The Cannabusiness Key June Webcast: The State of Cannabis Capital Markets and M&A

The following is a transcript of The Cannabusiness Key “The State of Cannabis Capital Markets and M&A” webcast, which aired on June 29, 2022. It has been edited for clarity. For more information, and to register to view the archived webinar, please go here.

2022 has been a volatile year up and down the global public markets, and as macro liquidity conditions continue to tighten, the cannabis industry sector has not been immune from the downstream effects. Tripp Keber and Peter Rosenberg, who have been through all sorts of market conditions with cannabis companies in every stage of their lifecycle, join host Jason Klein to share their perspective on the current state of affairs of the cannabis industry, the cannabis M&A market, and the broader cannabis movement going forward.

Tripp Keber, Managing Director at Right Side Advisory Services

Tripp Keber is widely considered one of the most prominent and well-known business leaders in the cannabis industry. Additionally, Mr. Keber is recognized as an established branding expert in the adult use and medical cannabis spaces. He was previously the co-founder and former CEO of Dixie Brands, Inc., a cannabis centric branding company. Dixie is known worldwide for its namesake cannabis-infused beverages and infused products, Dixie Elixirs & Edibles, Aceso and Therabis, Dixie’s human and pet Full Spectrum Hemp Oil wellness brand platforms respectively, as well as hundreds of other cannabis products. Mr. Keber has served as a Director for several cannabis industry organizations, including the National Cannabis Industry Association, the Marijuana Policy Project, and the National Association of Cannabis Businesses. Currently Tripp is Managing Director for Right Side Advisory Services, LLC, a hemp and cannabis centric advisory firm that specializes in both private and public companies in the United States and abroad. He has also held many senior and C-level positions in realty, communications and other industries. He has a BS in Political Science from Villanova University and currently resides in Denver, CO with his family. Additionally, Tripp is involved in several charitable organizations located within his community including several focusing its support of military veterans suffering from “post-traumatic stress disorder.

Peter Rosenberg, Managing Director at Right Side Advisory Services

Peter Rosenberg is an independent financial advisor to companies in the cannabis industry. He was formerly Head of M&A at Viridian Capital Advisors, a boutique investment bank focused on research, corporate finance and mergers and acquisitions for cannabis companies. Previously, Peter was a Senior Partner at Merida Capital Partners, a private equity firm which invests exclusively in cannabis and hemp companies. Peter has extensive business development, investment, capital raising and M&A transaction execution, and portfolio management expertise in the cannabis sector as well as a vast network of industry relationships. His specific areas of expertise include capital raising, mergers and acquisitions, and vertical knowledge in the packaged consumer goods and services, distribution and specialty retail sectors. Before joining Merida, Mr. Rosenberg had 35 years of experience in the financial services industry and has held senior mlevel positions in leveraged finance, investment banking, private equity, commercial banking and public securities asset management. Mr. Rosenberg worked previously as a Managing Director for Duff & Phelps, Wells Fargo Securities, Barrington Associates, and Salomon Brothers.

Jason Klein, Partner @Rimon

Jason Klein is a business attorney with a long track record of representing cannabis businesses, both marijuana and hemp, in tightly regulated markets. As one of the first lawyers on the East Coast to build a practice dedicated to the cannabis industry, Mr. Klein has a long track record of successfully navigating his clients through challenging regulatory and business operating environments amid uncertainty in new marketplaces.

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Jason Klein: It looks like we’ve got pretty good showing here in the attendee room, so let’s just jump into it, maximize your time. My name is Jason Klein. I’m your host with The Cannabusiness Key, and a partner at Ramon Law in the cannabis business group. For those of you who are new here, we’ve been doing this webinar thought-leader speaker series on cannabis business issues, cannabis business topics for going on six years now.

Very, very excited today to host this conversation with Peter Rosenberg and Tripp Keber, so let’s jump into some introductions. For anybody who’s familiar with the cannabis industry, Tripp needs no introduction at all. One of the foremost C-suite trailblazers in cannabis for years now, he was previously with Dixie Brands for many years, of course, establishing that brand as a foremost brand and in the cannabis industry. He’s been on board with the National Cannabis Industry Association, with the Marijuana Policy Project and with the National Association of Cannabis Businesses. Tripp is a well-known figure for anybody who’s been around cannabis even tangentially. I’m sure you’ve seen or heard Tripp speak, seen his work through the years. He’s currently with Right Side Advisory Services as Managing Director and we’re going to talk a little bit more about what Right Side does and what Tripp is currently up to these days. So, welcome.

