⛱️ Recap: Benzinga Cannabis Capital Conference
All around positive feedback for the conference held on 4/20 and 4/21 in Miami, FL.
Note: If you’ll be at Hall of Flowers in Palm Springs next week (May 5th) and want to get together, I’m organizing a Networking Breakfast close to the event, reply to this email if you’re interesting in coming by and I’ll send the eventbrite link your way.
Benzinga Capital Capital Conference (BCCC) was one of the best B2B conferences I’ve been to for Cannabis. The two days were just enough, but not too long, with interesting speakers and enough networking up opportunities. While holding the conference on 4/20 meant competing with a lot of other events happening at the same time, the conference was still well attended (with some people coming in on 4/21 after fulfilling 4/20 obligations elsewhere). The two networking reception and closing parties were well attended and provided attendees ample networking opportunities. More importantly, the conference brought a lot industry executives and investors together in the same space, at the same time. This was helpful to organize events around the conference (Arlington Capital Advisors co-hosted an event at The Broker Shaker with The Flower Agency). The conference made a lot of noise—a fire alarm was pulled during lunch on Day 2, Mike Tyson’s session was cancelled (he made an appearance later in the evening) due to a plane altercation—and I’d expect attendance at the next one to be even larger.
Some highlights from the sessions I attended/watched, which are mostly M&A and Fundraising related (since that’s my day job, but most of the recordings are available here. Some well attended sessions were missing, but hopefully will be uploaded soon—Irwin Simon on building the leading CPG brands in Cannabis, Canopy Growth on building to win in US THC ahead of permissibility, and Ricky Sandler, Eminence Capital, on big money and the cannabis industry).
There was a lot of interest in the Ricky Sandler session — "I want to buy what nobody is buying because eventually they're going to buy in and I can tell you that I may be the first institutional investor in this space, but I'm pretty comfortable. Over the next three to five years, most of my peers and the big money is going to be in this space."
Curaleaf Executive Chairman Boris Jordan Discusses His Vision For 2022.
Boris Jordan, Executive Chairman, Curaleaf pointed out that he expects Europe to take much longer to ramp up vs. the U.S. and that’s why they’ve already made the investment in Europe to prepare for recreational use in Germany 2024 ($12B market in 5-6 years). On the U.K. market—pointing out that they have a very liberal medical market, allowing for D2C capabilities with no product restrictions (60M population). Curaleaf wants to build 5-10 strong brands in as many categories as possible. The focus on brands led Boris to saying he could see Curaleaf spinning out their retail business as the industry matures, as he sees it’s more about a few stores to showcase products for the company. He noted genetics are a very important part of the industry and pointed out that some of the more successful companies in the agriculture space (i.e. tobacco) own the genetics and leave it to local operators to grow. Curaleaf wants to focus on developing their seed bank to own the genetics (more to come on investments they’re making here). Not only for the smoking side, but more importantly, on the formulated side (pointing out that they have a large R&D center in MA focused on products and are building a large R&D center in CA that will focus on genetics). The company saw 11% of revenue last year from brand new products and expect that number to be 15% this year. They constantly want to introduce new products and attract new users that don’t necessarily want to smoke.
Differentiating Top MSO Investment Opportunities.
Matt Darin (Curaleaf President) feels that in order to be the most competitive, the company had to be in investment markets like CA, CO, MI that may not have the same margin profile or the supply-demand economics of Midwest/Northeast/FL states but felt it was important to be in those markets to build their brands and distribution and understand what the trends were. Jen Drake (Ayr Wellness COO) emphasized how important cultivation/quality is to the company (a point that Jon Sandelman (Ayr Wellness CEO) emphasized as well when we caught up at the show). Aaron Miles (Verano CIO) acknowledged that vertical integration was a focus for the company, and through M&A (16 deals done over the past year). The panel agreed that New Jersey will have at least a 2-3 year window of crushing it. Tim Seymour (CNBC Fast Money) believes that companies should not highlight Adjusted EBITDA, but rather focus on reporting Cash Flow from Operations (CFO). Emily Paxhia (Poseidon Managing Partner) spoke about focusing on how companies are preparing for a potential uplisting—looking at board composition, compensation, and reporting transparency.
Scaling Through M&A and Retail Expansion.
Olivier Blechner (Jushi EVP Business Development) pointed out that balance in M&A deal structuring is really important. Jushi will issue a mix of cash, stock, and seller’s note. It’s important to find sellers that understand that markets haven’t been kind to buyers in the past 12-15 months but anyone that understands this is the right partner for Jushi. It’s important to understand the value of the “paper” and potential upside they’re getting, even with the headline number being lower than expectations.
Has The California Cannabis Market Reached Its Full Potential?
The panel was consistent on the importance of brands. George Allen (Lowell Farms CEO) pointed out the brand’s success going up against MSOs in IL and MA (through AWH). Troy Datcher (The Parent Company CEO) pointed out how much brands mattered during his time at Clorox at the start of the pandemic. Steve Gutterman (Falcon Brands CEO) reminded the audience of how much money it took for the companies/brands onstage spent to get to where they are at today.
George emphasized that companies have to build brands to compete with the illicit market and companies like his are learning how to compete and have the best chance to succeed in other markets. Andrew Thut (4Front CIO) noted that their low cost production capabilities (edibles cost $2 to produce and wholesale for $4). He advised people to look at who’s winning market share and surviving in California as an indicator of brands that will have staying power.
