Editors’ Note: This is the transcript version of the podcast we published last Wednesday with Oren Benoff. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy!
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Rena Sherbill: Happy Wednesday, everybody. Welcome back to the show. Today, I‘m happy to be joined by Oren Benoff who graduated Rutgers University with a dual major in English and History and has since pivoted into studying the global cannabis eco-systems, stock fundamentals and technicals, and in general cannabis news. He currently writes about the cannabis industry and invests in cannabis stocks for a family fund. He also care takes for an elderly patient with dementia through medical cannabis.
So, really great to get his independent thoughts on the plant itself, on the state of the sector, the fundamentals of picking stocks, which ones he likes; ones he avoids, as well as what he‘s learned since deciding to invest in the cannabis world. And also it‘s great to hear a perspective of somebody that spends their job researching and picking which stocks to invest in as we had on Shiry Eden last week who focuses on the global sector from an Israeli office. Oren Benoff does a similar thing. He‘s also based in Israel, and you know, part of our goal in having this podcast is to give listeners a macro picture about the plant itself and also more of a specific, obviously, investment picture, which stocks to focus on, how to know which stocks to pick, what about the challenges of this industry, how to navigate that.
To that end, next week I will be joining the lot of cannabis investors and putting my own money where my mouth is and I think it‘s interesting to go on that journey in this podcast – on this podcast and talk about which stocks I‘m personally buying and why I chose those stocks. So, until we announce which stocks I‘m long next week, I wanted to give you guys a chance to guess or throw your recommendations for which stocks you’ve picked recently, which stocks you think I should pick, which stocks you would advise somebody to pick, I’d love to hear you guy’s thoughts in the comment section, love to hear from you. You can also email us; wait for that email at the end of the show.
Okay, another thing that we try to do as I said is give you, you know, the news, the ins and the outs of the cannabis industry, and as we do every week, we’re starting, of course, with what everybody‘s talking about and that‘s coronavirus. Everywhere you go, every station you tune into, obviously, you cannot help, but hear what‘s happening in this world of ours complicated it may be.
Coronavirus, obviously, is affecting the cannabis sector. It‘s affecting pretty much every sector that I can think of. This goes for, you know, the products, the equipment, packaging manufacturers that do business in China. We saw this week that Organigram’s (OTC:OGI) vape hardware producer Feather was facing a two week to a month hold up due to coronavirus factory shutdowns in China. We’re going to see this more and more. Obviously, these only compound difficulties for the cannabis sector, which we have seen struggle, you know, throughout the past year or so. And as we‘ve mentioned, cash has been very important part of surviving, the cash crunch, the sector wide downturn, even more important now, who has cash on the books to survive? What could be an added burden for companies already struggling? So again, essentials pay attention to companies’ balance sheets, how much cash they have.
Another follow-up from the coronavirus is, of course, the cancellation of conferences. Conference life is basically the heartbeat and lifeblood of the cannabis industry. We‘ve already seen South by Southwest canceled. You know there were a couple cannabis focused events that were going along with that festival that have been canceled, the Hemp-CBD Supplement Congress in Portland, the Cannabis Business Conference in Berlin. You know, we’re seeing more and more conference delays, cancellations every day, so also something that’s affecting the market. Another thing that we‘ve heard guests talk about on the show has been the CBD market and we‘ve heard recently, especially a lot of our guests are bearishness on it in light of the fact that the FDA has not really done enough to reassure companies or consumers.
So, to that end, the FDA this week sent out – last week sent out overdue recommendations to Congress concerning CBD regulations and enforcement. That report maintained its stance on infused edibles and beverages, but it did present a certain shift on supplements. The FDA will now consider how to bring them to market in spite of the oversight challenges. So, I think headed at least in the right direction. Cannabis Trailblazer and current Vireo Health (OTCPK:VREOF) CEO Bruce Linton called Vireo’s raising of over $7 million in a private placement, a reflection of the confidence of the capital markets.
So, interesting and a bullish development there to see capital coming in. Green Thumb Industries (OTCQX:GTBIF) signed a $50 million sale leaseback agreement with the REIT Innovative Industrial Properties (NYSE:IIPR) on its Illinois cultivation and processing facility. This deal brings the REITs investments in GTI‘s former properties to a total of over $96 million.
Canopy Growth (NYSE:CGC) announced an optimization plan last week that included closing two Greenhouses, laying off 500 people as it attempts to cut down on costs. In spite of Canopy’s struggle, some analysts do think it‘s a prudent move for the company and generally positive for the industry. It obviously also highlights some balance sheet risk and the stock did lose 19% of its value during last week.