Tripp Keber: Thank you very much, Jason. Appreciate the introduction. It’s nice to be back.

Jason Klein: Nice to have you back. Peter Rosenberg has a long history in investment banking, financial services, both non-cannabis as well as six years’ experience in cannabis, most recently with Veridian Capital Advisors as head of M&A, and also with Merida Capital Partners as senior partner. He’s currently also with Grow Generation. He’s got as I said several decades of experience prior to cannabis on Wall Street and investment banking, capital raising transactions development, with names like Duff & Phelps and Wells Fargo, Barrington associates, Salomon Brothers, the list goes on and on. So, Peter, welcome.

Peter Rosenberg: Thanks, Jason. Pleasure to be here this morning. Thanks for having me.

Jason Klein: I couldn’t think of two guys who are better to talk to about current capital markets, private and public, affecting cannabis industry than the two of you. It’s such a dynamic time in the global economy. Cannabis obviously is hardly immune from what’s going on in the macro markets. So, what I’m thinking is that we start this conversation, with a real big picture and then zoom on down to cannabis. So, Peter, maybe we could start with where we are today as far as just generally what’s going on in the markets, and how the effects come downstream into cannabis.

Peter Rosenberg: Sure. Yeah, we are in very, very challenging times. The cannabis industry has been confronted with a number of variables that are coming together in a perfect storm, against a very difficult macroeconomic backdrop that is seeing inflation and recession and rising energy costs, and other input expenses. Highly restrictive capital markets right now. Cannabis has always been challenged to attract capital, but with these forces in place – the capital markets are down over 75 percent from where they were last year, particularly in the retail and cultivation sectors, which are [seeing] even more precipitous declines, and you have an oversupply of inventory that needs to be absorbed in the market, and that’s going to take a number of years.

And there’s still a lot of uncertainty regarding legalization as well as banking, legislative reforms – and you just have a lot of companies that are struggling because they can’t raise the capital to sustain themselves, which is giving rise to increased M&A activity. But the buyers themselves are having trouble because historically they would not only use a portion of the purchase price consideration as cash, but they would use their stock as currency. Stocks are way down in cannabis, again following the overall market, but even more significantly because of the volatility of cannabis. With cash being scarce and the stock currency values being depressed, you’re seeing some real-slow down to the M&A activity.

Jason Klein: Absolutely, and this is not unique to cannabis obviously, issues like inflation and supply chains are across the market. I saw a statistic recently that generally 2021 compared to 2022, market transaction activity in SPACs in particular, which was a very popular vehicle. For Q1 2021, there was something like 800 SPACS going public, the stacking going public, a very popular vehicle comprised of something like $80 billion worth of value. Meanwhile, in 2022, sort of year over year Q1 2020 to 2022, that’s down over 80 percent. That’s not just cannabis alone, but SPACS were a popular vehicle in cannabis as well. And you’re just not seeing that kind of activity any longer, so is this a temporary slowdown, is it something that we’re going to experience for a quarter or two in your estimation, Peter, or is this going to be something that’s going to continue and linger for longer?

Peter Rosenberg: I don’t think it is temporary. SPACS were a convenient vehicle because it was so hard to raise capital in traditional forms and structures, and SPACS gave investors flexibility as well as a current return, and the optionality of getting the warrant positions associated with their investment. But what you found was that a lot of the SPACs either, one, they raised the initial money enabling them to proceed with the SPAC, but they had a lot of redemptions, too. A lot of the investors that put money into the SPACS who didn’t like the targets that the SPACS were identifying, or there was a limited life, which people know about SPACS, and those terms ran out and the money had to be disgorged. So, I think that that’s a problem. Very few of these SPACS have actually worked out. Those that have been able to de-SPAC, they became public companies as a result of those transactions, but with the public markets performing the way they have, and the companies that completed their de-SPACing or merger process with, those have been showing generally speaking very poor results. And that has really been a deterrent to attracting SPAC money. What you find usually is that SPACs become very popular and in vogue when other capital markets or forms of capital are really challenged to be able to raise and attract capital.

Jason Klein: Tripp, you’ve been in that position, the C-suite chair, needing to raise and attract capital yourself, and probably many instances. Can you tell me a little bit about your experience raising money for a company like Dixie, and for some of the other companies that you’ve been through this process, this lifecycle, with, and what do you notice about the current environment that may have changed how founders or operators who are looking to raise money today may better navigate the current circumstances?

