Tim Spong, CEO of NectarTek, was with Chipotle from the start. Now he is bringing that have to the hashish area.
15+ min learn
Our particular visitor on this week’s podcast is Tim Spong, CEO of NectarTek, a hemp extractor that produces CBD isolate and distillate. Previous to moving into hemp, Tim labored at Chipotle Mexican Grill for 25 years, most lately as Government Director of Provide Chain and Operations Providers, a job which included managing that firm’s meals security disaster in 2015. Tim talks about why he left Chipotle to run a hashish startup and the methods he’s delivered to his new enterprise.
Jon: In case you might simply give me the pitch of what NectarTek does.
Tim: Let’s see. I’ll provide you with our core values first: security, high quality, and reliability, in that order. Our mission is to deliver the very best high quality CBD merchandise to the market at accessible costs. What we do is at current we’ve got three services comprising about 33,000 sq. toes, and we’re a hemp extractor.
We take what’s referred to as within the trade a biomass and we course of that and we flip it into the very best high quality CBD isolate and the very best high quality – we’ve got a brand new product now, which is our water soluble isolate, after which we’ve got common isolate. Then we promote that to other people, product individuals, who then make merchandise that they promote to shoppers. So at current we’re business-to-business.
Jon: Proper, so that you don’t have your individual model beneath NectarTek so far as your individual CBD product.
Tim: Properly, aside from what we promote to trade, it’s shopper product, sure.
Jon: And that is hemp primarily, or it’s simply hashish and hemp?
Tim: It’s all federally authorized and compliant hemp by operation of the 2018 farm invoice and its predecessor, the 2014 farm invoice.
Jon: This isn’t your background; you didn’t begin within the hemp enterprise. You transitioned to this. I’m curious for those who might inform me a little bit bit about what you have been doing earlier than. Did you create NectarTek? Is it your brainchild?
Tim: Darren Badger is the president, and he and I collectively created it and bought it funded. We began it in October of 2018.
Jon: Earlier than that, what have been you doing?
Tim: I had labored at Chipotle Mexican Grill since 2006. However earlier than then I used to be outdoors counsel for Chipotle from ’92 via ’98, after which an investor from ’98 to ’06.
Jon: Wow, so that you’ve been there actually from the start.
Tim: I’m an lawyer by commerce.
Jon: However you’ve been with Chipotle actually, actually early on.
Tim: Yeah, earlier than it began.
Jon: Earlier than it began, even. That’s superb. What have been you doing at Chipotle throughout your tenure there while you have been on employees?
Tim: I had a wide range of govt positions there. The final place I held was Government Director of Operations Providers, which had coaching, customer support, incident response, new menu objects, innovation within the eating places, services division rolling as much as me, after which I used to be additionally, on the identical time, Government Director of Provide Chain. So I had the worldwide provide chain rolling as much as me. I did that from December of ’15 via Might of ’18, the availability chain function.
That was the worldwide provide chain and meals security, shopping for primarily all of the meals for the eating places system-wide.
Jon: I’ve to ask – and if it is a subject you don’t wish to speak about – you talked about meals security, and we all know that Chipotle was within the information just a few years in the past, an incident the place lots of people bought sick.
Tim: I took over the availability chain in the course of that disaster. In case you take a look at the timeline, December of 2015 was the center of the disaster. I took over the availability chain function in the course of that, and sure, I used to be very a lot concerned in placing collectively the meals security techniques, together with Dr. James Marsden, that right now Chipotle makes use of. It makes Chipotle meals very, very protected.
Jon: You talked about security as your primary core worth at NectarTek, so that is clearly a vital situation to you. Earlier than we get there, although, I wish to discover out why you transitioned from Chipotle, which is a mainstream model, to the hemp enterprise, which is a brand new – properly, comparatively new authorized trade. Inform me a little bit bit about your decision-making behind that call.
Tim: I practiced legislation for 14 years as an lawyer after which I believed, properly, I’ll be a part of this burrito operation. I did that for 12 years. I used to be in a spot the place I used to be in a monetary place to take a flyer on one thing, and I had a hankering to run one thing.
I did loads of due diligence within the hemp area in 2018, and I got here to grasp that right here was an trade that was in its infancy, kind of like Chipotle was distinctive again in ’92, the concept of quick-serve. Chipotle truly invented the class. I bought to see it firsthand going from simply an thought to 1 restaurant to 2,500 eating places. So I knew it was attainable for actual, common individuals to construct an enormous model.
I seemed into the hemp enterprise and understood that the federal laws was very prone to move – which it did in December, fortunately. [laughs] However it seemed as if that was set as much as move and construct on the 2014 farm invoice. The those who I spoke with inside and out of doors of the trade thought – and these have been individuals whose judgment I trusted – that hemp had potential to be in lots of, many, many merchandise and be used throughout many industries, every little thing from pet meals to animal feed to topicals to meals merchandise, as soon as the regulatory framework all shook out.
