Hampton Cannabis Expo 2021 Advocacy, Legalization, Investment Opportunities

Sep 3, 2021 | News

Source: CanXpo | Sep. 3, 2021

New York – On Sunday, August 29, 2021, the Hampton Cannabis Expo was held at The Club House, East Hampton, New York with an impressive industry speaker line-up focusing on the three themes of advocacy, legalization and investing in cannabis in New York State and nationally.

The 2021 Speakers line-up included the following prominent industry leaders:

700+ Professionals, Keynote Speakers, Exhibitors, & Investors

Approximately 700 professionals attended along with keynote speakers, exhibitors, investors and Cannabis influencers. This year’s Expo included talks by 17 presenters. The Expo ran for almost 10 hours followed by an afterparty on The Clubhouse lawn in East Hampton. The Archview Group and Greenwave Advisors were Gold Sponsors while helping to drive record attendance. Here’s a link to a favorable mention from Hamptons’ local – Dan’s Papers.

Gary Bierfriend | Cannabis Expo 2021 Advocacy

Image source: CanXpo. Event Founder Gary Biefriend

Background to the Hampton Cannabis Expo

The Hampton Cannabis Expo is an annual trade show which began in 2018 and provides an opportunity for key players in the emerging cannabis industry to showcase their products and services including investment opportunities. The Expo is designed to educate potential investors and industry professionals.

The 2021 Hampton Expo highlighted how active and progressive the Northeast, is becoming towards the marijuana industry, along with the health and wellness benefits.

New York is certainly going to be a new critical epicenter of this industry moving forward. Evidencing how mainstream cannabis is becoming in the wider community, even Neiman Marcus had a stall where they promoted various brands at the Expo. Attendees paid $200 to attend the event, which included food, drink and entertainment.

Neiman Marcus | Cannabis Expo 2021 Advocacy

Image Source: Dan’s Papers. The Neiman Marcus booth at this year’s Expo

Three dozen Exhibitors displayed products and services ranging products and services.

The event, running over ten hours, included panels with prominent players in the national and NYS cannabis industry. Discussion focused upon social equity issues, New York licensing requirements, cannabis investment vehicles and national branding.

Panellists considered issues ranging from a brief overview of the Cannabis Administration and Opportunity Act (CAOA) to barriers to entry including the complexities produced around interstate commerce and legalization and regulatory issues.  It was noted that the CAOA has no likelihood of passing but that the effect of this bill means that there is now national discussions around federal legalization. It was also expressed disappointment that marijuana products are to be regulated by the liquor authority which they felt undermined the therapeutic benefits that all cannabis products have to offer.

There was also discussion about the SAFE Banking Act and how this may lower the cost of capital making it easier to achieve some of the goals outlined in the proposed CAOA legislation.

Overall, there was a positive tone despite acknowledgments that some of the legislation in NYS may ultimately not pass. There was also discussion around where legalization wasn’t accompanied by regulation and how this would affect product quality in different markets.

The Expo was an awesome opportunity for industry players to brainstorm the key challenges and opportunities in this exciting, emerging marketplace. This year’s Expo proved that cannabis is here to stay and the market is expected to continue to grow with enthusiasm in the coming years.

The cannabis industry has three elements: the recreational market, the medical market and potential hybridization as Big Pharma enters the market – potentially to make headache tablets which might include a cannabinoid. Successful disruptors in this market will be those most able to monetize those opportunities as they appear.

Takeaway: If you are considering applying for a New York license – don’t wait. Get started now, line up your financing, write your business plan and get started. Build a diverse team.

Announcement for Hampton Cannabis Expo 2022

The Hampton Cannabis Expo 2022 will be held again on Saturday, August 20th from 2pm to 8pm, with a VIP After Party starting at 8:30pm.

For more information, please visit www.HamptonCannabisExpo.comand contact info@HamptonCannabisExpo.com

About Us

Hampton Cannabis Expo – “Connecting People & Opportunity in the Cannabis Industry”

Helping cannabis entrepreneurs and investors network with one another and bring the health and wellness benefits of cannabis into the 21st century.

We also proudly supported Last Prisoner Project which is a non-profit designed to bring restorative justice to the cannabis industry.

