Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
I’ve been seeing more and more headlines on security, or lack thereof, and cannabis, especially where dispensaries are getting shut down. I’m thinking about Cookies in Maryland, Daylite Cannabis in New Jersey, I’m sure there are many more, and I should probably add that Cookies also had that video ad, that didn’t help, showing a large smoke gun blowing medical marijuana into the mouths of people outside of the dispensary, but that’s probably another show. But I wanted to dig in a bit more on this topic, the topic of security, so I invited Tony Gallo to school us. If you don’t already know him, he was recently recognized as one of High Times Magazine’s 100 Most Influential Cannabis People. He’s also known as the OG of cannabis security, having worked with more than 600 clients in 35 states and Canada. You may have seen him if you’re attending cannabis expos and trade shows. He’s spoken at more than 100 of those. He’s also the managing partner at Sapphire Risk Advisory Group out of Texas, my hometown. But I should be careful when I say that, sometimes people (indecipherable) at me, but I think I’m in safe company here. So thank you Tony. I’m really, really, really excited to chat with you.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Thank you for having me on. I look forward to this.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Awesome. So I’m curious, like in the space of retail, is it just that laws are unclear or are there folks that are just really new to this particular industry? How are people stepping in these giant piles of dog doo?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
I think if you look at this industry and you realize that it’s a retail based industry – and I’ve been in the retail security field over 25 years, worked for large companies like Sears and Macy’s and then worked for smaller chains – what you would see is that there is a group of individuals, and and some of them even at large MSO’s that don’t fully understand how to run a retail business. And I think that’s what gets them in trouble. A lot of the break ins or security issues such as break ins and robberies and things that I see, you know with other industries that have been around longer, they’ve learned and taken some steps that probably could have, if not prevented it from happening, at least reduce the likelihood of it happening. So that’s one of the things we’ve…I’ve been in the cannabis industry now 10 years, and you know what I’ve seen over those 10 years continues to happen, and that is not a full understanding of how to run a retail business.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
So, in retail. I’m thinking more along the lines of loss prevention. I’m wondering too, from the state’s perspective, if they’re looking at this as a matter of public safety. And so are the laws in retail shops different when it comes to cannabis?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Well, the laws are different. What you’re seeing in the cannabis industry when States and cities are involved is a very big focus on how to mitigate any problems occurring outside of the retail dispensary or grow facility. Very focused on how the city doesn’t want to be in the newspaper or how they don’t want to have to add additional police officers or how they’re going to prevent the cannabis product from winding up at the playground or at the school. So there’s a very big focus when it comes to city and state regs on the exterior part of the business more so than the interior part, which is where a lot, the majority of the losses, are occurring and the state and the city kind of feel that’s not really their problem. If you’re not able to run your business properly, then you won’t have good margins and then you should close and that’s what we see a lot in Colorado, Oregon, Washington and California now is companies that have been up and running for five years or so are contacting us because their margins are just not there anymore, or they never were there, and they’re just not making the money they thought they were and they’re trying to understand why is that going on
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
And so how, how often is it a case of security kind of having a hand in that loss?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Well, if you look at, you know, statistically retail security in the cannabis industry about 80% to 85% of all the losses are internal. So you know statistically armed robberies and break ins are much lower than any other high risk retail business. So when we say high risk retail businesses, you know that’s the area that we service, we don’t just service cannabis, and that would be liquor stores, convenience stores, firearms stores, tobacco, alcohol, basically any location that has a high amount of cash and a very desirable piece of merchandise such as tobacco, liquor, lottery tickets, cannabis, you know. So a lot of a lot of times when these losses are occurring, a lot of individuals initially respond to, oh, you know, I’m going to protect the outside of my building. Meanwhile, the inside is really where their losses are occurring.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
So within the retail space that makes a lot of sense. Are you all also working with folks on the cultivation side, kind of developing, you know, planning for security planning?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Yeah. So we do a lot of cultivation facilities. The largest one we ever did was a 450,000 square foot facility in Nevada, 100,000 to 105,000 plants. We do some micro grows in Illinois, we do $30,000 to $50,000 grow facilities. Now in that environment, I would say over 90% of the losses are internal and not external and primarily the biggest spot that we’ve seen, the biggest exposure is in the trim rooms.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Got it. Sure that makes sense. I think that makes a lot of sense. Well, I think back to, you know, I came from the seed genetics world and the organization that I worked for, the farm was out of North Carolina and I remember some very colorful stories of security issues, breaches, measures. And I thought, you know, this is such a different world when you step into the cannabis space, there’s the internal conversation within the industry and then there’s the consumer perception I think. And so when you think about armed guards on a farm, I mean, I can’t imagine there’s any other crop being grown or you know with even indoor cultivation where that’s that has been the case.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
