How to Turn a Profit in California Cannabis

Jade Nectar's Jeff Nordahl shares how he makes it work.

Since the new statewide regulatory system for the California cannabis industry went into effect in 2018, it’s been near-impossible for many companies to turn an honest profit. Many have either closed up shop, left the state for more fertile ground, or gone back to doing business illegally, all due to how tough it is to run a company without bleeding cash.

But there’s at least one licensed microbusiness in the state whose owner says he’s figured out how to make it work.

“There is a path to have some success as a small farmer,” said Jeff Nordahl, president and founder of Santa Cruz-based Jade Nectar, which specializes in cannabis tinctures for humans and pets.

Nordahl said the secret to his success has been sticking to his niche and remaining fairly small, instead of trying to build a marijuana empire.

“The weird thing is, just in the last two weeks, we’ve picked up three new accounts just by existing and not going out of business and by continuing to have a great reputation,” Nordahl said.

“It’s the tortoise energy. Just by not burning out and going down in flames, we’re picking up market share.”

Stay Small

Jade Nectar is a relatively new operation by California standards, given that the market dates back to 1996, when medical cannabis was first legalized. The company was incorporated in 2016, Nordahl said, which gave his company a bit of name recognition prior to the legal market fully launching two years later.

He chose a microbusiness permit, in part because it offers a measure of vertical integration. California microbusinesses are allowed to choose a trio of verticals in which they get automatic licensure, and Nordahl picked cultivation, distribution, and manufacturing. He also got a separate cultivation permit for extra canopy.

He grows 100% of the raw cannabis flower he uses to make Jade Nectar tinctures, and he keeps his industry footprint deliberately small, because his goal isn’t to become a national brand. Instead he simply wants to make a living and pay his bills while in the legal cannabis game.

“It’s all about mean and lean. Like, super lean and agile,” Nordahl said, noting he works seven days a week and typically puts in 12-16 hours per day. “We are profitable and we’re in the black, but we are not Ferraris and all that. We’re just sustainable, regenerative, and we could continue on.”

Nordahl employs only two workers and a delivery driver. He’s got a total of 40,000 square feet of canopy and does all of his manufacturing on-site at his homestead operation in the mountains above Santa Cruz.

And he only sells product around Northern California, staying completely out of the Los Angeles area.

That last part of strategy may confuse some other operators, given the sheer size of the L.A. cannabis market, but for Nordahl it’s about controlling both cost and risk.

“More shops means more servicing, means more infrastructure, means more headaches. Why be the mediocre for 500 shops over being the best for 20 shops?” Nordahl said. He said his company does just fine with keeping sales to the San Francisco Bay Area, Sonoma County, and the central coast around Santa Cruz.

Find a Niche

Aside from having the “tortoise energy” of keeping one’s head down and chugging along, Nordahl said small companies have to figure out how to create a value-add so that consumers will have a reason to seek out their products.

That’s what he did with Jade Nectar. His original company idea was juicing raw cannabis for health benefits and selling frozen ice cubes of cannabis juice. That evolved into specialized tinctures.

The model has kept his business profitable since the new regulated market launched in 2018, and he’s made enough that he’s even considering a small expansion to build a wellness retreat.

“You’re really in a vulnerable, weak position if all you’re doing is growing flower,” Nordahl said. “Because you’re now in a commodity market that has surpluses, and everybody has this kind of narcissistic cannabis cultivators’ disorder. They’re like, ‘My ice cream cake fudge muffin blueberry is better than everyone else’s wedding cake.’ In reality, that’s a hard sell.”

It’s readily apparent to every industry observer that the commoditization of cannabis has been on the way for some time, and wholesale prices have been tanking throughout 2022 as multiple states grapple with oversupply issues, which underscores Nordahl’s point.

No matter how good a small farmer’s craft flower may be, Nordahl said, “It’s just a commodity. You’re just a dude growing tomatoes, trying to go to Safeway, with a bunch of tomatoes in the back of your truck.”

“You have to not just be a raw commodity, because that’s the lowest, most vulnerable position in a commodity market,” Nordahl said.

“I would recommend finding some niche that you can then create a brand and something unique. But just growing flower … by the time it sits on a shelf in a dispensary, people are looking at THC numbers and price.”

Redefine ‘Success’

The biggest pet peeve of Nordahl’s, however, is pretty much anyone who enters the cannabis industry for the sole reason of turning a profit. That approach, according to him, spells doom.

“Right now, how we value success is ‘billionaire, empire,’” Nordahl said. “In the business arena, we’re also being bombarded constantly by these tycoon gurus of Elon Musk, Donald Trump. ‘He’s a billionaire so he must be very successful.’ … That is the ideal, and that is the goal. You have to build an empire.”

But if California operators try to flip that script and instead focus on figuring out a business model that will support a cannabis-friendly lifestyle such as Nordahl’s, then profitability can become more realistic, he said.

“The question is, right off the bat, what are you trying to do? Are you trying to build an empire or just have a sustainable, enjoyable life?” Nordahl said.

If the answer is the latter, Nordahl said, “Then you really don’t need to build out this whole architecture and framework and empire structure and to be carried by every shop in California.”

That goes back to finding a niche and excelling at it, he said.

“Just be in 20 shops, but just be the best in your niche,” Nordahl said. “If you’re top selling for your niche in 20 shops, you’re probably going to generate just as much in sales as if you’re lost on the shelf in 500 shops. Plus you don’t have to support this massive … distribution network to get to 500 shops in California.”

John Schroyer


One comment

  • Drug War Victim

    December 24, 2022 at 2:15 pm

    Insulting article. He has THREE employees. If that’s what it takes to be profitable, it’s not a real industry. There are black market weed dealers with more than three employees. California has ruined cannabis, probably forever.

    Reply

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