Latest / Higher Exchanges / Can Cannabis Grow Again? | Episode 100 with Nick Gastevich

Transcript

Can Cannabis Grow Again? | Episode 100 with Nick Gastevich · Higher Exchanges

0:00
SPEAKER_01: Oh, there we are.
0:01
SPEAKER_01: Welcome back to Higher Exchanges.
0:04
SPEAKER_01: The number one independent cannabis investing show.
0:07
SPEAKER_01: We break down complex cannabis markets into clear insights and actually use.
0:42
SPEAKER_02: It's been a journey.
0:44
SPEAKER_02: We got here.
0:44
SPEAKER_02: Welcome back.
0:45
SPEAKER_02: I always appreciate you guys showing up.
0:47
SPEAKER_02: I think we know each other now by now, but I am Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands.
0:54
SPEAKER_02: And I am back today with two of the smartest cannabis investors we all know.
0:58
SPEAKER_02: First, he is the founder of the Cannabis Closing Bell with Poseidon.
1:04
SPEAKER_02: He was the master of spaces.
1:05
SPEAKER_02: Now he's a pro podcaster.
1:07
SPEAKER_02: Morgan Paxty, my friend.
1:08
SPEAKER_02: What's going on, man?
1:10
SPEAKER_00: Oh, here we are, episode 100, just days before we celebrate the big 250 for America.
1:16
SPEAKER_00: I know.
1:17
SPEAKER_00: Pumped.
1:18
SPEAKER_00: Yeah.
1:18
SPEAKER_00: No, this is great.
1:19
SPEAKER_00: Glad uh it's amazing the timing, but uh here we are, and I'm feeling good.
1:23
SPEAKER_00: How are you?
1:24
SPEAKER_02: I'm good, man.
1:25
SPEAKER_02: And let's uh make sure we welcome our guest.
1:27
SPEAKER_02: So he's not just sitting here in the two box staring at everybody.
1:31
SPEAKER_02: We have the perfect episode 100 guest, Nick.
1:33
SPEAKER_02: I was so glad you're available.
1:35
SPEAKER_02: He's can of investments on X.
1:37
SPEAKER_02: He's Nick Gastavich in real life.
1:39
SPEAKER_02: And Nick, you are one of the people, quite sincerely, I've respected most in the space.
1:44
SPEAKER_02: You always have a level-headed take.
1:46
SPEAKER_02: You always do your research.
1:47
SPEAKER_02: So appreciate you taking an hour to spend some time with us today.
1:50
SPEAKER_03: Uh Jesse Morgan, thanks for having me.
1:52
SPEAKER_03: Uh, congrats on 100 episodes.
1:54
SPEAKER_03: What a what a journey.
1:55
SPEAKER_03: Uh, and yeah, happy to be here.
1:58
SPEAKER_02: What a journey indeed it has been.
2:00
SPEAKER_02: I think this is your fourth time back, Dick.
2:02
SPEAKER_02: I didn't do enough homework, but I think that might tie you for the lead.
2:05
SPEAKER_02: I feel like four or five is probably is probably as much as anybody anybody's been on the show.
2:10
SPEAKER_02: So I always appreciate you taking the time and so much to get into today.
2:13
SPEAKER_02: But Morgan, before we get started on the agenda, why don't you tell me about some of the best dispensary software out there?
2:19
SPEAKER_00: Yeah.
2:20
SPEAKER_00: Well, thanks as always to Flo Hub for sponsoring higher exchanges and uh uh technology is changing fast.
2:36
SPEAKER_00: Am I still here?
2:38
SPEAKER_00: You're going in and out of me there, my friend.
2:40
SPEAKER_00: Can you guys oh shoot?
2:41
SPEAKER_00: Can you guys hear me?
2:42
SPEAKER_00: Yeah, you're good now.
2:43
SPEAKER_00: Go ahead.
2:43
SPEAKER_00: Oh man.
2:45
SPEAKER_00: All right, let's try this again.
2:47
SPEAKER_00: Technology is changing fast with the rays of I rise of AI.
2:50
SPEAKER_00: A year from now, there will be new tools, new ways to sell, and new ways to serve customers.
2:54
SPEAKER_00: The challenge for Canvas retailers isn't deciding what's best today.
2:57
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3:00
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3:02
SPEAKER_00: FlowHub gives retailers a complete platform to run and grow their business with the freedom to choose the tools that work best for them because retail is changing too fast to get locked into a lane of doing things.
3:13
SPEAKER_00: If you're interested in learning more, book a demo today at FlowHub.com.
3:18
SPEAKER_02: Awesome.
3:19
SPEAKER_02: Thank you very much, Gina.
3:20
SPEAKER_02: FlowHub's been part of the evolution of the show.
3:22
SPEAKER_02: I feel like we've been through so many changes, both in terms of you know the foundations of the team.
3:28
SPEAKER_02: We went from three of us to two of us.
3:30
SPEAKER_02: We started out doing spaces, sitting here wearing AirPods with no video.
3:35
SPEAKER_02: We manned up and got the video done.
3:37
SPEAKER_02: We made it over to YouTube.
3:39
SPEAKER_02: And uh yeah, the platforms platforms have been growing.
3:42
SPEAKER_02: So thank you for FlowHub for putting some energy into us um this year.
3:45
SPEAKER_02: That's been another nice evolution.
3:47
SPEAKER_02: And Morgan, I don't know if you ever read the comments, but um if you read the comments on YouTube, most of them are kind, most of the people like the show, but sometimes people get a little bit cranky because you and I like to BS off the top and they'll say things like, it's been 12 minutes and no one's talked about a cannabis stock yet.
4:03
SPEAKER_02: So I kind of hear that, but I also like to BS with you guys a little bit.
4:06
SPEAKER_02: So let's cover a couple of things about how the podcast has evolved, and then we're gonna jump into plenty of cannabis investment talk here shortly.
4:15
SPEAKER_02: But um, yeah, high level on higher exchanges, guys.
4:18
SPEAKER_02: Just want to celebrate with you.
4:19
SPEAKER_02: I don't want this to be an ego-based exercise about how awesome we are, but more of a community celebration of, I think, something we put together that's just a weekly conversation or every two weeks where we all try to learn a bit from each other.
4:30
SPEAKER_02: We've done 100 episodes.
4:32
SPEAKER_02: We've had 38 different guests on higher exchanges.
4:36
SPEAKER_02: Awesome to have some of the bigger CEOs out there.
4:39
SPEAKER_02: Also great to have guys like Nick and you know, Sammy and Scott and Hirsch and some of the regulators, but about 38 or 40 regulars, not regulators, about 38 to 40 guests so far on Higher Exchanges.
4:52
SPEAKER_02: We have 187,000 total listens.
4:56
SPEAKER_02: This goes all the way back to the Spaces days when sometimes we just get a few hundred people on, all the way up to today, where we are right now, we're on YouTube, X, LinkedIn, and all the different podcast platforms.
5:07
SPEAKER_02: Something uh Morg and I are pretty pumped on is audience is up 47% this year.
5:13
SPEAKER_02: So we've almost grown the size of the podcast by 50% in what's been, you know, not an awesome environment for cannabis investing.
5:20
SPEAKER_02: It's certainly getting way more excited at the margin.
5:22
SPEAKER_02: We'll talk about that today.
5:24
SPEAKER_02: But I think in terms of engagement, it's just not super high across the space.
5:27
SPEAKER_02: So to make the podcast 50% more popular this year is something that we're proud of.
5:31
SPEAKER_02: And the real reason for that is YouTube is driving the growth.
5:35
SPEAKER_02: YouTube is up 259% this year.
5:38
SPEAKER_02: We've had 31% growth on social media, and podcast is about flat.
5:44
SPEAKER_02: So I don't know what that says about where the world's going, but maybe the world's going more towards video.
5:48
SPEAKER_02: And so that's why our YouTube is up 259%.
5:51
SPEAKER_02: A couple more things.
5:52
SPEAKER_02: We have listeners from 113 countries and more than 2,600 cities.
5:56
SPEAKER_02: And the top two episodes of all time are the schedule three breakdown.
6:01
SPEAKER_02: That was with Scott, Hirsch, and Morgan.
6:05
SPEAKER_02: And to put a number on that, we're at 13,285 listens.
6:10
SPEAKER_02: And then I think it was four or five weeks ago.
6:12
SPEAKER_02: We had one of our favorites.
6:13
SPEAKER_02: We had Boris Jordan, uh, CEO of Cure LeFon, and Boris does numbers.
6:17
SPEAKER_02: Boris did 7,362 episodes.
6:22
SPEAKER_02: So that's the state of things, guys.
6:24
SPEAKER_02: Um, like I said, I don't want this to be a big pat on the back, ego-based celebration, but more just honestly stoked on uh stoked on what what we built.