Speaking of Canopy, after being legal for more than two months, recreational cannabis beverages are finally beginning to appear in Ontario and Quebec, and Canopy Growth plans on releasing its beverages, which have been delayed later this month. And most recently, in earnings news this week, we saw Green Organic Dutchman (OTCQX:TGODF) report Q4 results with a net loss of just under 145 million and revenue of 325 million in Canadian dollars. And we’ll find out more detail about that report on the conference call which is happening this morning.
Before we begin a brief disclaimer. Nothing on this podcast should be taken as investment advice of any sort. I do not have positions in any of the stocks mentioned. You can subscribe to us on Libsyn, Apple Podcast, Spotify, Google Play and Stitcher. And as always, we’d really appreciate it if you‘d leave us a review five star or higher. For reference purposes, this interview was recorded on February 19, 2020.
Oren, welcome to the Cannabis Investing Podcast. Really happy to have you on the show. Thanks for joining us.
Oren Benoff: Thank you. I’m excited to be with you.
RS: Okay, good. So tell us how you got to the role you’re at now and your connection with the cannabis world.
OB: Okay. Well, so I have been very familiar with the endocannabinoid system for over 20 years. What I mean by that is, I’ve been extremely involved in exercise and saunas and different things that speed and slow down the ECS and also have been very much involved in cannabis for 20 years as an advocate and also watching the political tax view change has been very exciting in our age.
So the past few years, three years, I’ve been managing a portfolio of investments – solely cannabis – and it’s a family investment. It’s nothing that big, pretty much it’s just my family’s desire to get into something new, and having a background in History and – degrees in history and literature has given me an ability to unpack this nut.
Also I have done a bit of work with volunteering, helping people with PTSD and dementia and teaching them how to smoke cannabis and how to use cannabis for their elements, of course, they’re receiving medicinal and helping people out for free. And then, also I’ve been a caretaker for someone who has had – has dementia, and so, it’s been a learning process of caretaking too.
RS: Interesting. Yes, I mean I think those two things go hand-in-hand sometimes, being an advocate for cannabis and then using it to for caretaking purposes. I‘m interested did you get into the investing side of things because you are interested in the cannabis world and you saw that that was a potential way to make some money and then you got into it that way, or were you investing already and then got into the space that way?
OB: Good question, Rena. So essentially, we met at CannaTech a year plus ago, and that was a wonderful day. One of my best days last year.
RS: Agreed.
OB: And so, the previous year I had gone to CannaTech and I had been doing content writing for some different cannabis companies in Israel and I wanted to actually be a mitapel for Tikun Olam or Breath of Life to help out people essentially and what happened was that the industries were not developed enough and it was too much red tape and I realized that the simple job that I wanted to get into, I wasn‘t able to. So, I started studying and I realized that the most important thing for me to do is to understand the eco-system and I got beyond Israel and I got beyond Canada and essentially for the past three years I’ve been studying the ecosystem develop.
So, it came from a place wanting to give of myself in the developing industry and it ended up with being one of my hobbies essentially and I made a bit of money, but essentially I’m just more inspired by the space and an educator when it comes to teaching people how to learn, how to study the market.
RS: It’s interesting. You mentioned at the beginning that you have degrees in English Literature and History, have they helped you navigate this?
OB: I would say yes, also psychology – have a deep background in psychology. So, essentially a few years back, somebody wanted me to work for them to do analysis for stocks and I told them my background is in English and in History.
RS: A natural pivot.
OB: Yes. I don’t have a MBA and he was like, you don’t have to. You understand FOMO and I’m like okay, I understand FOMO, fear of missing out. I grew up with this kind of mentality with my mother, you know. And so essentially, psychology has played the deepest role in this game possible because the market that we’re watching essentially is pre-conscious because of the nature that federal government hasn‘t developed – hasn’t made laws about cannabis in America, and so, essentially it’s pre-conscious because conscious will come when the federal government says this is legal, I mean that’s a state base.
So, because it‘s pre-conscious, we – clinical studies aren’t even being done and essentially what we’re dealing with is a really, really, really infused baby. We’ve got a very, very – you know like very young – very developed baby essentially we’re dealing with and that is when talking with the market. And so, psychology plays a deep role because the whole system is a psychological drama you know.
