Cannabis Industry Just Needs Capital (Podcast Transcript)

Editors’ Note: This is the transcript version of the podcast we published last Wednesday with Matt Hawkins. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy!

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Rena Sherbill: Welcome again to the Cannabis Investing Podcast, where we speak with C-level executives, scientists and law and sector experts to provide actionable investment insight and the context with which to understand the burgeoning cannabis industry.

I’m your host, Rena Sherbill. Hi again, everybody. Welcome back to the show. Happy Wednesday. Happy middle of August. Hopefully, you are doing something to relax you during these dog days of summer unless, of course, you live somewhere where it’s not so hot. In which case, I hope you’re finding something relaxing to do anyways.

I’m really excited to have our guest on today, Matt Hawkins. He is the Founder of Entourage Effect Capital. If during this lockdown period, you’ve been seeing some of the webinars coming out of the cannabis industry, you’ve likely seen Matt on one of them. I’ve seen him on a few. I’ve really enjoyed what he has to say. Really happy to have him on the show today.

Great conversation about the time that we’re living in now in terms of investing, how it’s the time to pick up distressed assets? And what it means to be an investor during this time? What the opportunities are for distressed investing? Why it’s been great for the cannabis industry since COVID hit? They were deemed essential, but also what they’ve been able to accomplish in terms of record revenue and closer to and also actualizing profitability for some companies, likely you’ve also seen some companies doing better than others, we discuss why that is and how much their debt situation has to do with it?

We talk about legalization being the next big wave and how to play for legalization and not play for the moment in time we’re in. But for the long-term, something we’d love to talk about on Seeking Alpha also on this Podcast, long-term investing. Matt gets into that to be a long-term investor in the cannabis industry. Buy flowers in going anywhere, talk a lot about the ancillary space, what to look for there? What parts of the industry look good? Get into some of the genetics space and other parts of the ancillary space?

We also get into the SAFE Banking Act, and what Matt thinks is the timetable there and how much that comes into play in terms of getting better capital and capital really to cannabis companies and the dearth of capital that companies and even as Matt says, his place in the value chain in terms of how difficult it is right now to access capital, and what that means for the industry?

So great conversation. Really happy to have Matt on. Really excited for you guys to listen to the show. And happy to keep hearing from so many of you. Happy to keep hearing about our various picks in the field and sharing ideas and sharing concerns about stocks. Love to keep hearing from you. Hope you guys are enjoying the summer. Thanks, again, for listening.

And before we begin, a brief disclaimer. Nothing on this podcast should be taken as investment advice of any sort. And in my model cannabis portfolio, I’m long Trulieve, Khiron, GrowGeneration, Curaleaf, Vireo Health and Isracann BioSciences. You can subscribe to us on Libsyn, Apple Podcasts, Spotify, Google Play and Stitcher.

Matt, welcome to the Cannabis Investing Podcast. Really happy to have you on the show. Thank you for taking the time and joining us.

Matt Hawkins: Thanks for having me. I appreciate it.

RS: So talk to us about how long you’ve been in the cannabis industry and how you decided to get started in the cannabis industry?

MH: Sure. We’ve been in the industry since – we’ve been investing in the industry since 2014. I’ve been in private equity for 25-plus years. I had been involved in a multi-family acquisition platform in 2010 through 2013, and we sold that. And in 2014, I was looking for the next thing to do. And one of the things I had done in the downturn was, I was providing loans to broken real estate deals, private loans. And so I started looking at that type of deal flow, again.

And one of the things I started seeing from brokers in Denver, Colorado was loans for warehouses looking to refinance their mortgages to get out of commercial debt into private debts, they could at least to growers. And I knew nothing about cannabis at the time.

But legalization that just occurred in Colorado, Oregon and the State of Washington. And with the federal illegality in having a commercial mortgage, there’s no way that a owner of a warehouse could lease to a grower unless they had private debt or no debt at all.

