Ep 551: Tesla to THC: How WYNK Engineered Explosive Growth in a Regulated Environment

0:00DTC Podcast Hosts:Nothing about it was easy. At that time, you're working under the state cannabis frameworks. They have different licenses for grow facilities, processing facilities, transport companies, retailers. We thought, we'll just market to the alcohol consumer and get them to go to dispensaries. Turns out that's far, far, far more expensive than we thought. Our strategy with DTC, you know, last year, we were only in about five states with retail. We spent a lot of money on digital advertising building our e-commerce business. And the idea behind that was, you know, this is a really easy way to access consumers that we can't otherwise access because we're not in the market.

0:37Get them to try the product, understand the brand, hopefully like it, refer friends. And with every interaction we have with the customer, we get data.

0:51DTC Podcast Hosts:Angus, welcome to the D2C podcast. Super excited to connect today. You've got a really interesting background having gone from Tesla to THC. Can you maybe walk me through your hero's journey that brought you to building Wink? Well, first, thanks for having me. Happy to be here. Wink has a long story for the THC beverage category. We started in 2020. We launched in early 2021. But the way that we came into existence is somewhat unique. Um, my background's really in engineering and technology. I went to school at the university of Victoria, studied mechanical engineering. That's how we were connecting on that.

1:29DTC Podcast Hosts:That's awesome. You don't often meet people from the States who come to Canada for university. I had a great time there. And I really liked the program at the university of Victoria because it allowed for a lot of internships during your degree. Um, so I did, I think seven internships with engineering companies while I was in school. and when I graduated I went to Tesla, did battery design for the Model 3, but was really looking for an opportunity to start something of my own. I ended up leaving Tesla without figuring out what I was going to do, but knew that I was leaving to go start something.

2:04So around 2020 I was looking at the THC beverage category in Canada and seeing it grow really quickly, but didn't see much going on in the U.S. So I was asking myself why is this. I wasn't a cannabis consumer, but I was just looking at different opportunities. And the interesting challenge in the US at that time was you had to produce the beverages in each state that you sold. So you couldn't ship across state lines. And where this created an issue was to build a facility, you not only needed to build a beverage facility servicing one state with limited distribution through dispensaries, you had to get it licensed under each state's cannabis program.

2:42And they're all unique. It was millions of dollars, years before you could get up and running. And it really makes sense, which is why the beverages that did exist in that time were only in a single state, maybe one or two. And largely in the U.S., most states did not have beverage period because there was no way to make it. So that caught my interest because I knew I could produce a mobile beverage system of some sort. So I designed this sort of 53-foot tractor trailer with everything that you needed to produce beverages on the go. and our model you know in the early days was rather than build facilities and get licenses let's build one facility we can move around and partner with people that already had facilities and licenses that we could can beverages within so my technical background you know created this interest in the cannabis industry the next thing that was really interesting was when myself and my co-founders decided to you know start this company like okay well we need to figure out what we're going to make.

3:41We know how we're going to make it, but we don't know what we're making. And so we tried a variety of drinks from Canada, ranging from, you know, very low dose to very high dose, two and a half milligram at the low end and all the way up to, I think, 100 milligram at the high end. Myself and my co-founders, you know, pretty inexperienced with THC at that time. But it was clear to us that these very low dose THC drinks were an extremely compelling alternative to alcohol. And they could really be used like wine and beer are used, very social, sessionable, regardless of your tolerance, a pretty manageable effect.

4:17And so that turned this from a passion on solving this technical problem to a passion for the entire category.

4:25DTC Podcast Hosts:I want to hear the story about what happened when you ate the 100 milligram one. Yeah. Not for me, put it that way. No, you didn't have any visions about the future of the business. But just to sort of wrap the early days, it was about, I started building this trailer in January 2021. I had it working by March. It took about two months to build and validate. At that point, we had, you know, low-dose THC seltzer formulation that was really compelling. zero calories, zero sugar, which is pretty uniquely interesting because you now have an adult beverage with an undeniable effect that meets the alcohol occasion with no calories.

5:09That's just something you can't do with alcohol.

5:11DTC Podcast Hosts:And then the name, we've played around with a bunch of different names, but being geared for low dose, this idea of seltzer with a wink of THC or a low approachable amount of THC, that's where the name wink came from. And then we did our first production run in Ohio in April 2021. And we're off to the races. Such an engineer's solution to the problem. You don't hear that very often. When I was sort of doing research on our pre-interview, it's like constraints in one way are, if you have a solution, then there are advantages in another, right? And I feel like you're a good example of taking constraints in this space and finding solutions.

