First-time Dispensary owner details his experience with the NY CAURD Program ft. Markel Bababekov

First-time Dispensary owner details his experience with the NY CAURD Program ft. Markel Bababekov

Bryan Fields: What's up guys, welcome back to another episode of The Dime. I'm Bryan Fields, and with me as always is Kellan Finney. This week we've got a very special guest, Markel Bababekov, owner of The Herbal Care. Markel, thanks for taking the time. How are you doing today? Markel Bababekov: I'm doing great, thank you for having me guys. Very excited about this. Bryan Fields: Excited to have you here. Kellan, how are you doing? Kellan Finney: Doing really well, really excited to talk to Markel, really excited to learn about the intricacies of the New York retail market, and excited to have someone who spent a good amount of time on the West Coast. How are you, Bryan? Bryan Fields: I'm doing great, and yes, you're right — his West Coast experience has probably been very helpful in leading him to the East Coast, where I think the focus of today's conversation is going to be about New York, the licensing market, surprises, non-surprises, challenges, obstacles, and all the fun in between. And I think the most exciting part is that we've got individuals like himself today here to open the floodgates as the market continues to slowly but surely open up for the rest. So Markel, for our listeners, can you give a little background about yourself and how you got into the cannabis space? Markel Bababekov: Of course, of course. So, I'm 34 years old, born in Russia — the Asian part of Russia, near Uzbekistan/Tajikistan area. Moved to New York when I was two years old, Brooklyn in Canarsie, and then I moved to Queens, Flushing, when I was ten, and lived in Flushing pretty much my whole childhood. At 21 I moved to the West Coast, to San Francisco — I actually went on vacation to be with my girlfriend at the time, and I just fell in love. I fell in love with the sun, I fell in love with the people, I fell in love with the state, and I literally called my parents and said, 'Hey, I'm moving out here,' and that vacation became a permanent thing for me. Then I ended up moving to San Diego, then eventually landed in LA ten years ago and have been living in LA for the last ten years. I was in the cannabis space for a few years in the early days of processing — like when people were still blowing up their garages trying to make BHO wax. About seven or eight years ago I had a lab; in the legacy market we were processing concentrates and vapes, and we sold to probably 70 to 80 dispensaries in LA and maybe another 25 to 30 in Vegas. We eventually sold the company. Since then, throughout my time I've had a lot of experience in business — I own two dry cleaners, one on the Upper East Side, one in LA, a construction company, and a consulting company. About a year and a half ago — I tell everybody this story — last March, for years I've always been doing research when states become legal, and when I know a licensing period is going to open up for dispensaries I always apply. I've applied in so many states, I've been denied so many times because I'm not a big MSO. Last March I was doing research, I got a newsletter from the California Office of Cannabis, their version, saying, 'Hey, new round of licensing is opening up.' I clicked it to see if I could apply, quickly found out I didn't meet the requirements, and then throughout my research that day — I was at my dry cleaners in Sherman Oaks in Los Angeles — I stumbled upon an article talking about the rollout for CAURD. I read the requirements and thought, 'Holy crap, can I curse on here?' Bryan Fields: Yeah. Markel Bababekov: Holy shit, I can do this — this fits me perfectly. I hit all the requirements. So I got on the phone with a couple of lawyers, made sure that what I read was right. They confirmed it. I started getting all my ducks in a row — all the paperwork I needed, even before the application started. I had everything I needed for OCM to give me a license. About a month after I found out about this, I went to the courthouse, got my dispositions for my arrest, got my taxes, my paperwork of where I lived in New York — bills from 20 years ago. The application period opened. I thought it was a long shot, I didn't think I was going to get it, and now we're here. So that's my background in cannabis. Bryan Fields: I appreciate that. We're going to dive into all those specifics and some of the New York-related cannabis challenges, but my first question would be — with your experience in entrepreneurship, you're successful in other businesses, why navigate into cannabis with all the restrictions, challenges, and regulations? Why cannabis? Markel Bababekov: I'll tell you why, two reasons. One — every business I've ever opened, dry cleaners, construction, consulting, four of them are still currently operating for over ten years, so they do well, but I've never been in an industry like this. I'm not opening up a business, I'm opening up a brand — I'm opening up a company that I want everyone in Manhattan to know about, everyone in New York to know about. I'm already working on other licensing so I can open up the same store somewhere else. It's just been