And so I thought it was interesting. They’re paying high yields. But my luck and timing moment was that I realized that, that would become – the lending would become a commodity pretty quick. But the actual investing into the cannabis companies would be something that not too many people would be looking to do.

And so I took a chance. And fast forward to now, we’ve made close to 70 investments out of a couple of funds. We’re out raising our third fund right now and happy to be in the industry.

RS: Yes. Talk to me about – 2014 is pretty at the beginning of the industry. Talk to me about like what kind of companies you were dealing with? I mean, I would think a lot more Wild West, even than it – a lot more than it is now. Talk to me about what that contrasting it with what’s happening now and that kind of evolution? Or maybe lack of one, if you think so?

MH: Yes. Well, it’s interesting. You said – you just said that, because it’s really – it’s both. It’s very different and very the same. The – we were lucky. In that, we made some early investments in companies that were extremely successful. Ebbu sold to Canopy Growth (OTC:CGC), which was a big hit for us. We were very early investors in GTI (OTCQX:GTBIF), and Acreage (OTCQX:ACRGF), which both we were able to monetize and provide great returns for investors.

We invested a lot in cultivation back then, because that was kind of the start, obviously, of the industry. But what’s funny is that… we use the same magnifying glass on underwriting companies back then as we do now. It all starts with the management team.

So the number of deals we passed on because of the… mentality with operators that have had zero experience in operating companies, they were just – saw a good opportunity to get rich quick and tried to raise money. We drifted towards the people that had successful track records outside of cannabis. We still tend to do that. But now with the “longevity” of the industry, we’re finding people that have both track records inside and outside the industry.

So I would say that the – while the quality of people has definitely improved, they’re still very much – for every one of those, there’s also several people that are – probably have no business being in the industry and are just trying to make a quick buck.

RS: Right, right. It’s interesting that you say that, that you look for management that has had success outside the cannabis industry, which I think is definitely a smart approach. I was also reading something that you said, I guess, maybe recently, in the last month or two, where you were saying that, this is a small business crisis, as opposed to 2020 – 2008, which was a housing crisis.

And the one thing smart investors are going to want to pick up are distressed assets, because they’re going to be gotten for a better price. And something that I accompany that I thought of when you were mentioning who has had success outside the cannabis industry, and a company that seems to be coming up a lot for listeners of this show and guests of this show recently is Ayr Securities – or Ayr Strategies (OTCQX:AYRSF), sorry. And that’s their business model, which is basically acquiring distressed assets or assets at a good price. What are your thoughts on that business model and even if you have an opinion on that company specifically?

MH: Sure. No opinion on that. But it is in – a very interesting time in that. The only reason why that the industry has a level of distress is the capital that’s available in the industry. I mean, the truth of matter is that the pandemic has been a blessing in disguise for the industry. It’s a horrible irony and there’s awful time we’re going through the industry has flourished.

And so, prior to the pandemic, you had companies that were a little bit stagnant look, meeting a shot in the arm and had a hard time accessing capital. Now the same companies are doing better and, in some cases, have moved to profitability. It’s – the level of distress is really only because of the lack of capital.

And when we talk about that, we’re very careful with how we describe that, because we don’t believe the industry, in general, is in much distress at all. It’s just it needs capital until it becomes federally legal or quasi federally legal. It’s going to be this way, because no institutional capital is playing yet.

RS: Right. You mentioned the fact that the sector isn’t in distress yet. And I think exactly what you’re describing the designating it as an essential item, obviously, I think a paradigm shift, certainly of some proportion. But also, what’s interesting is that, I’ve been noticing in the past couple of weeks, I think, all investors have been, is the kind of some companies are doing great, like I’m thinking of Trulieve (OTCQX:TCNNF) and Green Thumb.