RS: Yes, I think that’s a good way of describing the stock market in general and I think people really forget that. It’s not a rational place to be. I think a psychology degree almost makes more sense than the finance degree in terms of navigating the stock market because it really is – I think until you started investing, people don‘t really understand that. So, I think it‘s a really good point to make. And so, are you only focused on the U.S. markets at this point?
OB: No, I’m focused on anything cannabis developing in the world. So essentially I am interested in good investments and more importantly, I’m interested in the show. I find this to be – we’re essentially doing entertainment right now, Rena. We’re talking about the stock market, but people read and listen because they want to be entertained. Mostly they’re going to invest the next second, we want them to feel that they’re getting a good show. So essentially I’m watching the most incredible show. I decided that I was no longer to – going to watch news, regular news. I’m just going to commit myself to cannabis news and fundamentals and essentially technicals. And I’ve spent the past three years switching over from like news that made me sad to news that made me kind of glad you know.
RS: So, when we met last year, the Canadian market, everybody was excited about it. They were excited about Cannabis 2.0 rolling out. That has soon been shown to be a disappointing picture. Investors are disappointed, not sure if the Canadian market is going to recover. Was that something that you saw coming? Was that something that surprised you? And in general, looking at the market over the past three years, learning about it, what are some things that have surprised you and what are some things that maybe you saw coming?
OB: So, first of all, we’re dealing with a commodity and everyone is talking about branding. This is like the hot topic, branding. And so, we’re in pre-conscious mode with cannabis and there is really no branding. As much as you have Origin House (OTCQX:ORHOF) and you have SLANG (OTCPK:SLGWF), and I like these companies you know. There’s a lot of great companies, you know, and the Canadian companies are wonderful also, but they’re so young that there‘s no brands that are coming on.
And even if people throw a brand on something, there’s really no branding and also Cannabis 2.0 like you spoke about. It was really nothing coming out, it’s just hype. And so, we all knew that the hype was going nowhere because what products are they offering? I mean CGC didn’t even put their beverages out. They had to stop it because their bottling plant wasn‘t able to take care of the job. And so, what new products are we dealing with in the market that are so groundbreaking, I don‘t see anything that has transitioned from a 1.0 to a 2.0, and essentially like Aurora (NYSE:ACB) – I knew it was a red flag from the beginning, but the thing is, is that you have to understand the psychology of all this. I mean I bought it on October 29, 2018 and I sold it on March 18, and it when up a pretty much 100% because of psychology and just talking about how much it’s going to pump out, how much volume was going to pump it.
The world doesn’t even have the capacity to take in the volume that they’re just saying there has been a pump out. And I’m talking about – in the distribution, there’s not even distribution channel in the world that could hold – that house 1 million square meters, you know, at this point. You know, the market in the world is such that like that it – the American market makes up 85% of the global consumption and Canada makes up a fraction of that, and there is no global counterpart to take in the excess, so it’s all hype.
RS: So, do you see any positive kind of changes or news coming out of Canada? Or do you think that market is simply too small and the companies spend too much on expansion to kind of recover from that?
OB: So, I think that first of all, I love what Canada is doing and I think that there will be a – there is a shake up and things are falling apart and most companies don’t even have enough money for 2.5 months from now.
RS: Right.
OB: So in about three to five months, we’ll see a – after the – after there’s bit more of a shakeup of the cannabis apocalypse going on right now, kind of a cannapocalypse.
RS: I was going to say, nice, yes.
OB: As Equity Guru calls it you know. So that kind of apocalypse is happening as we speak, you know, and it will be televised, you know. Essentially there will be companies that have to strengthen their thesis. We’re talking – now let’s talk money, money makes the world go round,
but that’s not true. What makes the world go round? Ideas, ideas that are well grounded and that people buy because they want and they need.
And essentially, there’s companies like 48North (OTCPK:NCNNF) that has always been doing it, right. I mean they’re not making much money meaning that their stock is not going up. They’re making money, but the stock has not gone up to where I want to see it, but 48North is a company run by women and the future market – we know that women are going to be 50% of American market in 2022.
Like we’ve seen that in California that the buying ratio, women are buying proportionally much more than men and the new products like the topicals and edibles, women are very much into non-smokable product, and essentially household expenditures are run by women. So, what I‘m seeing is the landscape is going to go towards companies that are driven by women and that are selling at – selling product and health and…
RS: Health and wellness.
