In mid-July 2020, PSN had the pleasure of conducting an exclusive interview with Smoke Cartel Inc. (OTCMKTS: SMKC). In this interview, you find out how Smoke Cartel is growing, what motivates the company and what are the biggest highlights, developments and obstacles the business has faced since it was founded in 2013. In less than seven years, Smoke Cartel has become an established market leader in the world of smoke accessories. Furthermore, you can read what has been the key to success and how this has made them stand out from the competition. Motivations for expansions, subsidiaries and market strategies are being uncovered and we would like to share with you what else is in the pipeline of this fascinating, innovative and passionate team from Savannah, GA.
PSN: We would like to start this interview in a positive way by asking for your biggest achievement since the founding of Smoke Cartel.
A: I started Smoke Cartel to introduce a new wave of innovative products in an emerging industry to new & in-experienced users alike. We knew that whether or not someone may have been a long-time smoker, or someone trying cannabis for the first time – there was bound to be a cascade of accessories, consumables, and products from the growth of this industry that people would get to explore. We’re extremely proud to have done just that, and to have been a critical part of hundreds of thousands of consumer’s journey. In such a budding industry, there’s a lot of growth cycles, and companies that do not stand the test of time – we’re proud to have innovated, tested, and honed our business model for over 6 years; and to be able to continue to serve current and future consumers with the experience and trust that we’ve built up over the years as an established brand.
PSN: With the knowledge that many starting entrepreneurs are not immediately successful, which factors have been important to you during the start-up of your business?
A: Focus on the fundamentals. I think a lot of entrepreneurs believe that they need to have some kind of “special sauce” or groundbreaking idea in order to succeed; often forgetting to spend time on the fundamentals of running a business. This is especially true in the cannabis industry, where a lot of young entrepreneurs (myself included) were given the opportunity to start-up. From day one, our goal was always to just provide excellent products, fast shipping, friendly customer service, and comprehensive product education to our customers. Focusing on delivering value to your customers is at the center of our business and success, and that’s what builds brands and growth over time – not one-off successes or failures.
PSN: Currently you are one of the top sources for smoking accessories in the world. What has been the key to success that made Smoke Cartel, Inc. grow so instantly and rapidly?
A: We focused on supply chain and innovated products; and were able to establish trust in our industry and with our consumers rather quickly. Our grassroots, social, and word-of-mouth methodology of advertising was not only crucial to our growth; but the product of forced innovation due to the restrictions in advertising in our space. From then on, consistent and dependable service, innovative marketing have continued to build returning and new customers over time.
PSN: In the ‘Smoke Cartel Press One Pager’ it reads: “Several frustrating experiences with online head shops made it obvious that a void existed in the e-commerce smoking accessories game.” Can you mention some of these experiences and how Smoke Cartel Inc. avoids them?
A: I think some of the negative effects of a hyper growth industry have made it a target for entrepreneurs looking to make a quick buck or strike it rich fast. This led to poor product quality, and folks thinking it was easy to start an ecommerce business. The saturation of these type of vendors at some phases, was rather off-putting to consumers because a poor customer experience was delivered – turning them away from smoking accessories or towards brick-and-mortar stores. We’ve been around the industry long enough and have the experience to be highly selective with the vendors and manufacturers we work with; allowing us to provide high quality products to our customers. We’re also thinking about how to improve and optimize the customer journey, from iterating on our simple returns process, to distributing our supply chain to allow for faster delivery and a greater selection of products. I don’t think we’ll ever stop trying to innovate and deliver more value to our customers – they’re the reason we’re still around.
PSN: Since 2016 you own Glassheads Distribution and in-house brands including: UPC, Sesh Supply, Kraken Grinders and the China Glass. Can you share that journey with us and explain how you came to this development?
A: Our move to acquire a B2B book of business, as well as vertically integrate by manufacturing and distributing our in-house brands was an excellent exploration into expanding our revenue model. We saw great demand from our retail customer base, and were able to promote and distribute our in-house brands to thousands of brick and mortar retailers across the US and abroad. We were able to improve our margins across many product segments with the move – and learn a whole lot about the distribution model in B2B in our industry. While we still own and continue to produce these brands, we are data driven; and after analyzing our historical data – determined it to be strategically more sound to continue our focus in our retail sector. The margins for B2B are slim, require a considerable capital investment, and is difficult to build a sustainable economic moat. While we are not ruling out B2B as a continuing growth sector for us in terms of revenue, we are seeing considerably more upside and growth potential right now in some of our B2C efforts.
PSN: Shortly after, in 2017 you acquired Early Bird Distribution and all of its brands ‘HeadyPet’, which you say led to a whole new audience. How was this a great opportunity and what effects do you still see today? Maybe you can explain to us who this new audience is?
A: We’re always interested in innovative brands, and that thinking led us to our Early Bird acquisition to test out a new audience. Primarily – this segment of users we identified were heavily invested in the cannabis industry culture, subculture, and niches within the industry. The Early Bird brands grew originally from hype, social media, and unique products that resonated with the consumers in it’s niches; and we were able to expand these offerings to our larger customer base. Ultimately, I believe that this acquisition was a great opportunity for us to diversify our portfolio in terms of compatible customer bases and expanded our traditional product offerings. We have leveraged a lot of the lessons we’ve learned from our past acquisitions, taking a hard look at our successes and failures – and applying these learnings in our new business models such as our marketplace system; which are demonstrating very promising results. For example – we believe that niche products absolutely do have their place; but are able to combine the best of both worlds by offsetting our product cost carrying burden to the vendor (sacrificing a minimal margin difference) and winning over new customer bases with very little cost and risk to us as a business.