But then there’s companies like completely falling off a cliff like Cannabis One (OTCPK:CAAOF) and Khiron (OTCQX:KHRNF). And it’s hard to necessarily make sense of it, because some of those companies look like they’ve been Trulieve, Green Thumb, they’re well capitalized companies. I thought Khiron and Cannabis One were maybe better capitalized then I’m not sure if that is what’s affecting them. But what do you make – how do you make sense of the kind of some companies doing great right now in this surge in this sector and some are not?

MH: I think you hit the nail on the head. It’s the companies that have been very, very smart about this – and we’re – let’s separate private and public. So we’re – I think we’re talking about public companies right now. And so the public companies, the ones that have been smart about ways to access capital, they’re the ones that are in good positions.

Trulieve has a great business model that has been – that has worked extremely well in Florida. Green Thumb, GTI, the ones that have been that has had a – that have been using alternative methods to get access to capital, such as high-yield debt, or I think those are the ones that have had troubles right now, because they – they’re having to pay the piper. And that’s been the big difference.

RS: Right. So is that basically, like what metrics are you looking for? You mentioned management. You’re mentioning now how they’ve raised capital, and what kind of debt they have or haven’t taken on. What are the other metrics that you’re looking at?

MH: Well, again, let’s – we’re – we invest in primarily private companies. We’ve made one public investment, because it was off-market and we had an incredible warrant package. That was the only private investment in a public company that we’ve made. But there’s a bit of a difference in how you underwrite the two companies.

But for private companies, we look, obviously, first and foremost for management teams. We look at the sector that has been obviously and what the – what is the – what’s the growth rate of that sector? What are the opportunities for continued growth? And then geography on where it is and what’s – what are the licensing opportunities or restrictions in that geographic area? And what’s the population count?

And so clearly, you can look at our portfolio and California has been a big focus. California has its own set of issues regulatorily. But we feel like the population count and the eminent continued push of tamping down the illicit market and converting it to the legal market far outweighs the negatives.

RS: Yes. That makes a lot of sense. Are you focused – what areas are you focused on globally?

MH: We’ve made a few international investments. Right now, just the – you brought up the word distressed. So the fact that there are such significant changes in the United States is really is taking up most of our attention right now. But we’ve made investments in EU.

We – one of our companies is a – the company based in Netherlands. It’s about to get one of the first German licenses, so that’s kind of our beachhead in Europe. We have a – an Israeli investment. And we also look at – we are looking at South America for the right opportunity for a potential cultivation play.

RS: And do you see – like in terms of non-plant touching companies, do you invest in any of those?

MH: Oh, sure. I would say that over half of our investments are non-plant touching, and that’ll probably continue to be the case. I mean, the reality is that, there’s so many ancillary companies that are the picks and shovels to the industry that you – if you’re going to be a widespread cannabis investor, you have to play in that arena.

RS: Yes, yes. Talk to me about what areas of the ancillary space you’re focused on or you like or what you see going forward in the sector?

MH: That’s a hard – well, first of all, you can look at our portfolio and see that we’re – we’ve invested across many, many spectrums. We – we’ve touched technology. We’ve touched biosynthesis. We’ve touched genetics. We’ve touched equipment. I mean, there really isn’t a sector that we haven’t looked at.

One of the few areas – one of the few sectors we haven’t invested in yet is testing, because we just haven’t found the right deal. But again, we’re just not doing an investment just because we don’t have exposure in that sector. It’s got to be the right deal.

RS: Right, right. How much excitement do you have? Two of the things that I think are kind of under – not spoken about as much as maybe other parts of the ancillary space are, one, how big of an impact blockchain is going to have, I think, on the sector, especially when we’re talking about the global markets and extending it further and further?

And the other thing, I think, is in terms of ancillary companies is the security space and also genetics. What are you – what kind of companies are you most excited about, maybe in those spaces? And would you agree with that thesis?