6:31
SPEAKER_02: And so, Morgan, before we get into the heart of the heart of the agenda, I just have two questions for you.
6:36
SPEAKER_02: The biggest one is what's your biggest lesson from these hundred conversations that we've had?
6:41
SPEAKER_00: Uh, like a lot of things in business, uh, preparation process.
6:46
SPEAKER_00: I feel like over the last year we really took it a lot more serious.
6:50
SPEAKER_00: Um, not from you know, a lot of the behind the scenes with scheduling out time, you and I touch base, you know, really try to put some thought into it.
6:59
SPEAKER_00: We have good structure.
7:00
SPEAKER_00: So, you know, just learning like when you want to do something, you know, you got to do it, you gotta do it.
7:06
SPEAKER_00: And uh, and I feel like we really did when we made the move to video.
7:10
SPEAKER_00: So I don't even know if that's been a year yet, but um, I think that's shown, I hope, for everybody else, but it certainly does on on uh our side.
7:20
SPEAKER_02: Yeah, no, I think that's right.
7:21
SPEAKER_02: You know, we have been putting more work into it.
7:23
SPEAKER_02: We have regular monthly meetings about it.
7:24
SPEAKER_02: We try to schedule out guest war, trying to do production better.
7:28
SPEAKER_02: We've got the cool intro, you know, little things like that help.
7:31
SPEAKER_02: To me, Morgan, like the podcast has turned into something that's just all about the relationships and the friendships that you build.
7:37
SPEAKER_02: Like even guys like Nick, um, you know, Nick and I, you know, talk offline.
7:40
SPEAKER_02: I've met Nick in person, can confirm he's a real human being.
7:44
SPEAKER_02: But we also spent four, this is gonna be the fourth hour we've spent talking here.
7:48
SPEAKER_02: And the same thing, you know, I've mentioned friends like, you know, Hirsch and Scott and Sammy and guys like that, where those are people that you know you initially know through the podcast, you meet them at conferences, you build a personal relationship, and you know, that's been super valuable.
8:00
SPEAKER_02: There's a cool networking hack to doing a podcast.
8:03
SPEAKER_02: This wasn't the intention when I got in, but you end up knowing a lot of industry leaders because they come on the show and they talk to you for an hour, then all of a sudden, hopefully, you build some sort of relationship and have some credibility there.
8:12
SPEAKER_02: And so, um, you know, I'd say that's one aspect of it, Morgan.
8:15
SPEAKER_02: For me, then the last one is you know, you and I have built a great uh you know relationship and friendship through this.
8:21
SPEAKER_02: You know, we've talked a hundred hours or more in public here, but we probably talk you know another 200 hours or more offline.
8:27
SPEAKER_02: So I'm also grateful for our relationship and what higher exchanges brought in that regard.
8:31
SPEAKER_00: Yeah, we'll get to see each other in person more often, hopefully, with uh depending on how often you come down this way for reasons I will not divulge in a public forum, but I don't care if my daughter's going to San Diego State.
8:46
SPEAKER_02: Don't be creepy.
8:47
SPEAKER_02: Yeah, don't be creepy.
8:50
SPEAKER_02: And uh last thing, Borg, and then we're gonna do a jump, we're gonna jump right in.
8:54
SPEAKER_02: But yeah, where where do you want to go from here?
8:56
SPEAKER_02: What's on your mind moving forward?
8:59
SPEAKER_00: Oh, I want uh, I mean, well, first thanks everybody for not only liking the show, subscribing on YouTube.
9:06
SPEAKER_00: Um, you know, I just I it it was great adding video for um on the podcast uh with Apple.
9:12
SPEAKER_00: I thought that was pretty neat, but um, you know, I I really think you know YouTube is kind of the holy grail for you know this kind of format.
9:19
SPEAKER_00: Um seems like this is a preferred medium for the younger generation.
9:24
SPEAKER_00: So if we, you know, over the next hundred episodes, we continue to educate and share what we do and like to talk about um with a generation that's coming into the workforce that's of legal age to be purchasing cannabis.
9:37
SPEAKER_00: Um, you know, I I just I think there's so much more opportunity for us.
9:41
SPEAKER_00: And you know, we stuck it through and hopefully we, you know, just the momentum just keeps building and love to see our YouTube channel, you know, in the thousands of subscribers.
9:51
SPEAKER_00: That's you know, where we're heading.
9:53
SPEAKER_00: So I'm looking forward to that.
9:54
SPEAKER_00: How about you?
9:55
SPEAKER_02: Yeah, I didn't I'm just pumped to grow with the industry.
9:57
SPEAKER_02: You know, I think we put in a foundation here.
9:59
SPEAKER_02: We're we're not gonna be CNBC.
10:01
SPEAKER_02: I don't think we're even aspiring to do the be the Dales report.
10:04
SPEAKER_02: Like those guys are awesome.
10:05
SPEAKER_02: They do daily content, shorter, harder hitting stuff stuff.
10:08
SPEAKER_02: And I think if I think we've carved out a niche where people want to sit down for 60 or 90 minutes and think through stuff every two weeks, you know, I think we found a bit of our a bit of our people and a bit of our audience.
10:18
SPEAKER_02: And I think we're having more interesting conversations.
10:20
SPEAKER_02: Like I feel like for the past couple of years, we've been just frustrated, beating our head against the wall.
10:24
SPEAKER_02: But here we are with some federal reform.
10:27
SPEAKER_02: We got stocks up listing, we've got schedule three in our sites, we've got these interesting opportunities with export, interstate.
10:33
SPEAKER_02: We'll see how that all plays out.
10:34
SPEAKER_02: And so I just like coming here every couple of weeks and sitting down and trying to figure it out.
10:39
SPEAKER_02: And um, I'm looking forward toward the industry getting healthier and just kind of you know growing this platform within it.
10:44
SPEAKER_02: So I think we've got the foundation, we just need uh a little cooperation, you know, on the federal and the state side, and hopefully we can just keep on building.
10:52
SPEAKER_00: Yeah, yeah, we're like a hybrid of like a standard form and an acquired.
10:56
SPEAKER_00: If you if anyone listens to those acquired podcasts, which are amazing, they're like four hours long, but you know, they only do one of those like uh what's like one a month or one a quarter kind of thing.
11:04
SPEAKER_00: And so we're in the in the between, which is great.
11:07
SPEAKER_00: Yeah.
11:09
SPEAKER_00: Well, you want to jump right in, Morgan, and uh get into the agenda?
11:12
SPEAKER_00: Yeah, now we can hear Nick's voice for a bit.
11:14
SPEAKER_00: Uh no.
11:15
SPEAKER_00: Yeah.
11:16
SPEAKER_00: So Nick, um a little bit of a couple of things have happened last year.
11:23
SPEAKER_00: Um but starting off, you know, just think about what surprised you over last year and why don't we start start with the negative and then we'll switch to the positive.
11:31
SPEAKER_00: What were some of the biggest misses that surprised you over the last year?
11:36
SPEAKER_03: I mean, you know, I think it kind of a lot of these answers overlap with misses and winners.
11:40
SPEAKER_03: You know, I think uh, you know, I think the biggest miss has to be just, you know, perhaps the ups and downs of this rescheduling.
11:48
SPEAKER_03: You know, I think the speed at which it happened surprised me.
11:51
SPEAKER_03: I think it surprised everyone, particularly on the medical side, how quickly it happened.
11:55
SPEAKER_03: Um and, you know, like everything in cannabis, you get you get your hopes up, you get, you know, think this time is is different.
12:02
SPEAKER_03: Um, and to some extent, uh it definitely is.
12:05
SPEAKER_03: Um, but I I have to like remind myself and uh that change takes time and none of this occurs overnight, even if you you know get something like true leave up listing and the opportunity that creates, um, it doesn't mean you know we're now a normal industry treated like everyone else.
12:22
SPEAKER_03: So this is an incremental step.
12:24
SPEAKER_03: Um, but uh I think realizing that this isn't the we're not at the Holy Grail yet.
12:29
SPEAKER_03: Um we're just kind of on the first step there and what that means and that the you know journey ahead and while perhaps clearer than it's ever been is still murky.
12:38
SPEAKER_03: And um, I think understanding that uh it may, you know, have hiccups along the way is is just something important to remember.
12:46
SPEAKER_03: Uh something you think I would have learned after the last five years, but uh you know, humbled again.
12:52
SPEAKER_00: So yeah, I mean I got roasted a lot of times for when I would say, you know, people say, Where's the catalyst?
12:58
SPEAKER_00: Where's the catalyst?
12:59
SPEAKER_00: And everyone wanted something to be the catalyst to be the thing that changes things.
13:04
SPEAKER_00: Um and we've had plenty of supposed of those events coming, but now things are starting to happen, actually starting to happen now, right?