Tripp Keber: It’s interesting. Jason, again, thank you so much for having Peter and me. You know, I have great love and admiration for Peter as my partner. Sometimes we take contrarian views and when Peter and I are in a meeting face to face, they generally refer to him as the adult in the room, and I might be accused of being sort of the foolish optimist. I don’t disagree with any of the things that Peter said. It’s hitting us square in the face, and the headwinds related to the cannabis industry are real. But I also believe fundamentally, Jason, and Peter shas heard me say this before, that first and foremost, cannabis entrepreneurs are incredibly resilient. By definition, we’re serial entrepreneurs. I’ve been in the space for now almost 12 years, and we’ve seen a few of these valleys, if you will. And traditionally, all of us as a collective industry have found a way in which to claw ourselves up to the top. The cannabis highway is littered with roadkill, we certainly see that unfortunately far too often, and Peter and I fundamentally understand that failures in any sector of the industry are generally not good, because it’s not necessarily lifting the tide.

But I do fundamentally believe that whether you respect this administration or not, that there’s probably material activity. Forget about federal prohibition; that’s certainly going to be important, and a historical moment, but real progress specific to the SAFE Banking Act, I believe that the administration has to do something in the second half of [President Biden’s] four years to bring some material change to the industry. They made some fairly strong commitments, and I wouldn’t necessarily equate myself to being tied in with the administration or the political set, but we are seeing a tremendous amount of activity and specifically monies being funneled into family offices, into private equity firms, and seemingly have expressed a strong interest in the activity that Peter and I hear about each and every day or are directly involved with, that they’re at or certainly near bottom pricing, and so they believe that eventually those serial entrepreneurs, that resilient group of people, are going to claw their way back, and so best now to get in. Because I think the fundamental belief is that potentially good times could be coming for the industry, whether it again is a fundamental change to federal prohibition, or, as I alluded to, safe banking. So, I see have a very bullish attitude on the industry. Clearly, cannabis fatigue is real. Anybody who’s been in it, like myself, for 12 plus years – although I took a couple of years off, I’m getting back into it – that’s a long, tough slog, and so people are exiting the industry, either by choice or by what their business dictates, but I do see greener pastures ahead.

Jason Klein: That’s great. I love to hear the optimism. I think we all could use a dose of that. I don’t want to be all doom and gloom, and it does sound like you’ve got some real optimism about the potential for federal legal change on the federal level to sort of be that kick-in-the-butt that hoists the industry out of a bit of a valley here.

Tripp Keber: Peter and I have the privilege really to work with some of the largest operators in the country, and although we may not be sitting in those [meetings] that are taking place up on Capitol Hill, in Washington, DC, or in Denver, Colorado, we do have access to those individuals that are conducting and hosting those discussions. And what we are hearing or being given the impression is that changes are coming, and if and when safe baking hits – and I will acknowledge that we’ve been waiting for this for many, many years – that there are literally billions and billions and billions of dollars sitting on the sidelines that have not been able to jump in. And that will be transformational, transformative, certainly for the industry, but will probably give a big swift kick to the economy’s rear end. Cannabis certainly has been a strong indicator even in good times and bad that people have a strong and close affiliation with this powerful plant. And so I think we could potentially see a catalyst, a relatively small one, but it could be a catalyst or the for the economy as well, certainly in markets where you have adult-use access to the plant.

Jason Klein: That’s great to hear. I like that optimism. I think it’s probably a very well-founded trip. You’ve been lobbying many times you’ve said in many legislators’ offices, you speak directly to them, you understand their language. So, coming from somebody with that experience, it’s great to hear that sort of optimism. And quite frankly, given where we’ve been 4-5-6-7 years ago, a lot of people would have predicted more change on the federal level by now than what we’ve seen where at least. I certainly was in that group, where I thought that we’d be a little bit further along on the federal level. And let’s come back to that issue, I want to just sort of toss back out here for the attendees to jot down your questions on the Q&A feature there, so we can make sure to get to get to all of them.

But Peter, I want to come back over to you for a moment and just talk about large companies, whether it be MSOs, or private family offices, or whatever it may be, that are relying on debt, have built a business model that relies on sort of continuing to roll over some debt to expand. We all know and have seen these businesses develop, and some enjoy some great success over the years. Do you think that’s really a viable business model moving forward? Are we going to see a fundamental change in how these operators specifically build it a growth strategy?

