Accountfully Chat Transcript: Michael Johnson • Metrc

2:17PM Jul 28, 2023

Speakers:

Brad Ebenhoeh

Michael Johnson

Keywords:

cannabis

cfo

folks

grown

work

people

business

plant

space

rfid

bigger

technology

find

good

tool

operators

inventory

lakeland

guess

facilitate

welcome to the Accountfully chat we have today we have Michael Johnson from metric How're you doing, Michael?

Just living the dream. How about you?

Say man, a beautiful Tuesday here in Charleston, South Carolina. I think you're down the road. Are you in Florida?

I am. Yeah, we're actually in Lakeland, Florida, which is more of a more of a farm and I guess more of a distribution center hub, about halfway in between Tampa and Orlando.

Gotcha. I think Lakeland I'm from Michigan, I guess for the Detroit Tigers have their spring training. I'm thinking I may be wrong here. Don't Don't, don't quote me but anyways, looking forward to the chat. So as we get started, let's start talking about just what what is Metrc? What does it do? And then what is your role as the CEO and just kind of give us a little like little background on what's going on?

Absolutely. Appreciate you having me on Metrc is the world's largest regulated supply chain software platform that focuses exclusively in the cannabis space, we essentially function as the backbone of cannabis commerce, we use what's called a track and trace technology to ensure that everybody from the regulatory side to the industry consumer side are able to accurately gather utilize the transaction data such that they're able to get a really good sense of what's happening in the supply chain, and ultimately protect public health and protect the health of the ecosystem.

That's a it's very interesting, clearly in the in the space you're in, but then also, you know, when you're talking about just overall technology and safety and concerns and things like that, so let's even step back. That's a great background, how big is the company and kind of like, where do you reside nationally, internationally?

We were a US based business, we're only we actually we have we have a state or a territory that we serve outside of the United States in Guam, but primarily United States, we're about 160 employees right now.

Awesome. And then from an aspect of, you know, regulatory compliance, cannabis, you know, are you involved with federal government, state governments? So I guess, who you're, you know, like, how do you interact with the regular regulatory authorities and just wondering,

Primarily state governments. So our contracts are with state governments that are trying to regulate the cannabis industry. And they use a platform just like these platforms that facilitate driver's license issuance and car registration, management, and really anything else for the most part that government might use. And so sometimes they'll have their own homegrown software doing the doing the job for them frequently and more and more over just because of the advancements in software space, you see a lot of governments using other third party software solutions, like if you ever park on the street, and you pay Park Mobile, that's, you know, third party software solution, you're not paying that directly to the to the municipality that you're in. And so a state government will engage us to facilitate collection of the data and really be the system that everybody reports into if you're a part of the supply chain. And that's everybody from cultivators that are growing cannabis, to transporters to processors converting cannabis into gummies, cookies, what have you pre rolls all the way through to the to the final retailer. There's also a number of government agencies that participate in the cannabis ecosystem, sometimes, sometimes at the local level, from a regulation perspective, sometimes parts of parts of the government like water regulation, and fish and wildlife. You also have folks and usually in tax functions, departments, pout, things like that. So we we essentially create a singular view in a singular system, such that all of these government and agency bodies are able to get a good sense of what's happening in the space. But we also because there's so much of a requirement for folks to be able to report and get all the data into a single system. We ended up being kind of the operational backbone of most of the licensees that are in the cannabis space. So over 70% of the of the licensed cannabis providers again, that's anybody from a cultivator to a transporter dispensary, so on and so forth. We'll have to input information dimetric over 70% of them only use Metrc. Sometimes they'll augment with pen and paper, you know, Excel whatnot. We certainly integrate at times with QuickBooks, which is probably helpful for your viewers, your listeners. But for the most part, you've got a lot of folks that are running smaller Mom and Pop type shops and are kind of patching together a number of different systems which, which make Metrc really the backbone of their record keeping in truly the custodian of all of the information they need to be tax compliant, also to be able to kind of manage their books and whatnot.