13:13
SPEAKER_00: We have medical rescheduled and we have now two companies in the US on listed exchanges between True Leave and now Glasshouse today.
13:20
SPEAKER_00: Congrats to them for getting that done.
13:22
SPEAKER_00: Um so so yeah, so kind of the idea of like there was just the misses where people were getting kind of sucked in again and again to the pop in the fade over the last years, which you're talking about.
13:34
SPEAKER_00: Okay.
13:34
SPEAKER_03: Yeah, yeah.
13:35
SPEAKER_03: And I think that, you know, the the idea of new money coming in overnight um was just not clearly not a reality.
13:41
SPEAKER_03: Um, and it's still this same small community that's been here the past couple of years and uh you know incrementally moving in the right direction, but uh, lots of you know, lots of work still needs to be done.
13:52
SPEAKER_02: And why is that, Nick?
13:53
SPEAKER_02: Like I think that's a super important question and you know something that I think I'm becoming more clear on is this I don't feel like this is gonna be a V-shaped recovery where MSOS bounces back to 10 bucks on some sort of news or even 20 bucks, like in the old days.
14:07
SPEAKER_02: It seems like it's gonna take more time.
14:09
SPEAKER_02: Like, what why do you think that is, Nick?
14:11
SPEAKER_03: I mean, definitely a you know, a wide range of factors.
14:14
SPEAKER_03: Like, I think one, you know, as all of us know, I think people have just been burned by cannabis for multiple years now, and that just like weighs on uh, you know, people's mindset around the industry.
14:25
SPEAKER_03: Um, two, you know, like it again, we we got, you know, we got medical rescheduling, we did not get full and the timeline on full.
14:31
SPEAKER_03: Well, you know, I love to see that it's a you know, the you know, the hearing that's going on right now, it does have a shortened timeline.
14:37
SPEAKER_03: But you know, what what do lawsuits look like afterward?
14:40
SPEAKER_03: What sort of timeline does that go out to?
14:42
SPEAKER_03: Are we in 26 or does it go go past that?
14:44
SPEAKER_03: And I think that overhang remains.
14:47
SPEAKER_03: You know, it's not like all credit card companies are servicing us, like insurance is still expensive, uh getting loans is still expensive.
14:55
SPEAKER_03: So all those things that have hindered this industry forever are still mostly here.
14:59
SPEAKER_03: So it's not like just it's nice that the New York Stock Exchange let these companies up using this uh kind of inventive way of you know just doing the medical business and and your W has to be uh sidelined somehow.
15:13
SPEAKER_03: So even that is like, hey, we're still being treated different.
15:16
SPEAKER_03: Um, so I think we, you know, need to arrive at a place where this is just like any other industry for it to be accepted.
15:22
SPEAKER_03: Um, and then ultimately, and you know, we can go into the numbers a lot.
15:26
SPEAKER_03: I think you know, it's kind of the headline of this this podcast too, is like we need growth to return and we need uh we need companies to be good companies.
15:35
SPEAKER_03: Um, and that hasn't been the case for the past three, four, five years for a lot of names.
15:41
SPEAKER_03: Um, so I think that for me, especially as like a fundamental investor, uh, I look at growth, I look at balance sheet quality, cash flow profiles, margin directionality.
15:51
SPEAKER_03: Um, I think that more than anything is problematic and uh continues to this day.
15:57
SPEAKER_03: So you're gonna have that overhang even with uplisting.
16:00
SPEAKER_03: And so we need we need that to change more than anything.
16:04
SPEAKER_00: So who do you think or or what would you classify as some of the biggest winners?
16:07
SPEAKER_00: I mean, with that backdrop.
16:09
SPEAKER_03: Yeah.
16:10
SPEAKER_03: Yeah, I mean, like, you know, it's it's interesting.
16:13
SPEAKER_03: And it's I think one of the lessons I took is uh I would say like don't get stuck in the in the mud and like get caught up in like an old ways of thinking, like be open to changing your mind.
16:22
SPEAKER_03: And I think that has guided me towards uh some of my big winners.
16:26
SPEAKER_03: Like if I, you know, if I put out uh a few examples, like one, uh for years I was like, I am never gonna invest in a Canadian cannabis name, you know.
16:36
SPEAKER_03: Uh that the market was, you know, troublesome.
16:39
SPEAKER_03: Like you had such bad examples like Tillery and Canopy that just like were were such you know bad thing, like bad uh indicators for the industry, as you know, they got the first initial large investments from um institutions outside cannabis and they just destroyed the the capital that came in and set a really poor example to begin with.
17:00
SPEAKER_03: Um so I kind of just wrote off that market.
17:02
SPEAKER_03: I want to say that I changed just kind of a year ago because I was like, hey, prices have bottomed out here and winners are emerging for the first time.
17:08
SPEAKER_03: So I think if you look at a name like, you know, like I like Augsley a lot.
17:12
SPEAKER_03: If you look at VFF, they have been some of the best performing cannabis stocks in the in the industry over the past 12 months.
17:18
SPEAKER_03: Um and I think a lot of people wrote off Canada completely just because of the, you know, it's a smaller market.
17:23
SPEAKER_03: There's I guess limited opportunity, but they showed like, hey, winners can emerge from uh a disaster area before.
17:31
SPEAKER_03: And I and I do think that'll you know inform how the US looks long term.
17:35
SPEAKER_03: Like we're seeing that everywhere.
17:36
SPEAKER_03: Prices bottom out, uh lots of companies fall out and and winners emerge.
17:41
SPEAKER_03: Um, and then similarly, like if I you know point to uh I would call a very polarizing name, uh like Glasshouse, who who you mentioned uplisted today, definitely one of the best performing stocks of uh the last 12 months.
17:54
SPEAKER_03: Um and and you have to like ask yourself, hey, why?
17:58
SPEAKER_03: Like what's the what's the story here?
18:00
SPEAKER_03: And for a while I didn't I didn't like the name.
18:02
SPEAKER_03: Like if you look it back, you know, a couple of years ago, it was very much a show me story.
18:07
SPEAKER_03: Margin profile was thin.
18:09
SPEAKER_03: Uh there was a lot of like, hey, we're gonna do this in the future.
18:12
SPEAKER_03: Um, they did that like preferred deal that you know had extremely high interest rates, everything that kind of gave me concern.
18:18
SPEAKER_03: But then you saw the story change, margins came up, they showed growth in a in a market.
18:24
SPEAKER_03: Again, California, somewhat similar to um Canada in a way, seemed uninvestable for so many years.
18:31
SPEAKER_03: And and they showed it, I'm sure Jesse, you know this well, like with where what you're doing at Leaf is like, hey, there's opportunity here.
18:38
SPEAKER_03: This is a massive market.
18:40
SPEAKER_03: And yes, there's been problematic operators in the past, to put it lightly, uh, but there's opportunity to be had and there's winners that will emerge.
18:49
SPEAKER_03: Um, so I think kind of changing your mindset and not getting, like I said, not getting stuck in the mud and say, hey, I'm gonna look objectively at the numbers, and uh, these operators are performing well for a reason, uh, especially operators that are performing well in tough markets, in in markets that where prices have bottomed out for a number of years.
19:08
SPEAKER_03: Um, so I think I've been using that as my as my guiding light for long-term winners, is like companies that can operate in uh you know in bottom-tier pricing.
19:19
SPEAKER_00: Right.
19:19
SPEAKER_00: Yeah, interesting note of uh Oxley, um, one of the companies that we have in one of our funds, uh Scott Samuels, CEO of uh C15 Systems, he he was like, Hey, put these guys on your radar like a year ago.
19:32
SPEAKER_03: He's like, they're yeah, I mean they have 30% EBITDA margins, positive cash flow, little debt.
19:38
SPEAKER_03: Uh, and I don't I I bet the majority investors don't know that name very well.
19:42
SPEAKER_03: Um, and they they've grown like not a huge company, but they've grown faster than the majority of MSOs in the in the past couple of years.
19:49
SPEAKER_00: Yeah.
19:50
SPEAKER_00: So it's a good point because it's like, you know, I was gonna ask how your framework has changed, and and really it's it's you know, being a fundamental investor, you know, you're just not really focused on a specific state or even country.
20:04
SPEAKER_00: You're just being like driven by the fundamentals of who's got improving margins, who's got you know the growth, um, more more so than any kind of geographic or country-specific kind of mindset.
20:15
SPEAKER_03: Is that yeah, and I'm definitely connected to those, like that definitely shapes the whole story.
20:20
SPEAKER_03: Um, but certainly being open to all different sorts of opportunities and who wins in their specific niche area, um, because it shows you can, you know, target this industry in a in a number of different ways.
20:32
SPEAKER_03: But yeah, definitely, you know, for I'm a long-term investor generally.