Peter Rosenberg: Well, there is a cap or a limitation on the amount of leverage you can put on a business. And many of these companies also are asset light, and what seems to be the typical debt structure is a secured loan, so there has to be some underlying assets to provide as collateral. But it underscores what Tripp’s point is in terms of optimism. What’s changed is that these companies now have to show some real fundamentals in terms of profitability, positive cash flow, revenue, momentum, and growth, and all that plays into your ability to be able to service debt. So, what we’re seeing is that debt is still available, it’s actually significantly more available than equity in today’s market, but it comes with a price. Many of the debt providers are private lenders, not traditional banks, and they’re taking advantage of the supply and demand imbalance for their capital. But what they’re paying attention to now, unlike the last round of capital markets, is that the companies have to perform, and they have to be of significant size and scale to be able to weather these setbacks, these periods of challenge.

So, I think that debt is still a very efficient way to fund growth. It’s certainly not dilutive like equity would be, and even though it is expensive, it’s still cheaper than the returns that you have to offer your equity investors. But again, a company ultimately is going to have to repay that debt and have to be able to service the high interest rate charges. So, it’s available, but it’s available to far fewer candidates than previously, where the capital was flowing much more freely, because people thought that the industry tailwinds were enforced and at these companies. No matter what happened, they’re going to continue to grow just by virtue of the industry phenomenon. But basically now, there’s much more discrimination, much more selectivity among the creditors to provide the debt in terms of it being a long-term strategy. You know, in every capital structure, there’s always a healthy balance between debt, or no debt if a company is averse to that, and equity, and it has to be properly balanced. We’ve seen situations, Tripp and I, with companies that have gotten themselves into some real trouble, because they’re over-leveraged now those lenders are starting to foreclose. So, I think it’s a good strategy, provided the debt is available to you as a borrower, but you have to be very cautious about the amount of debt that you put onto your capital structure.

Jason Klein: Absolutely. You have mentioned the interesting word foreclose, It’s a bit of a scary word. I think we’re facing an environment here with what were previously tailwinds, as you framed it in the industry, making debt a little bit more accessible or just capital a little bit more accessible as far as investors perception of what’s driving value. And now as we’re facing some headwinds, or a little bit more skepticism with regard to the continued forces on growth in the industry, there’s going to be a natural tightening here. So, when some of these over-leveraged companies have trouble servicing that debt or finding additional resources as they need to continue, it sounds to me like there’s going to be more forces towards consolidation. That, without traditional bankruptcy generally available, cannabis companies are going to see more private consolidation. Am I on the right track here, as far as what we can expect to see for the rest of 2022 and 2023?

Peter Rosenber: There’s definitely going to be continued consolidation for a couple of reasons. One is efficiencies. You’re seeing that among some of the largest MSOs. Take Cresco and Columbia Care for that matter. It gives them a greater geographic footprint, gives them greater economies of scale, there certainly synergies and cost rationalization. You’re seeing a lot of asset divestitures, that are byproducts of those integrations, which is giving rise to additional sort of a second wave of M&A consolidation as those assets get disposed. And when I said foreclosure before, it could take the form of the lender foreclosing or the company putting itself up for sale as the only viable alternative and using that buyer to either assume the debt or retire the debt is part of the transaction. I think that with capital being scarce, and companies operating with very little reserves, they have no choice really if they can’t get the capital to sell, and there’s certainly a large acquisition appetite out there by stronger, larger players to consume those businesses.

Tripp Keber: And just to add to Peter’s statement, the irrational exuberance which existed over the last couple of years, certainly in the heyday, that’s pretty much dissipated. The level of sophistication that we’re seeing on the lending side with these debt lenders is really impressive. I mean, these are seasoned veterans that have been operating well outside of the cannabis industry for three, four decades alone, and bring that level of experience, which, if you can pass muster with those lenders, it potentially creates a very, very strong partnership that can be either short or long, if you can pay back that debt, which Peter points out.

But the fact of the matter is that these are experienced lenders that also have experience in ensuring that they get paid one way or another, and although bankruptcy is not a protection that generally any plant-touching businesses can have access to, counter intuitively, you also have some unique protections, because a lender can’t walk into, for example, my facility and capture all of my inventory. It’s protected, if you will, under my license, and it would have to be very structured to sell off of those assets. But the fact of the matter is that the companies that are getting access to monies have real asset base borrowing ability, they have a level of sophistication typically that starts with the founders, the owners of the C-level suite, which we see our lending partners really focused on. And then historically, what have they been able to do? Have they defaulted on previous loans or notes, or did they give away too much of their company too cheap? They’re really looking at those decisions to see if they were based in fact and were educated decisions. And so, again, there is a tremendous amount of money out there either actively lending or on the sidelines that good companies will be able to tap into.