something else, this whole process. And I know that cannabis in New York is a wreck with all these illicit shops — that's my second point. All these illicit shops are selling all this garbage, underpriced or overpriced garbage, in their stores to kids, to anybody who's going to give them 50 bucks. I think there needs to be more owners like me getting into the cannabis space and opening up as fast as possible to get these guys out of our spaces. We need to control the New York market, not the illicit shops, and right now the illicit shops control the New York market. Bryan Fields: So give our listeners a little insight into the location where you're going to be opening up shop, and take us through the process — the challenge of finding a location, working with landlords, financial limitations — and then some of the other fun challenges, like the injunction process. Markel Bababekov: Yeah, of course. Grueling process — I mean grueling. First of all, my store, we're the first store to open up on the Upper East Side of Manhattan, which is very refreshing to a lot of people because they're all opening on the Lower East Side. Having the first store open up here, I've been getting a lot of support from the community, they're very excited about it. We're a very high-end looking store, we're giving the Upper East Side an Upper East Side store. We're in a very expensive part of town, we don't want to just open up a store, we want to open up an experience for people. I think we hit it on the nose with the experience. Hopefully one day you guys can stop by. So we're on the Upper East Side. I got licensed back in April, one of the first rounds. So hard, so grueling — I have four other rented spaces, offices in New York and LA. I've never had so much trouble finding a location — any location. I had no buying power. Any landlord I talked to, there was no negotiating power, none at all. 'I want $25,000, take it or leave it.' I put in maybe 50 to 60 offers, all the way from Times Square to the Upper East Side, and I accepted everybody's offers — 'Okay, whatever, ten-year lease, six-month deposit, $25,000 a month, done' — and they still come back to me with higher rent, higher deposit. Every single one, when they find out it's for cannabis, they add this 25% cannabis tax that blows me away. When you're a little guy like me and you don't have DASNY funding or these big MSOs giving you all this money and funding the whole operation, it's like these things matter — that extra $100,000 you're spending on a down payment, that's your budget for buildout or inventory. These landlords are letting all these smoke shops open up and sell product, giving them ridiculously low rents, and I'm coming in trying to do something right, legal, for the community, and literally they're all just ripping me a new one. There was a 1,500-square-foot space on 23rd between 5th and 6th where they wanted $18,000, and by the time we finished negotiations — I had already approved the $18,000 — they came back to me five other times, and we ended at $33,000. Bryan Fields: I gotta ask, because as an entrepreneur you've got multiple successful businesses — I'll make some assumptions that your negotiating approach would be as standard as any other business, and once you recognized they were playing fast and loose with the cannabis tax, was there a moment where you recognized this wasn't a standard process, that it's unfair — because for someone like you, experienced and successful in other industries, this might catch you by surprise. Someone else without that experience might just get completely bulldozed. Markel Bababekov: Yeah, absolutely, because I'm used to looking at a space, finding it, and going about a month with the landlord or the brokers negotiating the lease. I had none of that with this. It's either you take what we have at the price we want, or don't take our store at all. That's literally it — if you want to be a dispensary here, this is what it takes. We wanted to be one of the first ones to open up, we wanted to do the rollout as quick as possible. Since April, since I got licensed, I have not stopped — with vendors, companies, landlords — and I'm only opening January 4th. Everybody I go to is either charging way too much for rent, or the area isn't where I want to be. Most of these landlords are truthfully just scumbags — I give them what they want and they still want everything else. A few landlords, I accepted all their terms — six-month deposit, $20,000 a month — and they still come back wanting equity too, and then denied me when I said no. That's not what I'm used to. My first business, Ruth's Bag — my brother, Rob, is my partner here, my partner at the dry cleaners, and was my partner in that business too. We've been opening up businesses together as long as I can remember, my first one at 18 years old. I've never gone through this ever, opening retail, opening offices — never gone through this. It's like all these landlords are working together in a way, because it happened with every single one, until I met the Zar family, who owned this property. They were humble, amazing guys — that's the only reason I'm mentioning their name. They didn't take advantage of me, they were very welcoming, the space was