I would say, you know, there are usually guards at some manufacturing facilities. But I get the point that you’re saying and I agree and I think that’s a perception thing. You know, we do a lot of City Council meetings. We probably do one to two every week nationwide, where we meet with City Council officials or present the City Council meetings. And there’s a big misunderstanding about the product, about cannabis. And you know, to the extent where I’ve had City Council people asking how do we pick up the needles in the parking lot at outside the dispensary to you know, feeling that the smoke that comes out, or the the the the odor that comes out of the grow facility is going to get everybody in the neighborhood high or things of that nature. There’s a lot of misunderstanding. And I think over time that education will come about. But you know, I think that’s one of the reasons why the product is much more secure than any other retail, high risk retail business I deal with. I mean the amount of security that’s required in a dispensary compared to a jewelry store is vast.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Sure, sure. Well, yeah, I’m thinking too, you know, I kind of mentioned sort of that difference between someone who knows or coming from an industry where they kind of know the rules of, well, you know, tips and tricks, regulations and compliance around loss prevention, for example, at a jewelry store. Then you’ve got cannabis, which is kind of up and coming. You mentioned some of the mature states who are, you know, working through things maybe in a different way than some of the emerging states who are just now drafting their laws around this. I’m assuming, and I mentioned in the beginning of our conversation, Daylite Cannabis. So in the Mount Laurel Township in New Jersey, I believe that was the first organizations to be awarded a license, and I don’t know if folks, listeners know the story yet or even how that’s evolved, but they really were highlighted and profiled, and you were included in some of that that content too around before doors even opening. They may have a significant cost that they’re facing in order to mitigate some of their security shortcomings.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Oh yeah. I mean one of the things that you see and it’s becoming more and more prominent is the value of security I think. When you look at the states – and the cannabis industry, as everyone knows, grew from the west going east – the level of security required in New Jersey or in New York or Massachusetts is vastly higher than what the level of security that would have been involved in Colorado and Oregon and Washington. And I think what happened was the state saw what was going on, and as the state started to mature, they learned some of these deficiencies that they saw in security and added that into their requirements. And then you see the cities where the majority of the licenses before they’re issued have to be blessed by the city. You know that’s a requirement in almost every state now, where a city resolution or city approval comes in and a lot of the cities are trying to learn what kind of level of security they need and they get concerned about that. And, you know, like I said we do these City Council presentations and probably 60 to 70% of the time I talk to the chief of police, he’s asking for something that’s not in the regs and also not in the state requirements but he would like to have it. A chief asked me to put the address of the building in three foot letters on the roof so if a helicopter flew overhead, they would see the address of that building. Well, it’s not in any kind of city regs or state regs, but it’s what the chief wanted and we were able to oblige that and in turn helped, you know, worked with the community, worked with the the state and the city and was able to be part of that to get the license. And that’s why I think we were successful in that town.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Is there almost like a checklist that you kind of share among states? I imagine that states are borrowing insights across state lines as they’re starting to formulate their own specific regulations. Is there? Are you also helping to, I mean, it sounds like you’re also helping to guide.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Yeah. So we, you know we do a lot of…So we do have a checklist. We do a lot of onsite risk assessments. We’ll come out and we’ll look at the security. We do more in established companies, ones that have been open for one to three years than we do in the new locations cuz you know, we will use that checklist. But we do sit down a lot, and with city officials or even at state level, and discuss best practices, what kind of safe to use. So you know, that became very apparent during the riots that occurred a few years ago of a lot of the western states using the wrong kind of safe. What kind of camera coverage should be needed? What kind of additional training of the employees? You know, it’s amazing how many cannabis locations, whether it’s a cultivation or a dispensary, where they’ll actually have some policies and procedures, SOP’s, that may have been written by a law firm or even a security company, but they never actually communicated that to their employees. So you wrote an SOP about what to do if there was a robbery or what to do if someone had a heart attack or what to do if there was a fire, but you never trained your employees on that.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