5:48DTC Podcast Hosts:Talk to me about using the distribution from each the locales. Why was that different than if you were trying to roll it out locally? Because you're producing in those states, was it easier to get inroads with some of the distribution? Nothing about it was easy. The way that it worked at that time, you're working under the state cannabis frameworks. They have different licenses for grow facilities, processing facilities, companies, transport companies, and then retailers, which are dispensaries. The other challenge was some states were medical markets where consumers had to have a medical license to buy.

6:27Others were recreational where so long as you're over 18 or over 21, you could go to a dispensary or buy. But the common theme was you're working with an extremely sort of tightly constrained route to market where everything had to be tracked at each step and done under a different license. So you're working with all these different parties just to get your product made and then to a dispensary. Biggest challenge was that there were very few, in any given state, if you compare it to alcohol distribution, there were so few stores that could sell it. You might have 50 to 100 dispensaries in a market where you have 8 ,000 liquor stores.

7:07So, you know, comparing sort of the early days of link distribution to traditional beverage, extremely limited, extremely challenging. But, you know, we found ways to overcome it and work within those systems and grow the business for, you know, three years. And after three years, the rules change and we can talk about what the business looks like today a little bit more. But it's hard to appreciate, like, one, how limited beverages were in the U.S. at that time. This is something very unique. And two, our real angle was getting a monopoly in a variety of states. There just was no way for there to be competition unless they ran on our system.

7:47That was what really excited us. If we can just make this technology work and show up in that market, we'll be the only drink there.

7:54DTC Podcast Hosts:And as people, I just think it's not people's first choice. People who are turning to THC, it's smoking, maybe it's eating, it's vaporizing. Drinking is obviously growing. What did you do to like on in Canada, the biggest constraint with growing a cannabis business is we just don't allow any marketing at all. Like you can, you know, they limit so hardcore what can be used to actually build a brand in the cannabis space. What were some of the ways that you sort of got over the idea and sort of promoted the idea of drinking cannabis? There was a very false premise to our business from the start.

8:31and that false premise was dispensaries were largely selling high potency THC products for the cannabis consumer. Our premise was let's bring a low dose product and we can bring these dispensaries a whole new set of consumers that are alcohol consumers interested in cannabis and give them an on-ramp into the cannabis category. Marketing was somewhat limited in the U.S. at that time. You can be very careful about what you said and there are a lot of limitations on where you could place marketing materials, but you could do it. And so we thought, we'll just market to the alcohol consumer and get them to go to dispensaries and buy these Lotus products.

9:10It turns out that's far, far, far more expensive than we thought. It's very hard to get somebody to go make a special stop at a dispensary they're not necessarily comfortable with. And so we had a lot of headwinds. Despite being able to market more freely than you can in Canada, still had a lot of issues actually getting that conversion to happen, getting that alcohol consumer to make the extra stop. And so what we ended up doing while we were selling through the course of the first three years when we were selling through dispensaries is we ended up just creating higher and higher dose products.

9:43And we got to a point where we were selling 100 milligram THC drinks because that's where most of the demand in the dispensary channel was. But there's been a big shift to the industry and it might be a good time to talk about that.

9:56DTC Podcast Hosts:Let's talk about that. Was that from when the Hemp Act passed? Yeah. In the early days, we were deriving the THC in the drink from marijuana. Marijuana is federally illegal in the U.S., but states have created programs to legalize it. But THC is just a molecule, just like ethanol is a molecule. And in the same way, you can derive ethanol from a variety of different sources, potatoes, grapes, whatever, to make wine or spirits. The same is true of THC. You can derive the same THC molecule from marijuana or from hemp. And then around 2022, Minnesota created state rules that said, you can sell products with THC derived from hemp outside of dispensaries because it's federally legal.

10:42And they put caps in place for products. But ultimately, they created a marketplace where we could use THC derived from hemp in Wink, produce it at our own facility, ship it across state lines to Minnesota, and sell through liquor stores. that's a huge change to the route to market for THC beverage and they set a precedent that a lot of states have since followed but it's created in the U.S. a marketplace where you know largely drinks with 10 milligrams of THC derived from hemp or less can be shipped into each state and sold through alcohol distributors and retailers both on-premise bars and restaurants and off-premise liquor stores, which has caused immense growth in the category as a whole and also immense validation of our sort of initial concept.