OB: Health and wellness is the direction. So, if we‘re going to see a company just trying to simulate alcohol in a can that’s cannabis, I‘m sorry it‘s wonderful, but it’s not going in the exact direction of wellness, but there are wonderful products that CGC is putting out – is going to put out that are within those lines. Whether it’s like mango or these wonderful flavors passion fruit, that’s more of a direction of a wellness direction, but we’re still in a very, very young pre-conscious phase in this hyper growth cannabis market that we don‘t even know what people will want.
And everyone is pushing their idea of what people should want because they want the market to grow. You can’t push what something should be because we don’t know what it will be. So, essentially what excites me most is watching something grow. I like to watch things. I like to watch the rain come down, I like to watch the sun come out, you know, and essentially this is we’re at and we have to accept that women and seniors are also a large market that are going to challenge and change because once Europe opens up, it’s the seniors that are the medical patients, that are going to be underscored.
So, companies that are dealing with them women and seniors and a wellness have an edge in my opinion and 48North I believe will be grow. I mean it’s not going to grow that fast because it’s not how this market’s working. The S&P is doing much better than the Canada stocks, and so, I’m not telling people just throw your money into the cannabis stocks and expect a heavy return because it’s honest and real to be honest and real with what‘s going on with a burgeoning market that will eventually take over a $341 billion global black market. It will take it over, but it will take time.
RS: Right. And what about a company like Aphria’s (NYSE:APHA) approach who is, you know, looking more to Europe and the international markets and trying to build itself more as a CPG company I think than anything else, and, you know, they said that on the last earnings call even – are you more bullish on a company like that and let’s say somebody that’s not as focused on the international markets?
OB: Yes, I mean, I like Aphria a lot because I like Celestial Seasonings. You know the company and the CEO had previously. I visited the Celestial Seasonings Tea Factory in Boulder, Colorado…
RS: Me too
OB: …and the tea room was so minty that I started to crying, you know, and that’s like it‘s a great place for tourists to stop by and Celestial Seasonings know what they’re doing and I know that Aphria knows what they’re doing because, you know, they had a shake down with the Citron Group like maybe it was a year and a half ago and it was October, a year and half ago when the short sellers hit them hard, but you want to know something, it means that they are doing something right when the short sellers are hitting them like that and they’re dancing, it’s a drama and their stock went up and they made money on the stock in previous and they’re working in Germany with a wonderful company with a distribution company, with a cannabis distribution.
I do like Aphria and I do believe that because they’re going down the direction of wellness and they’re also going to open up to the preferences of women because they understand that’s the trend going on in California, that’s the trend that‘s going on all over the world trying to find new customers and old customers.
RS: Yes, right. And trying to develop what you‘re saying, trying to develop targeted products that will bring in new customers, even older customers for the first time. I mean, I think what you‘re saying is really true that brands that are developing targeted approaches and niche products directed at women, directed at seniors, especially in the health and wellness, I think they have a lot of runway there to grow. I think they’re also developing their brands in a way that will lead to brand loyalty, which is, you know, as you said, what everybody is talking about, but in that same regard, what is your sense of MSOs who are taking in the exact opposite approach, which is, you know, growing and owning all the different parts of the supply chain there, do you have a sense of the MSO‘s having an advantage in the U.S. markets before it gets descheduled federally?
OB: Well, they do have their advantage. They also advantage – it‘s funny, a lot of them have an advantage financially over the Canadian companies that originally were able to get money from the banks. Like clearly it has three years of cash and Cresco (OTCQX:CRLBF) has two years of cash. GTI has one year, Trulieve (OTCPK:TCNNF) it also has over a year. And so essentially – but I do think they do have a big danger. The danger that the MSOs in America have are very much timed to the fact that they are owning too many different rail roads that don‘t connect to each other and the danger is that business models do not sink and when business models don‘t sink, you get an ossified dinosaur.
And so, one of the problems that I notice very simply is that I don’t see a business thesis being developed by many MSOs that is unique and what I mean by that is owning as much retail or as much cultivation or it doesn‘t matter what aspect whether it’s agriculture extractions, CPG and ask the retailer or real estate, there are six different breakdowns in this fashion. I don’t care where their ownership lies or exactly how much they own, I just want to see a synthesis and I don’t see that enough.
