Rising High: Exclusive talk with MSO ETHOS Cannabis

In this edition of “Rising High,” The Fly conducted an exclusive interview with Gibran Washington, Chief Executive Officer of ETHOS Cannabis, a multi-state vertically integrated cannabis operator. Here are some highlights:

MEDICAL EFFICACY: ETHOS, founded in 2020, is a Philadelphia-based vertically integrated cannabis company with 12 retail locations across Pennsylvania, Ohio and Massachusetts. The company aims to help consumers live their best lives through informed access to cannabis. “If we look at this marketplace of cannabis and the headwinds we constantly face, our first strategy is around our financial plan,” Washington said. “We were trying to make sure going into this fiscal year, we were cash flow positive. We have been cash flow positive for several quarters now in a row, which is a big accomplishment for us in terms of establishing a foundation for how we are going to start to grow.”

Looking at ETHOS’ growth potential, he said the company is evaluating several different states where it can be vertically integrated. “We will be able to come into those states, whether it’s through license acquisitions or currently standing business acquisitions, to try to set our footprint up,” the CEO said. “That’s from a growth and strategic standpoint. Then from an internal standpoint, we are one of the first cannabis companies in the country to be partnering with a research institution, Thomas Jefferson University. Our core is the medical efficacy of the cannabis plant, so we do an immense amount of research. We believe that is what sets us apart as a differentiating factor. We create and cultivate products with a purpose for patient use in mind.”

ETHOS started its journey with the belief that there is an immense amount of value to researching and understanding the cannabis plant, he said. “We still feel passionately about that element,” Washington said. “We are really excited going forward to see where rescheduling ends up putting research because we would love to invest more into the research aspect to really understand this wonderful plant. I think we have done a disservice to the plant by focusing so much on THC. A lot of the use cases of this plant do not call for high levels of THC, but for some of the other minor cannabinoids. We are looking forward to doing more research into the minor cannabinoids with Thomas Jefferson University.”

He added that the guest experience at ETHOS’ locations serves as another differentiating factor for the company. “We do a good job training our staff up to make sure that experience stays consistent every time they come in and out of the store,” the CEO said. “We have about a five-to-six-minute wait time at any dispensary at any time of the day, so we staff for customer service and the customer experience, so it is a seamless process.”

ETHOS’ vision is that cannabis has an appropriate place in society, he said, and the company offers a family of brands that adheres to that vision, including Natural Selections, Eleven, Headliners and Meigs County Grown. “The Natural Selections line is our premium line,” Washington said. “That is letting the flower fully express itself and we only hand-trim that product. Our Eleven brand is our value line with some of the great strains you see in Natural Selections, however its machine cut so you get more of the lower portion of the plant. Headliners is our flower pre-roll brand, where we use the whole flower to give a premium experience, and Meigs County is our local brand in Ohio. We are the only cultivator in the historic Meigs County, which is traditionally deeply rooted in cannabis. We also have a new line called Meigs County Country Cut, which is similar to the Eleven brand as more of a value line.”

MARKETS: ETHOS has operations in Pennsylvania, Massachusetts and Ohio and is evaluating several different markets for expansion, the CEO said. “We are a Pennsylvania-based company so starting in Pennsylvania was natural for us,” he said. “We thought that was the best place to get our foundational footing. We moved into Massachusetts through some acquisitions, there was a business that already existed there and we acquired them into our portfolio. Then in Ohio, we acquired a cultivator and a retail space, which has now led to two more additional licenses that we are placing out in the retail side.”

Washington said the company is looking at everything from New Jersey to Arizona and in between for potential expansion. “We love limited-license states, we love the allure that comes with those,” he said. “We are not very fond of going into any market where we cannot be vertical. That has been some of our headspace and reservations going into New Jersey. But there are several markets on the table right now, as we are open for acquisition as more and more distressed assets in this marketplace continue to arise.”

Ohio also recently began to inform medical cannabis retailers that they qualify for the state’s forthcoming adult-use program and the CEO said he believes the market will be beneficial for everyone in it. “It is one of the largest population states in the U.S. and we feel as though there is a direct application of cannabis to the opioid epidemic that a lot of the Midwest, especially Southern Ohio and Southeastern Ohio, experiences quite often,” he said. “We believe this should be a great opportunity for the community of Ohio to have a substance that is less harmful compared to some of the substances that they are currently using.”

Ohio’s adult-use program was expected to start sales in late June, however a launch date for the program remains up in the air. “From a regulatory standpoint, as you look at the Department of Commerce, they are under an immense amount of pressure to try to get all this done,” Washington said. “Those of us who understand and have been in other states that have done this before all knew what was going to happen in June. It was wishful thinking, so we are just going to await the news that we are able to do adult-use licenses in our retail location. But with that aspect, we understand there’s only a certain amount of people that work in these regulatory authorities that are trying to execute something that takes a lot of experience and a lot of bodies to pull off.”