beautiful, and that's why we settled in this area. Bryan Fields: So you guys settled on a location on the Upper East Side, a higher-end part of the city, a month before the injunction. Was this all part of your business plan, or was it thrown out the window from all these obstacles, and now you're flying by the seat of your pants? Markel Bababekov: So we made a business plan, 78 pages, day one — once we got licensed, my brother and I made a legit business plan immediately, and we followed it for a long time. But I realized very quickly the cannabis business doesn't work like that. I ripped that shit up, threw it in the garbage. Bryan Fields: Did you build the predatory cannabis tax into your business plan? Like, here's a line item, additional 25%, whatever? Markel Bababekov: I should have — then I would have known my budget needed to be a couple hundred grand more just because of that. It's been such a shit show in New York, and I'm loving it though, don't get me wrong. I'm finally, for the first time, doing something I love so much, something I'm so passionate about, I enjoy it. So even though it's been a shit show, I've been riding the shit show with a smile. Bryan Fields: That's the space, right, and I think the important part is that the cannabis industry has this allure for a lot of people, but once you get into it, you recognize it operates differently. Markel Bababekov: One of the hardest industries to be in. Listen, I own a dry cleaning factory, so I purchase materials people can do harmful things with, solvents, and in this industry you have to track this material every time you buy it. I thought that was hard, with the inspections. Coming into this space, it's ten times harder than I ever imagined with the regulations. I replaced my window signs three times because of the regulations — they keep giving us new ones constantly. I'm like $18,000 in a hole just for window signs right now. It's a hard space to get into, guys, a very hard space. If you want to be in the cannabis space, you need so much patience, so much time, a really good team behind you — media team, marketing team, PR team — and truthfully, it's all going to be worth it. Bryan Fields: I want to stay on the story — you finally lock in the location, you're probably ecstatic, you can lock in some of those line items on the business plan that needs to be refreshed, and then the injunction happens a month later. What was the internal process like? What were you doing in that moment? Markel Bababekov: A month before the injunction happened, I signed a heavy lease — like a $2 million lease — on the Upper East Side, and a month later we find out about the injunction. OCM texted me. I was in LA, still going back and forth — I permanently moved back to New York in September. I was in LAX, just got off the shuttle bus to get into the airport, coming to New York, and OCM calls me, saying, 'Hey, we need one last thing from you for licensing.' I said, 'Yeah, I'll get it to you tomorrow.' The next day I find out about the injunction, and everything shut down — the whole city's cannabis industry shut down overnight. I called my lawyers, my whole team, and asked, 'What do we do? Can we still continue, should we continue?' We had just gotten the space, already started the buildout two weeks prior, already paid vendors a lot of deposits to start the buildout. We decided to probably make a very dumb business move which really paid off — we never stopped anything, it was business as usual, we continued the buildout. OCM couldn't talk with us, they weren't allowed to, so I couldn't get my license from them, couldn't get any emails, nothing. I was going in blind, off the regulations and my lawyers' information, and we just did it — paying all these people, spending hundreds of thousands of dollars without knowing what was going to happen, which was the scariest part. I sold one of my dry cleaners in LA to invest in this business, moved my kids to New York for this. When all this happened, I felt like I was Willy Wonka in the Chocolate Factory and I just got the golden ticket and it was getting taken away and I'd never get it back — that's how I felt. But we never stopped, we kept the buildout going. We were in the courthouses all the time, supporting the cannabis market in New York. It was one bad thing after the other, the judge constantly going against OCM. It was such a shit show, so my brother and I were starting to think we should pull the plug now before we had everything invested. I'm so glad we didn't, because about two weeks later I found out I made the short list, one of the few shops that could open during the injunction, thank God. We then put the acceleration on everything, telling everybody, 'We need this by this day.' Thankfully everything came together. But the injunction, man, it was so many emotions, high and low — thinking I'm going to do this in a few weeks, all the way down to, 'What the hell did I just do, selling this business, moving across the country, and this whole thing's about to blow up in my face.' Bryan Fields: I want to go back to you and your brother having that conversation about maybe pulling the plug — what were some of the scenarios, could you get out of the lease? Markel Bababekov: We