The Expanding Tao of Shangri-La

The fictional Shangri-La was a hidden valley tucked into the western end of Tibet’s Kunlun Mountains; a mystical paradise isolated from the world. For brothers Nevil and Kepal Patel, however, Shangri-La means the opposite of isolation. Instead, they are in the process of bringing their own vision of Shangri-La to the masses by way of the mystical cannabis plant. Founded in Missouri in 2019, the privately held and minority-owned company has expanded its vertical footprint to include Ohio, Illinois, and Connecticut, and is actively executing plans to expand that footprint into new markets. Cannabis Business Executive spoke recently with founder and chief executive officer Nevil Patel, and co-owner and president Dr. Kepal Patel, who is also a dentist, about their experience building Shangri-La, their plans for growth, and the qualities they believe provide the greatest tools for success in such a dynamic and competitive industry.

“We started at a grassroots level, combining our expertise in retail business background with a background in medicine,” said Nevil of the founding of Shangri-La. “My wife is a physician, and has been practicing in central Missouri area for quite some time, so we combined that with the retail expertise within the family, and honestly, cannabis was a perfect business to combine those two.”

They had not considered cannabis before Missouri went medical. “But when our home state went legal,” added Nevil “we looked into exactly what it takes, how the business side of it works, how the product works, the effect on the human body and longevity with all the information that was available to us. We did as much research as we possibly could internally, and we concluded that this was a good fit to combine all the family expertise.”

The family retail experience was in gas stations, convenience stores, liquor stores, and some real estate, he noted, adding, “We were in an extremely competitive retail markets.” It therefore made sense to enter the cannabis space with retail if possible, and then add elements to become fully vertical.

“Yes, we started with retail since that’s what we knew, and then we quickly realized that having full control of the supply chain is very fruitful,” said Nevil. “We can not only control the product supply, but we can also control the quality of the product, which is extremely important, specifically on the medicinal side. To achieve that portion of the goal, the answer was to become vertical.”

It was steady, incremental growth. “We started with three retail in Missouri, and then we acquired ownership of a grow facility and a manufacturing facility,” said Nevil. “We then applied for and won a license in Illinois, followed by Ohio and Connecticut, but we started with three retail stores in Missouri.”

How licenses were obtained depended on the state and the circumstances. “Missouri was a written application, a scoring application-based license, meaning we had to give proper answers to their questions, and all the applications that were submitted were graded,” explained Kepal. “That’s how we were able to win Missouri licenses organically. Illinois has a lottery-based system, so we have a pending application there for the lottery.

“Ohio also has a lottery system,” he added, “but it was different because you had to have a location picked out. It was not a graded process, but there was a lot of work that went into Ohio, and we had the third highest number of applications submitted in the lottery because we had to lock down properties. In Connecticut, which also has a lottery-based system, we were among the few companies that were able to submit as many applications as possible, so we had the highest number of applicants for the state in the last lottery. But Missouri was the only truly merit-based application that we went through. The others combined some merit with a lottery system.”

Experience brought a level of confidence that inspired the brothers. “When Missouri opened up, our store was medical only, and we started to get a lot of praise, we understood how much cannabis was helping these patients, and that’s what made us more motivated to apply for more states,” said Nevil. “We started with retail, and we’re slowly moving into the manufacturing and cultivation side of it. We have two cultivation sites. One is up and coming in Stratford, Connecticut, and we have an additional facility for manufacturing that’s also coming up in Connecticut.

“Diversity of products is almost non-existent in Connecticut, so we’re actively trying to change that by bringing in multiple brands and a lot of different choices when it comes to strains and manufactured products,” he added. “We will have our own Borealis and Asteroid brands, but in addition to that we are going to bring in multiple different brands, known national brands, that are currently not available in Connecticut. The greatest achievement in Connecticut will be to provide diversity not only in product but in quality and price point, as well as the taste of the product in general.”