Yeah, that sounds it's fascinating because it really hits home when, you know, a lot of our clients are the zero to $10 million annual revenue, inventory-based startups where they're piecing together Google Sheets, PDFs from the 3PL, their manufacturer, whatever it took to just manage and operate their business from an inventory standpoint, clearly, with with cannabis, there's a there's a legal and tax compliance and reporting standpoint that goes on top of that. So from help me understand RFID technology, I get it, right. But like in terms of, you know, cannabis is consumed, right? So is it something that should sound like the exterior package, or like how you go from, like being cultivated at a farm, right, and where did our RFID tracking or whatever go on to throughout the entire supply chain?

So most states require individual plant identification. And so identifying a plant just like it, which isn't terribly surprising, although some folks when they hear the person they're like, Okay, so they're identifying every plant, you can't go to Lowe's or Home Depot and buy a plant without, you know, two or three tags on it. So it is, it's actually quite common. But when you talk about a plant, an outdoor plant could produce more than a pound of cannabis in Northern California, in Humboldt County, some producing more than 100 pounds. And so identifying and being able to maintain a really good inventory for compliance purposes, and ultimately, to protect public health, to prevent inversion, and diversion is a central piece of the overall regulatory ecosystem. And even if it wasn't required, folks are still generally going to identify and tag each plant so that they can tell that this one plant over here, maybe it's a little smaller than this plant, and we need to, you know, add some nutrients or, you know, perhaps we see something going on here, we need to add pesticides, we need to do something different. The vast majority of cannabis grown in the United States is grown indoor, even though it like greenhouses aren't necessarily sometimes called the hoop houses aren't necessarily the same same structure that you might find like in your home or in a warehouse, you still see the vast majority of cannabis grown in these facilities that are that that require movement of the plant at various times. So you might start a plant inside of a room, that's a vegetative room, and then at 30 days, you're gonna physically take the plant, move it to a different room. So being able to manage 1,000s 10s of 1,000s of plants, in different locations, is really hard to do. And folks have, I think, a bigger challenge in trying to trying to really, you know, go through the process of doing inventory cycle counts, which for any small business operator is certainly certainly annoying. Being able to leverage RFID, to know where all your plants are, at any point in time, is super critical. And so folks can literally walk around with an RFID reader, and you can read, you know, hundreds of plants in just a matter of a minute or two, which certainly helps. It also helps on the regulator side, because regulators instead of going out and kind of poking around and you know, doing a sample count, or APR, which which could take a long time and then something doesn't match up and you end up having a regulator in your space, the whole day, regulators are able to walk through a growth facility or a packaging facility, literally in a matter of minutes with the RFID reader get a full 100% Count, not a sample count, get 100% Count and feel really good about what's happening in your space. And then they're they're gone, sometimes in less than an hour. And that's a multi acre location. Sometimes that happens so hugely beneficial, I definitely don't think especially because you've got so many small operators in the space that folks take advantage of the magic of RFID in the same way that many could. And it's a game changer. If you're a small operator, you're probably really having a hard time toeing that line between profitability and you know, having a loss, this type of thing that saves you a ton of time and ton of resources. But it's it's not. It's not like you know, it's not like downloading an app on your iPhone and just turn it on it works. There's definitely a little bit more of a learning curve there. And there's not that many operators that provide really good solutions in the cannabis space to make it easy for you as a as a cannabis operator to take advantage of RFID I will admittedly say that Metrc doesn't doesn't really make it super easy for folks that are operators to take advantage simply because Metrc has been designed and born as more of a regulatory compliance tool. But as we continue to develop and as we continue to iterate on the products certainly trying to make it much more accessible and bring the magic of RFID to the masses in a, in a more intuitive way.

Interesting, it's just super fascinating. Yeah, a lot of our clients and operators, they're, you know, they're leveraging 3PL or warehouses, you know, to manage or facilitate their inventory, I actually don't even know how many of them, you know, of those 3PL is in the warehouse is actually leveraging RFID for inventory control and tracking.

But Walmart, the largest retailer in the country now requires RFID through their entire supply chain, and there's a Walmart last year has had a mandate, they're cutting out, I think they're intending to cut out three to $5 billion in their supply chain, just from passive data collection and automatic tracking. That's Incredible.