Jason Klein: Let’s pull on that thread a little bit. Tripp, you sort of framed up an issue there about lenders as I like to say betting on the jockey not the horse, on the quality of the leaders in the C-suite, their experience, and their sophistication. Maybe you could just sort of go through that because, as you know, the cannabis industry History was led by early on, you know, it’s a threat, you know, the beginning of the development of cannabis to say 2016-2017 was all intrepid founders, maybe with some background in traditional finance or traditional business, but oftentimes not. It took quite a bit of bravery and throwing caution to the wind to really go after cannabis in those early days. But not what I would call the type of sophistication that lenders are often looking for.

Tripp Keber: Promoters with a strong entrepreneurial spirit. That’s really what defined the period that you talked about between ‘14 and ‘17. I shouldn’t say majority, but there was a strong subset of cannabis operators, leaders that were entrepreneurs that were strong promoters. And they subsequently got the job done. That style has traditionally shifted to your point. I apologize for interrupting, but I agree with you 100%.

Jason Klein: Yeah, it’s shifted, and you go to cannabis conferences in 2020 versus 2016, and the biggest differences ate the cost of the suits that people are wearing, or the fact that there were suits. But the way you’re describing it seems to be a boon to the industry, quite frankly, that those intrepid entrepreneurs were able to see their way through the storms, through the early challenges, it sort of matured into more sophisticated C-suite tenants and then more traditional finance people have come in. It sounds to me like you’re framing that up as a sort of a benefit to growing access to capital in cannabis.

Peter Rosenberg: And Jason, it’s not just the finance professionals. I think it’s all across management and operations, you’re just seeing a much more enhanced team. And, again, some of the legacy operators were able to continue to operate and attract capital because there was so much euphoria around the industry itself. Again, there’s been a lot of purging of businesses that have gone out and management teams that have turned over, and what you’re now seeing is just a much better-quality business and quality leadership in the businesses. And those are the companies actually that are the best candidates for capital today, because the financials performance speaks for itself, and that’s attributed by and large to the management team. But where investors are paying much more close attention is the caliber and the background and credentials of the of the professionals that are stewards of their capital.

Jason Klein: So, Tripp, maybe you could speak for a minute about how that narrative about the advancing sophistication of the operators and people who are behind these companies. behind these licenses, combined with the consolidation, may affect the sort of conversations you have with legislators, may affect things like safe banking. You think that generally is a talking point when you’re talking to legislators, whether on the federal or state level, about who these businesses are, that they may be a little bit more familiar, a little bit less mom-and-pop, so to speak?

Tripp Keber: Well, for full disclosure, I don’t talk to those political types much anymore, because that’s not my core focus, like it was from the early days and sitting on all these various boards and being at the tip of the spear. Fortunately for the industry, there are individuals that are far more sophisticated than I am having those discussions. But the reality is, from even the early days, cannabis as an industry has a tremendous and powerful sway with elected officials. I mean, in Colorado, where people voted for the legalization of cannabis as they did our former president, so people started to understand the power not only of the industry and specifically that the winds of political change were present – and now we’re seeing a significant majority of the country offering some access to cannabis and now a significant parts of the world – but in addition to that, the money has always been real in our ability to donate to political action committees and to campaigns. And so, it is rare that a politician will snub the industry; bare minimum, they’ll probably be net neutral or will tease that they’re going to get to it in this next administration or period of time when they’re in office. Having individuals that can control the narrative rather than letting the narrative control us is incredibly important, and the level of sophistication with respect to our lobbyists and political operatives is very, very significant, as opposed to what it was back in 2010 and 2011, when I think about our feeble attempts to try and influence.

I’ll use Colorado as an example and our current governor, Governor Polis. Although you may not agree with all of his political positions, talk about a guy that is incredibly bullish on cannabis and truly sees the value of it for our state, both socially and economically and as a leader within the United States. And so, all those facts are materially presenting the industry in a very positive light. Yes, we’re going to continue to have issues. This is not something that’s ever been done before, and so it’s going to take time, and we’re going to make mistakes as stakeholders in the industry, but generally speaking states are benefiting immensely from tax dollars, and so is the federal government. My business pays both federal and state taxes. And ironically, there’s a tremendous amount of hypocrisy there, that we’re paying all that money into the federal government, but yet we’re still quote unquote fighting them, if you will.

Jason Klein: We’ve got about 20 minutes left. If any of our attendees have questions, if you want to get a couple of questions in here for Tripp or Peter, we’re going to be wrapping up in about 20 minutes. So go ahead and use that Q&A feature there. Let’s just head back over to you, Peter, and if we can focus on the public markets. We talked about sentiment generally being way down right now, and the public market valuations being down, but is there going to be more blood in the streets, or are we hitting a bottom and ready to bounce out as far as public company valuations?

