Latest / Higher Exchanges / Cannabis Stocks: What Will Drive the Next Leg of Growth? with Jerry Derevyanny

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Cannabis Stocks: What Will Drive the Next Leg of Growth? with Jerry Derevyanny · Higher Exchanges

• 0:01
  SPEAKER_03: Welcome back to Higher Exchanges, the number one independent cannabis investment show, where we break down complex cannabis markets into clear insights and your host, Jesse Redman and Oregon.
• 0:30
  SPEAKER_04: Welcome back indeed.
• 0:31
  SPEAKER_04: I'm Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands.
• 0:36
  SPEAKER_04: I am back with a man Jerry calls annoyingly good looking.
• 0:40
  SPEAKER_04: Morgan, what's up, handsome?
• 0:44
  SPEAKER_05: Living the life, living the dream.
• 0:46
  SPEAKER_05: Uh all good here.
• 0:48
  SPEAKER_05: How are you guys doing?
• 0:50
  SPEAKER_04: I'm good, man.
• 0:51
  SPEAKER_04: It was fun to see you see you last week.
• 0:52
  SPEAKER_04: I want to chat about that for a second.
• 0:54
  SPEAKER_04: But before we get into that, let's not mess around.
• 0:57
  SPEAKER_04: Let's bring up the man himself.
• 0:58
  SPEAKER_04: He's a partner at Bengal Capital.
• 1:00
  SPEAKER_04: He's a little bit cranky online, but seems like a pretty good dude in person.
• 1:03
  SPEAKER_04: He's Jerry Derviani.
• 1:05
  SPEAKER_04: Jerry, welcome back to the show.
• 1:07
  SPEAKER_01: Thanks for having me, guys.
• 1:09
  SPEAKER_04: Yeah, good to see you.
• 1:11
  SPEAKER_04: Jerry, sad you couldn't make it out for Investor Day.
• 1:13
  SPEAKER_04: I know you have a young kid and you're a busy man, but uh we missed you out there.
• 1:17
  SPEAKER_04: But Morgan, I hope uh you had a good time visiting uh Leaf Brand Salisbury Canyon Ranch in little town called New Kiyama, California.
• 1:25
  SPEAKER_05: Uh it was a great time.
• 1:26
  SPEAKER_05: And you know, I really like the um thank you for all the work that went into that.
• 1:32
  SPEAKER_05: Um it was a great event, beautiful property.
• 1:34
  SPEAKER_05: Um love California, such a pretty state.
• 1:38
  SPEAKER_05: And getting to go somewhere like that is it's really special.
• 1:42
  SPEAKER_05: I I'll uh save my my drive out adventures for those that want to hear about it in Vegas.
• 1:48
  SPEAKER_05: So um, but no, it was awesome.
• 1:50
  SPEAKER_05: I really like too what you guys did with the uh the brand.
• 1:53
  SPEAKER_05: I was looking at my t-shirt that I got.
• 1:55
  SPEAKER_05: Oh, cool.
• 1:55
  SPEAKER_05: I loved like the constellation on the back and everything with the cowboy.
• 1:58
  SPEAKER_05: I think that's really cool.
• 1:59
  SPEAKER_05: And it's feels very California cowboy brand-esque.
• 2:03
  SPEAKER_05: I like it.
• 2:04
  SPEAKER_04: Yeah, I read a book, Morgan, coming into this called The Art of Gathering, which is just what it sounds like.
• 2:09
  SPEAKER_04: It's the art of gathering people together.
• 2:11
  SPEAKER_04: And I've never planned an event before, like literally, you know, when I got married years ago, my ex-wife handled all that.
• 2:17
  SPEAKER_04: I'm not an event planning guy, shockingly.
• 2:19
  SPEAKER_04: Um, but when I read the book, it's all those little details, Morgan, that I learned, you know, make an event special.
• 2:24
  SPEAKER_04: And we tried to do that with the story cards, the welcome notes, the welcome baskets, the exit bags, the intentional seating that we did at the uh at the what three meals that we had.
• 2:36
  SPEAKER_04: And um, yeah, it felt really good from my perspective, man.
• 2:38
  SPEAKER_04: There was a whole bunch of fun stuff we did.
• 2:40
  SPEAKER_04: And I'm not trying to do a FOMO thing saying, look how cool we are.
• 2:43
  SPEAKER_04: You know, we weren't there, we did this great thing.
• 2:45
  SPEAKER_04: That's the last thing I want people to feel.
• 2:47
  SPEAKER_04: You know, but we shot guns, we rode horses, all of that was super cool, Morgan.
• 2:51
  SPEAKER_04: But the biggest thing that I came away with was it provided a forum for people to make connections.
• 2:55
  SPEAKER_04: Like I saw people talking that didn't know each other and you know, trick trading phone numbers and what turned into handshakes at the beginning were hugs at the end.
• 3:03
  SPEAKER_04: And, you know, we had about 17 investors there.
• 3:06
  SPEAKER_04: Um, Fred from ATB and Kenrick from uh Canacord were out there as analysts.
• 3:11
  SPEAKER_04: And then it was really cool to have uh three of the top, what, you know, seven or so MSOs out there.
• 3:16
  SPEAKER_04: We had Jason and Ziad from Terrace and came, uh Trent from Giushi came, and then a firm and a person that will not be named um also joined us uh as well.
• 3:25
  SPEAKER_04: So I was really stoked on the group and um thought there's a lot of good synergies uh between people, but also I think people just had a good time hanging out.
• 3:33
  SPEAKER_05: Yeah, absolutely.
• 3:34
  SPEAKER_05: Yeah, it was a great conversation.
• 3:35
  SPEAKER_05: I appreciate how you guys did the seating arrangements because I got to talk to people that I didn't know before.
• 3:40
  SPEAKER_05: So it's it was fun to talk to people that have come from a different lens that have been doing some things in cannabis too.
• 3:46
  SPEAKER_05: Um, and you know, being in the space for as long as we have been to talk to new people was uh was refreshing.
• 3:54
  SPEAKER_05: Um little fun fact about uh getting older.
• 3:58
  SPEAKER_05: You gotta remember what it's like to be a kid.
• 4:01
  SPEAKER_05: Because my God, did I botch making s'mores?
• 4:04
  SPEAKER_04: Did you?
• 4:05
  SPEAKER_04: Yeah, yeah, I I remember this guy.
• 4:07
  SPEAKER_04: So let me jump in here.
• 4:08
  SPEAKER_04: Morgan's going to make s'mores.
• 4:09
  SPEAKER_04: And like, I get it if you hadn't made a s'mores in a few years, especially if you don't have kids.
• 4:12
  SPEAKER_04: There's not a lot of occasions to be you can make s'mores.
• 4:15
  SPEAKER_04: But guys, I assume 99.9% of you know you put a marshmallow on a stick, you toast that marshmallow, you smash it between a graham cracker, and then we had four flavors of chocolates.
• 4:26
  SPEAKER_04: We had like peanut butter, caramel, straight chocolate, and maybe a peppermint.
• 4:30
  SPEAKER_04: My mom did all these killer custom s'mores.
• 4:33
  SPEAKER_04: Morgan gets up there, guys.
• 4:35
  SPEAKER_04: He had his marshmallow and his graham cracker and his chocolate all together and was trying to figure out how to roast them all at the same time.
• 4:42
  SPEAKER_05: Yeah, wanted to toast them.
• 4:44
  SPEAKER_05: How high were you?
• 4:47
  SPEAKER_00: Should have been higher.
• 4:49
  SPEAKER_00: That's like that's like a files are in the computer moment, you know?
• 4:55
  SPEAKER_04: I was I I was uh I was dying.
• 4:58
  SPEAKER_04: That was one of the highlights of the event.
• 4:59
  SPEAKER_04: The other one, Morgan, and I'll be quick on this, we'll move on.
• 5:01
  SPEAKER_04: Was do you remember when you when you got there late on uh Wednesday night?
• 5:05
  SPEAKER_04: We had already had dinner, everyone was in bed.
• 5:07
  SPEAKER_04: Morgan gets there about 11 o'clock, and we had a welcome basket for Morgan, had water, snacks, Himalaya products, leaf organics, a whole bunch of cool stuff.
• 5:15
  SPEAKER_04: So I asked the event planner to take Morgan to his basket when he arrives because I figured the guy's gonna be fatigued, he's gonna want to rip off a cart and have some snacks and go to bed.
• 5:22
  SPEAKER_04: Yeah, he says yes, I did.
• 5:24
  SPEAKER_04: The event planner assumes for some reason Morgan is not in his room yet, and she has a master key and she had the faux pas.
• 5:31
  SPEAKER_04: If you ever go to hotel, they always knock on your door to make sure that you're not in there.
• 5:34
  SPEAKER_04: So the event planner was getting ready for bed when Morgan arrived.