MH: Well, blockchain is over my pay grade. And so I try to focus on what I know and what I’m – and what I know about the industry. And blockchain is a tricky one for me and we’ve got someone on our team that does follow it. But that, that would be – I’d have to get educated on that a little bit more before I would render an opinion at least in terms of how it intersects with the cannabis space.

The security industry is a tricky one. There’s certain parts of the value chain that I’ve referred to in the past is band-aid-type sixes. We don’t like investing in companies that won’t be around as the industry gets bigger and then ultimately, becomes legal. So, for example, the alternative – the banking solutions, the kiosks, the different types of payment processing at the store level and even security for that matter is going to change a bit once big banks are involved.

Security is always going to have a presence, but it just – isn’t going to be as, in my personal opinion, as prevalent as it is now. And so we don’t want to be investors in something that has a short shelf life. And so that’s not to decide that all those aren’t necessary right now. But we’re trying to build long-term value for the firm for our investors.

RS: That’s an interesting point. I’m curious what your thoughts are, I’ve been hearing lately that people are excited about the extraction space for a while and how especially since COVID has hidden, maybe flowers will be down. Are you of that same mind in terms of the flower versus the oils?

MH: Yes. I just – I tend to think that – while – I mean, there are – that’s the great thing about the industry compared to the nicotine space. I mean, nicotine has basically two ways to deliver product a cigarette, I think, whereas the delivery mechanisms for cannabis are so vast that – it’s a tremendous value-add “an advantage” so to speak.

Having said that, I always – I think, there’s always going to be the traditional users that want to smoke a joint. And then I think that it’s – that that’s always going to be there pandemic or no pandemic. And I just – it’s certainly not going to influence in a big way an investment decision. However, we do, obviously, drift towards the real growth opportunities, such as edibles and liquids for that matter.

RS: Joints are not going out of style, so you guys heard it here first. What are your thoughts on genetics? And what’s your – do have a certain focus on any genetics coming up? I mean, I know that’s like what’s exciting so many people?

MH: Yes. We have – we’ve made two investments in the genetic space. I think the truth of the matter is, we were probably got ahead of ourselves a bit on when we made those investments, I think, it’s taking up – it’s taken a long time and will continue to take a long time to – for that sector to kind of flesh itself out. It’s a tough one.

I mean, it’s necessary the – yes, I think it’s going to – you’re going to – you have smart people coming into the industry on a daily basis that have – that clone vegetables and other things. They can probably come in and add a lot of value to our industry. And the reality is that there’s probably going to be several winners in that space, because once the Conagra’s of the world are active in the space, there’s going to be some tough buyer build decisions and hopefully, the ones that we are involved in will be buying opportunities.

RS: Speaking of Conagra, a perfect segue for my next question. I’m wondering your thoughts about kind of the trajectory the path that the American cannabis industry is on and how you see that going forward? And in terms of how much the bigger business that’s already in cannabis, and as it solidifies its position in trenches even more and more, how do you see the sector changing going forward?

MH: Just domestically, you mean?

RS: Yes, yes.

MH: So, I think it’s going to – well, let’s – I’m going to answer the question in a roundabout way, because I mentioned earlier in the conversation about how the pandemic has been a blessing in disguise for the industry. And when I was referring to it earlier, it was about the sales boom. And in some cases, the profitability boom, that’s occurred as a result of it.

The other benefit to the industry as a whole is that because of the pandemic and because of all the governmental aid that’s been given out to the country and companies at the local, state and federal level, all levels of government are going to be looking for new revenue streams. And we’ve seen it just in conversations with politicians. We’ve all read about it. We – we’ve heard about it through conversation with lobbyists.

But even right up center, politicians are saying, look, we got to get our arms around the cannabis space and get to a proper legalization and taxation method. So we can reap the benefits of the government of their success. And so it’s our opinion that legalization is likely to occur sooner rather than later versus the timetable that was probably in place prior to the pandemic.