Peter Rosenberg: I don’t think so in the near term, that we’re going to see any recovery, and I don’t think we’ve hit bottom, either. What will be very telling of course are these public companies’ earnings announcements, and it just takes one bad one to send the entire sector into a tailspin. But I don’t think that we’ve seen the worst of it. There’s still, as I said earlier, a tremendous amount of oversupply, and you’re seeing the effects of that not only directly in the companies that are doing cultivation, but even in the ancillary companies, like a Grow Generation, where they’ve seen same store sales off by more than 50 percent, which is just off the charts. So, I think with continued underperformance and losses and negative trends, that’s going to cause the cannabis stocks just to slip even further.

Now, with that said, many of them are way off of their highs, and they’re trading maybe three to four times EBITDA, and those are good valuations on a relative basis to where they’ve been. So, there could be some more correction in the market, but some of these stocks, where the companies are showing some intrinsically good fundamental, I think they could be good buying opportunities. But the problem is that the market in general doesn’t necessarily want to take a chance. So, as Tripp said, there’s all this capital waiting on the sidelines just to see what unfolds over the next few quarters, and as soon as there’s some sign of stability, or at least a slowdown in the negative trends, you will see capital come back into these businesses driving the valuations back up, probably not to their historical highs because they were tremendously inflated and overvalued by any measure, but you will start to see some pickup in the volume and the price.

Jason Klein: We’ve got a question here from Brian, who asks a timely question, really. The question is whether Canada and the Canadian stock exchange is still the preferred route for going public or for listing for cannabis companies, or if there are other countries that may be legalizing cannabis that may be better vehicles? I think I know the answer to this question. I think the Canadian stock exchange is still the preferred route here, even as U.S. exchanges may be loosening a little bit slowly. You agree with that, Peter?

Peter Rosenberg: Yeah, because it’s federally legal in Canada, and the exchanges there are much more open and liberal to plant-touching companies. Here in the U.S., of course, if you are plant-touching, you cannot be NASDAQ or New York Stock Exchange traded. So, when you relegate yourself to the OTCB or the OTCQ markets, you just don’t generate enough volume and enough credibility, so I think the Canadian Stock Exchange will continue to thrive as long as the major U.S. exchanges are restricting cannabis stocks. The thing about it, though, is that these companies that have managed to go public in Canada, most of them through reverse-mergers or a SPAC, it hasn’t really done much for them because there hasn’t been capital that has been raised in those transactions. A company just becomes public as a result of a private company merging with a public shell, but there typically is not analyst research coverage that follows those companies, and there’s not an aftermarket market maker, if you will, in the stocks to continue to stabilize them. And then additionally because those going-public transactions were not a direct IPO offering, there hasn’t been capital that’s flowed into those businesses. So, they are public, but they’re sort of quasi-public because there’s really no platform or vehicle for them to be able to use that public-trading status to raise capital, or provide liquidity for the shareholders who are now public shareholders in those businesses?

Jason Klein: All the hassle of all the filings, all the headache of being a public company with little of the benefit?

Peter Rosenberg: That’s right, because in addition to that, there is the administrative burden of being public as well as the expense of filing and being a public company, so it’s not always the best solution,

Tripp Keber: I mean, the key to the public markets is having access to the institutional and retail investor. And to answer that gentleman’s question succinctly, the CSE probably presents the largest pool of investors outside of the United States that Peter mentions, certainly beyond Mexico and certainly beyond Germany. So, for better for worse, the CSE or the TSX is what we have to work with, and if we’re going to go the public route, although there’s all the perils and pitfalls that Peter mentions, not the least of which is maintaining a public listing, we’ve seen a tremendous number of companies go that route and not realize how expensive it is. And now in effect you’re running two companies; one, which is your plant touching business, and the other one is your pubco, and equally challenging with its own unique difficulties.

So, caveat emptor, if you will, buyer beware when you’re taking that route. I think you won’t see as much of that as we used to, but the good news is, I think you’ve also seen some massive mergers that have taken place. I’ll use PharmaCann/LivWell as an example, which clearly has aspirations and is waiting patiently for the markets to correct themselves. And I think once we get to a point of inflection where it starts to trend up and to the right, you’re going to see some really blue-chip filings taking place, hopefully before the end of the year. We’ll see. Peter and I differ a little on that opinion, but it’s coming for sure.