11:33And the initial concept being low-dose THC beverages would be compelling to the alcohol consumer. It just turned out that it required the right route to market. These products had to be where alcohol consumers are shopping. Minnesota sort of paved the way. And it's created immense growth for Wink. and obviously a lot of new brands in the category in the US because it's now accessible.

11:56DTC Podcast Hosts:Just a question about the product. How are drinks – because I know with – well, actually, I don't really know how edibles are made. Is it just sort of like atomized? Is it sort of like an oil that's like atomized within the drink? Or how does it actually get made? Yeah, if you start with a crop, just like many raw ingredients are derived from crops. But hemp is grown, it's dried, the oils are extracted, and sort of this nasty crude oil. It then goes through distillation to purify the Delta-9 THC and concentrate it. At that point, you have something that's sort of like honey. It's very thick. It's clean because it's been distilled, but it's not soluble in water.

12:40And so if you were to just add that THC distillate to a drink, it would separate just like oil and water.

12:47DTC Podcast Hosts:And so there's one more step you need to do for beverage, and that's to emulsify it. And emulsification is really just breaking that sort of thick oil into very, very small droplets around 100 nanometers in diameter. And then they're coated. And the coating stops those droplets from recoalescing. And it keeps all these droplets sort of separate from each other. And they distribute evenly through the drink, and they're stable over time. And so what you end up with is a sort of flavorless milky-like ingredient that you're adding to the liquid. And that allows this oil to be distributed throughout the beverage and done in such a way that you have a one-year shelf life, just like a traditional beverage.

13:31DTC Podcast Hosts:Super cool. Yeah. The other benefit to emulsions is these sort of small droplets are more bioavailable than the oil itself in edibles. And so in some third-party studies that are being done by big research institutions, there's really interesting data on blood toxicity over time. And what it's showing is that THC emulsified and delivered through beverage has a much faster onset time than traditional edibles and a very reliable offset time. So these experiences that you hear from people about gummies and brownies, you know, taking it, not feeling anything for two hours, taking more and then being hit by, you know, way too strong of an effect.

14:15Going to the astral realm. Yeah. What we're finding with beverages is it's much more, it's much more rapid, much more controllable and consistent, which is great for the new consumer.

14:26DTC Podcast Hosts:For the alcohol consumer, right? Because that's what I think that was, I was in the CBD space before this a little bit. And the hardest part about that is you don't, there's no feeling. There's no acute sensation. You can't tell that you've taken, you know, and maybe your inflammation is down a little bit. But with beer, you have that first beer. You feel a buzz. And I think that's a really interesting point that the way it's emulsified has that rapid onset. And also you want the off-ramp as well like you do with beers. Yeah. And the interesting thing in the data is the on-ramp follows alcohol fairly closely.

14:57So when we say consume this and control your experience in the same way you do beer, have one, wait a little while, say if you'll have another if you see fit, it's actually backed by real data. And it's very compelling to have another sort of psychoactive ingredient in a beverage that does sort of match the profile of alcohol.

15:17DTC Podcast Hosts:So did you retire the cannabis caravan? Yeah, it went through. The first year we had a team of six people with this 53-foot tractor trailer traveling state to state every week maintaining inventory. So we'd show up at a facility. We'd have things unloaded and set up in about four hours. We'd produce 20 ,000 to 30 ,000 cans a day and pack up and leave. So most of our production runs were two days. And then we'd go on to the next state and we'd come back before they ran out of inventory. We started to outgrow that, so we built a second trailer. Then we had two teams, two trailers running. True traveling circus, like crazy, crazy system.

15:59And it was clear that, you know, Wink and our other brand at the time, Countdown, were growing faster than we to be able to keep up with these trailers. And so we designed a next iteration of the technology. And the way that that worked is built a machine that took traditional beverage cans, so just normal empty cans from common suppliers. And the machine would punch a hole in the bottom of the can, like a hole punch. It would then insert a one-way valve, this very small little valve that the consumer would likely never even notice. And we'd fill them at our canning facility, undosed. It would have no THC in it, but it would be flavored, carbonated, sealed.