In Missouri, Shangri-La produces a brand called Hermit’s Delight. “It’s very successful,” said Nervil. “We’re also introducing Borealis, which will be our national brand in Missouri, over the next 45 to 60 days. We are also going to have manufacturing in all the additional states, at least for the purpose of manufacturing Borealis and Asteroid. And we don’t restrict our products to ourselves. It’s unfair to do that in a market where patients don’t always have access to a Shangri-La within 15 to 20 minutes of the driving time, so we try to evenly distribute our product in all corners of the states.”

Becoming truly vertical was a process, explained Kepal. “We have always been pretty strong in retail, but since opening, we have learned a lot about our consumer demands, our budtenders and managers have given us constant feedback on what the consumers are looking for, and that gave us the idea for the expansion of the company in terms of it just making sense to be vertical. At that point, we understood the market from the retail perspective and what the consumer wanted, so it made sense that we try to develop those products that the consumers are actively looking for.

“The cultivation [site] in Missouri has flower and everything on the manufacturing side,” he added. “We are releasing two new lines of products under Borealis cannabis and Asteroid cannabis by Borealis, and we’re going to have the full range of products in all of these states under our manufacturing brand, including vapes, cartridges, gummies, prerolls, flower, and disposable vape pens.”

Is the plan to replicate that plan in each state they enter? “That really is the goal,” said Nevil. “We want to provide multiple choices within a state, but we want product consistency. Every Shangri-La will have certain products that are available nationwide so that customers and patients can recognize that product and its quality. We will definitely go in that direction.”

Acquiring Licenses

With licenses pending in Alabama, Texas and Illinois, and opportunities being evaluated in Florida and Maryland, a pliable license acquisition game plan is a necessity. “We have purchased licenses in the past, and we are also actively looking to acquire additional licenses. But to really give an answer to what’s beyond these four states that we’re in and what’s beyond additional new states where we have applications pending, it truly depends on the regulation that the states provide. We like to go into markets where the state creates a proper number of licenses based on supply and demand. There are pros and cons on both sides. If a state approves too few licenses, with only a few choice of cultivation and manufacturing available and a limited supply, patients don’t get the choice of products that they need, which that doesn’t create a healthy environment for patients or customers.

“In states where they don’t limit the number of licenses,” he continued, “that also creates a very difficult situation where diversification in other things can happen. So, we carefully choose the market by looking at total population, regulations around cannabis, the number of licenses that will be awarded, and product-related regulations on packaging and marketing. We look at all those things, we look at the future financial stability of that state if we were to go into it, and then we make a decision. If a new state comes up and it fits our criteria, where they’re providing a reasonable number of licenses and reasonable rules around cannabis, we definitely want to go in. But if states provide too few licenses or too many, we can’t provide our best service to our customers, so it may not make sense for us, and we may choose not to go in those states.”

There are states that have found more balance than others, added Nevil. “Honestly, we are sitting in a market right now in Missouri that is a great example,” he said. “They have a very successful market, a good amount of cultivation and retailers and manufacturers, and very good regulations around product manufacturing and marketing, advertising, and packaging. Another example is how Connecticut has turned around and what it will look like starting probably next year. You will see a significant difference in the Connecticut market from a product standpoint, and the number of dispensaries and the number of licenses. I’m very confident it will become a very good market.

“Ohio is also a good market,” he added. “They are moving towards adult-use as we speak, they have good number of licenses for everything, and an increasing number of licenses based on demand. They’re pausing to see what the market will look like after they allow all these licenses to open. Illinois is a good market as well.”

What about New York? “It’s improving,” said Nevil, “but as of right now New York is not on our list and won’t be until we see some major changes.”

I noted that some states seemed more like captive markets where competition was being crushed. “It’s supremely healthy to have good competition,” responded Nevil. “When I say good, I mean capable companies that know how to compete in a regulated market and know how to compete even while being fair and following all the regulations. I will take that healthy competition all day long, because we learn from each other. We prefer to have healthy competition, and there are many companies that do just that.”