called our landlord, told them the situation — 'Not our fault, we signed with you a month later and the court put a stop on everything.' I told them this is pretty much as close as you can get to a national emergency for the weed industry in New York — like we just got COVID in the New York cannabis space, that's what it felt like to me. I said we need a way out of the lease if the shit hits the fan and we don't get our license. Luckily we were able to get out — it said in the lease that if we do not get our final license we can back out, but the problem is they keep our deposit, and the deposit is well over six figures, a lot of money. So I was thinking, okay, I'm going to lose almost a quarter million in a deposit if I stop this right now, and another couple hundred grand to designers, media, millwork contractors, because I gave a bunch of people deposits that month. So we're going to lose at least $400,000 out the door no matter what, but if we just keep going and put in another couple hundred, we finish it. We would have lost more pulling the plug, truthfully. We were so heavily invested at that point it made no sense to stop, but it also made no sense to stop in case the injunction got lifted tomorrow and we needed to open. My brother and I weighed everything, put all the numbers together, and made a logical conclusion that we'd already put way too much sweat equity into this, and if we pulled out now we'd regret it 100%. Bryan Fields: I give you a ton of credit, because I think that's a really hard decision — you were pot committed financially and going to proceed through the long haul without knowing how long the injunction process would take. The hard part is you're waiting on updates, praying these things get resolved, and you're not the only one experiencing this. Markel Bababekov: Real quick — I'm part of the CAURD Coalition, which I think rebranded as the New York Cannabis Retail Association or something. All the CAURD licensees are in a Discord app, and everybody was going through emotions for three, four months straight — 'Hey, I need a vendor for this, my grand opening is going to be this' — everybody just venting about everything to do with cannabis in New York in that Discord. Everybody thought they were about to lose everything, and all these emotions were flying in one space. There was so much negative energy throughout the injunction, nobody wanted to do anything until they knew what was going on, and we were getting negative energy from other owners because we communicate a lot. A few people even told us, 'Why are you still putting money into it, you're not allowed to open, it makes no sense.' Bryan Fields: And at the same time, the illicit market is thriving — here you are in complete holdup trying to do everything right, with all this money sunk in, and they're just thriving. Take us through your position right now — do you have illegal dispensaries around you? Markel Bababekov: Yes. There are a few illicit shops next to me — unfortunately one right across the street, and another a couple blocks down. You'll know very quickly what an illicit shop looks like versus mine. The illicit shops are heavy on green marketing, weed leaves everywhere, promoting 'we sell weed.' We don't do that, because of kids — we don't want ten, eleven, twelve-year-olds seeing that abrupt marketing. We don't want the community getting mad at us either. When you go inside a smoke shop, it's just another hole in the wall, product piled on top of each other, hundreds of SKUs, ugly, messy. The guy next door has a couple jars, maybe six flavors of flower, three or four flavors of vapes — one of the vape brands he carries actually came to us too, a licensed company from LA, and we denied them because they're selling to illicit shops. If you're a vendor selling to illicit shops, there's no room in our store for you. Bryan Fields: So just to clarify for our listeners — the shop that looks like a weed shop based on promotion is actually the illegal one, and the shop that's discreet and doesn't look like a weed shop is the legal one? Markel Bababekov: Exactly that, yes. Regulations, again — from outside, on the smoke shop you can look in and see all the weed products. In our store you will not see any products from outside because we don't want kids or people who don't want to see it to be able to. Everything is blacked out. We do it for a reason and we're okay with it. And this guy next to me, none of his products are lab tested, his flower isn't prepackaged, who knows where he's getting it from, who knows about pesticides — there's so much that can go wrong if you don't test every product. I wouldn't even touch it. There's a very big difference — my store is elegant, not everything piled on top of each other, your eyes don't wander everywhere, we've got some of the best products in New York, I tried every single product myself to make sure it's good enough for my shelves, and a few brands we had to turn down. These smoke shops, I know they're my competition, but they're not really my competition — they have maybe ten or twelve SKUs, this specific smoke shop, and I have over 300 SKUs of some of the best product in New York. But still, we've got to get them closed, or at least get them