That is incredible. So very cool. Very cool. Well, I'd like to step back a little bit kind of go from when I better understand, you know, your background, just as from an accounting and finance, as we discussed before, the call here and kind of how that has helped you from the bad aspects of the business from the left brain aspect of the business to help you move to a CEO of a scaling startup. And I think, you know, to grown up to the grown up period, I think I saw somewhere as I was going to researching this. So what is your background accounting, finance, kind of, where did you come from? And then I guess how have you transitioned to the CEO of Metrc from from the CFO and accounting space in history that you've been there?

Yeah, it's, it's, it's an interesting path. I think I imagine a lot of your viewers and listeners are on the accounting side as well. And so I started out as a CPA started out with PwC out of college I was there for about five years, working mostly in, in technology and entertainment businesses on the audit side, ended up having an opportunity to go work for one of one of my clients, which is fairly common. After after my time and in public. The business that I went to go work for was a subsidiary of Sage Software, which now owns Intact, which I'm sure some of your viewers are, are familiar with, but at the time, they did not Peachtree, Mass 90 Things like that. They bought a software company some years beforehand, which is how it became my client that was in the healthcare space and really made practice management and electronic healthcare record solutions for doctors offices, this business was acquired. And what created the opportunity for me was it was acquired by a private equity group, which at the time was a very little known private equity group called Vista Equity Partners, which is now one of the largest technology based private equity firms in the world. But we were, I believe, their 11th investment. And now there are several 100 in and I spent a ton of time there really learning and kind of engaging in the best way I could, in the business sort of secret sauce and their approach to building businesses. We grew tremendously, did a ton of acquisitions, I was able to have some exceptional mentors there, and worked out kind of in in through the accounting side, ultimately spent some time in FP&A, and with those relationships, was able to get a great opportunity, becoming CFO of another PE-backed software business. And I've done that a couple of times since then. I came across Metrc, because the Tampa Bay area is not exactly a hotbed for technology, although really has come into its own in the last few years. But there's just not that many software companies here at least not at the time and coming across metric and seeing that there's business that's located in a little bit of a smaller town outside of Tampa, in the cannabis technology space, which just didn't, didn't match at all, not something you would expect. And I got to know, the founder here who is just the nicest guy you've ever met, and really, really built something truly special. It's really a 30 year old startup. We're trying to make that transition from from startup to grown up, but he's been at it for a really long time. It's actually 30 years in September. And so we're making that making the transition to to that business that was did did okay, and did a lot of different things and really was, I think, a huge joy for him and the founders. But what the what we've been able to prove out and what we've been able to find in the cannabis space is is a little bit different than a lot of the a lot of the stuff they've worked on in the past. And so it requires a little bit of a different view. Key. We worked together really closely. He felt like it made sense at the time for him to him to focus on the bigger vision and us to really work on I think honing our operational chops and, and making that transition, as you mentioned, from startup to grown up. And that's, that's how I was able to get into the role. I've been doing it now for a little over a year, our focus has really evolved, I think, I think meaningfully to the customer experience, we've expanded our definition of customer from just the government, just the regulated side, to everybody that interacts with Metrc, we have a really opportune really amazing opportunity, and a great role to play for 360,000 users that interact with Metrc on a monthly basis. And so for us, we think everybody's our customer, we think compliance can be done in a way that doesn't have as much friction, and really underpins the security and safety in the market, and helps the legal market become something more substantial in the future.

That's very cool. How do you define a startup versus a grown up?