Kepal added that Shangri-La likes to employ an active approach to getting into a given market. “Whether it’s retail or manufacturing or cultivation, we want to have control of whatever we’re part of, because we want to make sure that starting from cultivation, whatever products are produced have the highest and most consistent quality,” he said. “With our retail background, we know it helps consumers understand and receive what they’re actually asking for, so we like to take that active approach and make sure that we have control over the quality of the flower as and the other products.”

That implied that timing was an important factor in their strategic thinking. “I think timing is absolutely crucial,” said Kepal. “We are very big believers in timing this industry here at Shangri La, and we have been very fortunate. A lot of hard work has gone into our growth strategy and how we actively expand into a new state, because we really believe that timing is of the essence. We were lucky to be a part of this industry from the beginning, and we want to be in cannabis in five or 10 years. The field is going to level out to some extent, but just a few years ago we were at a point where the cannabis industry was growing exponentially, so we’re trying to mimic our company’s growth comparative to how the industry is growing, and we’re trying to be very active in all the new states that we can be.”

But timing is not the determining factor. “It’s more important for us to be in the right market at the right time,” clarified Nevil. “It just happened that multiple good market that we would want to be in opened up, and we were able to successfully apply in those states and win a license. That’s really it more than us setting up a goal about the number of licenses or number of states.

“We’re not going to get licenses or open new states for the sake of increasing the number,” he reiterated. “We’re going to do that only if it makes sense in the ways I mentioned earlier, the rules and regulation followed by population and the number of licenses. So far, we’ve been lucky that all those criteria matched the states that we’re in, and for all the states that hopefully are coming on, but it’s not a strict strategy of, ‘We want to be in X number of states in X number of time. We want to pick and choose, and we want to have states that make sense to our portfolio.”

As to how Shangri-La is paying for its expansion, Nevil explained, “We’re up to 250 very, very capable individuals that have been part of our team for quite some time. They all have their designated roles, starting from cannabis consultant to the legal side of the team, to marketing, compliance, and retail operations. It’s really impressive when you look at the total picture, and when each individual completes their job in a perfect manner, it’s amazing what the results are.

“And, truly, that’s what it is,” he emphasized. “It’s each one of us doing our job in a very, very good manner that provides us with a very positive result. There’s really no magic to it. It’s doing what you did yesterday, but improving today compared with yesterday. As far as funding is concerned, we are privately held. We do have some loans that we received from traditional banking, and a larger portion of our growth also came from success in the existing state.”

Does that mean they might start with a dispensary license and then either acquire or buy a license for cultivation and then add those elements one step at a time? “Correct,” said Nevil. “We take it one step at a time. We’ll go in, we’ll open the location for whichever license we have, we’ll see what the market is, we’ll give it a few months, and we will visit the market on a frequent basis to understand the needs of the market, just like what we are doing in Connecticut.

“In some states,” he added, “the need is simply to open the door and the consumers are there already because they’ve been waiting for the product. In some states, you’re surrounded by other markets. So, are the regulations significantly different from other states, and are they giving out too many cultivation licenses, or too few licenses? Do we have one retail location, or do we have six retail locations? All those questions, and when you have the answers in front of you and you can see the market, you more or less have the answer if you should acquire cultivation, are you better off waiting, or are you better off never acquiring cultivation.”

Building Brands

I asked the brothers about their brand strategy, which names they want fixated in people’s minds. “It’s Shangri-La when it comes to retail,” said Nevil. “On the manufacturing and cultivation side, it’s going to be Borealis and Asteroid. For the time being, we’re limiting ourselves to those three.

Will those brands cover all price points? “Price and quality go hand in hand,” he replied. “Certain brands, such as Borealis, will have a premium quality at a reasonable price. Asteroid will also be a quality product, but the pricing will be offered in such a manner that it’s affordable to everybody.”