I see way too many just conglomerations that are just massive soulless corporations that don‘t speak of a unique soul. And what I mean by that is it‘s very hard to find where one of the MSOs are excelling at. I’m not talking money wise, I know Curaleaf (OTCPK:CURLF), how much money or Trulieve, I like Trulieve because it‘s run by a woman and in Florida and Kim she is fantastic. She’s a very strong lady, a woman – businesswoman and her model speaks to me because I know that she‘s a woman and she‘s running Trulieve and there is a large amount of senior citizens and a large amount of women who are patients. There is the overlap of the markets of wellness and medical and a women market that will actually help develop her thesis, but she actually has a thesis.
RS: Right. yes, we had Kim on the show a few weeks ago and I think any investors or prospective investors that listened to that would have felt very – you know more confident in stock after listening to her. Yes, I agree she‘s a – definitely a dynamic leader and has a lot of good ideas for how to make Trulieve, you know how to take it in a little different way than the rest of MSOs I think. What are your thoughts on – if the U.S. de-schedules cannabis, how much do you see that changing the landscape there?
OB: Well, it’s not going to happen so soon unless Trump decides to pull out a card that will help the Republican Party.
RS: Well, some people are saying that he’s going to do it.
OB: Right, right. Well, it will infuse a lot of money. The stocks will go up fast. I don’t think the game will change that quickly on the landscape. Like, these take a while. One think that I have noticed is that regulations move so slowly.
RS: Yes.
OB: They move so slowly and it’s like, you know it will change everything in the long-term and it will change the economic landscape and it will also change Canada’s whole wishy-washy protocols with packaging and with the milligrams in edibles or – yes, in edibles, particularly and in drinks that they have to have less milligrams. Once America becomes cannabis legal, then Canada will be up to relax it‘s a very strict regulatory framework around I guess advertising and the like.
RS: Right. You mentioned at the beginning that your desire initially was to get started in the Israel market with Tikun Olam and are you still at all focused or looking at the Israeli market?
OB: Sure. Particularly first of all, Cronos Group (NASDAQ:CRON) has Cronos Lab in Israel and Cronos is the – you know has the most cash for the longest run meaning that – they say that Cronos has seven years of cash. So they have a long time to get their thing right and Cronos Labs essentially is working with Altria (NYSE:MO) to make devices for vape and I guess for vape technology. So, they are there, but particularly the company that I’m really interested in is called IPOT.
RS: IPOT?
OB: Yes. It’s Isracann (OTCPK:ISCNF). It’s a company that actually comes from British Columbia. It’s the first pure play company to enter the landscape in Israel and they have a desire to export large amounts of medical cannabis to Europe at the time and also to balance the Israeli market where there is a deficit, particularly there is a need to import right now from Portugal, and so this company, IPOT, it’s on the CSE wants to take on the mantle of creating an incredible, incredibly large cultivation farm in Israel for export.
RS: Interesting.
OB: They’re really, really interesting because they‘re actually not from Israel and I appreciate the external influence into the landscape here because quite often Middle Eastern business is Middle Eastern business and it’s good to get a Western sense or sentiment to balance out the non-transparentness.
RS: And then in terms of Israel being a – you know it’s a leader in R&D of cannabis, are you bullish on other areas? Or are you looking at other areas? You know – I mean people have a whole host of things to say about South America. They’re also talking about Africa and there‘s different companies getting into different parts of the world. Do you see any part of the world as something that you think might be more successful than another?
OB: I mean, I see the whole world as successful. I do see the regulators moving so slowly and I was originally going to invest in stocks in Colombia, but I realized that the roll-out is so slow and even Israel it‘s – everything is so slow. Even Germany, particularly Germany – it‘s such a – slow roll out in Germany, but the amount of people that are receiving cannabis for medical purposes is not so much and it’s like the same amount of people as New Jersey that are receiving. It was like 60,000 people in New Jersey receiving cannabis for medical reasons, and so, there‘s 60,000 in Germany and that‘s not enough to support a global market. But the future and the development that will happen is not overnight, you know, that‘s the problem. Everyone wants things to happen overnight, but if it did happen overnight, it will collapse overnight also.
RS: Yes.
OB: So, anybody who really wants to be educated has to put time into this and also realize that this is – it’s like a 10-year journey, and yes, I’m very excited about Africa. I invested in a company Halo Labs (OTCQX:AGEEF) that has a cultivation in Africa. I’m very excited about, you know, Asia, Thailand wherever they’re doing protocols where they can where civilians can grow cannabis and sell it to the government and all these things are wonderful, but they’re sort of like micro growth processes that over the long term will create growth, but short term it’s like pulling hairs out of our head because it doesn‘t really make the needle rise so much and I’m talking about the stock market needle. Doesn’t make like any significant difference with the money in my pocket, but for me, it‘s something that I am not interested in because I know the curvature that’s going to happen in five to seven years.