20:36
SPEAKER_03: Like I think there's definitely opportunities to trade like momentum movements, and that's a totally different game.
20:41
SPEAKER_03: Uh, I think you invest in good companies and hopefully not come wood.
20:45
SPEAKER_03: One day the stocks will follow.
20:47
SPEAKER_03: And in most cases, it happens, even if it takes longer than you expect.
20:51
SPEAKER_00: Right.
20:52
SPEAKER_00: So so two points on that, or or because we will touch on uplisting and these companies are listing.
20:58
SPEAKER_00: How much does that factor into your decision making, whether if it is OTC or New York Stock Exchange, as more companies are able to access that?
21:07
SPEAKER_00: Is that a factor?
21:09
SPEAKER_03: I think you can definitely use it as, you know, I think two good names, truly been glass, have uh have uplisted so far, and I and I like those names.
21:16
SPEAKER_03: I you know, I own them both.
21:18
SPEAKER_03: Um, but you know, I'm definitely not tied to because I think what what has been shown is that uplisting is possible.
21:23
SPEAKER_03: You have to do this creative structure so that but but we know it's possible now, and you know, knock on wood with full rescheduling perhaps coming up within the calendar year, then we know like you can like essentially any company can up list as long as they meet the rules of the exchange.
21:40
SPEAKER_03: So, you know, I think if you're out there for a quick trade, you can definitely like you know get in names before if you think they're gonna like up list soon.
21:47
SPEAKER_03: But again, I I I think that's definitely secondary in my mind.
21:50
SPEAKER_03: I think good companies will eventually up list.
21:53
SPEAKER_03: Um, and I'm not really worried about hey, if the the company I'm invested in does it a month later than everyone.
22:00
SPEAKER_03: Everyone else.
22:01
SPEAKER_03: If you're looking two, three years out, it it doesn't matter.
22:05
SPEAKER_00: So what do you think, you know, to your point about um being fundamental and looking at balance sheets, how how are you underwriting like UTP?
22:14
SPEAKER_00: What's kind of your thesis around it?
22:18
SPEAKER_03: God, that's a I think that's one of the most important questions that is just brushed aside constantly.
22:24
SPEAKER_03: I mean, these are just massive positions, liability positions on a lot of these balance sheets.
22:29
SPEAKER_03: And it's amazing how people just like write it off being like, hey, 280 is going away.
22:33
SPEAKER_03: Well, it's like, yeah, if it goes away, you're gonna spend the next three years paying it down potentially.
22:38
SPEAKER_03: Um, so I'm I'm hopeful that you know, uh like all we can do is is go off of what the government has given us so far.
22:46
SPEAKER_03: And to my knowledge, you know, the IRS has said one thing so far, and it's that uh, at least for medical rescheduling, it's effective as of 2026, uh, this calendar year, that which is the date it was made effective, and that there's no uh forgiveness for past years.
23:02
SPEAKER_03: Uh, and then the only other consideration was that Blanche did formally say, hey, IRS, please go and consider uh forgiveness for past years.
23:12
SPEAKER_03: Um, so I think that does open the box.
23:14
SPEAKER_03: Hey, there is a potential that we it it does get forgiven for past years, but extremely hard to put a date on it.
23:21
SPEAKER_03: I mean, like I think the only day I can come up with is um when the HHS made their initial ruling, which which was what, 2024, I forgot 23 or 24?
23:31
SPEAKER_02: Yeah, 24.
23:32
SPEAKER_03: Okay, 23, you know, which would be huge.
23:34
SPEAKER_03: I mean, the the UTPs that uh a number of companies have gathered over the past three years is significant.
23:40
SPEAKER_03: Um, so I think that's kind of like the only solid date that I could think would be would make sense because like if you open the door to just like, hey, like, you know, we'll do it based on like medical markets opening up.
23:52
SPEAKER_03: I think the California medical market opened up like 20 years ago at this point.
23:56
SPEAKER_03: So are you gonna forgive UTPs going back uh that far?
24:00
SPEAKER_03: It'd be impossible to do so.
24:02
SPEAKER_03: So I think you have to like look at what dates make sense.
24:05
SPEAKER_03: So that 23 date makes sense, and I think the one that unfortunately makes most sense is just 2026, the the effective date as of the rescheduling process itself.
24:16
SPEAKER_00: And that would be to your point right now, that's just medical.
24:20
SPEAKER_03: Yeah, just medical.
24:21
SPEAKER_03: Like ideally, yeah.
24:22
SPEAKER_03: The the date this hearing end what July 15th, I think.
24:25
SPEAKER_03: So like maybe it takes a few months out.
24:27
SPEAKER_03: Like, you know, we've heard from borers, I think from Kim that they're pretty confident that it goes through in Q3, Q4, um, which would make it effective as of 2026.
24:36
SPEAKER_03: So that would that would be great.
24:37
SPEAKER_03: Um, but that does mean for most part, like look at the Q4 balance sheets um for these operators, uh, look at the UTP balances, um, and think about hey, like what's the current cash flow profile um and how long does it take to uh pay down that debt?
24:53
SPEAKER_03: Because it'll just be a limiting factor.
24:55
SPEAKER_03: Like some people might just carry that debt and just treat it as um, you know, relatively low interest uh loans for a period of time, but you will eventually have to pay that back.
25:07
SPEAKER_03: Um so definitely a fact that that factors into your potential growth profile.
25:12
SPEAKER_03: It's you know, fewer dollars you can put into expansion, MA, uh future growth opportunities.
25:21
SPEAKER_00: Jesse, should we move to the next one?
25:23
SPEAKER_02: Yeah, why don't we talk a little bit about yeah, no, I think that's smart, Morgan.
25:27
SPEAKER_02: Yeah, I think um, you know, if there's one thing I've said a hundred times on these hundred episodes, it's that cannabis should be a state-led growth story with a series of hard-to-time political catalysts.
25:36
SPEAKER_02: And it feels like we're in a different spot now where some of these federal catalysts we've been waiting for, the schedule threes, the uplistings, some of those things are starting to happen.
25:45
SPEAKER_02: But a bit surprising to me, the state-led growth story has showed some pretty big cracks.
25:50
SPEAKER_02: You know, I think what was it, fall of 24.
25:52
SPEAKER_02: I think we all know the feeling when we saw those Dade County votes come in and then was it 56, 58% or something like that?
25:59
SPEAKER_02: And they're, you know, our heart sank a little bit.
26:02
SPEAKER_02: And then, you know, no PA, although maybe that's moving, you know, we were concerned about Virginia, but now that's moving.
26:08
SPEAKER_02: At the same time, Nick, we had this intoxicating hemp thing come in that depending on the state you're in, you know, ate a portion of your lunch.
26:15
SPEAKER_02: And the bottom line is we're spending, you know, a couple of years now with single-digit growth.
26:19
SPEAKER_02: So I feel like from an investor perspective, if you're a sophisticated investor like yourself, Nick, or your fund manager or another family office, you're coming and looking at the space with this complex regulatory landscape that if you unpack it enough, you could be bullish on how that's evolving.
26:33
SPEAKER_02: But if you just looked at the trailing quarters, you would look and you'd see not a lot of growth.
26:38
SPEAKER_02: So, where is your mindset, I guess, Nick, on two fronts?
26:40
SPEAKER_02: And would be a bad podcaster by asking two questions at once.
26:43
SPEAKER_02: But I'm curious kind of your perspective on where we are to unlock that growth and how impactful is that when you're thinking about it making allocations and how much of a like a hamstring do you think that is to the industry right now?
26:54
SPEAKER_03: Yeah.
26:55
SPEAKER_03: I mean, like I mentioned before, like I think it's it's almost everything for these names to actually benefit from uplisting, is like, hey, what what multiple do we deserve as an industry?
27:05
SPEAKER_03: Um, and you know, I always go back to just traditional CPG.
27:09
SPEAKER_03: If you look at big alcohol, if you look at tobacco, if you look at energy drinks, if you you know, kind of go to all the analogous industries where you could gain some insight as to where we trade.
27:18
SPEAKER_03: I've always landed somewhere in the you know 10 to 15x EBITDA range, uh, EV to EBITDA.
27:25
SPEAKER_03: Um, and you know, if you're on the low growth side, you might be slightly on the low end of that.
27:30
SPEAKER_03: You know, if you look at energy drinks, it might trade up higher because that was a hot industry for a while.
27:35
SPEAKER_03: Um, but I think it's important to be realistic that this isn't big tech.
27:39
SPEAKER_03: We don't scale like big tech and software, and we're not gonna get uh insane multiples, at least I think long term.
27:45
SPEAKER_03: Like this is this is traditional CBG at the end of the day.
27:48
SPEAKER_03: Um, so I think the when you take that into consideration, uh you have to realize then, like, hey, how do we grow as a company?