And I think that’s regardless of who wins in November. And – yes, and it may not be all legalization, but a version of the STATES Act, for example. If the STATES Act pass, I mean, you’re going to have every single institution that’s – that subject to their limited partners agreeing to it. But I think most of them are going to be diving headfirst into the industry, both in the public sector and probably in the private sector, too.

And on top of that, you’ll probably have the NASDAQ and the New York Stock Exchange allowing cannabis companies to be listed. So you’re going to talk about billions and billions of dollars being flooded in the industry that will change the look of this industry dramatically.

And so that’s the next big way right there is – and that’s our strategy now is to make the right bet, create scale in our own portfolio and create scale where with our new investments and reap the benefits when legalization occurs.

RS: Yes. I mean, when I think of that and even hearing you talk about it, and when I read projections, I feel like super bullish projections if it goes legal. But I feel like it will explode through what even the most bullish like prognostications are, wouldn’t you think?

MH: I couldn’t agree more. And the reality is that, I’ve been saying this since 2014 when I got into this, because this is what’s been fascinating to me since day one. This is not a creation of a market. This is a conversion of one. No one had – I mean, look, I was not a user. I knew nothing about the industry. And I had zero idea of how big the illicit market was prior to states coming online. I mean, it’s unbelievable.

And how – I mean, look, I mean, I remember looking at deals in Oregon in 2014 and 2015, where I was meeting families that have been doing this illegally for three generations and have lived wonderful lifestyles. And so it’s really – I mean, that – that’s been the most fascinating thing to me is that while we are getting new users, obviously, as it says, the stigma has been lifted. It’s matured in the legalized markets. There is still a huge percent of the illicit market that has not been converted yet.

And as soon as that price point gets to the point where it’s close enough, it’s going to go away. And, in fact, we’ve seen data that suggests that the black market is being tamped down in places like California during the pandemic, because people aren’t going down to the street corner to buy their stuff. They’d rather go to a dispensary that has social distancing, masks, gloves.

I mean, my God, this – the way that some of the dispensaries handled the retail experience at the very beginning of the pandemic was the way everybody is doing it now. So it’s been – that – it’s – the irony is so amazing that this vilified industry of the cannabis that once you became deemed essential and that,, then all of a sudden was on the forefront and leaders of how to social distance and you can still sell things in a situation like we’re in. I mean, we came up with a model.

So it’s really – it’s crazy when you think about it. So longwinded way of saying that, yes, there is not only a – still a huge portion of the industry that needs to be converted. Secondly, once it becomes legal, the – whatever left – whatever stigmas left, which I don’t think there’s very much of, that will create a whole new rush into the market as well, new users as well. Oh, and by the way, not just recreationally, but medicinally as well.

RS: Yes, yes, yes, definitely. I mean, it’s funny, this whole period of this COVID era is so upside down. It makes sense that the cannabis industry is now somehow at the top of the investment pyramid. Everything seems to be turned around. And I was going to say, as you were talking about the power of the illicit market, if you’re focused in any way in California, that’s really coming to the forefront right now, as we’ve seen. Staying for a second on the notion.

MH: Sure.

RS: …yes, yes. On the notion of the STATES Act that you think will pass, we had Kim Rivers on last week, the CEO of Trulieve. And she was talking about how important it is that the SAFE Banking Act pass and how exactly what we’re talking about this – the fact that cannabis dispensaries and companies have been opened, yet they have to deal in cash, which is filled with germs and passing on germs in this time of a pandemic. But are you of the opinion that the STATES Act kind of precedes anything to do and then kind of usurps even the need for the SAFE Banking Act?

MH: I don’t think so. I think, I mean, just in my little mind, I think that just because the SAFE Banking Act has already passed the House, that a version thereof will probably get through the Senate before any version of the STATES Act would. But now we’re getting into the timing and how – and that’s where, just the whole state of affairs that we are in as a country with how divisive everything is in DC, we got to return to some sense of normalcy before anything happened.