So in a startup, everybody's everybody's wearing nine different hats, right, and I imagine, and they still feel like that. And that's why we're not all the way up to grownups, everybody's wearing nine different hats. And everybody's, everybody's responsible for kind of everything, you might have some folks that are a little bit more of an expert in one field or another. But really, it's kind of all hands on deck, you've got a lot of folks that you're pulling together to fill in roles that might be, you know, relatives, friends, family members, I mean, they're not exactly perfect for this role, but they're good, they're smart, they're hungry, and you know, we'll find something for them to do that, that tightness, that you know, kind of get stuff done, you know, everybody's everybody's in it together, everybody's in it, to win it with their hair on fire is a beautiful thing, until you get to a certain size, and you can't keep up. And yet you need some more folks that have done this for their career, not just, you know, have some experience in marketing and some experience in finance. And maybe they did some bookkeeping a couple years ago. And so when you, when you shift that, I think a lot of folks expect that you're just going to add, you add more people and your trajectory is just going to go even higher–kind of that up into the right. But the reality is, is that as you as you get into it, you actually your growth trajectory actually kind of drops a little bit, your profitability drops a little bit, and you have to sort of reinvent the way everything's done. So the system like QuickBooks was okay, until it's not okay. And now you got to implement a bigger system, well, the bigger system can't be managed by one person, because, you know, NetSuite is just it has so many different controls that are necessary, but I'm not getting I'm not making any more money on that revenue is not higher. I'm just, you know, kind of keeping myself from, from, from falling into falling into, you know, tough spot. And I think at the beginning, using kind of a baseball reference, right, you're trying to hit for average, actually hit and trying to hit homeruns. When you get to this point, you almost become instead of worrying about your average, you become kind of like a pitcher, and you're paying attention, you're ERA you want to have a lower era. So it's like keeping keeping bad things from happening. So in the beginning, hitting hitting Grand Slams winning games by outscoring your opponents knowing that you're gonna give up a lot. And as you get bigger, you get a lot more to lose, and giving up a lot becomes a bigger deal in many cases, and then then hitting.

Gotcha, yeah, I'm speaking you know, minimizing risk, right, minimizing downfalls if you've transitioned from CFO to CEO kind of what's, uh, what's one of your biggest, I guess, maybe not regrets, but mistakes or learning situations where you're like, "Oh, I could have done that better." Or, you know, 'I wish I would have done that". I'm sure there's been a couple,

There's a ton. So being, um, been CFO, three different times. And every time you get in, and you, you, you look at it, and you're like, it's gonna be just like this other thing, and it's not. And so making it easy for folks and trying to get 1% Better, is something that I always look back on, like, yeah, I really needed to keep it, keep it keep those bites, bite-size, not, you know, massive chunks. Because you, you always want it to be a certain way. You always wanted to hit the vision in your mind, and you can get there. But it's much better to compound those little bites than it is to spend, you know, weeks and months and sometimes years trying to trying to change the whole thing and you can't really steer can't really change the direction of the cruise ship, you know, kind of in the snap of a finger. But you can do a number of other things that help kind of get things together. So my my guidance to myself and to anybody that's doing this is like every day 1% better. Not, not 100% Better overnight, because you'll you'll go crazy. You need those wins.

Yeah, when you transition from CFO to CEO and then literally hired a somebody to fill your CFO position How? How did you best I guess delegate, oversee, support them? Because that's a lot of issues is, you know, smaller companies grow or you're hiring a replacement or you know, you're moving to the next phase of the business. How did that process go? And then how do you, you know, not micromanage, but then oversee and support them.

It's tough. So I'll tell you, my very first CFO job was working for a CEO that used to be CFO, and no matter what you do, even if it's better, it's still not exactly the way they would do it. So it's hard to be good enough in their eyes. And, and ultimately, I think we got to a good spot. But it's, I don't envy, Justin Green sometimes, who is our CFO, I will tell you, it's a little bit different here and a little bit, a little bit of a unique situation. So before I joined Metrc, full time as a CFO, which I was also President and CFO, I had advised Metrc for about a year beforehand. And I actually had previously worked with Justin, I was able to able to bring him over to set up the accounting and finance function because it didn't exist. We're on QuickBooks with a bookkeeper, one guy, well, when one person sort of and another bookkeeper. And so we created a lot from scratch; implemented adaptive insights, implemented NetSuite. Implemented Paylocity, for HR IS did a number of different things. And Justin was able to facilitate most of that. And so I was sort of helping guide him from an advisory capacity in in joining full time it was President CFO, I would say definitely much more president than CFO and really doing everything we could to help Justin get to that, to that level, such that he was he was in a spot where he felt good about taking over and felt like we did enough to make it so he would be successful, instead of spending his whole life just implementing systems and trying to hire the right people. So for us, it was a great transition for him. I certainly don't envy him all the time. But we've, we've worked together for so long, that I frankly, I pay a lot less attention to him in terms of like day to day because our thought process is so aligned, given given the relationship that we have.