What are the is, it because they feel the likelihood of a robbery is not going to happen or it’s just they they did it to to kind of check off that box?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Well, I think it was initially to check off the box, but I think a lot of it goes back to that core comment that I made, that a lot of owners have never done this before. You know, this industry, it’s a very new industry, you can make an argument, say the industry’s no older than 15 years old, and you can say maybe 20, but you can’t say it’s 50 years old because it isn’t. And I think a lot of people just don’t understand the industry. If you were going to open up a jewelry store or liquor store, you would understand what the best practices of that industry is and then you would want to put that into your business when you open. Well, it’s such a young industry, a lot of individuals, a lot of business owners open with not a clear understanding of profit margins and how to make money and where your losses are occurring from and how to go about…you know, they feel that they can put cannabis out on the shelf and people are just going to come and they’re going to make, you know, millions of dollars.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Yep. We often see that story, especially when we work with folks in emerging markets who have (indecipherable), the anticipated basket sizes and foot traffic in the door, those numbers are much more inflated than in a mature state like in Colorado. But we’re finding that when we talk to to prospects or folks that we’re working with in emerging markets and they think, “hey I think my single store retail shop is going to bring in anywhere between 12 and $18 million in the first year.” And when we first had those conversations I remember my jaw specifically dropping thinking. wow, you know, this is a new day or this is a really giant pipe dream. I’m not sure but kind of along the same lines of what you’re saying, there’s you know where folks are still kind of navigating to see what’s going to happen next. I’m curious. I wondered if your phone rang anymore when Tulsa King came out. Did you ever watch that show with Sylvester Stallone? If you don’t know what it is, he gets out he gets out of prison. He’s in the mob. He has no, you know the mob’s not going to help him out anymore and so he has to find quick access to cash. So he finds himself in a dispensary.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
It’s interesting because I was born in Brooklyn, NY, grew up in the New York City area, New Jersey area and my last name is Gallo. So, you know, obviously I got a lot of ribbing about – you know, and now I live in Texas – so I got a lot of ribbing that it’s so similar to the Tulsa King mentality there.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
You know, I watched a few episodes and I just thought, you know, to me it seems of course pretty Hollywood and unreal. But I wondered if that is that putting that, you know, is that putting any more phone calls coming your way?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Well, you look at the state of Oklahoma which probably has the worst security model in the industry. So there’s a lot of similarities there.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Who’s then, speaking of Oklahoma, maybe not doing it well? Who’s doing it right when it comes to some of these best practices, too. And laws.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
I think that the East Coast has a pretty good understanding that I like, the New Jersey, the Pennsylvania model. Massachusetts has a really good model when it comes to security. Maryland has a good model when it comes to security. Even California, most of the cities now adopted a lot of what they learned on the East Coast and you know, Illinois has a good model, and and I think a lot of those security policies and procedures and regulations that came into play was because those states actually learn from the startups that the Colorados and the Oregons and the Washingtons and benefited from that kind of information
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
That makes a lot of sense. I don’t think it always necessarily translates over like where, you know, when you think about outside of the world of security, each state almost has their own culture. not necessarily even political culture but you know how cannabis is. How the state wants cannabis to really show up and in their particular areas it kind of varies I think. But I would yeah, like you’re saying I imagine there’s a lot to learn from mature markets for those who are just opening shop. As far as cannabis security, I feel like there’s not, you know, in our almost internal circle, it’s not one of those things that comes up often, but especially on the consumer side. But do you feel like on the consumer side that they’re thinking about when they’re heading into dispensaries?
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
I believe so. I believe like any other retail environment, you know, put yourself in a position, let’s say you want to go to a dispensary – and it doesn’t have to be a dispensary, it could be a jewelry store, it could be a a pawn shop, could be a new store – you pull up into that parking lot and there’s graffiti on the wall and there’s dirt on the ground and the lighting’s not adequate. You know you may give another thought about, well, do I want to go back there again? You know, maybe there’s another location that I would feel more comfortable going to and you know, I see that a lot and that goes back to the not understanding the retail, and not understanding, you know, how that goes hand in hand with that peace of mind and that security. I talk to people sometimes and they feel, “oh, I’m going to put 4 armed guards with, you know, SWAT gear outside the store.” And you know, my answer to that and it could even be, you know, and not even in cannabis, is would you want your wife or your girlfriend or your daughter to go there if you have to have that much security outside your store? I don’t find that safe. I find that intimidating. And I would go somewhere else. You know, a lot of times people say, “Oh well you have to be buzzed in and buzzed out.” I said well you know, is that the right decision to do? What kind of message do you want to send? And I think a lot of cannabis people don’t understand that they send the wrong message, they don’t feel they’re a retail business. A lot of misconceptions initially were, I can open up my location and people are going to climb a mountain to come here to buy, you know, the cannabis, and now there’s competition. And now there’s other people that do that. We just don’t, you know, we just helped with a design in Manhattan. It was gorgeous. We did Gotham downtown in Manhattan and we did Union traveling. And you know, these are beautiful locations to walk into. They’re not just they’re not the old ma and pa, Cheech and Chong pot shops.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