“Borealis is going to be our ultra-premium brand,” clarified Kepal, “and Asteroid is going to be our premium brand.

I wondered if fiscal discipline had been an important objective for the company. “Huge,” said Nevil, repeating, “Huge. We are self-disciplined, and we help each other out on a persistent basis. We never forget that the opportunity that has been given to us comes with responsibility, and being disciplined and improving yourself is the only way to survive in a sophisticated market. That’s really what the cannabis market is, and it is going to get even more competitive. At the end of the day, the companies that survive will be the ones that are extremely disciplined on the management side. That is probably the single most important factor in our opinion.”

And if rescheduling becomes a reality, will there be a significant impact for them? “For private companies like us,” replied Nevil, “we don’t really see any major impact today, because nothing has happened yet. We believe that rescheduling will happen in the near future, but realistically, the rules are still not finalized. So, depending on what those rules and regulations are, we will assess whether they will be positive or negative.

“It’s likely going to be a combination of both,” he added, “but any step towards legalization for a product that should have never been illegal in the first place is an achievement. And it’s not only my achievement or our achievement; it’s the achievement of hundreds of thousands of people who have been working towards legalization for many, many years. It’s definitely an event that we should all celebrate, but as far as the economic impact on our business, we will know more about that when the regulations get finalized.”

I was also curious what if anything they had learned over the years about the cannabis consumer.

“It’s an interesting question,” noted Nevil. “My personal belief is that a rather significantly large percentage of the individuals who walk in dispensary doors are patients of some kind, even in the adult-use market. The larger difference between adult-use and medical is that the requirements around medical cards and some of the other restriction prevent some patients from consuming legal cannabis or consuming cannabis at all.

“Sure, it has recreational use and there is a portion of the population that uses it for recreational purposes,” he added, “but a larger portion of customers are using it for medicinal purposes a lot more often than not, and they don’t even realize it. Sleep is huge. A large number of people have trouble sleeping and cannabis is fantastic for that if consumed in a proper manner. So, we look at our customers as patients even in the adult-use market, so things don’t change that much for us when we transition from medical to adult-use. We just see a larger number of people coming through the door, but we still treat them as medical patients more often than not because most of us have a condition where cannabis can be useful.”

The Tao of Shangri-La

Shangri-La will see several new openings over the next six months or so, a sure sign of more to come. “Currently,” said Kepal, “we have three active locations in Missouri, four active locations in Ohio, one active location in Connecticut, and one location in Springfield, Illinois, that is opening in the next few days. For the rest of 2024, we’re planning to open a cultivation facility in Connecticut, we’re also planning to open five more retail locations and two more manufacturing locations in Connecticut, and we’re expanding to more dispensaries in Ohio as well.”

The number of employees is slated to increase dramatically. “We have about 250 associates right now within Shangri-La family, and we’re looking to add roughly 350 over the next eight to 11 months,” added Nevil. “So, we’re looking at about 600 total by the first quarter of next year.”

Kepal added, “These are the licenses that we already have. It does not include the states we’re foreseeing to have pending applications, such as Texas, Alabama, or Illinois.”

Will any of those licenses come through this year? “We hope so,” he replied.

“Technically, Alabama has awarded the dispensary license we applied for,” he clarified, “but their whole program is under numerous litigation, so we don’t know exactly when that will be solved or what the final outcome will be.”

In addition to the Hermit’s Delight brand in Missouri, Shangri-La will be introducing its Borealis and Asteroid national brands over the next several months. It made me wonder where the center of competition gravity will be going forward. Is it in product brands, retail competition, pricing, quality, location?

“Competition is a large word,” said Nevil. “We compete against other brands, including lower priced brands, higher priced brands, lower quality brands, higher quality brands, with a dispensary that’s located close to ours and dispensaries that are located an hour away across the border in Ohio and Michigan. We also compete against the illicit market that exists, we compete against Delta 8 or 10, even though we shouldn’t have to, and we compete against others as well.