Keynote Speakers

ADVOCACY – Jason Wild, Eddie Armstrong & Barré Hamp (moderated by Jeanne Sullivan)

  • Jason Wild teamed up with Chris Webber (NBA All-Star and founder of Webber Wellness) – to launch a $100 million cannabis impact fund. (Webber Wellness is a health and wellness company that explores Cannabis and CBD as alternative solutions to manage pain relief and support recovery).
  • Jason Wild: Cookies U built a campus in California where they train people wanting to enter the cannabis industry. Cookies U has housing and includes daycare for people with kids. Cookies University is training people on the cultivation and manufacturing side as well as the retail side. Cookies is the top American cannabis brand.
  • Moderator (Sullivan): “See what’s important, part of the whole social equity is the advocacy that is needed and the sponsorship”. Advocacy is about delivering knowledge, resources and ideas.”
  • Barré Hamp – I’m an enrolled tribal citizen of the Shinnecock Indian Nation from East Hampton to Brookhaven townline – one of the original 13 tribes on Long Island, and we’re a sovereign nation. Looking for economic development: our tribe doesn’t benefit from the tax base – we are basically self-sufficient. My specialty is Tribal Economic Development. I got into cannabis in 2014 as a business venture to help native people, learning the business in the Emerald Triangle in Northern California. We set up the operation 6 years ago and within the next six to eight months – we’re going to be opening a world class dispensary wellness center in New York State – which is the second largest cannabis community after California. We passed a medical cannabis ordinance under tribal law – mirroring the New York State Compassionate Care Act of 2014. New York recently passed adult use. Started out with a $20 million business partner which made it easier.
  • Moderator (Sullivan) – Talk us through the Conor Green-Tilt. 
  • Barré Hamp: I was introduced through a Native American attorney from a Native American attorney firm to two investors from the company Conor Green – we had a white paper about cannabis for tribes. They were looking to go upstate New York actually, to pursue cannabis with either the Shinnecock Nation or the St. Regis Mohawks, which are our sister tribe in the northern territory.
  • Conor Green asked me if I was native – I said I was with the Shinnecock Indian Nation in Southampton. They agreed and I bought Conor Green to Shinnecock Indian Nation who vetted Conor Green’s Economic Development Committee and our Council of Trustees (which is the Nation’s leadership board). I’m a partner with Conor Green.
  • Conor Green had already vetted eight companies but they loved our proposal. We won the bid and they told my Nation how to do this to avoid the pitfalls of the DOJ and any action being taken, any of the raids that had happened in an Indian country prior”.
  • Our Nation did a deal with Tilt Holdings to be our operator. They’re bringing IP and training and a 5,000 square dispensary on Mounthawk Highway in Southampton. We’re going to have a wellness center that’s 2,500 square feet. We will be looking for strategic partners for Little Beach Harvest and to get minorities into this business.
  • Moderator: This is the first tribal cannabis operation in New York States.
  • Moderator welcomes Eddie Armstrong, Cannabis Capital Group – thought-leader and player. 
  • Eddie Armstrong: I’m a former state unelected official – with a family background in medicine. We own an outfit of gastroenterology centers in the south – we were one of the first families to get a license to grow cannabis in the south. We opened a consulting firm in Chicago – like the Cookies Incubator – to assist people of color, women, veterans – to grant them opportunities. We help with applications. We have partnerships with Arcview Consulting and Arcview Group (Jason Malcolm, David Abernathy, Jeffery Finkle). We focused on it from a pharmaceutical, therapeutic and medical approach.
  • Moderator (Sullivan): Special programs for social equity applicants? What about fees?
  • Eddie Armstrong: We were one of the first African American families to do that in the segregated south. And that was really special to us so we moved into Chicago and now we have a license for medical research in Georgia. 
  • Eddie Armstrong: The economic impact from one of the most profitable states in the cannabis industry right now happens to be the state of Arkansas because it’s a controlled, very highly regulated market. You need to think beyond cultivation and retail. There are many unique opportunities in the ancillary business space and via our equity crowdfunding platform. We have about 30 companies and a great sense of investment tracks.