I’m laughing because I was just in New York recently and stepped into some of those illicit shops and then, I remember one of them, I was, I just wanted to check him out. I had lots of questions and as I was waiting for my Uber to then take me to a little, you know, I was going to head up to another one, I saw numerous people peek their heads into the door, into the store and then not go in. And I thought, what is it that? Well, maybe they weren’t repulsed. I don’t know what. I don’t know what the right word is. But they were not encouraged and enticed to come in the door. And I wondered if because some of those spots look a little sketch.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Yeah, I mean you know, I keep harping on the same word, “retail.” But think about it, would you go into a jewelry store or clothing store, somewhere that you just didn’t feel comfortable? You didn’t know it was sketchy to go in. You know, the store was dark or you know that there were people outside that you didn’t feel comfortable with, you know, and that’s why a lot of times the business isn’t successful.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
What are some of the strangest things you’ve seen? I imagine you guys go through, take an audit maybe for existing organizations too, if there’s just like any weird things that you guys have spotted.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Well, we do a lot of onsite risk assessments. So a lot of the strange things I find, in the western states more so, you know, because the eastern states are fairly new, but we’ll go into locations and they can’t understand why they’re losing cannabis and the bathroom window opens to the alleyway. Or we’ll come into a location and everyone knows the combination to the safe and they don’t understand why they’re losing cash. Or they’ve had five robberies and you can see clearly that you know they are communicating to people to come rob their store, and you know, things like that. I mentioned the, the cultivation. The best story I have, and this happens actually, the story I’m telling now, I’ve had this happen at least half a dozen ways in different ways, but we had a budtender who was trimming the buds in the trim room, as everyone would know, and he had the latex gloves. He would palm a bud, he’d put it in his glove, he pulled his latex glove off, he’d throw it in the trash. And he would do that a couple times throughout the day. And he really didn’t care who took out the trash. He didn’t take out the trash. But they had such a bad trash waste disposal program that at 2:00 in the morning he’d just come back and grab all the black bags that had cannabis in it, you know, and this went on for well over a year before they identified, you know, where those losses are. And that’s really what I’m seeing of value like I said, you know in those western states now is a lot of people are going, “I just don’t understand why I’m not as profitable. My sales really haven’t gone down that much or if they haven’t they’ve even increased. But I’m just not making the money I thought I should be making.”
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Interesting. Well, that goes to also, you know what we’re looking at more and more, especially as a cannabis marketing agency who’s working with retailers who are opening shops and kind of catching them on the front end when it comes to, not only budtender engagement and training, but building out their org chart, talking about hiring processes, building relationships with the team so that they’re also building a little bit of longevity and and loyalty to their organizations. Not only in service to loss prevention, but you know, right now we’re seeing of course, and this is post COVID, in many industries the desire to work maybe being less and less, desire to, you know, loyalty to organizations also decreasing as well. So you know, to your point, if you’re, you know, we’re talking about inhouse and internal loss, theft, loss of cash and product. You know, I wonder how much of having a really tighter internal force within the, you know, within the workplace, if that really helps as well.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
We have a program we call Culture of Honesty. And that’s what we try and develop in our clients, is this culture where everyone feels that, you know, you want to do the right thing, that you’re part of that group, part of that community. You know, I can tell you some, you know, having done this for over 25 years, if people, and it’s a weird analogy, but it is, it works almost 100% of the time. If people start eating other people’s lunches, they’re stealing from you. And you know it’s kind of like one of those catch, you know my little secret sauce type. It’d be a weird thing, you wouldn’t think about that, but when you start stealing from other employees you’ve already been stealing from your employer. So we see that, you know, we see those kind of things a lot. But we have, you know we do online training. We do Zoom training. We do in person training and again, it’s amazing how many times people have said I’ve never been given these tools, you know, which makes me not feel that I’m part of the team.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
Right, right. Yeah, and that makes a lot of sense. And yeah, I just wonder too, like we were saying, you know, are they, folks both on the retail and cultivation side, just checking a box or are they looking at the health and wellness of their organization even as it pertains to security? Well, Tony, I don’t want to take up much more of your time. I’m really excited that you were able to join me today in this conversation. If you don’t know Tony Gallo and his organization, again, Sapphire Risk Advisory Group, you can find them online at sapphirerisk.com. As you know, as you probably learned on the podcast here, they’ve got decades and decades of experience. Sapphire is the most recognized and successful security consulting firm in the cannabis industry. Check them out. Find Tony on LinkedIn, he’s got a lot of great stuff to say. Thank you Tony so much for joining us.
Tony Gallo, Managing Partner at Sapphire Risk Advisory Group
Thank you for having me. I appreciate it.
Jen Lamboy, Director of Strategy, Hybrid Marketing Co.
You bet.