• 5:38
  SPEAKER_04: So she throws a towel around her head, a robe from the hotel, and she's an attractive, you know, five-foot dark-haired girl, and she doesn't knock on Morgan's door.
• 5:48
  SPEAKER_04: So, like a minute after Morgan gets there, some girl in a towel, you know, comes walking into Morgan's room and has two Morgan had two reactions like, holy shit, what is this?
• 5:57
  SPEAKER_04: But also two, wow, this is really a full service event.
• 6:06
  SPEAKER_00: Leave me it's OTC, but it's got big board payboard service.
• 6:13
  SPEAKER_04: Old school MJ Biz vibes, right?
• 6:15
  SPEAKER_02: Right.
• 6:17
  SPEAKER_04: Uh so uh I I I you took it all as dried, Morgan, so appreciate you having a sense of humor.
• 6:23
  SPEAKER_05: Oh man, I felt worse for her.
• 6:25
  SPEAKER_05: She seemed like she was terrified.
• 6:26
  SPEAKER_05: I was like, it's all good.
• 6:27
  SPEAKER_05: I'm still clothed.
• 6:30
  SPEAKER_04: Yeah.
• 6:31
  SPEAKER_04: Thank God you weren't uh getting ready for bed or hopping in the shower or something.
• 6:36
  SPEAKER_04: But yeah, that was fun.
• 6:37
  SPEAKER_04: Thank you uh again for uh making the trip.
• 6:39
  SPEAKER_04: It was uh it was always always good to see you in person.
• 6:41
  SPEAKER_04: And we're putting out a bunch more content from that guy, sharing some clips from different talks we did.
• 6:45
  SPEAKER_04: And again, what to make the effort to bring you guys into the event and try to make it more inclusive.
• 6:49
  SPEAKER_04: So look for more content over that over the next uh week or so here.
• 6:52
  SPEAKER_05: Yeah.
• 6:53
  SPEAKER_05: I'd say a quick highlight for me was the cowboy poet at dinner.
• 6:56
  SPEAKER_04: Oh, cowboy dick?
• 6:58
  SPEAKER_04: People don't even know that cowboy poetry is a is a is a thing.
• 7:02
  SPEAKER_04: And um Dick is legendary.
• 7:03
  SPEAKER_04: He's an older guy who lives uh in the back of the ranch and does this cowboy poetry.
• 7:07
  SPEAKER_04: He was mic'd up, and so uh we're gonna cut a few clips of that too, so you can guys can see what the hell we're talking about.
• 7:14
  SPEAKER_04: Well, cool, boys.
• 7:15
  SPEAKER_04: Let's uh get going on the agenda.
• 7:16
  SPEAKER_04: But before that do we do that, Morgan, why don't you tell me a little something about the best dispensary software out there?
• 7:22
  SPEAKER_05: Yeah, well, as we're talking about Vegas, FlowHub is returning to MJ BizCon with more innovation than ever, December 1st through 4th in Las Vegas.
• 7:29
  SPEAKER_05: Cannabis retailers can visit booth 25625 for a hands-on look at FlowHub's AI native commerce platform, connecting point of sale, payments, e-comm, inventory, loyalty, and business intelligence.
• 7:44
  SPEAKER_05: As the innovation stage sponsor, FlowHub is bringing the future of cannabis retail into focus, showing how connected technology and AI can help operators move faster, simplify daily operations, and build better customer relationships.
• 7:58
  SPEAKER_05: Heading to the show, we've got a promo code for 20% off the MJ BizCon registration.
• 8:03
  SPEAKER_05: I'll put it in the X feed and somewhere because I I can't seem to be able to do public comments uh from here, but uh we'll add that after the show.
• 8:13
  SPEAKER_04: Cool.
• 8:14
  SPEAKER_04: Yeah, looking forward to seeing you out there, Morgan.
• 8:16
  SPEAKER_04: Morgan and I are gonna be hosting a panel together with a few industry CEOs.
• 8:20
  SPEAKER_04: And I think that's on uh Tuesday, November 1st in the afternoon.
• 8:23
  SPEAKER_04: So more on that.
• 8:24
  SPEAKER_04: But Morgan and I will be out there doing a higher exchange-y type thing with uh Patrick and the CEO mixer gang.
• 8:30
  SPEAKER_04: So I think that'll be a good time.
• 8:32
  SPEAKER_04: Well, Jerry, let's uh jump into it, man.
• 8:35
  SPEAKER_04: And I think this is gonna be kind of a classic higher exchanges where you know the original idea behind the show was let's take conversations we'd want to have in private and do it publicly.
• 8:44
  SPEAKER_04: And I want to treat the show as just kind of the three of us catching up on what's happening in the industry.
• 8:48
  SPEAKER_04: So I'm curious, Jerry, just kind of starting out high level, um, what's your overall perspective on where we are so far this year and your mindset as we head into the last uh couple of months here?
• 9:01
  SPEAKER_01: Um, well, you know, it's funny.
• 9:02
  SPEAKER_01: I I'm probably the most bullish on cannabis generally, then which is probably a big change for the people that have listened to me before, uh, than I have been probably for a long time.
• 9:14
  SPEAKER_01: Um uh that doesn't mean I'm as bullish as some of the other people on there, but and I think there's still a lot of stuff that um people are kind of underpricing.
• 9:24
  SPEAKER_01: But I think, you know, what surprised me is honestly uh these companies, some of the companies that I didn't think were that great, like, you know, they're doing their best.
• 9:35
  SPEAKER_01: They're to write the ship and and do stuff, and it's not, you know, it's it's not as bad as it it probably was.
• 9:42
  SPEAKER_01: Um how much shareholder value they're gonna create is uh is kind of still an open question.
• 9:47
  SPEAKER_01: Um but I think it's really interesting to see how markets are changing.
• 9:55
  SPEAKER_01: There's still there's still some kind of green shoots out there um that I think are are kind of exciting.
• 10:01
  SPEAKER_01: Um so it's it's been an interesting year.
• 10:04
  SPEAKER_01: Plus, uh, you know, if you're ever bored, you can just try to look up what what's anybody's thinking about rescheduling at any given time, and and you can have a debate within 20 seconds if you really want to get your blood popping.
• 10:19
  SPEAKER_01: So there's always that, you know, as an outlet if you want to just have uh kind of meaningless, uh meaningless time wasting in cannabis.
• 10:27
  SPEAKER_01: So you know, you can you could it's it's really a whole new world out there.
• 10:31
  SPEAKER_04: And what's making you uh bullish?
• 10:35
  SPEAKER_01: Well, I think A, there's companies that are riding the ship, right?
• 10:40
  SPEAKER_01: B there are companies that are starting to, you know, there's some exciting stuff going on.
• 10:45
  SPEAKER_01: Uh, you know, hostile fids.
• 10:47
  SPEAKER_01: That's come on.
• 10:48
  SPEAKER_01: That's not something that we've seen in US cannabis.
• 10:52
  SPEAKER_01: I don't think ever.
• 10:53
  SPEAKER_01: Um and then you you know, you you have a little bit of growth, you have a little bit more discipline.
• 10:59
  SPEAKER_01: Um, I think what I'm really excited about is this uh, you know, this idea that that kind of second generation, third generation owners of assets can come in now and be levered on huge infrastructure and and spending, you know, generation one spending, that now you get to kind of take over uh uh something that somebody couldn't run very well and was over-levered and have a chance to create incredible value for yourself, your shareholders, but also, you know, kind of the landowner potentially that that had a facility that needs a tenant, that now you're able to come in and and do, you know, it's a benefit to everybody.
• 11:39
  SPEAKER_01: And yeah, and I think I think that's that's exciting in in some of these markets that are still really underserved.
• 11:46
  SPEAKER_04: And historically you've been very selectively bullish.
• 11:49
  SPEAKER_04: I know in the fund, you're long grown rogue and is there still some body and mind common or are dead in there, Jerry?
• 11:55
  SPEAKER_00: There's both.
• 11:56
  SPEAKER_04: Okay.
• 11:57
  SPEAKER_04: So your fund expresses the view pre really selectively.
• 12:01
  SPEAKER_04: Is that the way you're thinking about your head as you're talking now?
• 12:04
  SPEAKER_04: Or are you getting a little bit more broadly optimistic either on an MSOS type level or even at a bigger basket type level?
• 12:12
  SPEAKER_01: Um, I'm I'm more uh optimistic on a kind of broader basket level, but I don't um I I don't hold any any MSOs.
• 12:20
  SPEAKER_01: That it's not, you know, given the opportunity set that we have at Bengal, I it just makes more sense for me to go after some of these opportunities that we have that are just private, and there's gonna be probably more return than than investing in an in an MSO anyway, even if the MSO is otherwise a good investment.
• 12:39
  SPEAKER_01: So that's kind of where my time has been uh focused.
