Jason Vegotsky: Vertical Integration Is Why Cannabis Is Failing

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This week, Jason Vegotsky, CEO of Petalfast, joins the podcast to discuss his journey from jerky to cannabis and why he built a powerful sales organization to help brands scale. 

When he was growing up, Jason Vegotsky never would have imagined that he would end up working in the cannabis industry. He grew up outside of Philadelphia and had always been around distribution and brand building - his father is an alcohol industry veteran. So naturally, he found himself in the liquor business. 

He was selling wine in his early 20s when he was approached by a man with a jerky proposition. Matt Tolnick was a former lawyer who gave up the profession to start a jerky company. He called it "Lawless" because practicing law made him less happy. He approached Vegotsky by accident. Vegotsky was at a grocery store, dressed up because he was headed to a wedding, but Tolnick thought he was a manager who could help get Lawless jerky on the shelves. While Vegotsky couldn't help him get the product in the store, he did have a deep well of contacts from the liquor business, primarily beer shops that typically stock jerky. Vegotsky came on as a 50/50 partner, and the duo had a five-year run building a national brand. 

Then, about six years ago, after selling Lawless, the CFO of the jerky venture called Vegotsky and asked him what he was planning on doing next. The old colleague presented an opportunity to sell butane, which, Vegotsky quickly learned, was used in the cannabis industry by anyone making oil. He founded Summit Innovations and says he became the first person in the country to sell butane in cannabis. He sold the business to KushCo Holdings, now Greenlane, and even had a tenure as the president. 

The opportunity provided two great lessons for Vegotsky: When you're running a public company, you can't hide, and you have to grow up fast. And as a company selling ancillary products to every brand in the country, the job expanded his network to the entire industry. He met with every company, big and small, and learned of a new opportunity to solve some common problems. 

Clients would often describe dissatisfaction with the sales staff and even more significant problems with distributors; they needed a partner who could help drive traffic to the brand and increase velocity. 

Drawing on his expertise from the food and beverage world, he left KushCo and called the two people closest to him at the time, Arun Kurichety, now Petalfast COO, and Jeana Ceglia, chief strategy officer. The three came together, and Petalfast was born.  

Petalfast is a sales organization born upon the deficiencies presented by vertical integration. "I hate vertical integration. I think vertical integration is one of the main reasons why cannabis is struggling," Vegotsky says. "Everybody is trying to do everything."

He admits that a couple of unicorns have pulled it off and done exceptionally well, but vertical integration is costly, labor intensive and makes it challenging to maintain focus. 

Petalfast isn't looking to do everything; Vegotsky wants his company to be the best selling and trade marketing division in cannabis. In California, he has a staff of 46 people, including 18 in sales, six in brand management/strategy and 13 field marketing professionals who tend to merchandising, swag, budtender training and brand awareness. His team also oversees some 77 brand ambassadors. 

Vegotsky believes that any company capable of pulling off simple brand building in retail can stand out among the crowd. Petalfast manages 16 brands, including Yada Yada, Emerald Sky, Space Coyote and Humo; many are category leaders. For example, Emerald Sky is the fastest growing brand in cannabis, according to Vegotsky. 

To help more up-and-coming companies, Vegotsky recently launched a pilot program, an incubator that brings pre-revenue brands to retailers in a "Shark Tank" style format. The reps talk to retailers, pitch their products, receive direct feedback and are often sent back to the drawing board. Out of 25 brands that have gone through the program, only two have made it into the Petalfast portfolio. Many couldn't scale or were shocked by the capital required to grow as well as the level of current market competition. Still, it provides a quick reality check and an opportunity to pivot and grow the business. 

Vegotsky says that the one thing all entrepreneurial cannabis brands need to ask themselves is whether or not the product is necessary. For example, he recently saw THC-infused dried string beans. Is that necessary? Not now, but I guess we'll see. 

He says that too many cannabis brands are marketing to people who don't smoke weed and are missing the market. Brands are going after niche markets that don't have enough revenue to drive real business. 

He says everyone wants innovation, but at the end of the day, you need to sell what people are buying. Vegotsky says THC-infused beverage manufacturer CANN is one, if not the most sophisticated marketing organization in cannabis. They are spending more money than anyone driving new consumers into dispensaries, and it's working. Other brands sometimes leave him scratching his head. He loves the brand Potli, which has THC-infused sriracha. It's a great product, but how much THC-infused sriracha can be consumed in a year? Winning in cannabis is about timing, and Vegotsky notes that until the time comes when such an infused hot sauce can be sold as a novelty at major retailers, it's not going to do big business. 

So, what works? Vegotsky keeps it simple: anything a stoner would like to consume because they smoke and consume a lot. The consumer packaged goods industry typically targets disposable-income customers, like the housewife who will buy five bottles of high-end alcohol without thinking about it. In cannabis, it's a different world in which lower-income consumers seek high-value products that are now moving faster than any other.

Petalfast is always looking for new clients, but Vegotsky is looking for partners interested in being part of a team. The company's most recent deal was with Turning Point to expand the ZigZag brand. 

Vegotsky looks for management teams comfortable working as a group through problems. It doesn't matter the person or the product; every partnership will have difficulties, and brands will require pivots and encounter new challenges. 

He's also looking for products that fit the market, the Petalfast portfolio, and have an opportunity to grow. At the end of the day, he needs to truly believe that Petalfast can grow the brand. Vegotsky turns down a lot of brands because he's not a miracle worker, and some distressed brands in the market are beyond saving. 

Since he joined the industry about six years ago, Vegotsky has learned that the only consistent thing in cannabis is that nothing is consistent, and every brand needs to be ready to pivot as the market moves. And, if they are looking for a little help with the process, Petalfast stands ready to help make it happen. 

Please make sure to like, subscribe and share the podcast. You could also help us out by giving the podcast a positive review. Finally, to email the podcast or suggest a potential guest, you can reach David Mantey at David @cannabisequipmentnews.com.

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