Three years ago, Kara used CBD oil to overcome a health challenge and, noticing that quality and pricing varied widely in the nascent industry, spotted an opportunity. She and her two older brothers, all with experience at large companies, decided to start their CBD products firm, called Verdant, as side gigs.
Eventually, Kara began working on the venture full time. Their plan to stand out was to focus on ingredient quality. But as they made the circuit of co-ops and outdoor events in the state, they heard one thing over and over: CBD products were too expensive.
After six months of debate, the siblings in February, changed strategy to focus on ultralow prices and direct distribution from their website. That meant giving up short-term profitability and, for Kara, a salary.
In an interview, they described why they did it and what happened as the pandemic hit. Some excerpts:
Q: How did you come up with the strategy?
Kara: We thought of two options. In order to reduce prices, we could reduce our ingredient quality. Often, you’ll see some companies’ CBD products with 4% CBD oil in them, something very diluted. Or the other option is to cut out our margins. Instead of compromising on quality, we chose to pull out all the profit margin, the retailer markup, any extra overhead. In fact, I am even not taking a salary. This is a missional company for us. We wanted to come to a place where we could provide really excellent products even if that cost us profit. It’s our decision to permanently keep these products at cost.
Q: Can you describe the debates you had about this?
Kara: As siblings, there’s always going to be discussion points. But there was never a question we would compromise on quality. That’s not who we are and not what we created this business to do. It really was inspired by the conversations we had with people around the state. We have done demos at local co-ops. That’s where the CBD market has been taking hold.
Travis: We met a lot of people who could take advantage of this and felt these products could change their lives in a meaningful way. We were touched by those conversations even though it goes against every business bone in our body. We felt like the need was too real. We terminated retail relationships, and we spent a year building up. It is a grand experiment, but we feel there’s a real benefit to our community and our customers. And because we don’t have outside investors, we can do what we want.
Kirk: We also did a small quantitative study just to evaluate what we were seeing. It was not just a self-selected group. It’s a national trend. It’s a national need. We used a third-party provider to assess what would keep people from using CBD products more often. There were a number of points of feedback. The one that resoundingly came back was 60% would use it more but it is still too expensive.
Q: What is the early effect of the pricing change?
Kara: We have seen a significant increase in our sales.
Kirk: It is scary to go from making a profit to not making a profit. But it has been very satisfying to be able to see the difference we’re making with customers.
Q: You made this change and then the coronavirus hit and now recession. What else did you have to do?
Kara: We’re taking every precaution to make sure our product maintains its high quality and good supply. On a broader level, we’re sensitive to the difficult circumstances that many Minnesotans are dealing with. We hope by offering these products at a much lower cost that, even in these more difficult times when anxiety and stress is at a high, these products can help.
References & Resources
"For Minneapolis CBD products maker, a pivotal change in strategy happened at pivotal time" (source article)