• 12:43
  SPEAKER_04: And when you look more broadly, even though you're saying you're not uh as bullish broadly, I'm gonna ask you a broad question, which maybe isn't great on my part, but uh are how do you see the recovery working, Jerry?
• 12:55
  SPEAKER_04: So like in my head at one point, especially was it 24 with the Florida vote and potential Schedule three in Pennsylvania that fall?
• 13:04
  SPEAKER_04: Is that right?
• 13:06
  SPEAKER_04: Um I thought from there you could see more of a V-shaped recovery if a few of those dominoes fell quickly.
• 13:10
  SPEAKER_04: Valuations were so low, we get reformed, we get a couple fundamental things with states coming aligned, boom.
• 13:14
  SPEAKER_04: I I could have seen more of a V-shaped recovery.
• 13:16
  SPEAKER_04: In my head now, I see a slower build in most cases.
• 13:19
  SPEAKER_04: It's very stock specific, as you mentioned, but for the industry, I see a slower build as money is more cautious to come in after being head fake 19 different times.
• 13:26
  SPEAKER_04: Is that consistent with your perspective or how do you see let's look let's look ahead to 27.
• 13:31
  SPEAKER_04: Do you think it's a you know a slower recovery?
• 13:33
  SPEAKER_04: Do you think it's gonna be V-shaped?
• 13:34
  SPEAKER_04: Like what's your kind of level of optimism there?
• 13:37
  SPEAKER_01: Slower.
• 13:38
  unknown: Yeah.
• 13:38
  SPEAKER_01: I think it's slower.
• 13:39
  SPEAKER_01: I think I think it's definitely uh, you know, the the we talk about the broader industry, the main stocks in this industry are there, there's just a handful of them, right?
• 13:47
  SPEAKER_01: Like it very much defines the movement.
• 13:49
  SPEAKER_01: Um, I I would say that it's uh it's very stock specific, and I would say it's slower.
• 13:54
  SPEAKER_01: You don't have the same kind of huge catalyst that you do that you did with Florida, right?
• 13:59
  SPEAKER_01: That was such a clear, easy catalyst to see.
• 14:02
  SPEAKER_01: As a matter of fact, I that you know, I expected that vote to go, you know, different way.
• 14:07
  SPEAKER_01: I the reason it's on my mind is your sister was standing right next to me, uh Morgan, when when it happened.
• 14:12
  SPEAKER_01: I happened to be with her in uh in St.
• 14:14
  SPEAKER_01: Louis.
• 14:14
  SPEAKER_01: And so it was like a big shock to everybody.
• 14:17
  SPEAKER_05: Um 69% of Floridians thought so too.
• 14:21
  SPEAKER_01: Yeah.
• 14:22
  SPEAKER_01: Um I uh that was a weird one.
• 14:25
  SPEAKER_01: I knew people that were um I knew people like longtime medical patients in in Florida.
• 14:31
  SPEAKER_01: I I was at a dinner with like two people that had their medical cards, big, you know, wanted cheaper weed and everything.
• 14:36
  SPEAKER_01: You should have seen how quickly they were like, no, of course we voted against it.
• 14:39
  SPEAKER_01: I was like, what?
• 14:40
  SPEAKER_01: They're like, we don't want weed everywhere.
• 14:41
  SPEAKER_01: I'm like, you smoke weed all the time.
• 14:42
  SPEAKER_01: Like, what do you what?
• 14:44
  SPEAKER_01: Um anyway, I I see a slower recovery.
• 14:46
  SPEAKER_01: I mean, you got Virginia, um, but Virginia doesn't move.
• 14:49
  SPEAKER_01: It's it's a big needle mover for some specific companies.
• 14:52
  SPEAKER_01: It's I think it's gonna be slower than people think.
• 14:54
  SPEAKER_01: It's everything, no one's ever lost money in cannabis on betting things that are slower than than people generally think.
• 15:01
  SPEAKER_01: And so it's just gonna take a while.
• 15:04
  SPEAKER_04: Yeah, if you were selling calls or any sort of that strategy along the way, it's just been absolutely flawless.
• 15:10
  SPEAKER_04: And one day that's gonna get you bit, right?
• 15:11
  SPEAKER_04: But until that happens, it seems like that pressing view just seems to persist.
• 15:16
  SPEAKER_04: Um Morgan, why don't I turn it over to you to talk a little bit about uh profitability and some of the valuations out there?
• 15:23
  SPEAKER_05: Yeah, so I mean kind of going on this uh chair bull versus the jail bear mentality here is uh you know, and we're starting to get little trickles of uh the cues coming in, but and so I know none of us have really gone a deep dive, but where do you see profits actually being generated, you know, in this selectively improving environment?
• 15:46
  SPEAKER_05: And you know, are there particular business models that are showing it more so than others?
• 15:49
  SPEAKER_05: Or, you know, kind of what's the landscape on the making money side?
• 15:54
  SPEAKER_01: Um, I think that probably one of the more underappreciated assets that some of these MSOs have are their retail assets, uh specifically limited license retail.
• 16:05
  SPEAKER_01: Um, you know, not even it doesn't even have to be super limited.
• 16:08
  SPEAKER_01: Sometimes it's just long-tenured retail where they they happen to get the you know scale or luck, the the first kind of good retail spots, and there's a limited number of those.
• 16:18
  SPEAKER_01: And I think it's a little bit uh under, I think it's even I took maybe to some extent was um kind of a little bit too pessimistic about that kind of stuff.
• 16:29
  SPEAKER_01: And I think the staying power of those assets is quite good.
• 16:35
  SPEAKER_01: I mean, you can even look at um there's a lot of things that you can there was a lot of criticism about the company for a number of reasons, but but I think like C21, right?
• 16:45
  SPEAKER_01: Those assets for years, you would have thought that somebody would be able to compete with them material in like that Reno kind of Sparks area, right?
• 16:52
  SPEAKER_01: But nobody did.
• 16:53
  SPEAKER_01: Uh you know, they they had a great franchise that that made a good slug of money even as the market was compressing around them quite a bit.
• 17:02
  SPEAKER_01: Um those are good assets.
• 17:05
  SPEAKER_01: And I think, you know, I think it's uh some of those, I think that's kind of an underappreciated profit pool.
• 17:14
  SPEAKER_01: Broadly, I think it starts, you know, the pendulum swings too far, where if you try to squeeze too much out of it, you're gonna you're actually gonna hurt yourself in the long run.
• 17:26
  SPEAKER_01: And we've talked about this before of like, you know, ver I I I'm something you know, somewhat skeptical of like verticalization of this idea that that uh the MSO should always be the you know the majority producer of all the products that the on the shelf that the consumer sees.
• 17:46
  SPEAKER_01: It's just not like where do you where do you see that?
• 17:48
  SPEAKER_01: Like and and what companies do you expect to be like the best at back of the house and front of the house?
• 17:54
  SPEAKER_01: Um it's it seems that in the long term that's that that's not a great strategy to hold on to because it's just gonna limit consumer choice, which eventually will limit growth, will beat into market share, all that kind of stuff.
• 18:10
  SPEAKER_04: Yeah, I think that's so key, Jerry, and just want to jump in here quick because uh I originally did not understand the pro I don't know, the priorities or what, yeah, kind of what you're saying, where the real value lies in some of these MSO outfits.
• 18:25
  SPEAKER_04: And I go back to a meeting I had in June in Chicago, named MSO, but one of the biggest.
• 18:31
  SPEAKER_04: And they said something to the effect of if I if I never have to grow a gram gram of flour or extract a gram of oil in my life, I'll be the happiest operator out there.
• 18:39
  SPEAKER_04: And what they were saying is we want to focus on brands and we want to focus on distribution.
• 18:43
  SPEAKER_04: And if they can plug in supply chains from other places down the road, you know, whether those are California-like leaf or other, you know, efficient supply chains, use those to fuel the brands and focus on the retail and shut down some of these other assets.
• 18:56
  SPEAKER_04: My suspicion, curious, what do you guys think?
• 18:58
  SPEAKER_04: I think we'll continue to see some cultivation even in an open architecture world, like sh, you know, smaller craft type grows, local, high-quality flour, just like we see local things of most products.
• 19:10
  SPEAKER_04: And I think that makes some sense.
• 19:11
  SPEAKER_04: But I I was surprised in when I when I heard it that really the vertical nature and the extraction, the cultivation, those things are really necessary evils as strong, but necessary things, the fuel, the retail, the brand distribution, and not things that they necessarily want to be involved in long term.
• 19:33
  SPEAKER_01: Yeah, I I sorry where I was giving you a chance to jump in if you wanted.
• 19:36
  SPEAKER_01: I I I think it's you know, one of the problems with some of these MSOs is that you have very large commitments to back of the house assets, uh and like with large leases attached, a lot of capex in them, that you know, if those don't go super well, like at some point you're like, man, I don't need this anymore, but I got this long-term commitment to it.