“But a larger success comes when you compete against yourself,” he added pointedly. “We can look in multiple directions and try to compete against all of the above markets, or we can remain focused on competing against ourselves and figure out how to improve the quality of our product, and the quality of the service that we provide tomorrow compared to what we did today, and then day after day after day. So, we look at everybody, but we mostly compete against ourselves, because we want to be better tomorrow than what we were yesterday or what we are today.”

Is that the biggest challenge to running a multi-state cannabis company today. “I wouldn’t say challenge,” Nevil corrected. “The best part about competing against yourself is that you know all of your strengths and weaknesses. It makes it so much easier to improve, because you know the pros and cons from yesterday. I’ve always been that person, and everybody in our organization sees that vision, and every one of us enjoys it. Is it challenging? Yeah, sure, but I wouldn’t have it any other way.”

I asked if Shangri-La was looking for any partners in any markets, or if they wanted to add anything we haven’t talked about. “We don’t necessarily look for partners in that specific manner,” said Nevil. “Certain state regulations guide us in the proper direction, and in that case, we do look for certain individuals, but we more or less look for someone who shares our vision, who is capable, and who is here for a long ride as a partner. Are we actively looking for anyone right now? I’m unable to think of anything off the top of my head.

“I do want to make sure that anyone reading this understands that this journey has been difficult on some days, and very pleasant on others, but for anybody who is in the industry or who wants to get into the industry, if they look at it not as a quick way to make money, if they are in it for a long haul, like we are, I think success will be received. If we keep competing against ourselves so we can improve tomorrow compared to what we are today, we believe that will be the largest reason for our success.”

Kepal added, “Shangri-La’s vision is to create a very supportive and educational environment for our new and experienced customers. We take pride in how we run our retail dispensaries in terms of training our budtenders to make sure that we provide a wide range of quality products and accessories, and that we strive to give the best experience possible for our customers. We want Shangri-La to be an experience for every customer who walks into our retail store, and we take pride in doing that for our customers.”

It sounds like you guys plan on being around for a while. “We are working towards that, and really it’s about the team that has been with us, that are with us. Specific individuals within the company don’t always get to come out and say things in public, but it’s really them who sees our vision and adds to the vision, and who help us make the right decisions at any given point in time, and who stop us and correct us when we are potentially going in the wrong direction. That is what makes the company not a product of one person’s hard work. That contributes, by all means, but everybody who’s involved within Shangri-La is truly the reason why we are who we are today.”

On that note, Shangri-La had some union-related issues in 2023. I asked where they stand now? “So, it’s important to note that only one Shangri-La store in one state had so-called union issues,” said Nevil. “But I don’t necessarily like to refer to them as union issues. I think it’s just figuring out the fine balance between what certain, and all, individuals working with us want compared to what we provide them, and how can we improve ourselves not only for those individuals, but for every single one of the 250 people that work with us. So, we actively try to communicate, we’ve improved on the communication, and we understand what their needs are. Again, it’s important to note that certain individuals at one location think that the dispute was necessary.

“With the others,” he added, “we work with them on a daily basis, and we’re very proud to have a phenomenal relationship with almost every single one of these 250 individuals. Most of them have seen me more than once, and I have communicated with almost everyone individually, so they have that level of direct communication. We are involved in the community around them, so when we choose a new location, when we open a new store, we focus on hiring individuals from the community. We understand their individual needs as well as the community needs, and we will change our hiring plan from time to time based on a specific location or specific community.

“For us,” he continued, “it’s not about being for or against unions by any means. It’s about doing things right for the individuals who work with us, who work for us, who work around us all day, every day. I want to emphasize the fact that we want to work with them more than working for or against a specific union. That’s not the goal here, and we don’t look at it as pro- or anti-union. We look at making sure we know the needs of each individual employee that works with us and cater to them more than catering to anyone outside of our family.”