New York cannabis brand aims to close gap between vapes, flower

(This story first appeared in the November-December issue of MJBizMagazine.)

The executives behind New York cannabis infused products company Jaunty learned the hard way that even the best-laid plans can go awry because of the unexpected.

The company – called Naturae before it rebranded in late September – received its adult-use marijuana business license in summer 2022.

The operators began calculating how much raw cannabis material they would need to produce oil for concentrates, gummies and vape cartridges.

Executives based these calculations on statements made by New York Gov. Kathy Hochul and the state’s Office of Cannabis Management, which planned to license 20 retailers per month beginning in November 2022.

“That’s what (they said) you can count on,” Jaunty CEO Nicolas Guarino told MJBizMagazine earlier this year.

“We were thinking, ‘OK, 20 per month equals this.’”

Jaunty contracted with farmers it had partnered with for CBD extracts and wrote the contracts so “they would trigger the moment that a single dispensary opened in the state,” Guarino said.

Even if only five stores opened per month, he figured the company would still have enough outlets to sell its vape and concentrates products.

But that didn’t happen.

Instead, court battles slowed the adult-use rollout in New York for months.

Not long after Jaunty got its license, several large marijuana multistate operators offered the company investment capital in exchange for white-labeling services.

Jaunty’s executive team almost said yes but resisted.

The decision allowed management to focus on building the Jaunty brand rather than becoming a white-labeling business – but bucking MSO money and staying independent was only one of several steps Jaunty took on its path to the top of New York cannabis sales.

Attaining profitability took multiple strategies.

Turning point

Among the companies that tried to make a deal with Jaunty was a Massachusetts business that offered $1 million for a sale-leaseback deal on its building in Hoosick Falls, New York, plus the ability to make money by manufacturing the brand.

“We would still be able to produce our own brands, but there were all these clauses in the contract,” Guarino recollected.

“Basically, if we sneezed, they could take the building and license away from us.”

Nevertheless, Guarino and his partners nearly took the deal because they had been “beaten down” in the CBD market and “were convinced that taking the money and white-labeling for others would be the best strategy for us,” Guarino told MJBizMagazine.

“At the time, we thought, ‘It’s $1 million, we’ll still be able to build our own brand – and we won’t sneeze, we won’t make any mistakes.’”

But partner Brian Hinchcliffe was against the deal, and he convinced Guarino to let him meet the MSO executives making the million-dollar offer.

“We met, and Brian just asked them some simple questions,” Guarino said.

Hinchcliffe noted that under the deal, the Massachusetts company would use Jaunty’s facility to produce the brand, its sales team to peddle its brand and its distribution team to transport the brand.

But what would their business partners do for the Jaunty brand?

“They just didn’t have a good answer,” Guarino said.

“The only answer was, ‘We’re going to give you guys $1 million, so you guys figure it out,’ and that just didn’t make me feel good.”

Guarino said that before Jaunty entered the New York adult-use market, the company – then called Naturae – manufactured white-label CBD products in the state and did not see returns.

“It’s early in cannabis to be white-labeling unless you’re a $50 million facility that plans on just focusing on that,” he said.

“It’s a distraction from the one thing that’s supposed to make you money … which is your own brand.”

Instead, Hinchcliffe loaned $1.5 million of his own money to Jaunty, at 8.5% interest, providing regular infusions between September 2022 and May 2023.

Roughly $500,000 went to paying off other loans, while the remaining $1 million paid for cannabis and a starting inventory of seven stock-keeping units (SKUs): a line of distillate vape cartridges, live rosin and hash oil products that launched in January 2023.

Cannabis extraction

When Jaunty’s team began thinking about what products to produce, it decided that because the flower and pre-roll markets were the most difficult, the company would instead focus on extraction and oil manufacturing.

“The most key decision for us was to say we’re only going to cover the extract-based market,” Guarino said.

“We developed this concept that we’re pushing forward today, which is that we’re trying to create parity in between oil-based products and flower products.”

Specifically, parity in effect and flavor, Guarino said.

“Our North Star is to take an old-school OG legacy guy … and convince them to try one of our vapes and say, ‘You know what, I could actually use this,’” Guarino said, adding that this idea leads Jaunty’s product development.

Brand development

The next big decision was determining which products to launch first and how to brand them.

Guarino said he and his team decided to reprise the brand name Naturae, which they used for their no-longer-in-production CBD products, for their “house of brands.”

Because there was only one retailer in New York when their products hit the market in January 2023, Guarino’s team decided to give each product its own brand name.

The vape cartridges became Jaunty, the hash oil became Rezinators, and Naturae partnered with Critical – a legacy-to-legal concentrates brand in California – to bring it to New York.

The team later rolled out edibles under the Jaunty brand and a tincture branded as Jumbodose.