• 20:02
  SPEAKER_01: Um, but they also had to have it because they're just, or else they were at the mercy of some other MSO initially at the market, there just wasn't enough capacity.
• 20:10
  SPEAKER_01: Um so some of these things are just there's like this path dependence where you you needed to have it, but now you can't get rid of it.
• 20:17
  SPEAKER_01: Um and it's really hard to optimize two things at once.
• 20:23
  SPEAKER_01: And so, and I I would say that the back of the house stuff is harder than the retail stuff to get right, right?
• 20:29
  SPEAKER_01: Um growing at scale at consistently is difficult with contained costs.
• 20:35
  SPEAKER_01: Like it's really, really difficult.
• 20:36
  SPEAKER_01: There aren't it's been one of the most consistently underrated skill sets in cannabis, right?
• 20:42
  SPEAKER_01: And so, yeah, I can I actually I mean we're gonna I I can I'm almost positive and we'll talk offline that I know exactly who told you that.
• 20:50
  SPEAKER_01: And I agree and I agree with them.
• 20:52
  SPEAKER_01: Um, but the uh you know the reality is that a lot of these companies are gonna have to stick around with and and make the best out of these assets uh that they can.
• 21:05
  SPEAKER_05: Yeah, I mean, I don't really have much to add.
• 21:07
  SPEAKER_05: I mean, we've favored retail for a few years now.
• 21:11
  SPEAKER_05: Um also, you know, with the idea of the uncertainty of how the regulations can change and can materially change what the back end looks like and you know, with like what groups like Leaf are talking about, how the world could change and that could render a lot of capital, you know, pretty pretty useless.
• 21:29
  SPEAKER_05: But we thought there was permanence to retail.
• 21:32
  SPEAKER_05: I mean, you just look at other highly regulated industries, and we thought the state models would prefer to keep a strongly regulated retail segregated from integrating into like alcohol or anything else like that.
• 21:45
  SPEAKER_05: Still seems to be proven, but we'll see in time.
• 21:48
  SPEAKER_05: Um but you know, it's an interesting is trying to also understand the consumer, like to your point of like how you're actually going about putting products on the shelves, what is decision making, you know, how they're responding to pricing.
• 22:04
  SPEAKER_05: Um, you know, are there any like good examples of states or you know markets where you think they're doing a good job of addressing meeting the customer where they are?
• 22:16
  SPEAKER_01: Yeah, I'm I listen, I'm a big sucker for Washington, right?
• 22:19
  SPEAKER_01: Washington's very different from a lot of uh, you know, that's where I am.
• 22:23
  SPEAKER_01: That's where I grew up in cannabis.
• 22:25
  SPEAKER_01: It's very different from a lot of other markets.
• 22:27
  SPEAKER_01: There's no verticality.
• 22:28
  SPEAKER_01: It's very strict kind of three-tier system.
• 22:31
  SPEAKER_01: I think there's a lot, there's pretty much unlimited licenses effectively on the wholesale side and somewhat limited on the on the retail side, but a lot less limited than on a lot of other states.
• 22:41
  SPEAKER_01: What you've had, like people that come here, I think are amazed at how cheap things are relatively speaking and how high quality they are.
• 22:48
  SPEAKER_01: And there's been an incredibly pro-consumer, you know, it's it's an incredible market for the consumer.
• 22:56
  SPEAKER_01: And I think that I think you know we've done it pretty well.
• 22:59
  SPEAKER_01: I think Michigan, you know, seems to be doing it.
• 23:02
  SPEAKER_01: Unfortunately, these are also the hardest markets to operate in, right?
• 23:07
  SPEAKER_01: So, you know, that was your question, right?
• 23:10
  SPEAKER_01: Like the like which I forgot there was a second part of your question, I think.
• 23:13
  SPEAKER_05: Well just yeah I mean, you know, from consumer demand understanding that how to meet them where they are and you know examples of who's it doesn't you know states one thing and then then if there's like you know specific kind of retail that you think is doing well as far as like how they're thinking about this the shelf and I think yeah I think there's uh I know some private retailers that are very very good but that think about the shelf in a very somewhat different way um than a lot of MSOs.
• 23:42
  SPEAKER_01: Again I think I think some of the MSO thinking on shelves is there's this thing of like you you've told investors that this metric is important, right?
• 23:52
  SPEAKER_01: Gross margin, let's say.
• 23:54
  SPEAKER_01: And so as soon as you start to get gross margin pressure, you go, oh crap, like investors are looking for this how do I increase gross margin?
• 24:03
  SPEAKER_01: Like how do I how do I keep my percentage my margin percentage the same okay well I got to verticalize because I can sell it to myself and and and that starts to like that actually deranges what's good for the business in a way which is like well I don't really care about you know you told investors it was gross margin percentage was good.
• 24:20
  SPEAKER_01: But what we really should care about is gross margin dollars on the same asset base and like so so basically you you walk yourself into this corner and then you have like the political thing of inside of these organizations some people are responsible for a certain PL and their PL looks better depending on you know how things work.
• 24:37
  SPEAKER_01: And then it it all rolls to this kind of not great outcome that's not great for consumers.
• 24:50
  SPEAKER_01: I don't want to throw any like big company under under the bus or anything I was talking generally but I do think this this increased focus on verticalization it's not all bad.
• 25:00
  SPEAKER_01: I mean listen it the consumer will tell you especially when they have a chance to tell you like when they when the consumers have a choice because a lot of the data in cannabis is based on when consumers didn't have a choice right if you you know I think we used the Model T example like if you did a customer survey of of Ford Model T customers and it was like hey what color did you get your car?
• 25:24
  SPEAKER_01: It's black oh well the you know car consumers only want black cars well it's the only color was offered right so now as as the the you're democratizing kind of what products are available the custom the customer's gonna tell you what they want.
• 25:36
  SPEAKER_01: But yeah I mean we should have a pretty good idea right like they want it cheaper they want it better.
• 25:41
  SPEAKER_05: Yeah so you know when you're thinking about some of the selective bullishness like how how are you approaching it like is it from a growth perspective is it from a valuation um you know maybe putting aside regulatory unknowns but like you know how like what valuation is just a moment in time right it's not a it's not an indicator of you know short term but you know how do you how do you think about valuations?
• 26:12
  SPEAKER_01: So I think so valuations and and what what's kind of exciting like the next a little bit different but valuations for me fundamentally I still have you know yeah I'm more bullish now but like what is that like another turn on IBITA two turns I think a lot of investors are sitting here waiting for like a a a doubling of multiple and I I just don't see I mean yes on the trading I can see you know a lot of people trying to pile into the trade you might get it temporarily but I just don't see the fundamentals supporting that because if you look at a lot of this stuff it's like listen the fundamental dynamic that drives this is pricing goes down.
• 26:47
  SPEAKER_01: As pricing goes down right and there are eventually a lot of these early very big kind of retail fiefdoms there is competition that comes and like even in Illinois and stuff like that, you start to get chipping away at some of these so you're a lot of these businesses are not going to earn more in a couple of years than they are now.
• 27:06
  SPEAKER_01: And that's not a recipe for high multiples.
• 27:08
  SPEAKER_01: That's a recipe for a below market multiple right so like I that's something I cannot get past with a lot of these companies but what's exciting right is that there I think now we're getting to the point we're either ready for it or almost ready for this next generation of companies that go in and go, okay, there's some like some of these stranded assets, some of these markets that were impossible to get into right um and and so I'll give an example that's like totally for anyone listening this is talking my book right like make no mistake about it it's grown rogue that the but that I think this is the kind of paradigmatic example is they're going into New York and if you look at how they go into New York right if you if you go back a couple years ago could they ever have done this?
• 27:57
  SPEAKER_01: No there was no way without like you know millions upon millions of dollars.
• 28:01
  SPEAKER_01: Now they're going in for under$10 to go in and to rehabilitate these assets and to and to get started on and levering off like that's exciting.
• 28:12
  SPEAKER_01: And I don't think they're gonna be the only one that's capable of doing that.
• 28:16
  SPEAKER_01: And I think that that that's going to shake up these markets in a great way and allow new companies to succeed uh in a in a way that they just couldn't do it before because the cost of entry you know before if you wanted to enter a a market like Florida you you're a great cannabis grower you're you're a good operator in California how do you do it?
• 28:38
  SPEAKER_01: Well you need to go get a money guy and the money guy's got to get you$40 million to buy a license right and that already is is good luck finding one of those people and then with some of the early money guys in this industry that brought its own set of problems right now you don't need the money guy anymore you or at least not the same money guy you don't need 40 50 million on the CSE you you can you can do it much more cheaply and ultimately you know New York is exciting because because consumers are going to win like they're gonna get more choice they're gonna they're you know that's that's I I think and and that changed that changed cost of entry I think changes a lot of things.