FIRESIDE CHAT | Matt Hawkins (moderated by Jeff Finkle)

  • Moderator (Sullivan) – introducing my business partner, Jeff Finkle – creator of Arcview Ventures (which is one of the three Arcview entities: Arview Consulting, Arcview Ventures). Jeff joined by Matt Hawkins (Managing Partner of Entourage Effect Capital).
  • Jeff Finkle (Moderator): How did your career begin and how did you get into cannabis?
  • Matt Hawkins: We just started raising money for our first fund – which was a 2015 vintage.
  • Jeff Finkle: Your fund was enormously successful returning around a 3X MOIC (multiple on invested capital). I notice you’re raising funds with a $150 million target. What is the strategy for the new vehicle?
  • Matt Hawkins: Fund one was a seed venture capital angel investing entity. Fund Two became more Series A. Fund Three is now later stage companies. We have reduced risk and we are about to enter at a time where there’s going to be some sort of federal legalization – this will bring in more capital. Now we are looking for opportunities to scale in as many sectors as we can and advance some type of legalization.
  • Jeff Finkle (Moderator): Even in 2019 the industry was in a state of distress – public markets were in the middle of the vape crisis, capital markets had dried up and there were government breaches around public operators. This has since been corrected. 
  • Matt Hawkins: COVID was a blessing in disguise for the industry. Being an essential business in every state except Massachusetts in the beginning, then Massachusetts was deemed later was a big big win. The vape crisis was driven by the illicit market and people didn’t want to buy product on the street during COVID – they wanted kerbside parking and pickup from a dispensary. 
  • Jeff Finkle: You and your partners have had great success as a team – why have you stood out?
  • Matt Hawkins: We all come from private equity backgrounds or operating backgrounds – and we back excellent management teams.
  • Jeff Finkle: Let’s talk about the Harbourside Story? In 2015 – you were known as Cresto Capital Partners, you invested in a cultivation licensing with the retail assets of Harbourside. In 2017 the company listed on the Canadian Securities Exchange (CSE). In the fall of 2020, EEC was part of a descent in shareholder action, which led to a new board slating you to be elected as Chairman, and then last month, you became the interim CEO. Why is this a great example of what investors have to do to protect their investments, and in doing so, to protect their LP’s capital?
  • Matt Hawkins: We used the powers that CSE had in place to lead a dissenting shareholder movement – a proxy fight if we needed to. We didn’t. We are a few weeks away making an important announcement on how Harbourside is transforming. We are an undervalued stock of $70-$80 million.
  • Jeff Finkle: My final question: 38 States have now implemented a cannabis program, right? That is 74% of all states, 18 of which, as you know, have adult led programs. The industry has grown 46% in 2020 – can you comment on that?
  • Matt Hawkins: The industry grew the percentage to 46% and this is increasing exponentially but we can only take it so far with the amount of capital available to us. Our third fund is raising $150 million (we have raised $50 million). It’s a huge industry that needs an infusion of capital, and the only way that can happen is to have something changing at the federal level to where the NASDAQ New York Stock Exchange can be.

LEGALIZATION | David Feldman, Jeff Schultz (moderated by Neil Kaufman)