to stop selling without a license. Bryan Fields: Was it always the plan to be discreet and community-oriented rather than built out for tourism? Markel Bababekov: No, it was not. When we were first closing on stores, there were three or four stores in Times Square that we wanted to close on, wanting to be a tourist destination — back in April of last year. But keep in mind, the information given to us by OCM wasn't accurate either — we were told we'd get funding, a loan with low interest, and stores built out for us. So I was trying to get the best store in the best area thinking that's what was going to happen, then quickly found out that's not a fact at all. Santa's not real, and DASNY is a bigger shit show than the city — but I still have to give credit to the city, they're still doing a great job, I love everybody at OCM, but DASNY, terrible at what they're doing. So my brother and I had that talk — are we doing it through the DASNY fund, self-funded, or going big and getting shareholders? We found out what DASNY's terms were like, the buyout options, terrible stuff, no businessman should sign anything like that, so we crossed that out. We didn't want to be one of those companies with a bunch of people behind us where our voice doesn't count, so we crossed that out too, and decided to do it just between me and my brother. Then we had to rethink where we were going to open, because Times Square was no longer an option for a small family-owned business. We're on the Upper East Side, been here ten years, know the community, love it, so we figured why not be a community shop for the Upper East Side. We're not just a dispensary, we're an art gallery too — we procured art from Paris, Switzerland, a lot of New York artists are featured, and some of the most expensive and exquisite pipe pieces you'll ever see are displayed in my store, some $15,000 to $20,000 pieces, and I think we'll sell maybe three a year. Bryan Fields: Was the whole process intentional, understanding the demographics and positioning assets around them so people feel like they're walking into a store consistent with their local community? Markel Bababekov: Absolutely, exactly right. When people walk into my store for the first time, there's going to be a wow on everybody's face. The process to get a product in and out is seamless — if you know what you want, order on the self-ordering station, the bud tender has it ready within two or three minutes, you're out. If you're a new user and don't know what you want, bud tenders will walk you to the vape section or flower section with the menu in hand. While people wait, we have benches so they can enjoy the art on the walls and look at the expensive glass. Two or three times a month we'll have events — this month AJ, the creator of Sour Diesel, is going to be our guest bud tender. We also have a local artist doing a print release for his new work at our location. Bryan Fields: Let's fast forward — you've gone through a tremendous journey from April to now, right on the edge about to open. Take us through your feelings today, January 2nd, before you open. Markel Bababekov: You know what, man, I think my smile says it all. Just hearing you say this gives me chills. We're finally about to open through all this. I've never been so overwhelmed in my life. I'm getting maybe 100 emails a day, I have two phones ringing off the hook all day — vendor trainings, because every vendor needs to train my bud tenders, plus I hired a training staff for the POS system and operating procedures. I had to host so many interviews to hire my whole staff, we have a staff of 20 now — managers, assistant managers, bud tenders, inventory — I was getting like 150 resumes a minute. I had to get a merchant for credit card, cashless ATM, debit transfers, ATMs — I've never signed more contracts in my life than in the last 30 days, all the onboarding, missing half my scheduled calls because I'm so busy. It's been the most overwhelming time of my life, and I'm so happy about it, I love every minute of it. Bryan Fields: What's been your favorite part of the process — going to the farms, trying all the cannabis? Markel Bababekov: There are two brands I really want to feature. One is AJ Sour Diesel — real Sour Diesel, the strain I grew up with as a kid from Queens, rolling my first blunt to my last blunt, always asking for sour. I smelled it, smoked it, tried it — I think people are really going to appreciate that there's a real Sour Diesel strain from the owner who created the original one back in the '80s. That's huge. And Mike Tyson's gummies — I really want to highlight those, they're incredible. There's also one specific farm that stood out among all the great ones I visited — I don't want to name the others because they were all great too, but this one is called MFNY, Marijuana Farms New York. Their concentrates, vapes, and flower impressed me so much that they're going to have two displays in my store, the only brand to get that. Very high quality for a great price, amazing margins. I think that brand specifically is going to be flying off the shelves. Bryan Fields: As a New York boy, I'm excited for the Sour Diesel. Markel Bababekov: You know right away, exactly. And Sour Diesel, man, I know