Now What? Executing After A Fundraise.
Karson Humiston (Vangst CEO) encouraged companies to have a mix of traditional VC and Cannabis VCs as it’s been helpful to have that mix on their cap table. Scott Kenyon (Wurk CEO) made a similar point using a basketball analogy—to have a diverse starting five, and not 5 Point Guards. Luke Anderson Cann (Co-Founder) said that one of his early investors gave them the advice you take as much as you can from a trusted source, and not let the additional dilution prevent you from doing so given the unpredictable nature of the Cannabis industry (which is helping with the current trough they’re in). He also brought up “good revenue” and “bad revenue”—where they chased after bad revenue before (poor return on spend) to become “legitimate.” On board composition—diversity is important, make it founders for as long as possible and then add people who can help with 1) Relevance (i.e. someone who adds legitimacy to the business like Ben Kovler, GTI), 2) Growth 3) Platform (i.e. Rosario Dawson was a non-traditional appointment but she has a platform that can amplify criminal justice reform conversations).
Reinventing a Leading Cannabis Company.
The way Tim Seymore was talking about MariMed and the level of research he seemed to have done on the company, I would have thought his Amplify ETF (CNBS) would have owned some shares of MariMed, but that wasn’t the case, although he does sit on the advisory board of the company. Robert Fireman (MariMed CEO), expects to double the company’s footprint (brands) from 7 states to 14 states in the next 18 months. Robert pointed out that what makes MariMed different from other MSOs is that they were built organically (won licenses, built their own facilities, developed their own SOPs) and are profitable and are Cash Flow+ with excess cash to help expand into other states. Financial disciplined was also mentioned several times.
Interstate Expansion: Successfully Launch Your Brand in New Markets.
Gary Santo (TILT Holdings CEO) suggested that when looking at partners, brands should ask how they will allocate biomass and production time to understand if you’ll be equal footing with the Company’s own brand. Rusty Wilenkin (Old Pal CEO) confirmed that TILT allocated biomass that could have gone into the company’s own Standard Farms brand and instead allocated it to Old Pal in MA. Rusty noted that its key to find a partner to make it easy to lean in and push growth. In choosing a partner, Gary mentioned that they seek to find a partner that’s been able to hold their position (market share, pricing) in hypercompetitive markets (lifestyle, form factor, formulation, etc). They’re looking for brands with a true infrastructure behind them. TILT saw customers of both plant-touching and non-plant-touching (Jupiter Research) go from 20% to 43% last year. A potentially obvious but important point that Rusty pointed out is that brands have to localize for the markets they’re entering (i.e. can’t use palm trees and beach images for MA). Interestingly, Gary pointed out that while TILT’s brand saw softness in sales recently, it didn’t affect sell-through or pricing with their partners (Old Pal, Her Highness, AIRO, 1906).
How the Power of Data Is Unlocking the Ability to See Deeper Into the Investment Future of Cannabis.
Mitch Baurchowitz Merida Capital (Managing Partner) points out how they were able to see that VA was quickly people a purple state and become a recreational state quickly. Within a year of medical legalization, the state flipped to adult-use, which attracted GTI’s attention in acquiring their portfolio company, Dharma Pharmaceuticals. On GrowGeneration, he to Home Depot’s Head of Architecture and confirmed that they can’t enter the hydroponics space (given that most of their gardening center are outdoor and hydroponic equipment is expensive and mainly electronic). They went heavy into GrowGeneration (Merida invested at $1.00/share pre-IPO). In MO, there were 45,000 patients before Cannabis was sold and 4,500 new patients/week, combined with how lax the regulations were, they saw OK-like usage. Current data they’re consuming are leading the firm to investments in companies focused on 1) energy/water usage, 2) industrial hemp, 3) medical data/insurance, 4) genetics/strain data, 5) home grow data/personal aesthetics/evolving consumer
Investing In People, Practices And Infrastructure For Cannabis MSOs
Brett Novey (PharmaCann CEO), thinks NY made the mistake of decriminalizing before legalizing, which has allowed the illicit market to thrive. However, he doesn’t think the NY market will play out like CA as they’re already enforcing and making sure the State can successfully transition the unregulated market to the regulated market (tax incentives to do so). On the LivWell acquisition—the CO-based company added expertise around low-cost cultivation and manufacturing of high quality products in competitive markets (CO, MI). Overlaying that expertise on PharmaCann’s legacy operations will allow them to double yield (the best cultivation facility he’s seen was LivWell’s MI facility, which helped PharmaCann when they expanded their cultivation facility in MA).
Closing Party. The closing party featured three celebrities with their own brands in Cannabis—Tyson 2.0 (which owns a majority stake in Ric Flair Drip) and COLLINS AVE (Cookies). The conference was hosted at Fontainebleau Miami Beach (4441 Collins Ave), so having Rick Ross show up made a lot of sense.
Next Up. Benzinga’s next Cannabis Capital Conference will be in NYC in Fall 2022. I went to the Fall 2021 version, and while it was 40-50% the size of the Miami one, it should still be on your radar to attend.
👋 Highly Objective is curated by Dai Truong, who leads Cannabis Investment Banking at Arlington Capital Advisors. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment. The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party. The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.