Jason Klein: We haven’t said it yet today, but we should say it. None of this is investment advice. We’re going to talk about a specific listing here, Bright Green, which is a plant-touching businesses listed on the NASDAQ probably about two months or three months ago, early May, end of April. I don’t remember the exact date, but it has had a very bumpy ride of it. Any thoughts specifically about Bright Green, and what we’ve learned from them thus far? I know they’ve had a lot of hurdles to get through to say the least. And I don’t know any insider information here. To be clear, I don’t know anything other than what’s publicly available about Bright Green, and in fact, I don’t even know a whole lot about what’s publicly available, but I know that they have had some difficult hurdles to get through as they are looking for DEA approval, for example, to cultivate cannabis for scientific research. Peter, Tripp, do you have any thoughts about what you’ve seen with Bright Green’s experience?

Peter Rosenberg: I can’t comment specifically on Bright Green because like you, I’m not that familiar with the business itself. But the timing of their transaction couldn’t have been worse in terms of their public debut. And just the window in which they entered the market was not favorable at all. And that, incidentally, has implications for a lot of companies that had planned to file this year and go public. We should put those plans on hold because it’s just not an attractive time. But I don’t know enough about Bright Green to comment intelligently.

Tripp Keber: It’s a cautionary tale. Some of the best deals are deals that you don’t do. Maybe it would have been prudent to delay, but I don’t have any insider information, and although I’m not a lawyer, I’m smart enough to know when to keep my mouth shut. It’s disappointing because they have set up some additional and new obstacles that we otherwise may not have faced had they not chosen to take that route, but we’ll see.

Jason Klein: Yeah, a cautionary tale to be sure, and no doubt others are watching and learning from this. So, that might be another sort of obstacle for companies to consider as they’re moving forward. We don’t have any other questions in the queue right now, and we’ve got about 10 minutes left. We’ve gone through private markets, public markets, we’ve talked a little bit about federal legislative changes. We’ve talked a little bit about life in the C-suite, and who populates those seats right now? What are we not talking about, Peter and Tripp? Sort of an open question here. What would you like to share with our audience?

Peter Rosenberg: I think if you break down the industry into individual sectors, sub-verticals, if you will, there are certain pockets of businesses that are more favorable than others. As I said, right now, retail in terms of M&A activity continues to be lead the charge in terms of capital raising. It’s more of the ancillary businesses that I see being successful in that regard, and I think we’ve talked about the oversupply and the plummeting of the wholesale prices, particularly in Colorado and in California. And again, I think as that inventory gets consumed within the infrastructure in the system, you’ll see a recovery in those prices.

So, I think California is down but it’s not out. You still see a lot of brands that have emerged from these early legalized states that are forging partnerships now. That’s another trend we should comment on, that in order to expand out of state, businesses have elected to go asset-light and to find an existing licensed operator in other states to produce and market and distribute those brands. And with some of the larger states now legalizing adult use, such as New Jersey and New York, these brands are trying to exploit and take advantage of those markets. So, I think we’re going to see more and more of that anticipation of federal legalization so that these products and brands can position themselves to already have awareness in those markets. Even before federal legalization, a lot of our clients have done that,. and we’re seeing Michigan and Pennsylvania, and as I said, New York and New Jersey, take on proven brands in the states in which those brands originated, because it’s more of a sure thing than trying to start up a brand in a new market.

Tripp Keber: I wear multiple hats, but my primary hat is working alongside Peter to find ways in which to support these cannabis businesses. I’ve got a strong management team that runs my day-to-day business, which is still plant-touching here in the state of Colorado, and it never ceases to amaze me. You’re seeing a real strong interest from mainstream consumer packaged goods brands that are coming into the space. Jones Soda, which is an iconic craft soda company out of the West Coast, has now launched Mary’s Jones. You have brands each and every day – and people think that Colorado’s mature – looking to access the market. And as a manufacturer of infused products, that’s a strong indication that our sector of the industry is going to continue to have the ability to grow.

Not all brands are going to survive, and not all brands are going to convey to you what I’ll call consumer loyalty, but in the state of Colorado you’re seeing a true branding of flower – think of the Cookies of the world – and that has traditionally not been the case here in the state of Colorado. But that is starting to have more prevalent play. And these are all segments of the industry that I think have generally been overlooked, much to my chagrin, since I was pounding that drum for the first decade. But retail is always going to play an incredibly important role, and as Peter mentioned, a tremendous amount of activity there. But the fact of matter is more and more brands are coming into the space from outside of traditional cannabis, and I think that bodes well for the industry overall.