RS: And what is your sense about the CBD market?
OB: So, it‘s very exciting and very confusing because last year the – I guess the…
RS: Farm bill.
OB: Farm bill was passed and everyone was so excited. And so, though we made a few dollars off of the Farm Act passed because stocks went up.
RS: Right.
OB: But the thing is, is because of the FDA really, really, really, really not liking products that have CBD in it and not really taking a formal stance on how to proliferate CBD in helpful fashion for Americans. It has caused a serious, serious lump in the CBD stock market particularly, but people are buying it like, you know, people are really, really buying CBD, but the point is, is that until it becomes made into like a vitamins, vitamins, you could buy a vitamin, you could buy St. John‘s wort and I’ll tell you that St. John‘s wort could do problems to the body and it is regulated like a vitamin.
So if a CBD gets regulated like a vitamin, which it probably will in next three to six months, when it becomes regulated like a vitamin, then there will be less problems with the Food and Drug Administration because they’re not really involved with vitamins, they sort of leave that on that side. They’re okay, let’s just stop on it, that’s your problem. So it needs to be regulated like a vitamin because it doesn‘t look like the FDA is going to say put it in food, it’s healthy. It doesn’t seem like that’s the direction they‘re going.
RS: Right.
OB: But until there is clarity in – which – there will be clarity, it will – we hope that it will be made into a like a vitamin supplement.
RS: Right.
OB: You know at that point then you have places like Charlotte’s Web (OTCQX:CWBHF) that will skyrocket again.
RS: Do you think it’s too early to take positions in those stocks betting on that? Or do you think now is actually the time before the news gets better and everybody knows to get into – you know Charlotte’s Web was I guess probably the most renowned brand in the market.
OB: Yes. I think that it’s – first of all I don‘t want to give people advice that they will just run with and not have education.
RS: Yes, yes.
OB: But what I do want to say is that for people that are into playing stocks and educating in this game it is a wonderful time to hit the books and to realize that now is the time to invest in Charlotte’s Web because once the – once it becomes known that it’s a vitamin, its already past the point.
RS: Right.
OB: And now that we’re sort of in a gray area and we know it‘s not like its not super harmful, but what we don’t have is the FDA‘s backing or a vitamin supplement saying it’s a supplement, take it at your own risk. For some reason that works with vitamins and it will work with CBD and there’s a center that’s working on this. Right now as we speak, and forget his name or her name, but the point is, it doesn‘t have to be either the DA or the FDA could also be through a vitamin kind of agreement that it is a supplementary food and take it at your risk and the stocks will skyrocket.
RS: And are you – do you look at all in terms of, you know, big pharma, alcohol, tobacco? Are you at all interested in making plays on those names coming into the cannabis sector more than they already have? Or are you focused on more of the pure play cannabis companies?
OB: You’re asking do I think they’ll enter exactly in the first place?
RS: No, do you think it’s – I guess are you interested in investing in those companies as a way to get into the cannabis sector?
OB: No. I don‘t want to invest. You’re talking about like investing in consultation beverages or tobacco and alcohol.
RS: Yes, tobacco and alcohol
OB: No. I kind of don‘t really want to invest in those companies… And I kind of – I mean cannabis stocks are working and I don‘t want to step one degree out of that circle into the alcohol or the tobacco industries.
RS: Is that because of what they represent or because you‘re belief is more…
OB: Yes, I actually don’t like – I didn‘t want to invest in Cronos Group except some parents of my friends had invested early on in Cronos and I really didn’t want to because of their relationship with Altria and I did that for educational purposes, and then I sold my stock because
I just don‘t like working with tobacco companies.
RS: Understood.
OB: I just don‘t like the harm that it’s done on so many friends and family.
RS: Yes, yes. And what is your sense – I mean, it sounds like you have a very active approach to investing, so I would imagine you‘re not a fan of the ETFs in the space yet, would – is that right?
OB: Yes. I – I‘m not.
RS: Yes. So want to say a word about that? Or is it pretty much clear from…
OB: I just – I’m a kind of person that likes to particularly choose things and like I like to make my own best list and understand what goes into the ingredients as opposed to saying you could cook this for me. I don’t know who the chef is and I’ll eat it because I know that someone said that you’re a good chef.