Yeah, that that all makes sense, as you've grown from, you know, this startup to grown up and implemented, you know, great leadership's and departments and systems and processes. How have you, you know, and again, you said cruise ship, right, you go from a small boat to a cruise ship. So it's harder to turn harder to stay agile, how have you maintained agility and efficiencies, you know, across your organization, and leveraging systems and technology to kind of, you know, maintain as much agility as you can.

It really comes down to three things, I call it people rules and tools, because it rhymes. But people process and systems is really what it's about. And every problem in the operating elements of a business. And every success in the operating elements of business comes down to one of the three, and paying attention to the right systems. And not just being in a situation where we're going to plug in a tool for everything, not over customizing, or kind of over perfecting how a tool fits into the business is, is I think a critical thing for folks, you, it's never going to be perfect. If it's like 80 to 90% of what you need, then sometimes that's, that's the best you're gonna get depending on the type of tool. But most companies and most most functions all have their own project management tools, which is ridiculous, right. And so you get into this sort of tool paralysis, because it doesn't do exactly this one thing perfectly. Well, you know, you can also change your processes, right? And so finding a tool that gets you that 80 to 90%, the way they're generally going to be good enough, you modify your process to fit into it, and then you're able to continuously grow, and then bring in the people. In the beginning, especially when you're trying to be that grown up, you bring in a lot of folks that have been there and done that, right, because they can tell you exactly how it's supposed to be. The problem, and actually, one of the challenges that we're have here is I end up having a really heavy team. Because as we as we grow, so let's say I'm up to 200 people next year, which probably not going to be the case, but you know, eventually, hopefully we get there. It's not going to be all directors and VPs that are helping us get there. It's gonna be mostly folks that have a lot less experience some entry level some, you know, handful years out of school. Well, if you if you spend too much time in that middle period before you can bring in kind of your, your your next level of talent, folks end up, you know, they end up spending a couple years here and then they want to go do something else because there's no really nowhere else for them to go and you don't have anybody else that's able to move throughout the move throughout the organization or move up in the organization. So the stability I think is pretty hard. And that's why it's really important that you constantly evaluate those, those three areas, kind of the three legs of the stool, so to speak, and make sure that they're the lengths are all about right, otherwise, one of them's gonna be a little short, and you're gonna fall in over.

You said people rules and tools, people rules and tools, they really like it. Definitely. It's easier to remember that than anything else. So okay, and then just kind of last kind of question I have, before we can get on this. How have you guys, I'm assuming you're growing pretty fast for you're gonna keep growing like how are you handling? Hybrid work, remote work, you know, physical work with with with the day and age we operate in? How do you guys handle the handling that at Metrc?