The time to get into an trade is when it’s at some extent of uncertainty, after which you may have the primary mover benefit. So it was the correct time for me professionally, and hemp appeared to be an trade that had simply completely explosive potential to develop. I take a look at it as an trade that for the following decade goes to have loads of development, and that’s how I checked out it a yr in the past, and that’s why I jumped into it.
Jon: Are you able to inform me among the similarities you see between the early days of Chipotle and what you’re doing now at NectarTek?
Tim: I assume one of many issues that Steve Ells – he was the founding father of Chipotle, and he’s nonetheless Government Chairman – one of many issues he did was he all the time valued his relationships with farmers. He would go to the farms, he would get to know them, and he constructed relationships with them, lots of which have lasted 20+ years. That was all the time foundational at Chipotle, that tie to the farmers.
There’s farmers behind the hemp biomass that offer us, and so they’re actual individuals, and what they do shouldn’t be simple. They’re topic to many hazards with the climate and that they get the correct plant genetics. On the backend, they want a shopper of their hemp biomass that’s dependable, that’s reliable, and that’s going to deal with them decently.
So I needed NectarTek to essentially replicate that offer chain relationship right here and construct long-term relationships, not short-term transactions with farmers. That was actually a worth I took from Chipotle.
Jon: I’m not that aware of Chipotle’s mannequin, however do they work with native farmers in numerous areas?
Tim: Yeah. Chipotle’s mannequin is “meals with integrity,” is what it’s referred to as, and it’s totally different from the remainder of the restaurant trade as a result of there’s protocols that the meat suppliers, amongst others, have to satisfy. Humanitarian raised, vegetarian fed, no antibiotics and no development hormones. That meant that Chipotle might solely purchase from a reasonably slender group of farmers who have been keen to satisfy these protocols.
For Chipotle it was actually essential to domesticate these relationships, and I noticed the worth in these relationships, as I ran the availability chain and through the years there, that that created for the model and for the farmers. So for me, the connection with the farmers and treating them properly and being sincere and dependable with them is foundational for the long-term success of NectarTek.
Jon: That’s actually attention-grabbing. In case you wouldn’t thoughts – I don’t need you to relive a foul second in your life, as a result of I’m certain it was a really hectic second when this occurred at Chipotle – however I’m curious as an entrepreneur. Entrepreneurs are all the time curious in regards to the means of what occurred. You mentioned you took over the availability chain, so I assume you weren’t at the moment operating the availability chain. Are you able to inform me what you ended up doing there?
Tim: I’m beneath nondisclosure. I actually can’t go into any element, however suffice it to say that working with Dr. Marsden, we checked out each single enter, each ingredient, and made certain that we had validated interventions – constructing on already good meals security processes – and we did that within the eating places as properly. We simply did a radical prime to backside evaluation and applied interventions at each step. However past that I’m not at liberty to enter element.
Jon: Let’s speak about security, although, as a result of it’s attention-grabbing – once more, like I mentioned, on the prime of the interview that was one of many first core values that you just talked about. Clearly out of your expertise at Chipotle and now at NectarTek, inform me why security is so vital to you.
Tim: Properly, clearly for those who don’t have security, you don’t have a enterprise, and also you shouldn’t be in enterprise for those who can’t conduct what you are promoting with security to your staff and to your final shopper. That must be the primary non-negotiable factor that you just attain. We’ve made investments into security and into coaching in security that for a small firm aren’t usually accomplished, nevertheless it’s only a foundational worth.
It’s not value sufficient to me to go about enterprise aside from in a really moral and protected means. It’s additionally not good enterprise to have staff’ comp claims which can be avoidable or any issues of safety together with your product.
Jon: Do you suppose a few of this was knowledgeable by your expertise at – with out moving into too many particulars.
Tim: You are taking your expertise with you, after all, sure.
Jon: There’s loads of CBD farms popping up, hemp farms. How are you guys differentiating yourselves within the market?
Tim: We’re not a farm. We don’t develop, however by way of CBD –
Jon: Extraction, sure, I’m sorry.
Tim: I feel differentiation is a perform of the standard of the product. Via our proprietary processes, we go the additional mile to make sure that our naked product is constantly of very prime quality.
In an isolate, for instance, there are differentiators which can be goal. Certainly one of them is the colour. Our CBD isolate is all the time completely snow white in shade.
One other is the bouquet. Ours has a really slight bouquet. It’s not utterly odorless as a result of it comes from a plant, nevertheless it’s bought a really slight bouquet. If in case you have CBD isolate and it’s bought an enormous odor to it, which means there’s nonetheless fairly a little bit of impurities in there.