Jason Klein: Well, as is some somewhat typical, we’re getting a bit of a crush of questions here at the very end, and only we had about five minutes left, so I’m not going to be able to get to all of them. I think we’ve got time for one more, so I’m going to pick this great question about social equity licenses, which has been a recent development in the cannabis industry in the last couple of years. Several states have added into their laws social equity licenses to diversify the owners, the operators and nature of the businesses, not just ultra-large, but sometimes micro licenses. But oftentimes these social equity licenses have their own particular challenges, particularly with raising money. There’s just less collateral out there for those businesses to lend off of. Peter, as you mentioned earlier, that’s sort of real key for lenders to look at, and there’s less experience in the C-suite, as Tripp was harping on. So, any tips for these social equity licensees when it comes to approaching lenders and how they raise money?

Tripp Keber: Well, let me just chime in because I’m actually dealing with a client right now in Arizona that is still early stages, but I know I can speak for Peter, that we’re both strong proponents that every market have some social equity component to it, generally a segment of society that’s been overlooked, or potentially been discriminated against for a myriad of reasons. Certainly, they deserve a place at the table, but fundamentally the state regulatory agencies should not preclude social equity license holders who have gone through the arduous process of winning those, or should I say, earning those to allow them to align with nonsocial-equity investors or nonsocial-equity businesses, or just potentially to sell and profit from it.

My opinion is that states like Arizona, which are now starting to soften and allow those social equity license holders to sell a majority of their position, that’s long overdue. And whether they choose to run the business or whether they choose to take a less-controlling interest I think should matter and giving these businesses that have some component of a social equity participant the ability to win I think is incredibly important, because that will beget future investors down the road for the next generation of those applicants, those specifically BIPOC investors or business owners that deserve to have a place at the table.

Peter Rosenberg: I’m going to go back and challenge Tripp a little bit on that point, because while I do believe in the principles behind social equity and to try to give reparations to an overlooked segment, it still comes down to your ability to manage a business successfully. So even though these licenses are being given to social equity candidates, if they don’t have the managerial acumen, it’s just going to be challenging not only to attract capital, but to be able to run that business as a going concern over a long period of time. And when some of these social equity licenses get granted, you find that the businesses don’t necessarily thrive, or they’re structured in such a way where the social equity candidate who was able to get the license doesn’t necessarily get to share equally in the economics of the returns, because they’re really just there in name only to get the license, but often there’s a management team that is used ascribed to that business that really gets the spoils of the returns. But again, it all does come down to the quality of the management, whether you’re a social equity license holder or not.

Jason Klein: These are both great points. I don’t think they’re contradictory at all. I think they sort of go hand in hand and complement each other, I think that these social equity licenses are here to stay, and I think we’re going to see more of them. And I think finding solutions to these issues is going to be key to ensuring successful policy initiatives for the states that to take them on. That is going to wrap it up. We have run out of time.

Peter Rosenberg: Thank you very much

Jason Klein: Tripp and Peter, thank you both very much. I’d like you to, if you could, just share your best contact? Is it LinkedIn or email or some other way? What’s the best way for people who didn’t get their questions answered and want to get in touch with you directly after this event? What’s the best way, Peter, to reach out to you?

Peter Rosenberg: Email would be great. I look at email religiously and multiple times a day; prosenberg62@gmail.com.

Tripp Keber: Same for me. We’re pretty closely held company, so we don’t do any advertising or have any strong presence online. It is Peter and I and some trusted associates, but my email is trippkeber@gmail.com. And certainly, I probably don’t check this as strictly as Peter, but certainly daily. We’re greatly appreciative to you and to Rob [Meagher] certainly, for giving us this platform to share our opinions related to the industry.

Jason Klein: Thank you. I’m honored that you shared an hour of your valuable time with us and shared some of these great insights. This has been a lot of fun. I’d love to have you back next year and see where we are after some of these predictions and hopefully we’ll be back on the upswing when we come back next year.

Tripp Keber: We promise we’ll be here.

Jason Klein: Well, thank you again, and hope you have a wonderful rest of your week. To everyone else, thank you for joining. Come on back July 27, the last Wednesday of the month. Keep an eye on your email for a link to this recording. Go ahead and share it with your friends, your colleagues, the cannabis investor that you know in your life. Go ahead and share it with a friend and keep an eye out on your email for the announcement about the next Cannabusiness Key. Thank you all very much and have a wonderful day.

Tripp Keber: Thanks, Peter. Thanks, Jason.

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