And so, I know there was talk about how, I think, the democrats wanted to try to include the SAFE Banking Act in the third package of stimulus. And I was – I personally was against that, because I don’t want it to be used as a pawn. I think it should stand on its own.

I mean, if you put that in a version of a – of an act, it needs to be negotiated. Well, then all of a sudden, that becomes political. And now, you’re – you have the republican saying, “No, you’re not putting that in there.” And then all of a sudden, we – the industry gets vilified as a result. Well, that’s not what we want. It has enough merit to stand on its own. it’s not going to happen this fall. I mean, it’s not going to happen until the election occurs. So it’s going to be probably the very earliest in the spring, in my personal opinion.

I just think that’s realistic. It’s okay. The industries survived. I mean, we’ve – all of our companies have banking relationships. Now, it’s not ideal, but it’s not going to kill the industry for it – if it doesn’t occur. They still happen, it’s going to happen. And it’s just a matter of when. I mean, the whole – the – if thing is completely off the table, in my opinion, it’s all about the conversation of when.

RS: Yes, yes. Speaking about the kind of future of the industry and where it’s going. And if it follows the route that you’re describing, which I’m in agreement with, what are your thoughts on – and especially given kind of your background before you came into the cannabis industry, what are your thoughts on like IIPR and that kind of business model? Do you think that’s something that’s going to be successful long-term?

MH: A hard question. I’m of the opinion that anytime you bundle a bunch of deals that or a bunch of public equities that the public can buy on their own, I don’t see any value to that. Now that I said that out loud, that company is going to explode and do wonderful. But that’s why the thing about what we – the value we bring as public or private investors is that, we truly have proprietary deal flow because of our longevity history.

I mean, everybody knows, I mean, we were lucky. Everybody knows who we are. We were one of the first investors in the space, companies like to have us in their capital stack and that – and that’s a huge value-add. So that’s what we feel like is the best differentiator, just being a stock ticker and then aggregating those stocks, I mean, I just never seen the value in that. But that’s a personal opinion and nothing else.

RS: Mentioning your track record in the industry and that you’ve – the name that you’ve built for yourself. You guys changed names, I think, it was last year from Cresco to…

MH: We did.

RS: …yes, to Entourage Effect. And I loved what you said about that, which is that your success is rooted in your track record. It’s not the brand name, which I love that idea. And I think that really holds true in this industry as well, even though you were talking about a brand name.

But I think it’s important that notion of building your story, even if it’s you have a product, even if you’re building your product, that that’s more important than any brand name, and I think especially seeing how many brand name changes there are. I think it’s a really important message. I really liked it.

MH: Well, I appreciate that. I thought – I’ll kind of tell you the back story, because it just shows, I mean, it’s so random. I mean, in 2014, when I was literally just googling, trying to come up with a name for the firm. And Cresco is Latin for grow.

And so it sounded kind of cool. And I mean, I didn’t know who Cresco Labs was and they were barely in existence, too. And then all of a sudden, we both had the same name. And next thing I know, less than a year later, we’re getting confused with one another. And it was a complement.

I mean, look, and I know Charlie well and we’ve laughed about it and we just had a conversation, I was like, look, we’re getting every – I mean, I was – it got to the point to where I was getting confused with them, they were getting confused with us and it just didn’t make sense.

And that’s when I made the comment was like, “Look, our brand is our track record. Your brand is the name. So I’m more than happy to rebrand ourselves.” Because I mean, frankly, I was just tired of getting compared to them, because we weren’t – we’re not even in the same sector of a business. And so it just didn’t make sense.

And I’m glad that’s behind us, because that, as you can imagine, that was a bit of a process coming up with a new name. It’s interesting, we engaged the group to help us with something. And one of my partners, Andy Sturner, had bought Entourage Effect Capital and all the different names and variations thereof, because he loved the name and I hated it at first. I hated it. But he sold the audit and we all agreed to as a team and happy as heck that we did it and happy that we – then we’re all happy with the name now.