RS: Right, right.
OB: And I also want to know thesis. It’s really important to me. That’s like my English back ground. So, it’s the idea of building a thesis, and part of the problem is that in early days in, I’m not so old in this, but a year and half ago, it feels like early days with so much happening, but …
RS: Yes, right. So, speak to investors, I mean you’ve said the importance of educating yourself and looking under the hood, what would you say that to investors that are trepidatious about getting into the sector? You know, they think they don’t know enough, everybody has been touting the bullishness, but obviously there has been across the sector declines, what would you say to investors wanting to get started in the industry?
OB: I would say, IIPR and GWPH.
RS: Oh, very specific.
OB: You know because, listen, the real money is not in the blue chips, but the blue chips are the fundamentals of the growth process that’s going on, and I have seen things go up and go down and with IIPR and GWPH, I just have seen losses, but then they just rebuild themselves because their core thesis is so strong.
RS: So, IIPR is obviously a REIT that deals with real estate in the industry. So, you think that’s a big enough strength in the industry that they are not going to kind of lose that advantage?
OB: Oh, they will lose their advantage. This is their problem, but the thing is that regulators move really slowly. This is also one of the thesis. Regulators move really slowly and regulators are like politicians where the main thing that they don’t want is to be embarrassed. So, if they are
going to make a referendum that changes things or develops things they have to be sure it is going to work or else they would be embarrassed. And I’m joking, but I’m also being serious.
So, essentially even if the federal government changes things with the State Act, particularly with banking, what makes easier for MSOs to get money, it’s not going to happen in a second and it’s not going to – it’s going to take time and so essentially I’m just waiting for the stock to beat its high of last year and then pull out, because I don’t really need to become wealthy from this, I just want to make wise investments.
RS: Interesting. So, what do you think investors need to look out for? Like what would you say is, you know a big stumbling block for investors getting into the space?
OB: I mean the problem is, first of all, investors should know that there is – the problem is on rollout and non-compliance in local governments and retail. The slow rollout of cannabis and the non-compliant local governments have made it increasingly hard all over North America for companies to make money. So, because there is a lot of cannabis being bought does not mean the stocks always go up.
So, people should understand that when there is an increase in volume in purchases, does not mean the stock is going to go up automatically and that’s something that has been very difficult for me, is that I have seen different states that have increased their profits and the stocks themselves have not gone up like for instance like, you have Trulieve effect that has grown so much in New Jersey last year and it has like the lion’s share of New Jersey, but that didn’t cause the needle to rise so much or even when Origin House and Cresco joined forces, it didn’t make the needle rise so much and it is just because rollout is slow and taxes are high, and yes this is a growing market, but don’t be fooled into thinking that you’re going to make a billion bucks. Maybe in 10 years, if investment thesis are correct and followed through there will be a nice sum, but right now it’s just exciting, it’s like watching sports.
RS: Well Oren, I think that you’ve given us a lot of really interesting things to think about and a lot of really constructive actionable takeaways, which not everybody is willing to do. So, I appreciate you putting names out there and giving us some really good ideas to think about. Any parting words that you would like to leave us with?
OB: Well the main thing is to focus on an MSOs main thesis and their differentiation from other companies like what makes them unique, as well as when I invest, I think about six different breakdown topics that I put my money into. There is cultivation, which is ag, which is number 1, there is 2 which is extraction, there is 3 which is CPG, there is 4 which is ancillary, and there is 5 which is retail, and there is 6, which is real estate, like IIPR. So, ag, extraction, CPG, ancillary, retail, and real estate. And so I try to put my investments in those different categories to diversify my extremely volatile cannabis investments.
RS: And do you have a certain percentage of allocation to each or does that change?
OB: It changes, but, like right now, the real estate IIPR definitely has a third of my investments right now, and the ancillary I haven’t put enough into it, but I just, I really like KushCo (OTCQB:KSHB) they just haven’t been making money, they just don’t make money, but I like that. I like their thesis, they are cute. They are just not making money.
RS: How long do you decide to keep your money in something that you believe in their thesis, you believe in their product, but they are just not giving you the numbers, how long do you stay in something like that, or it depends on the company itself?
OB: It’s good question, it also depends how much I put in also and it’s good to actually have an escape of knowing when it is time to leave, meaning not to lose too much where it is not – it doesn’t cause much harm.
RS: Right. And then also to understand that it is not going to back up.