a lot of people haven't had real sour in so long, and this stuff is amazing. I'm very happy to have it in my store. Bryan Fields: Let's slightly switch gears — dream smoking session, three people, dead or alive. Markel Bababekov: Biggie, Eminem, and... let me think... George Bush. I want to smoke a joint with George Bush and find out what the hell went on during his administration — probably more than a joint. Bryan Fields: What is the most expensive lesson you've ever learned? Markel Bababekov: Actually in this space, for this store, with a contractor. I needed electrical done for the whole store — brand new electrical, we turned one big box into five offices, a basement, so much work. I went to a few companies giving me crazy prices, almost six figures, then met two guys who said, 'You can pay me by the day,' and I said that sounds good. What these guys pulled on me was ridiculous — I lost about $35,000 to $40,000 more on labor because of them. They'd bring a whole crew, look busy but not really busy, and my cameras weren't up yet, I was still traveling back and forth to LA, my brother still had the dry cleaners, so I was going heavy on trust and shouldn't have. I paid seven guys a day, five days a week, for almost two months, way over what it should have cost — about $30,000 more than what I should have paid professionals. That was one of the most painful lessons because on such a tight budget, that $30,000 could have gone to marketing, media, millwork, or payroll, and we just blew it in the air. It shows that trying to save a dollar by taking the cheaper route can cost you a dime. Bryan Fields: If you could put anything on a billboard, metaphorically speaking, to get a message to billions of people — image, quote, word, what's the first thing that comes to mind? Markel Bababekov: Legal weed. Bryan Fields: What question do you wish more people asked you? Markel Bababekov: I think more people should be open to getting product knowledge. I've been a marijuana connoisseur my whole adult life, started smoking at 14, was smoking almost an eighth a day until the last couple years when I switched to vapes. I thought I knew so much about cannabis, but going into this space, learning about the plants, the extraction process, there's so much more to learn. No matter how many years you've smoked, come inside and ask questions about the products — you might buy something just because the packaging is nice and not like it, so ask questions for product knowledge, and I promise you'll find something you'll love. Bryan Fields: Prediction time, Markel — what is the number one thing you would do to improve the licensing process so others don't face a similar path? Markel Bababekov: I'd hire more people at OCM to communicate with license holders. That's been one big problem for me and a lot of other CAURD holders — lack of communication. It's not their fault, they're so busy with the rollout of all these dispensaries, stressed out themselves, but lack of communication was a big issue. There was a lot we needed to know that was very hard to get from them. Kellan Finney: I think New York maybe caught a hint of perfectionism trying to roll out their market — wanting to do something so perfect that they had a hard time putting out a first draft, when any first draft is going to have errors you fix later. A potential solution could be making licensing more like opening a liquor store in terms of the hoops you jump through, and reallocating resources to enforcement with boots on the ground, which could also help regulate the illicit market. Markel Bababekov: I agree wholeheartedly with that. The first rollout was for justice-involved applicants, the second rollout for licenses is a lottery. And honestly, not that many people apply for these licenses — if you look at the actual list of CAURD applicants, it's not that many, same with the general license applicants. I told a lot of people about this opportunity and they didn't seem to know about it — lack of marketing on OCM's end. A lot of people just didn't know about this big golden opportunity. Bryan Fields: I think to expand on your point, the reason people don't act is because they're intimidated to take action. The idea of something is fun, but actually sitting down and overcoming obstacles when you don't know how to do things is hard — no one knows the answer, you have to seek it out, put yourself in uncomfortable situations regularly, and have the ability to show up again tomorrow. I commend you for sticking through it and doubling down when things were tough. I think with your mindset and skill set you'll really benefit the community, and it's exciting to see what the future holds for you here in New York. Markel Bababekov: Thank you, that means a lot, man, thank you so much. Bryan Fields: So Markel, for our listeners who want to get in touch, who want to visit your store, where can they find you? Markel Bababekov: 1412 Lexington Avenue, New York, New York, 10128, Upper East Side, on Lexington between 92nd and 93rd. It's a big, big store, right in the middle of the block, you can't miss us — it says The Herbal Care. Bryan Fields: We'll link it all up in the show notes. Thanks for taking the time, this was fun. Markel Bababekov: Thank you.