PRODUCT CATEGORIES: According to research firms within the space, flower still holds the biggest share of sales of any cannabis product category, followed by vape. “Flower is the traditional format that cannabis comes in, so I think that is always going to be king in the space,” the CEO said. “But as more information comes in, we’ve all learned that inhalation, smoking or vaporizing is probably not good for your body or your lungs. I think you’ll see movement toward more of the health-conscious space and you’ll see a lot more products that are ingestible, whether that is from an edible, a tincture or a beverage.”

However, he said he believes flower will continue to hold a 51%-plus share of cannabis product sales. “That is the way you get the fullest impact of the entire full spectrum of the flower,” Washington said. “Now with technology you can get full-spectrum edibles and drinks which are similar, but the delivery method in which you are inhaling is different when interacting with your endocannabinoid system. I do see the other categories growing, but I still think flower will be king in the long run.”

SCHEDULING: The U.S. Justice Department recently formalized its process to reclassify cannabis as lower-risk and reschedule the drug from Schedule I to Schedule III. The Drug Enforcement Administration submitted a notice of proposed rulemaking on Thursday, May 16, triggering a 60-day comment period that will allow members of the public to submit remarks regarding the rescheduling proposal. “It’s a tremendous first step to put cannabis in a space that is not ultimately going to destroy communities of minorities and people of low-income status,” the CEO said. “I’m happy to hear this failed War on Drugs is now going away. It is a great moment for the country to be able to have more access and more research towards this plant.”

He added he believes it will take some time before the federal government decides on how to regulate cannabis. “They are going to do their own research, which will probably take several years,” Washington said. “I think over the next few years, the industry will continue to form upon its own direction and then when the federal government inevitably comes in and puts regulations in play, we’ll have to pivot. We are all hoping that it stays at the state level in terms of the regulation, and it doesn’t become federally legalized. We feel that we will lose some of the local culture that cannabis has now.”

A significant impact of rescheduling would be the elimination of Section 280E, he noted. “It’s like an industry loan that everyone is going to get over night,” the CEO said. “That is going to free up a lot of capital at a lot of the larger players’ disposal, which will be interesting to see what they do with and what businesses like us do with that capital. Do we reinvest inside of our current footprints or do we look at new assets? The amount of capital that is freed up is going to be great.”

However, he said he is concerned it may be too late for some of the smaller operators in the space. “They may not be able to make it through the year paying their bills with 280E still looming over their heads,” Washington said. “But I’m excited and I am happy that there is more access to capital in the space. I am also happy that the financial institutions will be able to give us capital at reasonable interest rates and the use of credit card payments will be huge in the industry.”

SAFER BANKING: In September, a U.S. Senate committee voted to advance The Secure and Fair Enforcement Regulation Banking Act bill, which seeks to ensure that all businesses, including cannabis businesses, have access to deposit accounts, insurance and other financial services. “With Schedule III, I think hopefully we will not need it because we will not be federally illegal anymore,” the CEO said. “It’s the chicken or the egg kind of concept. We would love for SAFER Banking, we would love for 280E to go away and we would love for rescheduling to happen sooner rather than later. Any one of those three happening is good for the industry in its entirety.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, the CEO pointed to oversupply and declining price as two of the biggest challenges for the industry. “We are the only commodity in the world that every year for the last three years has gone down in value, which is strange when you think about it in the world of inflation,” Washington said. “The oversaturation of providers in smaller states is probably not going to be sustainable for the long term. I also believe unless we truly set up the programs that support social equity and smaller business operators, that unfortunately cannabis will become too large and commercial and not have the space for the culture of cannabis, which is familiar, small and communal.”

OPPORTUNITIES: As the cannabis space develops, Washington said the biggest opportunities for cannabis companies currently lie in figuring out how to become a staple in their market. “Companies must create more of a local and community presence in the marketplace they are in by creating quality products,” he said. “A lot of times in the industry we went large and shallow, instead of short and deep. I think the cannabis industry owes it to itself to do more of that moving forward.”

The CEO said he is also excited for ETHOS’ growth potential for the future. “The trajection of ETHOS has been getting more promising as we begin more research into the space,” he said. “We continue to build upon our family of strains year-over-year as we continue to get our cultivation up and running.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage (ACRHF), Ascend Wellness (AAWH), Atai Life Sciences (ATAI), Aurora Cannabis (ACB), Ayr Wellness (AYRWF), Avant Brands (AVTBF), BZAM (BZAMF), Cannabist Company (CBSTF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), Trees Corporation (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), Heritage Cannabis (HERTF), High Tide (HITI), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), Lotus Ventures (LTTSF), Lowell Farms (LOWLF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Organigram (OGI), Optimi Health (OPTHF), Planet 13 (PLNHF), Red White & Bloom (RWBYF), Relmada Therapeutics (RLMD), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), RYAH Group (RYAHF), Safe Harbor Financial (SHFS), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).