PSN: Who are your biggest customers at the moment? Does your scope extend beyond the borders of the United States? It would be lovely if you can come up with some facts or numbers about this.
A: During the second half of 2019 the company made a strategic decision on how to grow our business and return to profitability after two very challenging years. We identified two key strengths in our business model that we decided we could best leverage for growth and operational efficiency. First, our customer website has focused on selling directly to end users for the past six years. Over that time we developed a loyal customer base with a wide range of needs in how they enjoy smoking. Satisfied customers keep coming back to our website to look for something new and interesting. We were also able to update the SEO metrics that would allow new customers to easily find our website when they conducted both general searches and product specific searches. This constant flow of visitors to our site, both old and new customers, took years to develop and maintain. Secondly, we have built out an internal infrastructure to allow us to monitor our inventory and easily link customers with fulfilment. From the time the customer first logs into our website until they receive their product, our system is tracking their shopping pattern, order placements, fulfilment and delivery. The efficiency of using our own tools has allowed us to provide superior customer service, while also providing us many layers of data analytics.
To leverage these strengths, we began to move towards a smoke shop marketplace model. We realize that our customers have diverse tastes, but we could not continue to stock each variation of every smoking product. The demand for different pieces, different sizes, different colors, different price points and newer offerings indicated that we needed to change how we offered and delivered products. We started signing up distributors to serve as dropshipping partners. This was a change in our core philosophy regarding only offering the highest end products carried under one of our branded product lines. Now we would be able to offer products at every price point, in any size/color and continue to add to our offerings as quickly as we could onboard new dropshipping partners. We had the demand on our website, now we were expanding our ability to deliver what our customers wanted.
Once the dropshippers saw an increase in their own business models, they were eager to improve the efficiency with which they were able to meet this demand. Instead of shipping a small volume of orders in large quantities to their customer base, they were being asked to ship a high volume of low quantity orders to Smoke Cartel’s customer base. We have been able to leverage our infrastructure to make this process easier. As an example, we have always offered free shipping to our customers. To continue to offer this through our dropshipping partners, we were able to tie our shipping tools into their fulfilment service centers so that they could print shipping labels on-site that would be charged to our account. As the dropshipper business started to grow in 2020, we continued to expand the tool offerings to our partners. For our largest partners who use higher end back office ERP systems, we offer to integrate the order processing and fulfilment service directly into their back office systems. This allows for more efficient inventory tracking and reporting on the website, as well as more efficient accounting and billing for completed orders delivered. We have been helping these partners move from manual data entry to fully integrated system tools.
The marketplace model has been an amazing success for us. We have over 50 dropshipping partners added to our network, ranging in size from hundreds of product offerings down to one or two niche product offerings. The response from customers has been incredible. Many of our orders now include multiple products, offered by multiple partners. A search for a new, higher-end pipe by a customer offers greater variety, but also usually includes at least one other smaller accessory.
PSN: You write to be very happy with the current location. It’s conceivable that in case of further expansion a second location might have to be considered (logistically). How do you feel about that?
A: Our new marketplace model has allowed us to scale back our internal operations, while at the same time expanding the number of products offered and delivering larger volumes of orders. Because we rely on our dropshipping partners to meet customer demand, we have been able to reduce our corporate office footprint and eliminate most of our in-house warehousing operations. This provided additional cost savings, even when our top line growth in 2020 is approaching 100% year-over-year.
In this new world of a global pandemic, I would be remiss if I didn’t address the impact that the global shutdown has had on our new business model. Like everyone, the sudden wave of virus spread throughout the US, and across the world, impacted our business. Our first concern was for the safety of our team, our dropshipping partners and our customers. Once we ensured that everyone was safe and healthy and could work primarily from home, we kept doing what we were doing.
To our amazement, our business skyrocketed, starting at the end of March. People were forced to stay home, and millions of people ended up losing their jobs. Our products brought a level of home entertainment and stress relief for so many people who couldn’t leave their homes for normal social gatherings. At the same time, local brick-and-mortar stores were closed due to the shutdown. More and more people were doing their shopping online, whether it was smoking accessories from Smoke Cartel, or local deliveries from the supermarket. Everyone was ordering online and delivery drivers were considered essential workers. Alcohol sales skyrocketed and so did our business. As the country starts to open up again, we have seen a corresponding decline from the peaks of the shutdown, but we are still seeing sales that are 2-3 times the level we were at before the shut down.
Our marketplace model was in place at just the right time and we are now in a position to continue to build on what started as a risky strategy, but proved itself to be a very successful business model for our industry.
PSN: How would you like to expand the business of Smoke Cartel Inc.? Do you have something concrete in the pipeline?
A: Looking forward, we continue to add new products through additional dropshipping partners and on-board more products from some of the larger distributors. Our business is now focused on the following keys.
- Continue to reach out to our existing customers through various social media platforms, while staying on top of the SEO metrics to ensure that new customers are finding our site for any of their online searches.
- Manage our existing relationships with our dropshipping partners through constant communication to address issues while offering opportunities to improve their systems and make them more efficient in processing orders.
- Identify new dropshipping partners to ensure that our mix of product offerings meets customers’ demands with the most useful and entertaining products available.
- Continue to look for ways to make our own operations, as well as our partners’ operations, more efficient and streamlined which will allow us to maintain the efficiency gains we’ve already achieved.
PSN: As ‘Winner of the High Times Cannabis Cup Best Glass Award’ and being featured on Forbes, Leafly and Weedmaps, where else do we find Smoke Cartel Inc. besides the permanent operations?
A: Smokecartel.com is becoming the marketplace of choice for glass pipes and other smoking accessories.