons, and others are Origin House acquisitions. That’s a different business channel distribution true third-party distribution in a state where we didn’t have much of a presence, to begin with, that’s definitely a different integration plan and lift — so making sure that you’ve got the resources in place to be able to execute on these great opportunities or challenges that we find is key. I think that’s one of my primary obligations as CEO is to make sure that the organization and the leaders within the organization have the resources that they need in order to be successful. If they’re successful, the organization is going to be successful. It’s one of our focuses and learning experiences. And, again, each state is different. I tell people all the time that this industry is nothing but challenges and potential problems. If you don’t pride yourself on being a problem-solver or somebody who turns challenges into opportunities, this probably isn’t the industry for you. It moves really fast. It requires a ton of a different level of engagement, a lot of capital, and the joy in solving problems and overcoming challenges.
Alejandro: For you, from a leadership perspective, what is typically the thought process that goes behind tackling a certain problem?
Charlie Bachtell: There are probably as many different answers as there are different types of problems. I think it starts first with understanding and reminding yourself of the mission and vision of the organization. The vision of our organization is to be the most important company in cannabis, not the largest, not the most amount of states, not the most amount of retail locations, but truly the most important company in cannabis. That means a lot. There’s a lot in that statement. We do pride ourselves in understanding the needs of all the stakeholders that are involved in this developing industry and working to provide as many yeses as can be created for all those stakeholders in the industry. That’s what creates importance. But also, the mission is to normalize and professionalize it. When I’m faced with a challenge, when I’m faced with a problem, we love creative problem-solving, we love elegant solutions, and it’s always in furtherance of the mission and the vision.
Alejandro: I know that for other industries, people don’t really care who is stepping in on new roles at the government level at a federal level, but obviously in a space like this one, when you have a governor that leaves, and another one comes in that definitely introduces all types of changes for an industry like this. Tell us about how that impacts the execution and some of the challenges associated to it.
Charlie Bachtell: Sure. We’ve been there, and we’ve seen it. Even if we just look at Illinois alone, this Illinois, the medical cannabis, the Compassionate Use of Medical Cannabis was passed and signed by a very progressive, Democratic governor in August of ’13. Then applications were submitted in September of ’14, still with him as the governor of Illinois. Then he lost his reelection campaign a couple of months later. So the licenses were actually awarded by a fairly conservative Republican governor who was intent on cleaning up the swamp in Springfield and was not a big fan of cannabis and didn’t want to assist in the development of the industry in as much as he was literally only going to do whatever he was obligated to do. That was one of those challenges where we enjoy that process. We take it upon ourselves to create the environment that would allow that same governor whose administration did not like the subject matter to pass new legislation in consecutive legislative sessions that made the program better for patients, better for operators, and easier to administer. That was not something that he was setting out to do, but that was one of the things that we created an opportunity from that challenge. It’s also why we focus so much on being the most important company in the cannabis space. It is to be able to create those scenarios, create the culture to create the professional business atmosphere to where this industry will be respected regardless of prior anecdotal or antiquated views on what cannabis is or what cannabis can be. Fortunately, for us, it seems to be the public perception, and momentum is on our side. At this point, medical cannabis, I think, pulls higher than anything. I’m not saying that in gest or hyperbole, medical cannabis across the country has a 90+% approval percentage. There aren’t many things out there that have a 90+% where people are in favor of it. Adult-use cannabis is less, but it’s north of 60%. It’s a fairly popular subject matter today, and hopefully, we see that continue with further, more progressive developments on the legislative front at state levels and at federal levels in the near term.
Alejandro: Where do you think the industry is heading as a whole?
Charlie Bachtell: I think you’re going to see cannabis become one of the larger verticals of consumer-packaged goods. I think it’s shaping up to be a very dynamic CPG. You have products that are applicable and appropriate to people who are looking at this from the wellness perspective as an alternative to either some prescription or over-the-counter medications. You have a very large segments who look at this as a general quality of life enhancer, whether it’s how they destress, whether it’s how they get a good night’s sleep, how they relax when they come home, minor aches and pains. Then you also have a segment that uses this as a replacement for alcohol and escape and enjoyment with friends. Very few things can appeal or apply to as many consumers as cannabis can. I think you’re looking at one of the larger segments of CPG in the next foreseeable future.
Alejandro: Very nice. Now, one of the questions that I typically ask the guests that come on the show is — you’ve been at it for a while and quite an exciting journey. I’m sure that you’ve learned a ton through the ups, through the downs, the good, the bad, and the ugly. If you had the opportunity to go back in time and have a chat with your younger self, with that younger Charlie, that was thinking, “This seems like a cool opportunity,” and maybe you were thinking about launching a business. If you had that sit-down with your younger self, what would be that one piece of business advice that you would give to yourself before launching a business, and why knowing what you know now?
Charlie Bachtell: Great question. There are volumes that I could give to myself that would have maybe better prepared me to not make some of the mistakes that we made. That said, I’m okay making mistakes. I think you learn your biggest lessons by having some things not go your way and having to overcome it. I would tell younger Charlie to never stray from the vision and the mission. What that has created is that position of leadership in the development of the industry, which is what we wanted. It was nice, though, to see it come to fruition, and there have been times where you’re faced with situations where you may want to make exceptions, or you may want to deviate from the mission or vision. My advice I would give to younger Charlie is a reminder to not deviate because if you do this the right way, you will put yourself in a position to be the leader of an incredibly fascinating emerging industry that is cannabis.
Alejandro: Very profound. So, Charlie, for the folks that are listening, what is the best way for them to get in touch, and say hi?
Charlie Bachtell: I think information on the website is there, and the contact information is there. Information from an IR standpoint and just general public-facing can all be found there.
Alejandro: Fantastic. Well, Charlie, thank you so much for being on the DealMakers show today.
Charlie Bachtell: Thank you so much for having me.
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