Focus on your value proposition instead of offering the cheapest product in the category.
Figure out how to grow organically using your own financial resources instead of being distracted by your competitors’ latest financing round.
Those are just some of the takeaways from an interview with Jürgen Bickel, managing director of Storz & Bickel (S&B), a German maker of the popular Volcano vaporizer and other vape hardware.
Bickel spoke with Marijuana Business Daily in December at the company’s premises in Tuttlingen, a small German town near the Black Forest.
The early days of the German vaporizers manufacturer – more than two decades ago – were challenging and humble, with the first devices manufactured in a basement, Bickel said.
But by the time the company was acquired by Canada’s Canopy Growth in 2018 for approximately 145 million euros ($177 million), Storz & Bickel was one of the most respected makers of high-end vape devices in the world.
S&B employs more than 100 people and has a plan to expand production capacity around 40% in mid-2021, Bickel told MJBizDaily during a tour of the factory.
Value proposition
The company’s insights into its value proposition offer valuable lessons for other businesses.
About the comparatively high price for S&B devices, Bickel said: “Our vaporizers might not be the first ones that a cannabis user buys, but they are definitely the last.”
Since its founding, Storz & Bickel’s strategy has been to “uncommoditize” its products for the right customers.
“There are consumers who are willing to pay more for quality products,” Bickel said.
“We have observed that performance, quality built and safety are valued by many consumers, and we give them what they want.”
Storz & Bickel recently celebrated the 20-year anniversary of the Volcano Classic vaporizer, its flagship product.
The idea originated more than 20 years ago when company founder Markus Storz found a photograph in a marijuana magazine depicting a man blowing air with a big heat gun into a huge water pipe.
That prompted Storz, who was fascinated by the idea of vaporization as an alternative to smoking, to look for a more practical way of doing what he saw in the photo.
It took him roughly two years to manufacture the first version of the Volcano vaporizer in his basement, and the first devices manufactured started sales in 2000.
Quality and safety have remained the key to S&B’s value proposition, Bickel said.
According to Bickel, only two vaporizers have been authorized by European health agencies as medical devices, including:
- The Volcano Medic.
- The battery-powered Mighty Medic.
S&B manufactures both.
These are also registered as medical devices in Canada, Israel, Australia, South Africa and New Zealand.
To register a medical device, companies must first certify their quality-management system – a process that could take years – and then certify the device itself, proving the risk-to-benefit advantage, Bickel told MJBizDaily.
Collaboration with research institutions was key for Storz & Bickel.
By the time the company was able to register its first medical device, scientific studies were already available – conducted by researchers who had used the Volcano in medicinal studies – showing it to be a precise and better way of administering cannabinoids to patients. These studies were not financed by S&B.
Bickel said the S&B medical devices contributed to paving the way for the flower market in Germany, because German regulations do not allow prescriptions of flower for smoking, only for vaporizing and tea preparation.
“And it would’ve been hard for German regulators to justify the decision that cannabis flower be prescribed for vaporizing if registered medical devices able to do that hadn’t been registered in the first place,” Bickel told MJBizDaily.
Organic growth
With decades of organic growth and profitability in its rearview mirror, Storz & Bickel is a contrarian example in a sector where companies raising and spending the most money garner the most attention.
“Markus Storz and I invested everything we had on this project about 20 years ago, and since the beginning we’ve been growing the company with positive cash flows,” Bickel said.
“We only took one small loan at the beginning and a larger one more recently, which was used to fund our new factory, but no raises, and the simplest ownership structure possible with just Markus and I.”
At the first trade show that Bickel and Storz visited in 2001 in Zürich, Switzerland, the response to the Volcano was overwhelmingly positive, he said, and there were hardly any competitors.
Although the company started to see an almost cultlike following among marijuana connoisseurs, those early days weren’t easy, Bickel said.
He worked with Storz for several months without receiving pay, and at times, they could barely sell a handful of devices per month.
With the company running out of money, they decided to create a 50-50 ownership partnership, with Bickel investing his life savings, at the time corresponding to 50,000 German mark ($30,890)
Although Storz & Bickel has its roots and its factory in Germany, it has been generating most of its revenue in the U.S., where it opened a subsidiary – in Oakland, California, in 2005 – to better serve “the most meaningful market,” Bickel said.
It was mostly thanks to the 110-volt version of the Volcano exported to the U.S. that S&B could generate positive cash flow and grow organically.
With the launch of its first portable vaporizers – Mighty and Crafty – in 2014, the company soon doubled sales and staff. A couple of years later, S&B built its current German factory where it now produces about 1,500 devices per day, Bickel told MJBizDaily.
Today, about 80% of the components needed for the manufacture of the vaporizers come from Germany, Bickel told MJBizDaily, adding that roughly a third come from the Tuttlingen area.
Storz & Bickel received plenty of investor inquiries over the decades, but for the two managing directors, it was clear that keeping the freedom to be the only decision-makers was more important than raising cash.
Bickel said selling the company to Canopy in 2018 was not an easy decision because of how much the two managing directors and owners valued independence.
Storz & Bickel saw demand for its products increase drastically in 2020, Bickel said.
The factory is working at almost full capacity with two shifts per day.
The company plans to finalize an expansion in May 2021, which will allow for a roughly 40% more production capacity.
Alfredo Pascual can be reached at alfredop@mjbizdaily.com