  • Neil Kauffman (Managing Partner of Kaufman McGowan) – one of the leading corporate cannabis law firms in America. Formerly Chairman of LI Capital Lines (also in attendance) who helped local companies raise growth capital. Neil is also Audit Committee Chairman of a couple of mutual funds.
  • Jeff Schultz: I’m Jeff Schultz –  partner for Feuerstein Kulick which is a New York City based law firm with 25 attorneys and 98% of our clients are cannabis industry operators, investors, or otherwise stakeholders. I’m a Corporate and Securities Attorney and I focus also on regular state, regular cannabis regulatory issues. I’m a member of the New York State Bar Association, Cannabis Law Committee, and the New York City Cannabis Industry Association. And I have a small operating business in Massachusetts, we only have one retail location.
  • David Feldman: I’m CEO and Co-founder of Skip Insure Advisors which is a cannabis business consulting firm focused on finance and M&A, branding and marketing, and technology. I’m also a law partner at Heller PC, where I do M&A and venture capital, take companies public, worked a lot in the cannabis industry since 2013, and written four books on finance and entrepreneurship.
  • David Feldman: In 2017, former New York State Governor Andrew Cuomo was opposed to cannabis saying it was a gateway drug to more serious drugs. Between 2019-20, the Cuomo legislature couldn’t agree on drug legalization policy. But finally on March 31, 2020 New York passed the new Adult Use Legalization Bill which means you can possess up to three ounces of marijuana legally anywhere in New York State. You can consume marijuana anywhere where cigarette smoking is allowed. The bill created the Office of Cannabis Management to be overseen by a Cannabis Control Board. The NY Governor and the legislature appoints members of the board. The Office of Cannabis Management will write regulations and issue licenses. They will regulate adult use, medical and hemp, which was previously overseen by the Health and Agriculture departments.
  • David Feldman: Starting 18 months after the first dispensary – you can grow (at home) up to six mature and and six immature plants. There are opt-out provisions for towns and cities. (explain this or links). People think that most of Long Island will opt out. There is a provision saying that if a town or city opts out, the voters can vote to overrule that decision to opt out. They are allowed to opt out for retail and consumption lounges, not for cultivation and manufacturing – they have to opt out by December 31st. Tax is based on the level of THC. Licensing fees to be determined in the future. Two year licenses to be granted include: adult use cultivator, processor, coop, distributor, dispensary, microbusiness, delivery and nursery with a limit on how many licenses you can own (three retail licenses only). No vertical integration permitted. You cannot own both a retail and consumption lounge. Only existing medical marijuana licenses are allowed to remain vertical.
  • Advertising and branding to be regulated by the CCB Cannabis Control Board. Social equity provisions will be included in the regulations. 
  • Takeaway: If you are considering applying for a New York license – don’t wait. Get started now, line up your financing, write your business plan and get started. Build a diverse team.
  • Discussion about public comment on draft legislation. (Note: New Jersey passed immediate interim rules subject to future comment and change). 
  • The Bill – the MRCA. 
  • New York is going to be a new critical epicenter of the industry moving forward.
  • Neil Kaufman: The New York statute is very intelligently designed, with some fundamental flaws. The THC tax – integrated regulatory structure for recreational, medical and hemp.
  • Brief overview of the Cannabis Administration and Opportunity Act (CAOA) – discussion draft from Schumer, Wyden and Booker, the Section 304. Public comment ended on September 1. Five key pillars to the Schumer Bill:
    • Federally deschedules Cannabis – must be done within 60 days, and everyone has to be 21. 
    • It expunges prior convictions for nonviolent marijuana offenses allowing those under a current sentence to petition for resentencing. 
    • Allows states to opt out and choose not to allow legal adult use without preventing interstate commerce via trucks shipping adult use product to go from one legal state to another. And it removes collateral consequences like immigration related penalties for people who have been criminalized over the plant, as well as national security.
    • Taxes are very high, they start at 10%, they go up to 25%. 
    • An alphabet soup of agencies tasked with regulating cannabis: from the DEA to the FDA, the ATF, the TTB, the Consumer Product Safety Commission.
  • Vapes will not be allowed to add natural or artificial flavors. Hemp will still be treated as an exception to cannabis. Several things remain unresolved – including some international treaty issues; ways to regulate synthetic THC is unresolved. And they have to decide if premarket review of products will be necessary.
  • The Cannabis Administration and Opportunity Act (CAOA) – has no likelihood of passing though. They don’t have 60 votes but the effect of the bill has meant that there is now national conversation about federal legalization. Discussion about how President Biden only wants decriminalization not legalization – so the bill won’t pass.
  • Disappointments: marijuana to be regulated by the liquor authority – when marijuana is medicine (which liquor is not).
  • The concept of decriminalizing cannabis and not regulating it, is crazy as no quality control on products being sold. Times Square is a farmer’s market for drugs – many are crappy brands.
  • Section 304 bans vertical integration.
  • Neil Kaufman: Let’s consider the SAFE Banking Act (An Act to protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses, and for other purposes) – we’d all love to see NASDAQ and New York Stock Exchange listing cannabis stocks with institutional capital coming into the marketplace.
  • Jeff Schultz: The SAFE Banking Act will lower the cost on capital making it easier to achieve some of the goals in the CAOA.
  • David Feldman: one thing that hasn’t really been discussed is something that over 30 countries have already done, and that is, let’s federally legalize medical marijuana – it won’t stand in the way of adult use eventually becoming legal and that is something we should be considering.