27:56
SPEAKER_03: Is like we have to we have to drive results, we have to drive growth, we have to drive margin profile.
28:02
SPEAKER_03: Um, and like you said, you know, I think even saying this industry has been a low single-digit growth industry is is generous.
28:09
SPEAKER_03: Like if you look at, you know, I made a post recently, if you look at you know, Q1 2022 to Q1 2026, um, so four years of time.
28:19
SPEAKER_03: If you look at some of the biggest operators, TrueLeave did 318 million in 2022, they just did 287.
28:25
SPEAKER_03: Uh Curileaf 313 up to 324, Barano 202 to 208, Cresco 214 down to 151.
28:33
SPEAKER_01: Wow.
28:34
SPEAKER_03: Uh, I think GTI was like essentially the only amongst the big five, we're gonna use those as kind of bellwethers.
28:39
SPEAKER_03: They went from 242 up to, I think this past quarter was like 311.
28:42
SPEAKER_03: So some deep some pretty good growth there.
28:45
SPEAKER_03: Um, but that means a good portion of the biggest names had negative growth over a four-year period.
28:50
SPEAKER_03: Um, and then combine that the fact that there was also margin degradation, like in this as excited everyone was for rescheduling.
28:57
SPEAKER_03: If you look at Q1 2026, I think CureLeaf, Verano, and Cresco both all posted multi-year low EBIT margins.
29:05
SPEAKER_03: Um, so there's very much a uh price compression story that is overshadowing everything else.
29:11
SPEAKER_03: Because you know, in that time, we've had new markets.
29:14
SPEAKER_03: We've had New York, we've had Ohio, uh, we recently had Minnesota.
29:17
SPEAKER_03: So there are new markets coming online, but clearly price compression in mature markets is having an impact.
29:23
SPEAKER_03: Um so kind of when you highlighted, like, hey, what do we have going forward?
29:28
SPEAKER_03: Virginia is exciting, that's 2027.
29:31
SPEAKER_03: Uh, and you know, New York will grow, Ohio will grow.
29:35
SPEAKER_03: Um, I'm excited about like Texas and in Georgia, those will be expanding medical markets.
29:39
SPEAKER_03: Um, but I think it's important to recognize like those are kind of tough numbers to work with.
29:44
SPEAKER_03: We really need a we need a Florida, we need an adult use flip in Texas, we need large population centers to flip to really have new store, new states kind of like leading that growth story again.
29:55
SPEAKER_03: Um, so I think as important as new states turning online is, I think uh market share expansion, same store sales growth, uh consolidation MA are going to be uh equally important.
30:07
SPEAKER_03: And then, like you mentioned at the beginning, I think the potential for uh both interstate and um international export uh could be part of the story as well.
30:16
SPEAKER_03: But I think it's for me, I'm looking at all of those because like clearly I think price compression is here, it's ongoing and and it's and it's powerful.
30:25
SPEAKER_03: Um so I think you have to use all of those opportunities at your hand to to return to growth and to be attractive to new money coming in.
30:33
SPEAKER_00: Is the um is the Q1 2022 is that intentional?
30:38
SPEAKER_00: Was that like the peak of, or is that what those starters are?
30:40
SPEAKER_03: Yeah, that was like it was mostly just like uh I think it's good to compare uh Q1 to Q1, uh just because like you know, it's like one of the weaker quarters.
30:48
SPEAKER_03: I don't want to compare like a Q4 to a Q1 four years later.
30:52
SPEAKER_03: So that was part of it.
30:52
SPEAKER_03: It was just also just like the most recent number, and yeah, it coincided with like I would say like the peak of the market.
30:58
SPEAKER_03: Um but it is like I remember those days, like, yeah, like the market was frothy and uh cannabis was going wild, but we were also showing double-digit growth year over year for a lot of these names.
31:10
SPEAKER_03: It was off of smaller bases, so it's easier to grow, but that helped the story because it's like you look at these names and it's like, oh yeah, we grew 40% year over year, and we have 35% even of margins.
31:22
SPEAKER_03: Uh and that was like part of the you know, the hoogrus in in 2021 and 2022, and that you know that's come down to earth.
31:28
SPEAKER_03: And now um almost similar to what I mentioned with the Canadian names, uh, I think the companies that emerge out of uh just the struggles of the past couple of years are gonna like show uh that there is opportunity in this market and and winners will emerge.
31:45
SPEAKER_02: Yeah, and like uh channel a bit of Ben Covert.
31:48
SPEAKER_02: It feels like the weird part, Nick, is that like THC products have never been more popular.
31:53
SPEAKER_02: Like you see it and you see it in the data, but you just see it anecdotally around your life, where like people are opening up to these things, you know, the medical side, because my family's you know near and dear to me, and that's like a really real thing going on in the world.
32:05
SPEAKER_02: Then I, you know, go and see friends, you know.
32:07
SPEAKER_02: Nick, I see you at a barbecue.
32:09
SPEAKER_02: We we people up a bunch of cans in the cooler, right?
32:11
SPEAKER_02: You know, C-A, is it NN for cans?
32:13
SPEAKER_02: C A N N.
32:14
SPEAKER_02: Yeah, the yeah, the beverage company, not you know, not cans of soda or cans of beer, but you know, cans of cannabis drinks.
32:20
SPEAKER_02: And you know, we see that being normalized, and I see cannabis being a bigger, bigger part of the national story.
32:25
SPEAKER_02: But I feel like the weird part is it's hard to shove it into the channels that matter for us.
32:30
SPEAKER_02: So you have these huge markets that may have no medical program in the South, no, you know, there's nothing we're capturing there.
32:36
SPEAKER_02: Then you have medical programs with limited qualifying conditions, so we're not capturing all the patients there.
32:41
SPEAKER_02: Then you have adult use markets like California, which are set up all screwed up, or 60% of the state doesn't have dispensaries in their city or county.
32:47
SPEAKER_02: So that doesn't make any sense.
32:49
SPEAKER_02: Then there's this other piece, Nick, which is that intoxicating hemp part, where people could choose to get stuff sent, you know, sent that sent to them in the mail, and honestly, you know, all sorts of weird stuff sent to them in the mail, in the mail too.
33:01
SPEAKER_02: So, like I'm curious, kind of like your your big picture thoughts when you look at these challenges across opening new medical markets, flipping, flipping adult use, straightening out some of these programs like California to make the most of them.
33:12
SPEAKER_02: Then you also have that in you know intoxicating hemp, which what is it, Missouri and Ohio, we're starting to see some nice pickups in those numbers as we see some crack down there.
33:21
SPEAKER_02: So, do you see one of those, Nick, that's a more powerful lever?
33:24
SPEAKER_02: And do you do you agree with that overall comment that it's like THC?
33:28
SPEAKER_02: I hate even saying THC because I don't think that's what cannabis is, but for lack of a better term, you know, there's THC products are never getting more pop, I've never been more popular, but we're having a hard time shoving them into channels that move the needles for our companies.
33:41
SPEAKER_03: Yeah, no, I think you're spot on.
33:43
SPEAKER_03: And it goes back to what I said earlier, just about this need to feel like a normal industry.
33:47
SPEAKER_03: You know, it's not like any other product I have difficulty getting, you know, no matter where I am in the in the country.
33:53
SPEAKER_03: I guess maybe if you want booze in Utah, it might be difficult.
33:56
SPEAKER_03: Um, but for the most part, like I mean that that will transform the industry, is like when we you can just go anywhere and get these products and it's just ubiquitous like any other.
34:06
SPEAKER_03: Um, so I think, you know, I I think the hemp aspect is is definitely big.
34:10
SPEAKER_03: Um, you know, I've spent some time in Texas.
34:13
SPEAKER_03: I'm sure you guys have too.
34:14
SPEAKER_03: It's it's amazing what the hemp stores look like down there and just the advertising they do just as dispensaries themselves.
34:21
SPEAKER_03: And you know, I think that's the story around the country.
34:24
SPEAKER_03: Um, it is definitely a state-by-state model, almost for hemp itself, given the rules that have developed for everyone, um, which does make it a little bit difficult to quantify in my mind, is like, you know, how much benefit do we get from hemp uh if the hemp band does go away in November?
34:39
SPEAKER_03: But I don't see how anyone can make the argument that it doesn't help.
34:43
SPEAKER_03: And it's not like 100% of people will return to the licensed uh market when it goes away.
34:49
SPEAKER_03: Like, you know, some will return to their local dealers.
34:52
SPEAKER_03: Um, but no doubt a ton of people will go into licensed dispensaries, you know.
34:57
SPEAKER_03: Like here in my backyard, I have a two blocks away from my where I live.
35:01
SPEAKER_03: There's a Chicago Cannabis Co.
35:03
SPEAKER_03: And they have multiple stores here, and that's the name of it.
35:06
SPEAKER_03: If you go to Google, it says cannabis store.