RS: That’s great. That’s great. Talk to me about kind of the industry so much of it is based on conferences and meeting people and doing deals that way. Since COVID has hit, I’ve seen you actually in a few different webinars. Great stuff, and I’ve really enjoyed them. And I think webinars have been kind of a great takeaway from this time.

But at the same time, I think, we’re definitely missing something in that person-to-person connection. And while that’s not possible, how much do you think that affects deals? Or is everybody just adapting and pivoting?

MH: No, I think it’s incredibly hard. I mean, that – that’s one of my favorite things about the industry is, it’s a very cottage like communal industry and I miss people. I miss… I mean, I’ve made some pretty good friends in the industry. And I dearly miss interacting with those people.

I mean, I was – I’m on this chat screen for talking about how we’re going to have to just fist-bump each other when this thing is over. I’m like, to hell with that, I’m going to give people hugs. I don’t care. Like we’re mashed up or not, I don’t care, but this is ridiculous. At some point, we got to.

So maybe I’m a – maybe I’m too much of an optimist. But I think at some point, we are going to get back to normal and this too will pass. But for now, it’s difficult, there’s no doubt about it. And it’s not just difficult at the personal level and industry level, but look, I mean, we’re trying to – we’re out there raising money.

I mean, if you can’t – and even though we’ve got several hundred investors and we know a lot of them personally. We have a relationship with them. We can do things with them over the phone over Zoom. But when you’re trying to get new investors that have invested in the industry without getting face-to-face with them, I mean, it’s not only hard, it’s next to impossible.

So that’s – and that’s been – I have a strong feeling of obligation and pride to be one of the capital supporters of the industry. And I’m having trouble raising money when it’s over. I mean, we’re having some success in getting there. But it’s just hard. So – but I feel that pressure. I want to be able to provide the capital in the right deals. But if we aren’t able to do our part of the job, then the industry is going to suffer.

And I don’t mean that, that sounds trite. And it sounds arrogant, but I’m talking about us as the capital formation groups of the industry. I mean, because I know we’re having a hard time with it than everybody is. So I’m just hopeful that as we get into the fall, and we have seen just in the past several weeks, we’ve had a lot more success in talking with new investors.

I think people are starting to not only get off the sidelines in general, but they’re starting to see the true opportunity that exists in the industry. But again, we need new investors in the industry and that’s not be able to get in front of them is a tricky thing.

RS: Yes. It’s so nice to hear an honest answer. I was – I think I saw this on Twitter last week, the notion of toxic optimism. And I think what you’re describing, everybody is like, yes, it’s going to be better and everything is great. And there are so many lessons to be taking in – taking in silver linings. But it’s also – it’s a crappy time. I mean, this isn’t a great time, and it’s hard and it’s difficult and worth…

MH: It freaking sucks. Let’s call it, I mean, let’s call it what it is.

RS: Yes, absolutely.

MH: I mean, look, we were – it’s been – I mean, this whole thing, look, we have, most of our team is in Florida. One of our partners, Codie is in California, I’m in Texas. I mean, we’ve been doing Zoom calls. Of course, Zoom was cool. I mean – and so we’re accustomed to that as a team.

But the rest of our operation isn’t that way. When we would get on call, our team calls on Monday and Tuesday, and then we’re on a plane, I mean, we’re out either seen or companies like our portfolio management team does, but we’re also getting in front of investors. And we’re not doing that now.

So it’s a huge dynamic shift. And you can either adapt or not. And we’re doing our best to adapt. I think, we’re doing great. But I’m not going to sit here and lie to you and say that it’s all rosy. It’s not.

RS: Yes, yes. So what do you see – well, actually, before I ask that, but I wanted to ask your thoughts on, you mentioned South America and Europe. What are your thoughts there kind of like, even, let’s say, well, within the context of COVID, but also thereafter?