OB: Well the thing is that, right, expecting not to go back up, but in this volatile space of ours it does go back up quite often, or it goes to zero, which is crazy, so substantially this in IIPR it just went up from – in October from like $60 and now it is over $100, meaning that that’s a pretty good growth. Meaning that 40% is wonderful, it’s like more than you can ask for, you know, but that is volatile, it also has gone down 40%. Too much information, sorry.
RS: No, no. I don’t think at all too much information. I think it’s really, you know caveat emptor. I think anybody getting into the industry should know that it’s heavy in volatility and that’s something to be aware of and for maybe if you have a belief in the stock for it not to scare you so much?
OB: Yes, I mean the truth is, I tell anybody who wants me to help them, I say to people essentially, is this money that you can live without?
RS: Right.
OB: And if they say no, then I say you should pay for your rent with the money that you have and not expect to get next month’s rent with the investment this month. And if you have some money on this side, please learn, it is a wonderful game.
RS: Yes, we’re all about empowering people to invest their money, I think not enough people are empowered, but at the same time obviously you should be able to pay your rent before investing. So…
OB: Yes. I mean like, for instance like I was so excited about Planet 13 (OTCQB:PLNHF) in Nevada, which is a super store and you’ve heard the super store for cannabis and they are doing great, they have 10% of Nevada’s market, and I was like okay maybe I should invest in this. That’s a good retail option, and then I read a bit more and a bit more and I was like, I realized, wait it’s not a good retail option.
The whole Virgin Megastore concept works in the beginning, but people don’t like that. People like to go to a small store where they could see what they want and come back and that people know their name and retail likes to be an intimate fashion where you find what you want, and so in the near term, Planet 13 seems wonderful, but in the future, I don’t think that those kind of stores will work.
RS: Yes. We had Jeff Mascio a guest on a couple of weeks ago talking, just about that, about the MedMen (OTCQB:MMNFF), you know which I would say is a little similar retail market, it is just not something that’s going to last long-term it’s just not a viable business model long-term. So, yes, lots of agreement there.
OB: I guess, you know two years ago, I was at CannaTech and Alan Gertner from HIKU spoke and he sold his company Tokyo Smoke HIKU to CGC for $250 million. So, he said something, people buy a story not a product, like Starbucks. So, essentially we have to wait to see the stories develop and people are really pushing the stories kind of like, you know a teenager who thinks as an adult and they’re like, they think they are an adult because they have a mustache, but like they’re just a kid, you know with a mustache.
So, the industry right now is certainly like a kid with a mustache where it’s like no, I’m 18, it’s like you’re not 18, you still have a mustache and what I mean by that – like this analogy is that the story and the companies haven’t gotten to a place of even knowing who they are.
RS: Yes. I think that’s one of the greatest metaphors I’ve ever heard about the industry. I want to keep using that. That’s great. The cannabis industry is like a kid with a mustache, they are just a kid though.
OB: Yes.
RS: Yes. That’s great.
OB: And as my grandmother would say, I think that it would be really important to check the toilets at these MSOs and if the toilets are clean than it’s a good investment, you know.
RS: You are killing it at the end, Oren, you’re killing it.
OB: You know, walk into Curaleaf and be like, could I use your bathroom, I just had a big coffee. And then it’s like, okay that’s a clean bathroom. Wow, it’s porcelain, okay. So, they have a good thesis.
RS: Call up your broker.
OB: Yes, but I never stepped into Curaleaf’s bathroom and I don’t know if it is porcelain and I don’t know, I don’t know.
RS: Yes. Well better to be porcelain than a golden toilet because then we’ll know they’ve been spending money unwisely.
OB: Oh yes, boom, boom.
RS: In that same vein that it’s an industry growing up, I mean we’ve seen that also with a management changes that were now, to further your analogy were kind of like seeing the management that’s going to lead the teenager to the next phase of the growth, would you agree with that sentiment that the sector itself is seeing that it needs to kind of maybe tend to the mustache, but also foster more real ways of growth?
OB: Yes, yes. They – I mean the shake-up happened and it’s happening as we speak and the kids that took the industry to the here and now are being dropped at the bus stop and it’s becoming a bit more mature. You know they’re trimming their mustache, you know they are getting ready.
RS: Yes. Love it. Well, Oren thank you so much for joining us, really appreciate you taking the time and sharing your knowledge and insights. It’s been really entertaining and informative. So, appreciate it.
OB: Awesome. Thank you so much for having me.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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