We're doing the best we can, which is, I think where everybody else is at. So we have a couple of things going against us. We're not in, you know, glamorous Charleston. And I'm not in that in Tampa, which is a fairly large metropolitan area. I'm in Lakeland. And so I live in Tampa, and it's 40 minutes for me to drive to my office here in Lakeland every day, I have no issues with it. I'm, I'm probably in the minority there. So a lot of folks are like, I'm not, I'm not doing that every day, and I get it. And so we have to find a way to make it work, I would like my rule of thumb is that, I'd like to have everybody in the office more often than not, because of the unique part of the world that we play in. Sometimes finding the right talent is a little bit harder than then we would like. And that really comes into that people rules and tools that I mentioned, how are we building? Are we kind of building processes? Or how are we building infrastructure to where people are able to move up, and we don't have to go and try and scour the Earth to find the perfect person, we're able to find people that have a lot of experience, because we've we've helped grow that experience. Um, but we have it, you know, and so we have, we have unique, unique skill sets that exist, and those people need to be remote, because that's where that unique skill set is that I would love because I think you I don't believe these these folks that say like, you can pretend to work at home or whatever. I think Elon Musk says like, I think that's probably painting it with too broad of a brush. And so there's people that are significantly more productive, working remotely or working at home. For me, it's not really a conversation about productivity. I mean, I'm just I'm sure there's folks that aren't as productive at home. It's not a conversation about productivity, I think I think the best people will find a way to be productive, wherever they're at. For me, it's about culture. And so having the the relationship that you have with somebody in real life, like you know, in person, even if it's not necessarily scheduled time, just that greater familiarity allows for you to be able to have better conversations to be able to challenge people in a way that you feel more secure. And really able to push through a little bit more, a little bit more meaningfully. And so the best the best experience I've had from a work perspective, or because of the people in big four like in PwC, where we both have been, you know, the I think a lot of people would have quit the firm a lot faster if it wasn't for the people. You know, nobody ever stays for the firm, they stay for the people. And I have a great PWC experience, I've nothing negative to say about PWC. It's just it's a grind, but you love the people. And it definitely, definitely created a situation where I want to stay there a lot longer. And I don't know that I would have loved the people as much if I didn't really ever see them in person. And so we're in a situation, we're going to find a way to make it work with folks remote, with folks that are working hybrid, with folks got a handful of people that come to the office every day, not that many, we're gonna find a way to make it work, but it is it is a constant sort of reassessment. And we definitely have, I think more headwinds facing us than most, I would say for a lot of your listeners that are inventory based sub 10 million. You're just you're trying to get in people, whoever you can get. And you're going to probably find yourself in a situation where you have a lot more remote than than otherwise I would pull people together and realize the culture parts the hardest part of the problem to solve for. You can you can solve productivity, if you're worried somebody's not working hard, like you can assign metrics pretty easy to do that to validate it. I wouldn't I wouldn't get too worried about that. To be honest, I would get a lot more worried about the cohesiveness of your team.

Yeah, can I 100% agree and all aspects of that you know, we we're hybrid have some local you know, at our office today probably 10 people here were team about 70 Plus now and majority of our team members are remote and just that's where that's where we've been able to find talent as we've grown but it's it comes down to culture and just interaction and and feeling welcome and part of a team or part of some department and pod and creating that culture for that it is complex. I don't think there's ever gonna be a–I think it's going to be this middle ground for a long time in terms of trying to, you know, as a business owner trying to facilitate and work through it with everything. So,

I will tell you, me, if we move like our offices fairly traditional, where I have seen some really good experience with folks that like want to be in the office is creating much more of like a loungy type space. And I have not, I'm sure your experience has not been like loving the open work floor plan as much I think I think the big Four tends to tends to crush that arout of ya, even though a lot of other people love it. But I do think when you have situations where people are encouraged and open to spend that time, just with each other, not necessarily in, you know, around a conference table, you know, hashing out numbers and projections, but in a situation where you're able to feel comfortable enough to have conversation, to spend time with folks to get to know him a little bit better. Those are the offices that I find people not being told that they need to go to, rather wanting to go to they have a better experience.

absolutely, absolutely. Well, I think that that, that kind of wraps up our chat, this was super informative, very fascinating. You know, it's as more and more I talk to different people and different business owners and entrepreneurs, just the creativity, and the technology and different niches and industries just always kind of surprises me or things you just never think. Right? So enjoyed the Insight during the chat, Michael, what is next for Metrc? What is next for you? Do you guys have any big plans or just keep that 1% per day is Is that what your goal is?

1% is the goal, we grow in earning new state contracts. And so we're going to continue to try and go down that path take care of our existing customers and add to that, really working on performance and functionality of the product. We have. I think some we made some tremendous strides. But we have I think some really exciting things on the horizon. I brought in a new CTO about eight months ago. And he's been incredible. And I think everybody's everybody's real close to seeing a lot of the a lot of the new vision for the product and what's going to happen in the future with Metrc and in the next couple of months. So we're excited about it.

Awesome. Glad to hear and people can learn more about you and metric metric.com and etrc.com. All right, that was the Accountfully Chat, Michael Johnson, CEO of Metrc. Thanks so much, Michael. Really appreciate it.

Likewise, Brad