• 29:21
  SPEAKER_01: I'm not saying again to be clear like I'm not saying oh the MSOs are going to get dragged down by these small I think that it's just going to be a much more vibrant market and much more resilient and you know steel sharpened steel and everybody's I think going to get better and those that don't are are yeah they are going to go but they probably should have gone in the first place right it's interesting there's like I I can't help but think of parallels or rhymes to other areas and it's like the railroad industry, how many had to go bankrupt and retrade and retrade to to get the cost down so that it was actually viable but it also makes me think of right now what's happening in AI versus cannabis years ago where it was a capital game and those that had access to capital you know shot out ahead and it took a long time for that to change and you know it feels like AI right now is the capital game of like whoever is securing the most capital and in securing it but ultimately how that will look we won't know in until time but it seems kind of seems like there's a little bit of a rhyme potentially there.
• 30:24
  SPEAKER_01: I think it yeah I think it's huge.
• 30:26
  SPEAKER_01: I think I think in some ways cannabis very much mirrored uh railroads fiber optic build out uh where you had you know Canada was more so where you had these you know funded capacity we always joke about it where you had these greenhouses where if you even roughed in the numbers you're like okay so you're thinking like uh what every Canadian's gonna smoke two pounds a year like every single adult like what what do you guys like there's so much capacity here it just doesn't make sense right don't forget about the two um the other you know I actually when when uh when early in my cannabis career I I think I made somebody mad when they're like well some of the kids I'm like you know I don't sell the kids they don't have enough disposable income and they kind of like glared at they they kind of glared at me.
• 31:07
  SPEAKER_01: Um no the uh I so yeah I think I think it does uh rhyme quite a bit like you have this infrastructure right that that's been built out and so Josh this is my partner Josh Rosen who said this he's like it's a lot better to be second third generation owner of these assets just like it was with fiber optic that was the that was one of the killers right being you know coming in picking it up out of bankruptcy and that was the that was the way to do it.
• 31:34
  SPEAKER_01: There's also you know but what you had before that was a cost of capital game right where where people are trying to to land grab with the cheapest cost of capital and that involved telling kind of the best story um possible.
• 31:50
  SPEAKER_01: And when that story doesn't meet reality like bad things happen.
• 31:53
  SPEAKER_01: But when that story does meet reality then great things happen like you know like uh you know the birth the birth of Ibata with uh John Malone and junk bonds right like he built an empire on the backs of of junk bonds because he was able to kind of get a lower cost of capital than he otherwise would and we're all stuck with IBITA's sense and yeah yeah and you will say thank you um yeah it's it's you know it's really interesting like I guess I another thing that I'm bullish on in cannabis is how much of um how much growth there still is in some of these markets in that I didn't appreciate um how how price sensitive consumers are I'll give you guys an anecdote um I just had uh an old an old friend of mine and his wife visit uh like a month ago in uh to Seattle we had a great time I asked them you know I know they both smoke weed I asked them they live in Chicago where where where they shop and they couldn't name a dispensary around them both of these people I mean these are upper middle class people I'd say um good jobs they couldn't name they're like oh I think this place and I'm like so where do you get it about once a month they drive an hour and a half one way and an hour and a half the other to go to the Michigan border and stock up on like where where the cost is is so different right and they bring it right back and I was like man if these two I I always thought like yeah there's there's very price sensitive consumers and and it'll take a while for the market to absorb those but I'm like dude if these are if if if if these kinds of people are still not truly reflected in the Illinois market, like man there's there's a little bit more here to go than maybe I appreciated.
• 33:44
  SPEAKER_01: So it's boring it's boring being it feels kind of a little uncomfortable being this bullish guy.
• 33:51
  SPEAKER_04: Can we talk about something bad I'm happy to talk about something bad but um yeah I think that what's I I think what's bad Jerry to kind of transition into the next section a bit is that when you those opportunities to harvest that bullish the the bullish stuff that second or third generation ownership you know grown rogue stepping into assets for cheap you know we acquired a brand called you know Himalaya earlier this year which is a you know leading vape brand of California we paid less than half time sales for that at for that asset.
• 34:22
  SPEAKER_04: And so I think Jerry there are a bunch of attractive prices out there but it comes back to the capital part of it right and so I think that typically when things are the cheapest and it might be more compelling to do it, that's sometimes the hardest time for folks to have the money because you've usually have blown your money by then and oftentimes people are tapped out which at the larger MSOs you know they have some levers to pull but if you like lower the structure a lot of things aren't getting done because people just simply don't have the money to do them at least in a cash format.
• 34:51
  SPEAKER_01: There's what economic there's like what theory would tell you happens in like oh that's an advantage you know it's a good investment it'll go.
• 34:58
  SPEAKER_01: And then there's what really happens with humans.
• 35:01
  SPEAKER_01: And part of that is I think what was going on what drove very much the initial cycle of capital in cannabis was a stock promote in Canada that consisted of zero underlying performance because it was too early to even show performance, right?
• 35:18
  SPEAKER_01: And you had guys that were getting into the RTO and then these high wealth you know networks and what they were doing is they were recycling profits from the first RTO into the next RTO into the next RTO and you had this you basically they they made a bank on the first one then they went into GTI or whatever and then and the capital for the next project was coming from the winnings and these winnings were ring fenced in their cannabis in their like the the way they thought about it as humans is not like it's part of their it's my cannabis bucket like that's my those those are my winnings right like I'm at the table I'm at the cannabis casino I'm playing with my cannabis winnings right now when that all went in in reverse and all this stuff was in the red suddenly capital dries up completely.
• 36:06
  SPEAKER_01: And so I think you're right like yeah there but even more so in cannabis where you had okay there's no there's no winnings to recycle anymore right and cannabis is you know I think traditional kind of finance people would say well if it's such a good business why don't you generate cash flow and then grow out of your own cash flow.
• 36:26
  SPEAKER_01: The problem with cannabis is that oftentimes there are you know even if you're generating meaningful cash it takes too long to generate enough cash to enter the next state because there is a pretty decent slug of capital that at least if you're going organically which is what you had to do before effectively to get in.
• 36:45
  SPEAKER_01: You need$10 million well it's gonna you know even if you got a decent business and you're doing your best in Oregon Washington whatever it's gonna take you three years.
• 36:52
  SPEAKER_01: Well lots can change in three years.
• 36:54
  SPEAKER_01: So you needed like you needed the capital now.
• 36:58
  SPEAKER_01: So yeah it is difficult.
• 36:59
  SPEAKER_01: And I think unfortunately I just don't know how that changes.
• 37:04
  SPEAKER_01: I don't know what these companies have to show you know people talk about institutional capital coming in where I mean I think the most prominent uh the most prominent uh bull on a certain company that shall not be named on X is not you know considered institutional capital when he really should be considered institutionalized capital.
• 37:29
  SPEAKER_01: The uh you know I don't I don't think like I I still don't understand what what yes these companies can come in to buy the stock and everything but if you actually need incremental capital to build your business I just don't think like there who's standing there ready to do it in at at any anywhere approaching kind of reasonable rates that give you some some cushion um so you're gonna have to do it yourself.
• 37:56
  SPEAKER_01: You have to you're you're gonna have to find guys like you know and I think there is some selection here.
• 38:02
  SPEAKER_01: I mean you know guys like Aaron Edelheid like I think you you're gonna have to have guys like that.
• 38:07
  SPEAKER_01: And as Aaron you know hopefully continues to have success then then you know there's gonna be more capital available for the next project.
• 38:13
  SPEAKER_01: But I just think that's a reality we have to live with you're not gonna get money from Goldman Sachs or Merrill Lynch.
• 38:20
  SPEAKER_04: Yeah that's so true.
• 38:22
  SPEAKER_04: And I think too Jerry what's hard right now is we talk about there's three things we need I think to bring in investors more broadly we need clarity on Schedule three on the adult use side we need clarity on UTPs and we need to see growth.
• 38:37
  SPEAKER_04: And so set of set aside the growth component for a second just look at those two regulatory pieces.
• 38:41
  SPEAKER_04: If you're a very sophisticated investor like Aaron you can have views on those different pieces which takes you know a lot of time and energy to have a you know a view on what happens at 280e and a view on how these uh UTPs could play out but if you're not somebody who's been doing years of work those are pretty big ass in terms of somebody to speculate on that especially given you know how wrong and how difficult how poorly that's turned you know turned out over the last five years or so.
• 39:07
  SPEAKER_04: And so I think it's hard Jerry for people that to I think the existing cannabis investors with rare exception are tapped out right they've doubled down 19 times the you know the VC funds, you know, if there's you know a handful of them left, 90% of them are kind of in hold mode right now.