35:08
SPEAKER_03: It has 4.8 stars on 550 reviews, and it's a HEP store, and it's very nice, like to their credit.
35:15
SPEAKER_03: Like they, you know, they have uh they do testing apparently, like they give you like the results and all that.
35:21
SPEAKER_03: And I would say they're doing it much better than a lot of these like smoke shops do.
35:25
SPEAKER_03: Um, but I've had so many friends come visit and buy from there because they look up Canvas store near me.
35:30
SPEAKER_03: It's convenient, it's called a Canvas store on Google, uh, and it has pretty good products.
35:36
SPEAKER_03: So when that goes away and you know they'll be forced to close.
35:40
SPEAKER_03: Um, no doubt people will go to the there's a dispens a legal dispensary two blocks away from that.
35:45
SPEAKER_03: Um, you will have to you know show your ID, you'll have to go through more multiple security checks and all that, unlike the other store.
35:52
SPEAKER_03: Uh, but no doubt it'll drive traffic to these stores.
35:55
SPEAKER_03: And I think that's the story around the country.
35:57
SPEAKER_03: So I do think that going away is a driver.
35:59
SPEAKER_03: And and like you said, with Missouri and Ohio, um, I think we're getting early case studies and uh the benefits it has given the um the local hemp bands those states had.
36:09
SPEAKER_02: Yeah.
36:10
SPEAKER_02: Yeah, another part of the industry we've been talking a bit about on higher exchanges and was a popular topic in Chicago was MA Nick.
36:17
SPEAKER_02: And I feel like we're entering a period, especially if we get some clarities on these regulations.
36:23
SPEAKER_02: And what if we potentially get some UTP forgiveness?
36:26
SPEAKER_02: Like the, you know, does that have the potential, not explicitly to free up cash flows?
36:30
SPEAKER_02: Because I don't know if ever all these operators, you know, bookmark dollar for dollar, you know, UTPs versus savings in the bank.
36:36
SPEAKER_02: But at least in their head, if they, you know, a few hundred million bucks went away, that might, you know, fruit you know, free up some capital to do some cool stuff.
36:44
SPEAKER_02: But I've been surprised, Nick, by the lack of uh MA and acquisitions in the space.
36:48
SPEAKER_02: You know, we bought a vape brand in California called Himalaya a couple of months ago, and I'm sure there's been some others since then, but that wasn't, you know, uh, you know, a blockbuster deal, but it was something out there.
36:58
SPEAKER_02: But we haven't seen much activity from some of those bigger players.
37:01
SPEAKER_02: So kind of curious how you see that MA landscape evolving.
37:04
SPEAKER_02: And I'm particularly curious, is something cooking maybe in that big six, Nick?
37:09
SPEAKER_02: Do you see any uh synergies there?
37:12
SPEAKER_03: God, I don't know about the the big six movement.
37:15
SPEAKER_03: That would be exciting.
37:16
SPEAKER_03: Um I do think that there are scars from large-scale uh mergers um from the last couple of years that uh perhaps frightens companies.
37:25
SPEAKER_03: Uh, like you never know exactly what you're buying until you're operating it.
37:29
SPEAKER_03: Um and you know, I think there's just some ugly history of MA for a lot of these like bigger operators.
37:36
SPEAKER_03: Um, you know, I could name quite a few CrossCo Origin House, Pure Leaflow Sueños.
37:41
SPEAKER_03: Like there are there's some bad MA over the years.
37:44
SPEAKER_03: So I I um and given also state limits on on licenses, although that's been more flexible lately, um, that may limit some of the larger deals.
37:54
SPEAKER_03: Um, but yeah, similar to you, I've been surprised by how long it's taken.
37:57
SPEAKER_03: I think uh I think there's like two main reasons.
38:00
SPEAKER_03: One is like I mentioned, people are scarred and um are just happy to run what they have and and you know know what they're good at and know what they own.
38:09
SPEAKER_03: Uh and then two, I think surprisingly, companies found like bad companies, dying companies found a way to survive longer than I expected.
38:17
SPEAKER_03: Um, you know, they sold off selective assets, they extended debt by just diluting companies like crazy.
38:22
SPEAKER_03: You know, I think cannabis, AY, AYR are like good examples of that.
38:27
SPEAKER_03: Um, but it can only go on so long.
38:30
SPEAKER_03: Uh, I think it took longer than we expected.
38:32
SPEAKER_03: But you did finally see um, you know, if we're gonna look at M ⁇ A examples, it a lot some of it has just been uh buying out uh companies that have gone under.
38:40
SPEAKER_03: And that's you know, Verano bought some of uh cannabis assets.
38:45
SPEAKER_03: Um, you know, I think what Varreo is doing, I think they're uh clearly like the the leader in in consolidation right now.
38:52
SPEAKER_03: Um, you know, you can look at like what they just did with like Fluent, which is a very struggling Florida company, um, who similarly like was just too small to operate on their own.
39:02
SPEAKER_03: Uh you saw their cash flows dwindle even with no 280e um and and sold off for quite cheap.
39:09
SPEAKER_03: Um so my guess is that MMA MA will pick up, but a lot of it will be distressed.
39:14
SPEAKER_03: Um, and then I do think MA will also pick up in the uplisting uh environment.
39:20
SPEAKER_03: Um, because I think like uh exit liquidity is important.
39:25
SPEAKER_03: Um and when you have MA deals like this and you have private investors who want to exit, boy, can they move a liquid stock quickly.
39:34
SPEAKER_03: Um so I think as companies get uplisted to higher exchanges and there's more volume, more liquidity, I think there'll be more willingness from private companies to want to be acquired and to want to like get an exit on the New York stock exchange as opposed to the the OTC.
39:49
SPEAKER_02: Yeah.
39:50
SPEAKER_02: So it's one more here from Morgan, then I'll toss it back to you.
39:53
SPEAKER_02: Um but Nick, is there anyone that stands out to you as likely to be a big consolidator over the next couple of years?
40:00
SPEAKER_03: Um, I mean, for me, I think it's gonna be like geography does make a big difference because you can only acquire, you know, so much if you if you already have a presence in a state.
40:10
SPEAKER_03: But I think ultimately um the things that I look for for companies to begin with, cash flow profiles, balance sheet health, uh, and overall just like good financial metrics, those are the companies that simply have the ability to do so.
40:24
SPEAKER_03: Um, you know, I think so I think you know, a lot of the big names, I think GTI, TrueLeave, uh, Bureau has clearly proven themselves, like if they're gonna be a good example for a company of like, I think people are surprised by how much they're doing, and some people are, you know, uh cautious around how much they're doing, given like the you know, how many deals they're doing at once and the integration that takes.
40:49
SPEAKER_03: Um, but if you look why they're able to do that, is like one, they had a pretty limited footprint to begin with.
40:54
SPEAKER_03: It was just Minnesota and New York and I think Maryland.
40:57
SPEAKER_03: Um, so there's just easy geographies to add on to it was like a kind of like almost like a restructured company where new money had coming in from I think a Chicago Atlantic uh balance sheet was clean.
41:09
SPEAKER_03: And given that Minnesota profile and Maryland profile, both like recent adult use markets, cash flow was healthy, margins were healthy.
41:16
SPEAKER_03: So I think when you have that backdrop of good financial, uh like a good financial foundation, you're better able to go after MA.
41:24
SPEAKER_03: Um, so I you know, I I would definitely look at names that uh have that financial basis uh to be the ones to go and acquire.
41:31
SPEAKER_03: Um I also think, you know, I mentioned cash flow specifically.
41:34
SPEAKER_03: I think a lot of companies, especially if you're looking for an exit, it's great if you can get to the, you know, if you can get paper on like a New York socket chain listed company, it's better if you can just get paid out in cash.
41:45
SPEAKER_03: Um, so this market is still very limited in cash.
41:49
SPEAKER_03: So I think companies that can pay cash, um, and there's only so many that can do so, will will also drive MA.
41:56
SPEAKER_00: Just uh one quick before I jump into the capital markets.
41:59
SPEAKER_00: Do you how much is um do you think there was MA or when you're like looking at the various factors?
42:05
SPEAKER_00: It wasn't necessarily an interest and willingness to acquire, but it was more of an issue where the private companies wanted valuations that were just not realistic to the market.
42:18
SPEAKER_03: Yeah, I'm sure you see that too.
42:19
SPEAKER_03: I think I think that's definitely the the case for a lot of these names.
42:23
SPEAKER_03: It's like cannabis has been just such a downtrodden industry for so long.
42:27
SPEAKER_03: So it's like, God, why am I gonna sell out at four times IBITA?
42:31
SPEAKER_03: Um, and that just like I'm sure as private operators, you're like, God, that just feels like a bad exit.
42:36
SPEAKER_03: But like that's what public names are trading at.