Then the third factor is, after all, the testing, which is objectively measurable. Constantly, the product we ship for our prospects, while you embrace the CBD and the CBDV in there, we’re constantly at 99.7%, 99.eight%, 99.9% purity, which is a really excessive benchmark. To have the ability to do this constantly is a differentiator.
After which, after all, you differentiate on service. We guarantee that if ever there’s a downside, it’s taken care of swiftly and within the buyer’s favor. The customer support division additionally rolled as much as me at Chipotle for years, so I discovered there the worth of very speedy response to an issue versus letting issues fester.
So I feel when you have product that’s objectively of the very highest high quality and also you mix that with only a zealous pursuit of wonderful customer support on your consumers, then you definitely’re going to distinguish your self over time. Not instantaneously, as a result of we’re new, however we’re beginning to see among the fruit of that differentiation out there as we’re successful purchasers.
Jon: Speaking about these two points, service and high quality, I wish to return once more to your expertise at Chipotle, as a result of it’s attention-grabbing to me when any person brings from a really profitable firm a few of their learnings to a brand new endeavor. Let’s begin with high quality. Was that one thing at Chipotle that was very a lot – was huge worth of that firm? Was that one thing you introduced over?
Tim: Yeah, it was. We at Chipotle invested extra in our meals – meals prices at Chipotle have been all the time means greater than the trade. Our meals prices ranged from 31-35% of gross sales, and our rivals in the identical section had meals prices of 24-26%. The distinction there was we paid a premium for the very best high quality elements. That was all the time an enormous a part of it there.
Jon: Are you in an identical means at NectarTek coping with the most effective hemp that you could find?
Tim: Our hemp, we use ISO licensed labs to check the hemp. However while you’re isolating CBD – if you consider the product that we promote, CBD begins out on the hemp plant as a really, very, very tiny crystal. In case you had a really, very tiny set of tweezers and really small palms and you could possibly simply completely decide off these very tiny crystals completely and set them in a pile, that’s what we’re after, these crystals.
After all, you wish to have a plant that doesn’t have pesticides or any points with it, so we take a look at it with an ISO licensed third social gathering lab. As soon as it’s there, the entire course of is about getting these crystals off of the plant effectively and promoting that pure CBD isolate. Isolate means remoted, so we’re actually simply taking crystals and promoting the crystals.
When it’s 99.7%, 99.eight%, 99.9% pure CBD, the remainder that’s in there may be not an impurity; it’s simply the opposite cannabinoids that you just discover within the plant. There’s 100+ cannabinoids within the plant, whether or not it’s CBG, CBC, CBN, THC, and people are that different tiny little bit that’s left. So that they’re probably not impurities; they’re simply different components of the plant which can be in there. However actually we wish to begin with good high quality biomass.
However there isn’t within the CBD market but any kind of actually acknowledged FDA natural or high quality differentiation past the profile that you just get from the testing that you just do. However we’ll reject biomass and have rejected biomass that doesn’t meet our strict high quality standards.
Jon: I’ve written that CBD does have a little bit of a snake oil downside as a result of there is no such thing as a federal regulation. The FDA is now simply beginning to develop into interested by it. There are loads of unhealthy actors within the area, as there might be when there’s no regulation. Does that concern you total with the market? Are you discovering that your prospects are demanding actually prime quality?
Tim: I assume I’d say we don’t function in an setting with no regulation. We’ve a hemp handlers license, we’re regulated by the state of Nevada, and there are federal laws that pertain to our trade which can be promulgated and are being promulgated. When the act handed – was it December 2018? Was it the 22nd? When it handed, the framework was to offer the FDA a yr to provide you with the regulatory framework on a federal degree. So there’s been some regulatory steering issued already. There might be extra.
However we’re promoting to pretty refined consumers. We’re promoting to people that wish to be certain that they’re getting very prime quality CBD isolate. After they obtain our product, they’re doing their very own testing on it to validate that their testing aligns with our testing. I’m not some anarchist in favor of a whole free market, however the market is enterprise mechanisms like utilizing a lot of testing to validate that our product is what it says it’s.
Are there points? Certain. I feel we’ve got to be very cautious about imports from sure international locations, be they China, Germany, or Turkey. Some product got here into the market this yr from locations like that that was of inferior high quality, and it was pushed round. However the consumers figured it out, and I don’t suppose that’s a lot of a problem now.
However actually a part of any regulatory framework wants to deal with imports to make sure that they’re assembly American requirements for high quality so we will have a well-functioning market, as a result of it might clearly be a foul factor for the entire trade if some product got here in from one other nation that was of poor high quality and wound up moving into product, after which individuals are displeased with the expertise they’re having with that product.
Jon: Can you reveal who a few of your purchasers are?
Tim: I’ve just about nondisclosures.