“The idea was to have multiple brands, so retailers won’t get fatigued by us,” Guarino explained.

That approach allowed the team to see how different products performed and drive consumers to their highest-margin products: the Jaunty vapes.

During Jaunty’s first month in New York’s regulated market, the company did about $100,000 in sales, a success Guarino attributed in part to having first-mover advantage.

“That’s when we realized we could actually build something here,” Guarino recalled thinking, prompting him to let potential white-labeling clients know that Jaunty – still known as Naturae – had decided to focus on its own brand.

While having multiple brands was a strategy that worked when the New York market had a small number of stores, Guarino and his team now believe a different strategy is needed for today’s market, where 269 stores and counting are open and there is more competition from other brands.

“With the scale that’s happening, we have decided to fold our other brands into Jaunty and put all of our focus, all of our resources, into Jaunty,” Guarino said, adding that Jaunty best embodies the “approachable and fun” vibe the company is trying to exude.

As such, the company in late September finished the process of doing away with Naturae and the other brands.

“From a B2B side, I don’t want our team thinking that they’re Naturae,” Guarino said.

“I want everybody thinking about Jaunty and the company all the time.”

Having a brand properly displayed requires an investment of at least $500 per month per store, he said.

To accomplish that for four brands at 150 stores would require an investment of $300,000 per month.

DIY distribution

Just as MSOs wooed Jaunty for its license, so did distributors seeking to get anchored in the New York market.

But Jaunty wanted to do its own distribution, which can be a costly proposition.

“Big distributors like Nabis at the time would tell us, ‘You’re not going to be able to distribute for less than 5% of your costs, which is what our forecasts were,’” Guarino said.

Today, Jaunty is distributing at 2.2% of its costs and will likely end up at 3.5% after the company adds satellite warehouses.

Jaunty’s distribution tactics include subzoning delivery areas and using “super small” vehicles, which is possible because the company doesn’t distribute bulky beverages, flower or pre-rolls.

In fact, Jaunty can fit $3,000 worth of vapes in a box that is 12 inches by 8 inches.

Live rosin needs to be refrigerated during transport, so Jaunty uses dry ice, he added.

Cultivation partners

Another critical aspect to Jaunty’s success is the partnerships it has with the farms that provide cannabis for extracted products.

Jaunty buys cannabis seeds for the farmers, prepares the lands for cultivation and provides each partner farm with a harvest plan.

The company also provides labor for harvest.

“The farm just needs to ensure that they plant and that they keep the stuff super clean and well cultivated during the season,” Guarino said.

“Then we pull it down and either put it into freezers and bring it to our facility or put it into super sacks.”

Jaunty currently partners with nine farms – including five that grow marijuana for flash-freezing, while the other four grow cannabis for biomass, which is used for distillate.

Jaunty previously negotiated terms with the farms and agreed to pay by the pound, but it was difficult to predict how much oil a pound would yield, so the business’ cost of goods “was all over the place,” Guarino said.

The contracts called for the extraction to be completed within six months, while Jaunty would pay the farms an estimate every month and then make up any shortfall within a six-month period.

Because the company “made good” on its contracts, all nine farms agreed to a simpler model where Jaunty extracts oil from flower and then pays the farmers based on how many kilos of oil it extracted.

Jaunty also provides farmers with access to batch records and lets them visit the facility anytime.

“There’s a lot of trust involved in that, but … you’re both better off because you’re going to get paid for what comes out of the flower that you provided,” Guarino said, adding that the company planned to harvest in October 2024, start extracting in November and make the first payments in December.

“Clearly, the word ‘partnership’ is key,” Guarino said, noting that the company shares financial statements with its farm partners and has not delayed a payment by more than a month.

Such arrangements also have made it possible to avoid having to raise more money from investors, Guarino said.

“The only way we can continue to scale and grow is if our cannabis inputs partners, which are the farms, and our non-cannabis inputs partners, which are our packaging company and our hardware company, give us good terms,” he said.

“If they don’t, we can’t. It’s that simple.

“The cash flow just won’t allow for it, and we have to raise more money.”

Potency tax

Jaunty and other New York cannabis businesses got a boost from the governor this summer, when a costly THC-potency tax was replaced with a flat excise tax.

“Now that the state changed their tax structure, we are in better shape,” Guarino said, adding that the change was essentially a 17% tax reduction.

“Before June, I didn’t think any small or medium operator was going to survive, including ourselves.”

The tax change improved Jaunty’s margins after expenses from about 10% to 27%, Guarino said, adding that the savings is being reinvested in inventory.

After breaking even every month since January, Jaunty has been turning profits since June.

“It’s allowing us to continue to exist and grow,” Guarino said.

Omar Sacirbey can be reached at om***********@mj********.com.