42:38
SPEAKER_03: Like you can't you can't invent a new multiple for yourself.
42:42
SPEAKER_03: And arguably you should you should be bought out at a at a discount to the the public markets, is like the way it'll it would traditionally work.
42:49
SPEAKER_03: Um, so I for I I do think that limited MA as well.
42:53
SPEAKER_03: That's a good point.
42:54
SPEAKER_00: Yeah.
42:55
SPEAKER_00: Yeah.
42:55
SPEAKER_00: I mean, we have a mantra hit the bed when you get if it's a good situation, like that little bit, you know, to walk away and wait for, you know, especially in deflationary environment, waiting is a bad idea.
43:08
SPEAKER_00: So definitely.
43:09
SPEAKER_00: Um, but but part of the challenge has been people are like, well, I don't necessarily want that public stock.
43:14
SPEAKER_00: And in some instances, that was very true.
43:16
SPEAKER_00: Then the prices went down another 30, 40, 50 percent, right?
43:19
SPEAKER_00: So it was like not really getting four times, you're getting, you know, some instances like a lot less than that.
43:26
SPEAKER_00: So yeah, um, so you know, it's just been tricky for sure.
43:29
SPEAKER_00: Um, and there still is a lot of friction with that, I'd say, with the with the market, as um, you know, it's gotten better, but there still is this like I don't know if it's just the from years past of the next cycle will be great, like Jesse said, like MSOS going to 20, like, and then we'll be it'll be great.
43:47
SPEAKER_00: And it's like, but no one knows, right?
43:49
SPEAKER_00: And so if you've got a good partner that it's a reasonable price relative to the market dynamics, like just go.
43:56
SPEAKER_00: Um, I but but we've also wanted and saw Consolidation is a needed aspect of this industry for a long time.
44:04
SPEAKER_00: I mean, it's just a natural thing.
44:05
SPEAKER_00: I mean, there's certain elements that can have the ability to not have to be a part of a bigger ecosystem, but there's a lot that does because you just need that operational leverage and you know overcoming that overhead to be sustainable businesses.
44:20
SPEAKER_00: So um, but you know, when we're, you know, you you sit in such a great seat because you're not just cannabis, like this is an area you like to work in, but you are in touch with a broader investor base, right?
44:35
SPEAKER_00: From just the work you do outside of cannabis.
44:38
SPEAKER_00: And you know, I think a big question we get is you know, now we have some companies listed, you know, is there demand there?
44:45
SPEAKER_00: What is it going to take to get more a broader lens looking at the space of investors?
44:51
SPEAKER_00: Because right now, just what I'm hearing is the initial kind of new money has this mentality of, oh, distressed, right?
45:00
SPEAKER_00: And they're coming in, let's let's go buy up distressed assets.
45:04
SPEAKER_00: And it hasn't really broadened beyond that to more of just generalists.
45:08
SPEAKER_00: So, you know, what what do you think are some of the factors that would get a larger audience to start looking at this space and not just looking but acting?
45:17
SPEAKER_03: Yeah, yeah, I mean, I think we've touched on a number of them today in in the chat.
45:22
SPEAKER_03: Like I think it's gonna have to come from all angles.
45:25
SPEAKER_03: You know, I think the the federal framework for sure is is kind of the initial launching point and and up listing is you know one A out of many steps that need to come.
45:36
SPEAKER_03: Um, so you know, I definitely think the full rescheduling will be the next step.
45:40
SPEAKER_03: I think uh some sort of congressional legislation will hap, will need to happen just to be, you know, we need like recognition from someone beyond just uh I think like the you know, the president and like the federal government.
45:54
SPEAKER_03: I think we need a coalition of states and representatives from those states to recognize like, hey, this is an industry that matters.
46:00
SPEAKER_03: Um, you know, we saw safe banking get uh reignited for the you know seventh year in a row or whatever it is.
46:07
SPEAKER_03: Hopefully, you know, I'm praying this time is different.
46:10
SPEAKER_03: Uh, you know, Mike Johnson said he wouldn't stand in the way, which would be an improvement.
46:13
SPEAKER_03: Like the house hasn't passed safe, like House has passed safe banking.
46:17
SPEAKER_02: Sorry, delayed reaction.
46:20
SPEAKER_03: Uh House has passed safe banking.
46:22
SPEAKER_03: Well, was it like eight or nine times, but has it has passed zero since he took over.
46:25
SPEAKER_03: So, you know, I think you know, I think him saying that is uh meaningful.
46:30
SPEAKER_03: It means you know, Trump is exerting his influence on them.
46:33
SPEAKER_03: Um, you know, and then going back to what I said a number of times now, I think these names need to start growing again using all those levers, that the hemp band consolidation, market share growth, uh companies falling out, all those things need to happen.
46:48
SPEAKER_03: I think uh winners have to show themselves and that winners have to prove institutional uh money that they're worth investing in long term.
46:57
SPEAKER_03: Um, so I think it's a whole confluence of factors that need to come together.
47:01
SPEAKER_03: Um, you know, we're starting to get those.
47:03
SPEAKER_03: Like I think it is good to have perspective.
47:04
SPEAKER_03: Like we are we have we have bounced well off the bottom.
47:08
SPEAKER_03: Like it's not nearly, I think, what people expected, but um, you know, CareLeap is up 3x from where it was at, you know, uh six months ago, eight months ago, like a number of names are up 100, 200%.
47:21
SPEAKER_03: Um, that is a win, and that is recognition that, like, hey, these names are probably worth more than they were at the bottom.
47:27
SPEAKER_03: Um, but I think to continue that, we need to, I think the companies themselves need to show growth and and margin stabilization.
47:33
SPEAKER_03: Um, and then we just need that the incremental movement on the on the legislative front.
47:38
SPEAKER_03: You know, I was listening to uh Hirst Jane, one of your frequent guests on a on a he was on the Dime podcast, and he talked about super interesting, everyone should go listen as well, about how all these movements kind of like show parallels with each other.
47:52
SPEAKER_03: Like if you look back towards uh, you know, like gay rights or um the civil rights movement, things never happened in one big step.
48:01
SPEAKER_03: Uh, and I think cannabis is gonna look a lot like that.
48:03
SPEAKER_03: Like you sometimes have a legislative event, you have a judicial event, you have recognition from various things along the way, um, but it never is a flip of the switch.
48:13
SPEAKER_03: And I think that's the case here.
48:15
SPEAKER_03: You know, I think we'd love for it to be a flip of the switch, but I think it's it's gonna take time.
48:19
SPEAKER_03: Like I think, you know, things like interstate commerce is are gonna take time and may occur in a very convoluted way.
48:25
SPEAKER_03: I think um just this evolution of this industry, like I said at the beginning into a normal, recognized industry has to occur on so many levels, on from payment vendors to to insurance to loans to uplisting, like we mentioned.
48:42
SPEAKER_03: So many things need to happen, and none of those are going to happen at the same time.
48:45
SPEAKER_03: Um, so I think we need incremental movements on kind of all those fronts for people to get comfortable uh investing in this industry long term.
48:54
SPEAKER_00: Yeah, it's interesting because you know, like to your point, like we have all this patchwork regulatory things on a state by state basis, even a sometimes like a municipality to municipality basis.
49:06
SPEAKER_00: And you know, now we're I I did see, and Jesse cued my head, um sound of safer was reintroduced yet again.
49:16
SPEAKER_00: I think it is the eighth time, and I did see the Mike Johnson thing, and obviously it wanted it to happen back when we started Poseidon now, and here we are all these years later.
49:29
SPEAKER_00: So, yeah, I mean, if Congress could actually do something um and do something, you know, maybe they feel better about it after these hearings go through.
49:38
SPEAKER_00: I know Sam uh uh Kevin Sabbath is really getting pretty loud out there with how things are going.
49:44
SPEAKER_00: So that means it must be going pretty well so far in these hearings.
49:48
SPEAKER_00: Um, but uh, but even still, like, you know, where is Congress this summer?
49:53
SPEAKER_00: Like, is this really gonna happen this fall?
49:54
SPEAKER_00: We're going into midterms.
49:56
SPEAKER_00: Like, I don't I don't really have a good read on it.
49:58
SPEAKER_00: I know you know some folks are saying it's gonna happen before the midterms, great.
50:02
SPEAKER_00: Obviously, if it does, I'm not putting a polymarket bet on that, unless the odds are absurd.
50:07
SPEAKER_00: Um, but you know, I just think about this in relation to other industries, and it's just like we have tried to and worked hard to be patient for so long and like working with companies to just try to do as much as we can within this crazy ecosystem.
50:23
SPEAKER_00: And then you have other areas like AI that is just going beyond vertical, it's actually bending backwards how vertical it's going and its rate of growth.