16:37DTC Podcast Hosts:And we could do it at scale. We could do huge batches of very good labor efficiencies. And then we'd ship those undosed cans that were otherwise complete to each of our markets. And in our markets, we had these small dosing machines. So you just take a case of 24 cans undosed, put it in the machine, and it would just inject a small amount of THC through the valve and dose it. And then the product was ready for sale. So rather than canning in every state, all we were doing was just injecting a milliliter of emulsion into the can. And it made it so that we could produce at scale at home. We'd have these distributed dosers in each state with our partners, shift the cans, dose them, and we're on our way.

17:21So that kind of took us to the next level of scale for the company. And then when Minnesota sort of created this pathway for a hemp-derived version of the product that had the same flavor profile and effect, we started to switch our business model from selling through dispensaries, producing or dosing on a state-by-state basis to selling through licensed alcohol, wholesalers all over the country. So as the business exists today, which producing everything dosed, THC derived from hemp at our facility, and then shipping to beer, wine, and spirits wholesalers who then efficiently get the product to retailers.

18:00DTC Podcast Hosts:And these machines that you built didn't exist before you – or did they? Was that solution where you could dose on premise? No. I literally designed and built all of it. That's pretty rare on this podcast, I got to say. Congratulations. I love engineers for reasons like that. Actually, I just saw a video this weekend of a guy that he'd created blueprints for open source for all the different like excavation machines that you need to like build in the real world. And he's like open sourcing all these things. It's pretty, pretty interesting when you can actually make all of these steps come to life.

18:32Yeah. And it was really fun for me because, you know, being so close to the products, our partners and really understanding the issues that we had to solve, but also being an engineer able to program, do the electrical, do the mechanical, I could design what I thought was the perfect solution for the problem. And for the first year, I went on every single production run in every state. So I was very, very acutely aware of the issues. And so we were able to design something that was a very good solution for the problem at the time. Of course, the industry changed. And therefore, the way we produced had to change, but we wouldn't be here today without it.

19:12DTC Podcast Hosts:Talk to me about the post-Minnesota decision. Was it a gold rush after that fact? And my question is all the momentum that you'd been able to build on this previous system, were you able to leverage that into the sort of post-Minnesota gold rush? Or what was it like going to market after that rule had passed? Yeah, it's an interesting sort of coincidental success. The early version of the Wink brand looks very different than it does today. And that was because we had to comply with medical packaging rules. It was a very bland package. It wasn't a super compelling mainstream brand, but it was the best we could do within the rules of the channel in 2021.

19:54The next couple of years was a lot of states went recreational, from medical to recreational. The packaging rules opened up and gave us an opportunity to do a way more mainstream rebrand. So we spent about a year revamping everything about the brand and making it sort of as mainstream as we could, really targeting the alcohol consumer. Coincidentally, right after we launched this rebrand, this mainstream route to market opened up.

20:20DTC Podcast Hosts:And so I tell that story because it gave us two to three years to really refine the brand, the messaging, the packaging for the mainstream consumer. And it was timed perfectly to be, you know, able to actually present these products where the alcohol consumers were shopping. But yeah, really challenging, you know, taking something that has so much stigma with THC and putting it into, you know, a product and package and brand that feels really approachable and safe. What is the high-level branding message that helped bridge that message to a seasoned alcohol consumer? The sort of core premise of the brand and something that you see show up a lot in market is this idea of light, balanced, and social.

21:10So a lot of our messaging is targeting those three things. One, this is light. It's approachable. This isn't a very high-dose product. It's not going to give you a bad experience regardless of your tolerance. balanced in that we add CBD to the product to try and tame the effects of THC. So many consumers find that THC on its own can create anxiety or a lot of hunger, a lot of unwanted effects. CBD helps balance it.

21:36DTC Podcast Hosts:And so by adding CBD, we've again made something more approachable. And then most importantly, social. So a lot of our marketing, a lot of our events are all about bringing back getting together. Get off your phone, go hang out with your friends, and And THC beverages allow you to do that in a really unique way because there's no hangover. You at least don't feel ill in the morning. And there's no, you know, we're able to deliver with no calories. And then more recently, you know, it's available at events. It's available at bars and restaurants. And so you have this sort of new tool to be out social on weeknights where alcohol may not be, you know, it may be difficult sometimes to get together with friends on a weeknight and consume alcohol together because you need to worry about tomorrow.