• 39:24
  SPEAKER_04: The institutions over here saying very cool story, kind of interesting low valuations, but call me when you have these big these big uncertainties figured out and then I'll take a little bit of a harder look at it.
• 39:35
  SPEAKER_04: And so I think it's I think it's hard from that perspective Jerry.
• 39:38
  SPEAKER_04: And then within the companies when I talk especially to the larger MSOs let's say they have 150 million in cash well they might have a three or four hundred million dollar UTP and the conversations I have with them about putting more money to work, they're like once we get more clarity on that UTP and what we actually owe, then we'll be a heck of a lot you know more interested and ready to start spending some of that money.
• 40:00
  SPEAKER_01: But when we don't even know how much of this UTP we owe it's kind of hard to figure out what to do with that cash component Yeah I I I mean I agree I would I would actually push back on a couple of things that you said I I on the institutional thing and in in the spirit like I think that what drives the an institution looking at this right and we're when we talk about institution just to be clear I think we're talking about like a fundamentals focused kind of mutual fund or or or or fund right we're not talking about the momentum funds and stuff like that because what what I think is really interesting about this industry is you guys know the the idea of a Keynesian beauty contest just Morgan are you familiar with this you seem like you so so there's so so there's like a beauty contest right like who's the most who you know mirror mirror on the wall who's the fairest of them all and it's clearly Morgan Paxia you know but but then the you know listen Jenny you're no slab but but um also by the way just a just a side note I'm pretty sure you AI'd my my the little photo for the for the thing I'm pretty sure you expanded it in AI.
• 41:11
  SPEAKER_01: Do you want me to vibe code you a little double chin remover for your guest?
• 41:16
  SPEAKER_01: Because I'm I'm happy to do that for you.
• 41:18
  SPEAKER_04: Yeah we could set you could set that over yeah our content guy uh shout out Josh and our team much love to you he said there was some reason he had to AI it a little bit I don't remember what it was but he he mentioned yeah to expand it a little bit but the the I'm I'm so the Keynesian beauty contest is is this concept where you're like you're you're trying to decide the beauty contest is I'm trying to decide who's the most attractive the Keynesian beauty contest is I'm trying to guess who everyone else thinks is the most attractive and so it's this metagame right and so you're constantly doing the metagame of like okay I think you know I think Anna Dharmas is pretty hot.
• 41:56
  SPEAKER_01: But is she as hot as like do other people think she's as hot as I think she's you know and so with what's interesting is with cannabis I think there's stuff where you go it's kind of important but I think it it it gets it like it seems more important than it is because we think all the other investors are thinking that it's important.
• 42:17
  SPEAKER_01: So like schedule three clarity right yeah it's important you know UTP like it it's important but to me like it's very important but to me the thing that's gonna overridingly drive a bunch of these like what are the what is it going to value like what's the valuation is okay what how much capital is invested what kind of returns are generated on it in the world as it was okay and then we kind of have this range and then what's the growth and what are the future profits like that's gonna drive a ton of it and then the regulatory kind of uncertainty I think that's like a tier down in terms of issues except as it flows back into that kind of profitability question.
• 42:56
  SPEAKER_01: And I think my assumption has always been that when we did our long-term models on this industry, we did not assume like we did not we assumed a normalized kind of EBITA whatever margin.
• 43:08
  SPEAKER_01: We did not assume that 280 was going to go away and suddenly the margin was going to jump sustainably to like 40 50% EBITDA margin like a true cash flow kind of margin, right?
• 43:17
  SPEAKER_01: We assumed that there was going to be like a reasonable kind of cash flow margin.
• 43:20
  SPEAKER_01: And so to me I'm like well so so where I'd push back is like those I think those last kind of two issues adopt we're a little bit in an echo chamber of like you know the the cannabis investor X world and they adopt this you know they always give you something to talk about and they always give you something debate about there's always these unfalsifiable positions that people have of like well I you know or or they take a year to falsify or it's like well I think Trump needs it for the midterms.
• 43:50
  SPEAKER_01: Apparently not apparently not you know who could have thought uh you know I I think that uh you know you got you got law students that that that assemble a a cadre of followers that then just parrot what they you know what what they say with when when you're like wait what like the and so but and but then we we we're still in this pond and we go man I must maybe it's not that important but still really important.
• 44:16
  SPEAKER_01: I I think for a fundamentals focused investor like is it going to be as important as like I don't know schedule three like laws change all the time you know you know how is how is that you know exogenous tax change going to flow down the bottom line right eventually eventually it's gonna be arbed away right and and you look at like okay what is a true sustainable long-term model what are the true capital returns what's the history of capital allocation in this right so yeah I I I I respect all those points you're making uh but I do hear Jerry firsthand from people the phrase how can I play the game if I don't know the rules and I think that's a valid objection.
• 44:52
  SPEAKER_04: I think that if you're in cannabis today, I think most of us have a view around politics.
• 44:57
  SPEAKER_04: I think if you had no view on politics or you're completely bearish, you probably wouldn't be here.
• 45:01
  SPEAKER_04: So I think most of the investors today, especially the people we deal with, you know, we've all been here for around a decade and you know this is their lives.
• 45:08
  SPEAKER_04: And so we have views on this and I think the investors that invest in our companies probably have views on this and think that you know things will change for the better at some point.
• 45:16
  SPEAKER_04: But I think if you're an outside person and you're looking at a company, some of these companies Jerry's have hundreds of millions as you know in this UTP position.
• 45:23
  SPEAKER_04: And I think if you're looking to make an investment in one of these big companies, you have to have a view on how much of that goes away, what's the interest rate on it, because if you don't, I I don't I I don't know how you could model a company without having perspective on when does actually 280e go away.
• 45:37
  SPEAKER_04: And then looking backwards, you know, how much is that going to benefit the company seems to me a bit of a gating issue up front potentially before you even get into that fundamental stuff.
• 45:45
  SPEAKER_01: Listen I yeah I I I think I think we're we're yes I I I don't disagree with anything said I I yeah I I don't disagree because a lot it does go to fundamental profitability.
• 45:58
  SPEAKER_01: I think that the UTP issue right is I mean it's huge right and I think that um I think that investors have been as you kind of a little bit too bullish on the UTP thing and and I don't know what happens but I think they've underpriced the risk of bad things happening.
• 46:15
  SPEAKER_01: And I think what's what it's created is a really interesting dynamic where companies are almost incentivized right now to if you have$150 million in cash on the balance sheet and a$300 million UTP well man if the IRS comes knocking they know you have$150 to give them and that's going to be really bad for your business.
• 46:35
  SPEAKER_01: Why don't you run that down?
• 46:37
  SPEAKER_01: It's almost an incentive to run it down as much as you can because then you can because then you can get a better settlement.
• 46:42
  SPEAKER_01: And I think the IRS might get a little bit wise to that.
• 46:46
  SPEAKER_01: So like if you're if you're levered buybacking off of UTP that seems really risky to me.
• 46:53
  SPEAKER_01: You know I I think there are some very smart investors I know at least one that that would disagree with me.
• 46:59
  SPEAKER_01: But to me it's like why stretch you know what's the benefit um I think that's a really dangerous place to be and it's just not a good it's just not a good look.
• 47:08
  SPEAKER_01: Like can you imagine you know can you imagine somebody stepping back and going like you know at the RS very high up going okay wait a second.
• 47:14
  SPEAKER_01: Yeah this tax what what happened here?
• 47:17
  SPEAKER_01: Okay you guys didn't pay your taxes yeah okay the tax are too high what would you guys do with it put it in a savings bond?
• 47:24
  SPEAKER_05: Hire more employees make more jobs like buy back stock yeah it doesn't look great right yeah if the optics aren't pretty wild about all this is because like I've I've you know as this has become a material number the last couple years this UTP how people have been doing it the market in aggregate just doesn't seem to care.
• 47:44
  SPEAKER_05: Is it like it just they won't care until they need to care kind of thing like it didn't matter if you were more conservative with it, if you were more aggressive with it.
• 47:53
  SPEAKER_01: It just didn't matter like it just doesn't matter like they all trade largely the same like anyone that kind of pops to somewhat of a premium at some point comes back down to where everybody else is I yeah I I agree with you I've I mean I think part of that is because the incremental trader on this stuff is is just trading on politics where like if if you know if there were a more developed calci market on one rescheduling was you'd see more trading there than an MSOS but MSOS is like kind of a synthetic vehicle for that.
• 48:27
  SPEAKER_01: I also think it's interesting that MSOS is its own animal right once you create a share of MSOS that says its own independent supply demand kind of thing.
• 48:38
  SPEAKER_01: And I don't even know if a lot of people that buy it understand that there's like subcomponents of it.