FIRESIDE CHAT | Jennifer Drake (Moderated by Matt Karnes)

  • Matt Karnes (GreenWave Advisors): Tell us about your branding – about Origin Extracts (the Massachusetts product).
  • Jennifer Drake: It’s one of our key national brands. The key to branding starts with the plant and the overall quality of the product. “As a business, we’re uniquely committed to being the largest high-quality producer of flower at scale, across the country”.
  • Matt Karnes: How do you ensure consistency of product?
  • Jennifer Drake: We collect the best cultivators in the US across our footprint of eight states – with excellent cultivation talent in each state to push the quality of the flower that we grow. The investment we make in our team is incredibly important. Being a top-tier premier MSO is all about the plan. In California, the illicit market and the fragmented nature of regulation in California is challenging. Also operations in Florida. We are presently in 8 states and want to continue expanding.
  • Matt Karnes: Raises concerns about interstate commerce – some states will be unserved. Where will you deploy your capital?
  • Jennifer Drake: There is variability from state to state. When federal prohibition ends – great opportunities – we can invest in M&A, capital projects with excellent returns. We can build brands. We can even repurchase our own stock – which may be the best return for capital at present. The product Levia – tastes like a La Croix – it’s not sweet. It’s zero calories, extremely refreshing, fast onset and within 15 minutes, you know how you’re gonna feel. It’s perfect for people who are not that familiar with cannabis, who might be a little bit shy and are very comfortable with the beverage form factor. We’re super excited about it and we really think it is for the cannabis consumer of tomorrow.
  • Matt Karnes: What happens when you convert a person using medical marijuana to its recreational use?
  • Jennifer Drake: Just because someone doesn’t buy marijuana with their medical card, doesn’t mean they aren’t using it for wellness purposes. Many people are using cannabis for the same reason as they did when it was medical only: pain relief, sleep aid and anxiety. Our new corporate branding will reflect the intersection between wellness and wonder.
  • Matt Karnes: What do you find most attractive in M&A?
  • Jennifer Drake: We like to have lots of tools in our toolkit. We are open to either buying up or legging into an vertical integration trade in Illinois starting with dispensaries and adding cultivation or doing it the opposite way in Ohio, or cobbling all them together in Nevada to create vertical integration, or just buying a company that is vertically integrated like we did in Massachusetts and what we did in New Jersey and what we did in Pennsylvania. People are key to this business. Getting the right people on your team is key.
  • Matt Karnes: They are offering cannabis cultivation classes in universities now.
  • Jennifer Drake: I’m super excited by that – and to partner with those educational institutions. We’ve worked with Cornell in the past and with New Jersey.
  • Matt Karnes: How do you successfully manage the expectations around margin expansion or margin compression?
  • Jennifer Drake: The most important thing for investors to remember is where the industry is going long term. No industry grows at 100% consistently at a CPG-like margin structure. You’ve got tech-like growth with CPG-like margins. It’s an incredible opportunity. So I think that’s the first point. And I think the second point is, you really just have to make sure that you, as an operator and as an investor, you just don’t get caught up too much in the noise. You have to look and make sure that people are really doing their job as premier operators, best in class. And I think when you build transparency and you build trust and you’re a best-in-class operator, and you can have that long-term view and just be transparent about what changes quarter on quarter, this is not — You don’t get 100% revenue growth with 30% EBITDA margins without having a little bit of volatility. This is not CPG going to 2% to 5%. And you don’t want it to be. You want it to go to 100%.

