By Chris Meehan | Feb 11, 2020
Simple syrups and sodas
"My wife and I actually took over the company back in January of 2018," says Schultz. "The original owners, Patrick and Ari, they had started the company a few years ago, and had taken it to farmers markets and local events and they ultimately decided that they wanted to sell the business."
The couple identified the business in late 2017. "We thought, 'Wow, what a fun business. I think this has a lot of potential,'" says Schultz. "It was right around the time where I was starting to think about CBD-infused products and how that might fit in."
While there's a "move towards a ready-to-drink canned product on the CBD side," it's not a complete reinvention of the business. "We started and have always been a simple syrup company at heart," he says. "We basically wanted to take that simple syrup [into other products], and we saw a great opportunity in the market, especially in the CBD beverage market for a ready-to-drink, truly all-natural soda."
The company is still making its simple syrups, with flavors like Mango Jalapeño, Ginger Lime, and Lavender Lemon, and selling them throughout Colorado. "Our syrups are available at a lot of liquor stores throughout the Front Range and into the mountains," Schultz says. They're also available in Rocky Mountain Whole Foods stores and outlets like Savory Spice Shop, which also supplies the company with some of its ingredients.
In addition, Backyard Soda Co has partnered with breweries, bars, and restaurants in and around Denver. "One of our longest, just best partners, is New Terrain brewery in Golden. They've been serving our syrups forever," Schultz says.
The brewery has sodas on tap that use Backyard Soda's syrups for flavor. "That's a great complement for breweries that have 50 different beers on tap, but don't necessarily have a lot of non-alcoholic options," says Schultz.
To get the company's syrups and sodas out there, the company self-distributes and works with a few small distributors. "LoCo, is our local Colorado distributor that works with a lot of grocery, small specialty shops, coffee shops, and things like that. And then we work with Colorado Craft, a distributor mostly for our liquor store business," Schultz says. "They focus on, small craft breweries and beverage companies like ourselves."
Schultz is looking to expand beyond the Colorado market as well. However, he is waiting to see what happens with federal guidelines for CBD-based products before national chains will put them on their shelves.
It's a bit different than when the company was selling at farmers markets and it's required its strategy to change. The company currently produces its goods with a co-packer and contract canner in Longmont.
"We provide them with all of the ingredients and they're our full commercial facility," Schultz explains. "They provide us with that finished product of syrup and then we take that up to our canning facility and they match that with obviously water and carbonation provide us with the end can product."
Working with a co-packer comes with a bit of a stigma in certain circles. "Some of the farmers markets have a requirement that if you've moved into a co-packer, you've got a little bit big for them," Schultz says. "We really wanted to focus on the wholesale side of the business in order to grow the business, so we've kind of moved out away from the farmers markets at this point."
While working with the facilities has allowed backyard to scale production, it's also made it more difficult to do things like seasonal flavors. "They want to have some minimum runs," Schultz notes. "And then when you move into retail locations, they're really looking to focus in on key SKUs. And so it's harder to the seasonal flavors because what we find is that sometimes it's too short to put on shelves."
"What we really are looking to do ultimately is bring out those seasonals, and really push that from our online ordering standpoint," he continues. "You sell pumpkin spice and customers want it from September to October. Then once it hits November, nobody wants to buy it."
To make that happen, the company could work with a co-packer, but Schultz says he might bring it in-house: "We'd love to ultimately look to open our own production facility at some point, which would give us that flexibility."
Challenges: "There's kind of two big challenges that we see ahead of us. One is the regulatory market of the cannabis beverage world," says Schultz. "I think the education around CBD is definitely a challenge. There are a lot of bad products out there."
The second: "One of the challenges when you're in a co-manufacturers environment, you are at the mercy of somebody else's schedule."
Opportunities: "The opportunities are incredible," Schultz says. "The CBD world, and CBD beverage world, is just about to explode. Right now, CBD represents about $2 billion in sales, and that's across tinctures and topicals, infused products, and food and beverage," he says. "Where we are right now in the cannabis beverage market is around $90 million. That's expected to grow to about $4.5 billion in the next five years."
Needs: More funds and more employees. The company was part of the CanopyBoulder business accelerator and recently completed a small capital raise, according to Schultz. "Now we'll start to open up our next funding campaign," he says. The $750,000 target would fund a sales and marketing push and "potentially building out a small facility so that we can really increase our margins and reduce our overall spend."