• 48:44
  SPEAKER_01: They just treat it as this proxy and then it becomes its own like it becomes its own animal and but then the components of MSOS right because of the ARB mechanism that's built into it are going to kind of I think get constrained generally into this into this range because you can't go straight too far out as long as you're you know because MSOS is going to like force you back in.
• 49:06
  SPEAKER_01: But the trading dynamic of it is interesting.
• 49:09
  SPEAKER_01: I'm I'm I think that it's sorry go ahead.
• 49:13
  SPEAKER_05: I was gonna say the the that kind of broke once TrueLeave went nicey and the amount of passive money that's flown into true leave and it's still largely trading about where it is another one that went nicey was at a a very high valuation and now it's basically in line with the rest of the cohort and it is listed and the all you know almost all the other ones are not.
• 49:36
  SPEAKER_05: So it's like I you know the idea like I understand how this discussion around you know the arbitrage and all this stuff with MSOS could be distorting it but it just doesn't seem to play out over a long enough period of time like maybe sure like day to day or but I mean to your point like the fundamentals of these companies over the last three years has been basically just degradation, right?
• 49:57
  SPEAKER_05: The balance sheets have gotten worse, the operating cash flows have declined and the prices have largely reflected that so you know do you still think that holds as much water with companies that do get on the exchanges and their evaluations are not really materially changed.
• 50:13
  SPEAKER_01: Yeah I mean I think why you know other than the trading pops like whenever whenever anybody told me like you know this is uh there's no price discovery this the you know these are inefficient markets and and they have you know so therefore the the multiples don't hold and I'm like okay so so therefore what should be the right multiple given this situation and there you know nobody ever got to that point it was like well the multiple's wrong clearly it's low like well okay well here you go I mean that's it's and then they forget that like they they also think like oh who's selling this stock like who's who pa who who possibly could be selling it and then suddenly out of nowhere you have this selling like this selling pressure that comes through as soon as you have liquidity where they they people think that there's no one that holds lower price stock that could potentially be selling it right or or people that would take a win um it doesn't make any logical like the the fault dear Brutus is not in our stars it's in ourselves no one ever wants to look in the mirror and they they want to blame they want to blame Citadel they want to blame you know and it there's a lot to blame the DEA for right there's a lot to blame the DA for the DEA is not responsible for a freaking stock portfolio like that's just not how it works.
• 51:37
  SPEAKER_01: So yeah I I think that um they're gonna have to unlock I think at least create a path outside of schedule three outside of the kind of call it like one time bump type stuff where you go okay I have certainty now on the rules.
• 51:52
  SPEAKER_01: Okay where's where's the growth coming from then right I think you know we talk about Cure Leaf uh and and Aurora right that is okay like that's a play for true kind of growth into into okay now worldwide right we have this distribution network we're we're plugging in like we need we need product into our distribution network we're plugging this in this acquisition makes a ton of sense right and so yeah that that I think you know looking at it like that's what they need to show I think that's really hard to show you can show the next incremental state coming online but any analyst worth their salt goes okay like if you're drawing the the up and to the right kind of graph you go okay well I have a new state but okay well at one point like are we going to get any new states?
• 52:42
  SPEAKER_01: Is Greenland going to be a state?
• 52:44
  SPEAKER_01: Because because at some point you have 50 states right and you have a certain population and there's nowhere else to go so so what are you going to do?
• 52:50
  SPEAKER_01: Um and I think that's yeah I think that's the fundamental challenge of a lot of these companies is is is is showing that fundamental growth yeah I think it's challenging within within states to your point just if there's if they're capped out right like I mean if these caps were not so strict there could be a lot more growth to consolidate um but they're just capped out.
• 53:15
  SPEAKER_05: So until unless there's more states that they could enter into which you know like you were saying like most of that wave is gone Virginia I know people are getting pretty excited about Texas you know Georgia's showing some nice numbers but I mean still like for a billion dollar company these are not these are just like small incremental movements for them.
• 53:32
  SPEAKER_05: They're not going to change their growth profile.
• 53:36
  SPEAKER_01: Yeah I think what's going to be really interesting actually is potentially is like you get you get schedule three clarity you get some like federal clarity kind of call it and now a potential source of capital that had not been there before is and then you maybe get some some thing on the L you know uh UTP is the LBO stuff.
• 53:56
  SPEAKER_01: A lot of these businesses are not the kind of businesses that that probably will get great multiples in a public market because there just isn't that growth.
• 54:05
  SPEAKER_01: But a lot of these businesses on the other side could potentially be modeled to have like really stable nice cash flows that could sustain a lot of debt right or at least could be perceived to sustain a lot of debt.
• 54:17
  SPEAKER_01: And it'll be interesting to see if that I could definitely see some of that um at least some rumblings around that um in in the future.
• 54:27
  SPEAKER_05: Well I mean we're already I know we're coming up on time but I mean we're already kind of seeing a little bit of the benefit of the bifurcation from those that have more medical exposure like you know Verano and Jushi both reported recently and their operating cash flows are materially improved from where they were a year ago and the revenues are up you know single digits.
• 54:48
  SPEAKER_01: But the what what's the source what's the source of the it and that's because of the 280 because 280E is presumably um yeah right because they're but I guess what they weren't they were already not taking the position the 280e wasn't applicable before right so what's the what's the delta like why did it why did it change?
• 55:10
  SPEAKER_05: Yeah it's a good question um because to a point it was building before it's still building for in both of them um but at least a portion of it now is not flowing through I don't know how they were doing it before like to a point I I just saw like the headline numbers of you know like last year Q3 Verano was at like 26 million of operating cash flow and today they've reported 49 um on almost you know from like 200 to 212 million of of top line numbers.
• 55:39
  SPEAKER_05: So pretty pretty sizable change.
• 55:43
  SPEAKER_05: But uh but the point or I guess where I was going to just kind of leave that though is what are they doing with that extra capital it's going into capex.
• 55:54
  SPEAKER_05: So they've both uh increased their capex guidance for the year.
• 55:58
  SPEAKER_05: So they're taking anything that they're not paying I know they weren't paying it before but now it's now they're showing it through their um cash flows.
• 56:06
  SPEAKER_05: So yeah I mean it's a good question.
• 56:08
  SPEAKER_05: It's good homework.
• 56:08
  SPEAKER_05: I mean this this these things just came out so haven't really looked at apples apples how they're doing it.
• 56:13
  SPEAKER_01: So I I took a very quick look at Verano and what I mean with quarter over quarter right because if if new states are coming on or you're doing something the work and capital shift like I think there was like a like a 40 million dollar swing in in inventory like you know it went from like a use of cash to a source of cash.
• 56:29
  SPEAKER_01: So you know there's that kind of stuff.
• 56:32
  SPEAKER_01: But I think um yeah it it'll be interesting it'll be interesting to see where the cash gets deployed.
• 56:39
  SPEAKER_01: I think one of the things that I've been thinking about and this is not a fully baked thought by any means is is that kind of the next stage of some of these companies growth is going to be there's there's you know you got people you got product um you got places you got your your retail your the next is going to be kind of platform and you know the the software platforms the we're dealing with the real world I'm not talking about like the the same kind of leverage you get out of a software platform but if I were a public MSO I think that one of the things I'd be looking very seriously at is taking my back of the house, right?
• 57:20
  SPEAKER_01: The growing and stuff like that and seeing if I could invest some money to make it into more of a platform where I can start to bring people onto my ecosystem that are successful that I'm able I'm not see I'm not taking all the economics out of it right where I'm I'm I'm taking like a huge where we're both winning and I'm you know maybe I bring in a a great grower that doesn't have the capital from you know or you know California into Florida into my grow in Florida and do collaborate and stuff like that and start to develop the systems where you are the Rails, you're the distribution and you're the back of the house but you know you you know you can't do the back of the house all by yourself.
• 58:01
  SPEAKER_01: And there's this there's this weird there's this weird tipping point right where if you put a brewery at it in one part of town well there's a brewery in one part of town you put another brewery next to it is that competition I mean kind of but also if everybody knows that there's the like that's where you go for the breweries there's like a network effect that happens there.
• 58:21
  SPEAKER_01: And then everybody's winning because they they all the consumers go there and it's like yeah that's where all the breweries are let's go we'll hop around and so you go listen I might lose a sale here or there I might lose this product here or there but overall what will the pie will get bigger and everyone and everyone will succeed more and ultimately that will be more valuable.
• 58:42
  SPEAKER_01: And I think that's gonna be a shift that is going to be the the companies that are going to be most successful in the space I think are going to make that shift and there's going to be a lot of internal resistance because again you got you know head of retail head of wholesale there they have their FIFDMs they're like wait a second I have to I you're you're gonna it's gonna take some strong executive leadership to be able to do that.
• 59:07
  SPEAKER_01: But I think that in the long term the companies that are able to make that pivot and to go, okay, I'm I'm gonna win I'm gonna win more later and I'm gonna let everyone else eat a little bit and and create this ecosystem I think that's gonna be um where some of the MSOs are really going to shine was that the Burger King strategy or something like that that the Burger King strategy was uh figure out where McDonald's is and put one on the other corner?