Investment Panelists

  • Emily Paxhia: I’m co-founder and Managing Partner of Poseidon Partners. We’ve been investing in the cannabis industry since January 2014. Poseidon has three private investment funds that invest entirely in the cannabis industry. And we have the first one, which I would characterize as an opportunity fund since it was so very early, it does have some public exposure, so we’re pretty active on that. The second fund is a series A or later stage fund. It’s closed, it’s allocated, it’s doing its thing. And then the third fund is a seed to post-seed stage fund, so it’s focused on a little bit earlier stage. And then we have some cool things coming out this fall.
  • John Pinto (SOJE Capital). I run SOJE Capital and we manage three different portfolios: Hinsdale (my family office) – investing across asset classes, strategies as well as direct deals. We manage SOJE Fund which is a public equities hedge fund or portfolio and private deals. Portfolios are MSOs (multi-state operators) – on the public side. On the private side we look for technology brands and media. I’m looking forward to legalization.
  • David Traylor (Golden Eagle Partners) – an investment banking firm. I have two undergrad degrees in Science. Got into leading biotech companies’ operational roles for 15 years. Inventor on three US patents, two in bioprocessing. And then got into doing investment banking in 2005. Rolled over into doing cannabis investment banking in 2013. The Chief Business Officer at Surna. I’m also an athlete ambassador for Athletes For CARE. And I am now chairman of the Scientific Advisory Council for Athletes For CARE.
  • Emily Paxhia: As investors who’ve invested across the entire ecosystem really, in US, Canada, Latin American, and Western Europe, we see how our operators struggle in certain areas. One of our first companies is in agriculture technology using sensory technologies as well as artificial intelligence where you can start to understand if something’s going sideways on your crop faster than you can. We have MIT scientists on the team as well as business people who come out of Accenture with different business consulting backgrounds.
  • Matt Karnes: John Pinto and I spoke about the added cost of prohibition – one of the components is the cost of capital – particularly debt – for interest charges which are non-deductible with no tax write off.
  • John Pinto: Two ways to look at this: in the public markets versus the private markets or in debt capital versus equity capital. People who are running public capital are seeing a drawdown in cannabis stocks (from the February 10 peaks). Yet business is growing strongly with solid fundamentals. Over the past year the cost of debt capital has reduced (from around 13% to around 9%) while equity capital has become more expensive. So the cost of debt has dropped by a third and the cost of equity has risen by 13% to 15%. The issue that creditors have called “non-plant touching” – so if you lend money to the cannabis industry you can then list yourself on the stock exchange – doesn’t apply to equity capital. When we build models, we rely on repeatable margin structures which are in lockstep nationally and can help you scale within each state.
  • Matt Karnes: As an investor what do you think about interstate commerce?
  • Emily Paxhia: When people ask whether interstate commerce will impair the cannabis industry, my response is that interstate commerce is poorly implemented. You have to consider the regulatory frameworks in place. Proposition 64 passed in California in 2016 – and two years later we opened our doors. We are still struggling to get that market on its feet because of the challenges around taxation, infrastructure and licensing. Even if the law goes federal we don’t have the right infrastructure in place and it could cripple the industry. We invest a lot of resources into understanding the politics and understanding the regulatory frameworks.
  • John Pinto: I share similar concerns to Emily. Consider how long it takes to open a store in Brookline or Naperville or get anything done in DC. From an operator perspective, it’ll end up better for the small to medium sized enterprises. The SAFE Bill was poorly marketed – it’s a small business bill. The MSOs that we invest in can easily get credit agreements but the smaller players struggle. For social equity to really work, SAFE has to be passed – and it will allow the smaller player to get insurance, develop a commercial banking relationship and eventually get growth capital.
  • David Traylor: In relation to legalization, when it happens – the politicians will mess it up. January 2019 – Example of largest hemp producer in Oklahoma – Okies Skokies – their truck driver runs a red light, gets pulled over – police consider it a big drug bust. Then realize that the product is legal industrial hemp.
  • Matt Karnes: What about the international market? What’s your takeaway from Davos and what appeals to European investors?
  • David Traylor: The bigger problem is determining whether the investors are genuine – our main job is to match good capital with good companies.
  • Matt Karnes: When you’re investing in MSOs, what is the most important metric that you look for when you’re evaluating an investment?
  • John Pinto: First and foremost: quality – is the organization geared and interested in continuous improvement. The industry is constantly changing. Over the last three years, we used to model our cultivation yields at 45 grams a square foot and now we’re modeling at 65 grams a square foot – so over three years we’ve improved. In relation to technology: are producers choosing the right vendors? Are producers retaining staff – what’s turnover like? What producers can execute the best in terms of location, positioning and organizational structure to manage cultivation across 18 different states.