MH: I mean, there’s a huge opportunity. And Germany seems to be the one that’s kind of on the forefront of that. And the fact that one of our companies has a true leg up, and that race is a huge advantage. So that – that’s the lens that we look through. And probably all of our investment activity will follow through that lens, because we do use that company as a – one of our – is a beachhead, so to speak.

South America is a bit different. I think, we’re all waiting for that moment to where the importing and exporting of cannabis becomes a place that the low-cost providers are the ones that are going to be the winners in that. Obviously, Colombia has a huge opportunity to that player.

Now, my gut tells me the pandemic has probably slowed that a bit. But I’m not smart enough to be able to tell you, is that a delay of the year, two years? I mean, I just don’t know. And as I said earlier, I think that because of all the real opportunities in United States that’s really where our focus is right now. But we do have enough relationships internationally to where if the right opportunity occurs, we’re going to strike.

RS: Okay. So talking to an investor in the space, both in the public markets and in the private markets, what’s your – what would be your advice, words of wisdom to them as they’re trying to navigate this space right now?

MH: Well, I would say, I mean, so the fact that the industry – well, let me say again. Obviously, the way that the nation and the whole world is right now just economically, there’s going to be opportunities for distressed investing across the Board, across all industries, across all sectors.

The downside of the – of some of those stress plays and other sectors is so much more severe than the downside for cannabis. And the reason why I say that is that all of these companies that have massive debt, that have revenue shrinkage, that have profitability shrinkage, management, those patients that require real turnaround opportunities and require special situation investors.

Our industry doesn’t require that special situation investor. We’re just in a moment in time, where the valuations are a lot lower than where they should be probably. That reset that occurred a year, year-and-a-half ago, was probably a good thing. I mean, it hurt. It was a good thing for the industry, because now we have a chance for a whole new wave of investors to come in and reap the benefits. Now, that’s point one.

Point two, my – what I’d like to tell investors is that, yes, go talk to your attorney, get – see what they say about the federal illegality. But the truth of the matter is, I use me, as an example Look, I’m the manager of the entity that’s making the investments. There’s a real risk to me. And I’m on an attorney that’s just meet my common head saying that.

But me as a person, I felt so much more at risk in 2014, 2015 and 2016 than I do now, because the industry has grown so much. And the reality is that the tax dollars are so significant that the local state and quite frankly, even at the federal level through Section 280E, that no one is going to come in and go backwards.

We’ve been saying the proverbial genies out of the bottle and has been for years now. And so I don’t think once about the federal illegality. And so we – I really don’t like to talk a lot with investors, because I feel like if they are talking to us, they’ve already at least crossed the Rubicon a bit.

But if it comes up, that’s kind of what I say. And I’m like, look at that. And I’m like, look at that, but that – therein lies the opportunity. Prior to legalization is the right time to be investing. It’s like you’re getting a free look at that when prohibition was lifted. And so, to me, that’s a huge selling point.

RS: Totally, and prohibition was lifted after the Great Depression, which I would say, we’re definitely in the running with to compare it to that time. The parallels are really interesting I find with prohibition. And yes, it’s like the industry is on sale. It’s like COVID clearance?

MH: Yes, yes. Look, I kind of would like to agree with that.

RS: So, Matt, anything you’d like to leave listeners with before we go?

MH: No, it’s been great. Happy to do it anytime. And this has been a nice chat, for sure.

RS: Awesome. I agree. This was fun and entertaining and interesting and informative and all the traits of a great conversation. So I appreciate you taking the time.

MH: Well, and I will say this, hopefully, the next time we can do this, we can do it over, maybe at a bar setting over a glass of wine where we can maybe even do it like a cheers to the end of Zoom and doing it back in person about that.

RS: I’m there. I’m there. I hope it’s before 2022.

MH: Oh, God, no kidding. Well, good stuff. Thank you so much.

RS: Thank you, Matt. Talk to you soon and take care in the meantime.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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