50:31
SPEAKER_00: And you know, we're like trying to get back into positive growth, right?
50:36
SPEAKER_00: Just to your point as earlier, is just trying to overcome four years of deceleration or negative um growth.
50:44
SPEAKER_00: Um, I guess it's just you know how you know, and that's like this trying to bring the generalists in is like when they're looking at these other sectors that are just going bonkers and we're grinding along.
50:57
SPEAKER_00: What you know, I just feel is that is that just the prohibition kind of overhang that is just trying to hold us back from seeing more?
51:04
SPEAKER_00: And I do agree with you, we're not going, we're not tech, we're not gonna unless you're you know in tech, but I mean, you know, operating businesses, you know.
51:12
SPEAKER_00: So what what I guess is like uh from a generalist, maybe coming back to that is what are kind of like longer-term CPG growth rates?
51:18
SPEAKER_00: Like what are kind of like some objectives that would be then we're like getting back into the strike zone for that kind of um sector.
51:27
SPEAKER_03: Yeah, no, I think yeah, I think this is a great point.
51:30
SPEAKER_03: And you know, I think the one of the benefits is we're starting from such a low basis here in terms of just recognition in terms of how difficult the last couple of years have been.
51:40
SPEAKER_03: So any, I think, modicum of improvement on all those factors will make this more investable.
51:45
SPEAKER_03: And I think a lot of these names can re-rate just on a you know modest improvement of the investor base.
51:53
SPEAKER_03: It's not like, like I said, we we don't need to be big tech to re-rate to normal CPG levels.
51:59
SPEAKER_03: Um, we we can be treated like that uh with just some level of institutional interest and and just normalization of the industry.
52:08
SPEAKER_03: So um I do think that's almost like a benefit, is that like we are starting from this this uh just very low base um in in terms of I guess almost like quality.
52:20
SPEAKER_03: Um so I think even you know low single-digit growth for multiple years and and margin stabilization uh will will make a difference.
52:29
SPEAKER_03: And uh, you know, I think the parallel is kind of what I brought up in the beginning when I mentioned some of these Canadian names, because it's almost like Canada's like been a separate industry.
52:38
SPEAKER_03: A lot of those, and and they do rhyme with the the federal movements in the US because it's all connected to an extent, but a lot of those names have improved uh on their own simply by being good companies.
52:50
SPEAKER_03: Uh, and I think that's a very possible scenario for a lot of these US names.
52:54
SPEAKER_03: And I think when you look at some of the outperformers in the US, names that have done well, um that's usually the case, is that they just have proven to be good companies.
53:04
SPEAKER_03: Um, so I think uh there is tremendous opportunity to rewrite to even 10 to 15x type type type multiples.
53:12
SPEAKER_03: Um, we have to show uh quality financials for a number of successive years, um, and then just a little bit of uh infrastructure support with uplisting and hopefully some federal and state recognition.
53:27
SPEAKER_02: And where does that tier one basket trade right now on an EV to EBITA uh basis, Nick?
53:32
SPEAKER_02: If you're talking 10 to 15 for yeah, it's interesting.
53:36
SPEAKER_03: I mean, if you look currently, I think they trade right around there.
53:39
SPEAKER_03: I think they traded 10 to 12x last time I checked.
53:41
SPEAKER_03: Um, so you could almost say they've already gotten their their re-rating, they've you know have definitely outperformed past six, twelve months.
53:48
SPEAKER_03: Um, but I think the the general basket is anywhere in the four to six range.
53:52
SPEAKER_02: Yeah.
53:52
SPEAKER_02: Yeah, that's what I was thinking.
53:53
SPEAKER_03: So I mean that's a pretty easy two to three X, I think, would be a reasonable conclusion of where to go.
53:59
SPEAKER_03: But again, I think you need if you're showing negative year over year growth and margin decline, you you might not even get 10x.
54:06
SPEAKER_03: Like, I don't think you uh institutional investors won't come in and be like, hey, that's attractive because it's like how durable are those profits?
54:12
SPEAKER_03: You need to, and it needs to be like, hey, I can invest for this in the next five, 10 years.
54:18
SPEAKER_00: Yeah.
54:19
SPEAKER_00: With um one one last one, Justin, I'll hand it back.
54:22
SPEAKER_00: Is um, you know, now Julie's this at Glasshouse is listed.
54:26
SPEAKER_00: We might be seeing some semblance of a GTI rhythm kind of foundation that should the should things go a certain way, they could combine as a listed company.
54:39
SPEAKER_00: Um I'm just speculating a little bit.
54:42
SPEAKER_00: I did see some of the chat around X about this earlier with you and Scott, which is great.
54:45
SPEAKER_00: Um what would you think these companies will do, or do you think they will act differently than they did versus when they were on the OTC now that then they're on the New York Stock Exchange with investor communications or reporting?
55:00
SPEAKER_00: Like, do you think do you see any changes coming from them or just kind of keep it on?
55:05
SPEAKER_00: I I mean, I hope so.
55:06
SPEAKER_03: I mean, I think the the the mostly the good companies have already been performed fairly well, but I think you have to button it up even even further.
55:14
SPEAKER_03: Um, so I do hope to see even further improvement and just IR transparency into everything that comes alongside that.
55:22
SPEAKER_03: Um, because yeah, I think there's just like greater demands from the market.
55:26
SPEAKER_03: Um, but I I think again, I think showing it in the financials will kind of outweigh anything else.
55:32
SPEAKER_03: Um, so I do I like like you, I see crumbs.
55:35
SPEAKER_03: I think other companies will follow, like Terracenda is completing their share of consolidation.
55:40
SPEAKER_03: Verano did the same.
55:41
SPEAKER_03: Um, I think it'll be interesting to see.
55:43
SPEAKER_03: I think some companies are clearly going to wait for the rescheduling effort because it's like, hey, if we get this in July or August, I don't have to do this weird uh medical adult use decomp deconsolidation.
55:54
SPEAKER_03: So I've waited 10 years, I can wait two months more.
55:58
SPEAKER_03: Um, but clearly it's it's in the works for a number of companies, and it's clearly possible.
56:03
SPEAKER_03: Um, so yeah, I do hope to see uh greater transparency, greater uh IR communications.
56:10
SPEAKER_03: Um, you know, I think I think certainly like truly with um Kim's timing on selling maybe wasn't the smartest thing to do out the gates.
56:17
SPEAKER_03: Granted, like I think it was gonna go up and down regardless.
56:21
SPEAKER_03: Um but I think uh these companies do have to button up the hatches and try to um appear presentable, but mostly that's done on the operational side.
56:30
unknown: Yeah.
56:32
SPEAKER_02: Well, this has been great, guys.
56:33
SPEAKER_02: Let me uh get ready to sign things off here by saying thank you again to FlowHub for making today's show possible.
56:38
SPEAKER_02: After 100 shows, we learned we need the best tech stack for our podcast.
56:44
SPEAKER_02: Do the same for your store, guys.
56:45
SPEAKER_02: You know, streaming live to YouTube and you know, getting on video is what mattered to us.
56:49
SPEAKER_02: But if you're looking to make the most of your store, especially as we're talking so much more about MA and opportunities ahead, the best thing you can do for your store is to go over to FlowHub.com and book a demo today and see how they can improve your front end software.
57:02
SPEAKER_02: So thank you, Kyle, Andy, the whole team at Show FlowHub for making today's show possible.
57:08
SPEAKER_02: Nick, good to catch up with you, man.
57:09
SPEAKER_02: Appreciate uh all the insights today.
57:11
SPEAKER_02: Wish we had a little bit more time, but the uh day job does call.
57:15
SPEAKER_03: Likewise, thanks again.
57:17
SPEAKER_03: Very feel honored to be uh the guest on your 100th podcast.
57:20
SPEAKER_03: So congrats on that again.
57:22
SPEAKER_02: Thank you, Morgan.
57:23
SPEAKER_02: We made it, my friend.
57:24
SPEAKER_02: It's been a battle, it's been a labor of love most of the time.
57:28
SPEAKER_02: Thank you for 100 episodes.
57:30
SPEAKER_02: Always good to chat.
57:31
SPEAKER_00: Yeah, thank you.
57:33
SPEAKER_02: And thank you guys all for listening.
57:35
SPEAKER_02: Again, thank you for the support.
57:36
SPEAKER_02: Appreciate everybody uh being here.
57:38
SPEAKER_02: It's been a journey.
57:39
SPEAKER_02: Looking forward to the next 100, and we'll see you guys back here in about two weeks.
57:44
SPEAKER_02: The views express this podcast are provided for informational purposes only.
57:48
SPEAKER_02: Nothing we said should be considered research nor recommendation.
57:50
SPEAKER_02: You're a cannabis investor, you know this involves risk, and you know you can lose your money.
57:55
SPEAKER_02: We'll see you guys soon.