• 59:33
  SPEAKER_01: That is exactly what they did actually because McDonald's has the best retail the the best real estate guys for a long time were McDonald's like they and followed very closely by the drugstores which is now very disrupted but they bait from I I learned from this from a real estate broker a long time ago.
• 59:48
  SPEAKER_01: He's like yeah McDonald's he's like the Burger King just waits and then they just they just pay whatever for the the thing across the street.
• 59:54
  SPEAKER_02: Yeah.
• 59:55
  SPEAKER_04: Well Jerry I know you've got a heart out so if you need to jump my friend feel free to uh to bail now I'm just gonna uh wrap things up with Morgan but this is a fun show guys as is the tradition here we had five things on the agenda we got the three of them and so uh Jair Bull will have to have you back soon and uh keep talking.
• 1:00:10
  SPEAKER_01: I I do have to run uh thank you guys very much always great to catch up with you guys and uh I think I mentioned on X any questions you know we didn't get to some growing rope specific stuff.
• 1:00:19
  SPEAKER_04: I'll do my best to answer those later and uh look forward to next time Jens sounds good Jerry take care of Kensiers Beauty contest that was uh that was great yeah that was a good one yeah that was a good one Morgan always enjoys a good fundamental economics discussion just throwing some Warren Buffett you get extra points hell yeah yeah fish where the fish are no one else is fishing that one comes to mind a lot a lot in Canada that's that's a mongerism but yeah that definitely feels right hopefully you get a few more fishing poles in the water man it's uh it's it's interesting time right now as uh we're waiting for the world to change here once again but uh it's weird also pretty wild to hear Jerry feeling a little more bullish that's what I was gonna say is it it's it it's it's almost embarrassing to be bullish in cannabis because you know in my case certainly hand up you know bullish bullish you know too early and kind of tap I I I feel it in my heart especially about leaf and about you know some other things about the industry but it's weird the psychological toll it takes on all of us when you've been beaten down for so long it's you know it's uh it it does take a toll and I think that one of these times Morgan it's gonna be our year.
• 1:01:28
  SPEAKER_04: You know it felt like at the end of 24 it could be our year.
• 1:01:32
  SPEAKER_04: And um next year again I'm not gonna pound the table for V-shaped recovery but I do think if we can get this fraud reform behind us and get some you know it gets some momentum there that any incremental dollars man are going to make such a big difference.
• 1:01:43
  SPEAKER_04: There's no meaningful money being put into cannabis and if we can just bring a few folks over the wall I think it'd be pretty positive for the industry.
• 1:01:49
  unknown: Yeah.
• 1:01:51
  SPEAKER_05: Yeah I mean I I um it's hard for me to get wholesale bullish because I just think most are well there's a lot of broken companies but yeah I've been we've been I think both selectively bullish on specific opportunities and I and that remains I mean that hasn't changed I mean good business doesn't matter if you're in cannabis or in widgets I mean if you're just you're doing a good job and you're you know business is hard.
• 1:02:17
  SPEAKER_05: You know obviously we've got our unique challenges but people have unique challenges everywhere.
• 1:02:21
  SPEAKER_05: People are people and um yeah but I just uh and I don't know I mean I you know I know people were asking about rescheduling I I don't have no one knows and no one knows about what's going to happen UTP anyone that's telling you is just putting their thumb in the air and making a guess but there's no basis for anything around this stuff.
• 1:02:41
  SPEAKER_05: Um because you know I think Jerry even alluded to it maybe before the show but I mean it's like even if the judge does his opinion even if the DEA responds timely which there's no precedence of their timeliness requirement unless they're forced to act then we don't know about lawsuits like there's there's still a lot of work to be done.
• 1:02:58
  SPEAKER_05: So in the meantime you still got to be building a good business we still got to be working on taking care of the customer and you know doing the fundamental stuff.
• 1:03:06
  SPEAKER_05: And um and I think those are this is the best time to be buildings because like there's plenty that are on their heels.
• 1:03:12
  SPEAKER_05: And um so you know I think for some it'll be worth it.
• 1:03:17
  SPEAKER_05: I think for many it will not.
• 1:03:19
  SPEAKER_05: Yeah.
• 1:03:20
  SPEAKER_04: Well we're gonna stay consistent over here we'll have uh two shows planned here for November.
• 1:03:25
  SPEAKER_04: I don't want to jinx it by saying who's gonna come on but we have a couple guests that we're pretty excited about.
• 1:03:30
  SPEAKER_04: And so looking forward to those shows later with later this month with you Morgan.
• 1:03:35
  SPEAKER_04: Looking forward to MJ Biz coming up I feel like that is December 1st that we're gonna be out there so that's most exactly a month away.
• 1:03:42
  SPEAKER_04: Don't forget to see FlowHub out there as Morgan mentioned up top and you know we talked about operating dispensaries dispensaries today and if we know we have dispensary operators that listen to this it's real simple guys if you're a dispensary operator just go to flowhub.com schedule a demo and check it out if you figure out you like your current software better that's cool.
• 1:04:01
  SPEAKER_04: Maybe it won't be for everyone but a lot of folks that do check it out are like wow I didn't know what was going on here and end up becoming customers.
• 1:04:07
  SPEAKER_04: So do yourself a favor and go over to FlowHub.com and schedule that demo today.
• 1:04:12
  SPEAKER_04: Is that it Morgan?
• 1:04:13
  SPEAKER_05: Anything else on your mind man no I think that's a wrap uh it's good to be back on it felt like a minute but um it was good discussion and um you know just keep on grinding and kudos to you guys again at Leaf for great a great day and and um you know it's it's impressive what's out there it's a beautiful piece of property it's a shitload of weeds biggest weed farm right in the world 180 acres so it was cool to see it in person it's always like uh the tangibleness of cannabis is like it's hard to really appreciate it until you see it in person and um it's fun to see how the sauce is made.
• 1:04:51
  SPEAKER_04: Yeah and I think that's especially true with Leaf like people even that followed by content you know Aaron Edelhight was an example of this like he was watching my content but when he actually came up the farm came down the farm Morgan and you drive down you know you drive down the road it's you know what a little over a mile you know maybe to get from the from the gate to where the houses are and where we kind of all hang out.
• 1:05:10
  SPEAKER_04: And when Aaron got down there and saw all of it and spent the day he pulled me aside and said Jesse I'm sorry I didn't understand what you were building here.
• 1:05:17
  SPEAKER_04: And I think that I think the farm you know made that impression on people because it's hard to understand what does 1900 acres mean?
• 1:05:22
  SPEAKER_04: That's the size of the ranch.
• 1:05:23
  SPEAKER_04: What does 180 acres mean?
• 1:05:25
  SPEAKER_04: You know that's the size of the permit.
• 1:05:26
  SPEAKER_04: We've got a hundred acres in the ground and I think it's hard to really understand some of the leaf core values around you know clean cannabis as well until you spend some time out there.
• 1:05:36
  SPEAKER_04: So yeah thanks to you and everyone that came out there Matt we had people tons of people from the East Coast which is a huge trip.
• 1:05:40
  SPEAKER_04: We had someone coming from um you have a Swiss family office that invests in us and he came from all the way from Switzerland to see us.
• 1:05:46
  SPEAKER_04: So thank you for coming down from San Diego and uh thanks to everyone everyone else that came but it was uh it was really fun to hang out with all you guys.
• 1:05:54
  SPEAKER_04: And thank you guys all for listening.
• 1:05:56
  SPEAKER_04: We appreciate it.
• 1:05:57
  SPEAKER_04: If you're on YouTube go ahead and like the video and subscribe I know people say this at the end of podcasts but the reason we say at the end of podcasts is it's actually super helpful.
• 1:06:06
  SPEAKER_04: YouTube's the biggest growth engine for us so if you aren't subbed over there hit the sub and uh hit like if you thought it was a good show that's really helpful for us.
• 1:06:13
  SPEAKER_05: And we'll see you guys 404.
• 1:06:15
  SPEAKER_05: 404 do welcome we finally broke 400.
• 1:06:18
  SPEAKER_04: Yeah.
• 1:06:18
  SPEAKER_04: Yeah let's go 404 let's get to 420 by the end of the year here.
• 1:06:21
  SPEAKER_04: How's that sound Morgan?
• 1:06:23
  SPEAKER_05: Oh yeah.
• 1:06:24
  SPEAKER_04: Well cool well let's jump guys thank you all for the support we'll see you back here in a couple of weeks the Views Expresses podcasts are provided for informational purposes only nothing we said should be considered research nor recommendation.
• 1:06:36
  SPEAKER_04: All investing involves risk including the loss of principle