HiFi Farms: Cultivators of Joyful Noise
Building a successful brand in a nascent industry like legal cannabis — where questions about cash flow, regulations, and market demand far outnumber the answers — might require someone bred in the cutthroat environs of venture capital and startups.
If that’s the case, Portland’s Hifi Farms might be on to something.
The marijuana cultivation company is building what at least one local consumer business expert believes could be a $100 million brand under the guidance of CEO Sara Batterby, who came to Portland to escape Silicon Valley, but brought along her know-how in drawing investors to the table.
Batterby, the firm’s president and CEO, has already raised $3.5 million in debt and equity, enabling the company to purchase property in Hillsboro where it will expand its cannabis grow operations starting in two months.
The cannabis industry isn’t necessarily an easy sell to investors, who might be too blinded by the industry’s risk to see its high rewards. But Batterby’s track record has, so far, helped them see through the industry’s haze.
“I was immediately identified as someone that really understood business and fundraising,” she said. “Investors realized they had a landing pad in a company that usually would not have someone like me, with knowledge of early-stage capital and operations.”
A startup veteran
Batterby’s background is all business.
She has been a partner in a Menlo Park, Calif., angel investment firm. She founded a credit card transaction processing company that returns a percentage of revenue to the communities where it was generated. She was chief marketing officer for a tech startup.
Batterby moved to Oregon in December 2014, bailing out of the Bay Area because she was, as she says, “burnt out with tech startups and widgets.” She had a few friends in Oregon that grew cannabis and are now co-founders of Hifi. Batterby wanted to change her lifestyle, and her friends were itching to bring onboard someone with deep startup and business structuring insight, so she decided Oregon would be her new home.
The state is still figuring out its legalized marijuana regulations. Distribution laws differ by county and city. Recreational marijuana is still only sold in medical marijuana dispensaries, with recreational-only stores expected in late fall.
Banking is a challenge for cannabis companies since the federal government still classifies marijuana as an illegal substance. Cannabis companies have had to develop more complicated, often tiered or segregated corporate structures to protect investors, and take standard business deductions in areas that do not directly involve the sale and distribution of cannabis.
Despite all that, recreational legalization in Oregon has already sent the cannabis industry soaring.
According to a report from Oregon-based cannabis advisory firm New Economy Consulting, the cannabis industry employs 2,156 in the state, paying $46 million in wages.
It’s estimated, for now, as a $300 million market. Sam Chapman, New Economy’s principal, said that could grow to $500 million in the next year or two as more recreational users enter the market. Within three to five years, Chapman expects it to become a billion-dollar industry.
That market potential helps when it comes to pitching investors.
Hifi’s debt and equity round came from Portland investor Emmett McGregor, who Batterby said understood that the higher upfront costs of an upstart cannabis business would be worth it in the long-run.
The capital was necessary for Hifi to upgrade its cultivation space.
The company is now producing marijuana at a small, 320-square-foot indoor cultivation operation in Portland. But in two months, it will close that operation and move full-time to its new 50-acre Hillsboro farm, where it is building a cultivation facility that will eventually reach 10,000 square feet of indoor cultivation and 40,000 square feet of outdoor cultivation space.
That big jump in physical space will likely be mirrored in revenue growth, according to Batterby.
Hifi is now producing about $30,000 in sales per month from its small Portland space. Once it produces its first harvest in Hillsboro in November, revenue is expected to increase to about $200,000 a month. Once Hifi scales to full capacity near the end of 2017, Batterby expects sales to surpass $1 million a month.
Hifi’s cannabis is Clean Green Certified, which means its products have passed a battery of tests for pesticides, have a carbon reduction plan in place and have a legal water source.
Hifi’s $100M potential
In May, Hifi announced a partnership with Meriwether Group, the Portland-based consulting firm that helped engineer the sales of local consumer brands Dave’s Killer Bread and Laughing Planet. This is the firm’s first foray into cannabis.
“The Meriwether Group focuses on consumer brands we feel are disruptive and authentic,” said Meriwether CEO David Howitt. “This is clearly a new category, and they’re really trying to understand the consumer. That’s a critical thing for us. It wasn’t just a hippie business or product or someone just jumping at this thinking, ‘There’s money to be made.’”
Meriwether is basically acting as a business accelerator for Hifi. Their objective is to shorten the cycle of growth so Hifi gets bigger faster, build “a very significant valuation” based on a strong brand and good scalability, Batterby said. With that partnership, Hifi will have the opportunity to raise more capital based on a much higher valuation within a year or so, but she wouldn’t say how much.
“It’s really important that I stay focused on execution in the first growth phase,” she said.
Howitt is confident that, despite the shifting regulatory landscape, the company will “pretty quickly” be worth $100 million. Meriwether has an option to acquire a percentage of ownership in Hifi Farms, though Howitt wouldn’t elaborate. The firm is also providing debt financing and will lend Hifi hundreds of thousands of dollars, but again, he wouldn’t specify exactly how much.
Meanwhile, Batterby is already becoming a leading voice in the industry. She’s taken on the role of advisor to several other cannabis companies. She was also founding chair of the Portland chapter of Women Grow, a national trade group dedicated to building a level playing field for women in, and interested in, the cannabis industry.”