  • Matt Karnes: Emily, can you talk about exits that you’ve had?
  • Emily Paxhia: We’ve been around for a while and have had a few exits. This industry is extraordinarily hard – it’s hard to operate, hard to invest. Timelines are elastic when capital is flowing into the sector and when it’s dried up. We had a cultivation technology company which was acquired into a company which later went public. That was a nice exit for us. Going public in cannabis doesn’t mean you will have a ton of liquidity – because of the way the markets trade.
  • Mina Mishrikey (on behalf of Mitch Baruchowitz – Managing Partner at Merida Capital) – we just launched our fourth fund in five years. We have about $600m of assets under management. We also have a SPAC similar to Mark’s fund, Tuatara. And we invest in all parts of the cannabis ecosystem. Our first fund was not plant-touching but every fund since is touching the plant as well as investing in ancillary companies.
  • Mitch Baruchowitz: talking about the recent SPAC announced with Leafly. We had our Special Purpose Acquisition Company (SPAC) listed on the NASDAQ and Canadian Neo Stock Exchange in November 2019 – to give us some optionality in terms of investing in the company that touches the plant versus doesn’t. If you invest in a federally illegal business – a plant-touching business in the United States — then the US exchanges won’t permit you to list on those exchanges. If we were to invest in a plant-touching company in the US, we would have had to have delisted it all from the NASDAQ. Leafly is a perfect portal to create that great connection over time – with 10 million monthly active users on the website (which is the number one website in the industry).
  • Matt Karnes: Mark – where’s Tuatara in the process with SPAC?
  • Mark Zittman: We launched the SPAC six months ago and negotiated a two-year timeline. We’re a NASDAQ SPAC and the first SPAC that JP Morgan has done in the cannabis space. Because we’re a NASDAQ listed SPAC in the US, we can only look at ancillary companies – non-plant touching companies in the US, as well as other international jurisdictions where it’s legal outside of the United States. We are currently evaluating a couple of companies.
  • Matt Karnes: John – why do you think it’s important for investors to get exposure to the cannabis market via a public company?
  • John Pinto: When it comes to private cannabis companies versus public, generally VCs (venture capital) are looking to exit on an IPO or go public transaction. Public equity returns have a totally different return profile than that. Currently, we’re in a market environment where valuations can increase quickly. The ratification and retail traders that have come into the market this year have driven valuations to generally pretty absurd levels in certain markets. And then the last important reason right now is just that the valuations on the US plant-touching side of things have come down to levels that they’re actually trading at discounts to a lot of plant-touching assets in the private markets. So the capital markets are, for the most part, shut for plant-touching assets to go public.
  • Mark Zittman: We’ve seen a couple of cycles in the cannabis market. The first big catalyst was CSE allowing cannabis companies to be listed in Canada – leading to a bull run in 2017. Many companies went to Canada to get listed.
  • John Ramsay: Measure 8 on the hedge fund site – we take a full-spectrum approach to investing and trading in the sector. But over time as the market evolves and new regulatory changes, many business models in the public markets won’t survive. There will be opportunities to find companies worth investing in.
  • Matt Karnes: Final question: what’s your view of how the industry will look after federal legalization is introduced?
  • John Ramsey: There’s a trend with brands having a closer connection with consumers even though most can’t advertise on traditional social media (like Facebook, Google etc). Eventually SEO will play a larger part in the industry. You will see an older demographic entering the space. Another growth area will be the female consumer. Also potentially the market for synthetic cannabinoids (which Mark’s fund is invested into). Big Pharma may also seek to make a CBD drink with botanical-sourced ingredients.
  • Mark Zittman: You will see the same model: state-level dispensaries, more education, greater brand recognition over the next decade – greater consumer education. You may see Amazon-type delivery services with drones for consumers to purchase their cannabis. 
  • Mina Mishrikey: This industry is going to look very similar to the traditional consumer packaged goods (CPG) industries. Interstate commerce will affect the current business models. The margins you are seeing in states like Florida where there are licenses servicing the whole state which are vertically integrated. Under the interstate commerce model there’s lots of operators and you will see a lot of margin compression. You have to be able to build national brands at scale and one which can sustain margins in the long run. A potential disruptor will be the biosynthesis and production of cannabinoids at scale in the lab. But large scale CPG industries is where the business is heading.
  • Matt Karnes: The industry has three elements: the recreational market, the medical market which will be redefined when Big Pharma enters the market, then there’s health and wellness.
  • John Ramsey: The medical opportunity is big. There are pharma development pitches all the time and potential for health insurance reimbursement. In ten years we could see headache tablets which include a cannabinoid. We need to think about how to monetize