Jon: Honest sufficient. Lastly let’s speak about – I’d have to return and hearken to your three core values, however I do know that you just had security…
Tim: Security, high quality, reliability. These have been the three issues that we noticed as the chance, that if we might ship these constantly, we’d have the ability to forge a profitable path within the trade.
Jon: Simply to return a little bit bit to your learnings from Chipotle – reliability. Was that one thing that was a core worth at that firm as properly?
Tim: I don’t know. Folks might just about present up at Chipotle and get a burrito any day of the week. That was kind of the given. However within the CBD trade, I feel that isn’t a lot of a given with among the people concerned. For me, reliability is one thing so simple as once I’ve been paid for my product, I’m going to ship that product that day. And I’ll ship it one-day mail. My purchaser goes to actually get product the following day after they pay me. It blows individuals away. I shouldn’t even inform you this, as a result of it simply blows our consumers away to get that degree of reliability.
Jon: Truthfully, it doesn’t shock me from what I’ve heard from different individuals.
Tim: Yeah, twisting within the wind for per week, or “oh, we’ve bought your cash, however we’ll ship you the product in three weeks.” We don’t take cash until we’ve bought saleable product readily available that we will ship.
After which the consistency of if we inform you it’s going to be a sure grade, it’s a sure grade. Simply having the ability to constantly do this. That’s the way in which, over the lengthy haul, we’re going to achieve success within the market, as a result of individuals want that. In case you’re formulating a product, you’ve bought to have that consistency in your provide chain.
Jon: Final comparability to Chipotle. You talked about service as a core worth. Once more, simply to attract comparisons, have been there issues that you just discovered in your a few years at Chipotle and the service a part of their enterprise that you just’ve utilized?
Tim: This was mentioned publicly loads at Chipotle, however we knew that our perfect eating places – the easiest ones with the most effective managers who simply had a terrific crew – they have been phenomenally profitable from a enterprise standpoint. Their gross sales have been higher, their margins have been higher, buyer satisfaction was higher, gross sales development was higher. Then those the place you would possibly’ve had a supervisor that wasn’t as skilled or didn’t have his act collectively fairly as a lot.
So I noticed, entrance row seat, right here’s what occurs when you may have implausible service and right here’s what occurs once we’re not fairly as much as our beliefs. Apart from that couple years the place we had the meals security, Chipotle was all the time on the prime of all of the surveys, greatest restaurant, greatest service. We have been all the time there within the prime tier, and I feel they’re again there now.
So yeah, being loopy about service is simply widespread sense, proper? That’s how Amazon gained. That’s how anyone who’s been profitable on the web has gained. It’s via delivering an important buyer expertise. Despite the fact that our prospects aren’t particular person shoppers, it’s the trade that’s our prospects, and if we will simply actually, actually take excellent care of them, then they’ll order from us many times. And we’ve seen that even in our little brief lifespan at this level.
Jon: This has been so enlightening. Thanks a lot for sharing your knowledge, and good luck with the enterprise. Sounds such as you’re off to an important begin.
Tim: Thanks. Yeah, it’s actually an thrilling enterprise. There’s a lot of change, and it’s on warp velocity.
Jon: Yeah. Any recommendation to different individuals searching for to get into this enterprise? In any capability within the hemp enterprise, whether or not it’s extracting, rising, model.
Tim: Work out what you need your area of interest to be, do your due diligence, and discuss to people who find themselves in it. Get out to tradeshows. There’s loads of avoidable errors which you could keep away from. Discuss to your state regulators. I feel in Nevada and Colorado and the states I’ve had contact with, the regulatory people need the enterprise to achieve success, however they need issues to be accomplished in a high quality means.
So discuss to your regulators, and get out – there’s so many tradeshows the place there are a wealth of individuals. There’s kind of an ethos within the enterprise, I’d say, of wanting the enterprise to succeed, wanting hemp and CBD and the opposite cannabinoids to be useful for shoppers, finally. Lots of people on this enterprise actually imagine of their hearts that they’re doing the correct factor and that they’re in the correct place to profit different individuals. Quite a lot of the individuals I’ve employed, I employed on as a result of they got here from throughout the trade and so they actually imagine within the shopper advantages of this crystal.
However I feel there’s no substitute for due diligence, after which while you get into it, it’s not going to be simple. It’s not a straightforward enterprise. It’s a tricky enterprise the place it’s a must to do every little thing proper, and the place there’s a lot that may go fallacious. And like each enterprise – there’s no simple enterprise, I don’t suppose. I imply, perhaps software program. There’s a straightforward enterprise for you. Learn to code, write some code, after which one million individuals purchase it and also you simply take all the cash. That’s why my son is learning laptop science at NYU.
Jon: [laughs] Proper, you don’t truly should cope with the bodily product. That’s sensible. Thanks once more.