Narbe Alexandrian 0:01
Our thesis is that vertical integration doesn’t work unless the government forces you to do it. And there’s a reason why they force you to do it, they force you to do it because when they’re transitioning from an illicit or illegal market to a legal market, they want to understand the supply chain of how cannabis works. And the best way to understand that is to say you need to do everything yourself, so that you can’t blame it on anybody else when something leaks. So we know that from planting the seed all the way to selling to the consumer, you’ve tracked everything in that process. Canada was like that as well. As legalization rolled around vertical integration, regulations got taken off and now companies can focus on what they do best.
Shayda Torabi 0:51
You’re listening to To Be Blunt the podcast for cannabis marketers. Where your host Shayda Torabi and her guests are trailblazing the path to marketing, educating and professionalizing cannabis light one up and listen up. Here’s your host Shayda Torabi, can you guys believe that we are in 2021 Holy shit. Thanks for joining the To be blunt podcast, I am really, really happy that we are in a new year, I think, for better or worse, you know whether 2020 was the worst year of your life, or it taught you some things and you’re grateful for it. I mean, that’s definitely the camp that I’m in. I always try to operate out of gratitude and abundance, but I get it 2020 definitely sucked. So let’s hope and work towards a wonderful 2021. And so with that said, We’re kicking off the new year kicking off our 31st episode. Welcome. If you are just joining us, I have 30 other really great episodes from last year that I encourage you to go listen to. And if this is your first episode tuning in, welcome. I’m so glad to have you here. I will kind of reintroduce myself. My name is Shayda Torabi and I am the host of this podcast. And I’m based in Austin, Texas, where I operate my own family retail CBD brand. We also have an e commerce shop. So we’re shipping nationwide. But this podcast is really a place for us to have open dialogue. I bring in industry professionals who are excelling in their particular area of the market. And we have a really transparent conversation. And so today’s guest nirbhay is the CEO of canopy rivers, which is a venture capitalist firm in Canada. You heard me correct. Oh, Canada. And you know, I don’t know a ton about the Canadian cannabis industry. And so I’ve been tracking what their company has been doing, they’ve been making quite a splash both in Canada as well as just you know, internationally when it comes to cannabis. They’ve invested in some really key CPG brands, as well as have just shown to be a dominant force and helping drive some of this innovation and cannabis through investments. And so today’s conversation touches on the Canadian cannabis market, we get into where canopy rivers is headed for 2021. And really just peel back the curtain of kind of what we can expect to see happening kind of at a macro scale. I think, again, this show is meant to really help provide insight into different areas that you can ultimately apply back to your own brand or business. So thanks for listening to the intro of this episode. Please stay tuned to the whole thing because there’s a lot of good tidbits in there. In fact, nirbhay mentions Texas as being an interesting market that he’s keeping his eye on. So I’m just going to leave it at that and we will welcome him to the show now. My name is Darby Alexander, and I’m the president ceo of canopy rivers. We are a venture capital platform with the cannabis sector. We look at making investments minority investments all across the cannabis value chain all around the world. So anywhere from the US, Canada, Europe, Latin America, South Africa, New Zealand, everywhere we’ve looked to China, we’ve looked at businesses everywhere. How God is this industry is take you way back to what my original background I started off. I’m a CPA by training, never really practiced, went into consulting and m&a. moved into the tech startup world really liked technology, joined a startup move to a large telco in Canada and then went to venture capital so worked at Mars innovation, which is one of the largest incubators in Canada, so early stage technology companies. And then I moved and spent the bulk of my career at omers ventures which is the largest technology VC venture capital firm in Canada. A lot of successful exits have raised over a billion dollars to chop
Narbe Alexandrian 5:00
Fire early on, that became a huge success. One of the biggest darling of the Canadian tech sector, when it really was really entrenched into technology got really deep into Internet of Things. So sensor based technologies got deep into artificial intelligence, machine learning, quantum computing, very technical aspects of things. So the ability to really dumb things down and understand what’s going on without having a technical background. Because, as I mentioned, I was a CPA by training. And what fascinated me about the cannabis industry was what it was annoying me about the technology industry at the time, which was, there’s a lot of money on the sidelines of technology. So these venture capital platforms are popping up everywhere, hoarding a lot of cash, raising a lot of capital, because of all the successes you were hearing about Facebook and Shopify, and now Airbnb, and so many others. And there was so much money on the sidelines and not enough companies that were forming and growing fast enough to take that money. So when you have a supply demand imbalance, it means that deals were companies were going up, investors were going to deal very early, they’re taking a higher valuations. And it was becoming a little bit more of an adverse selection a situation versus what we had seen before, which was five great companies and invest in them. So I was looking at the cannabis side and a friend of mine, who was one of the founders of canopy rivers, working with Bruce pegging me on and said, hey, look, we can with sector be interested in it. And at the time, I wasn’t that deep into legalization, or what was what was going on, took me about seven months of research of going to conferences, and really understanding what’s out there to really create my own thesis of why I should be entering this industry. And the idea there was that it was nascent, that there wasn’t many intellectual corporate entities there. It was moreso, a hobby or people who liked cannabis as a consumer and want to get into the business. But there wasn’t that institutional type investor out there. So what what happened is that, and this is going back to 2017, early 2018, if you were a cannabis company, and you wanted to raise capital, you couldn’t go to a venture fund because it’s illegal. And this stigma still exists. And they have social responsibility investing. So you had to go raise money from an angel investor. And that angel investor wanted to get liquidity out of the company, and they wanted to get their money back in return. So they would stipulate that I’ll give you the money. I’ll give you a check how much however much you want. But you have to go public at a certain date. And that really hindered operators. Because once you’re public and you haven’t built your business model yet, you’re really stuck under a rock and a hard place where it’s very hard to explain yourself to the public markets. So the idea was there was like, let’s create a venture capital platform that’s institution like a Silicon Valley type thinking of long term, like what’s going to be disruptive in the long term, and invest in that. And that’s sort of the path that we go forward on it. So joined Katie rivers in 2018, as the Vice President of Business Development, six months after got promoted to President six months after that, I got to give him president and CEO, and Bruce Linton relinquished his his role there. So really happy with that type of progress there and what we’ve done, and rode the roller coaster of cannabis up and down for the last two years, which is really put some battle scars on anybody who’s been in industry for that period of time. So it’s been a fun ride.
Shayda Torabi 8:21
That sounds like you’ve been front and center to a lot of I mean, to use the word the growth of really the Canadian cannabis market. And so, before we talk about some of the recent news that’s happened with your business recently, I want to get a picture from you on Canada’s cannabis laws. What does that look like mean? medical recreation, how accessible is it? I also maybe we’ll have you kind of touch on a little bit of your portfolio pieces through canopy rivers because it really has a wide breadth I think what I love from my position obviously I mentioned when we were recording and my listeners know I own a CBD retail brands and an e commerce business. But being in Texas, we’re a new market and so we just got legalization to grow hemp, I mean, we’re not even in the full on legalization of the full plant access, like y’all are in, in Canada. But with that said, there’s obviously so many applications beyond just a traditional CPG consumer packaged product, right. And so I think there’s agricultural applications, there’s obviously just different I saw one of your portfolio taglines was like hardware and just interesting stuff to me that you don’t really hear or see. talked about as much as pieces of the industry. And so again, just kind of at a high level, what’s going on in Canada in regards to cannabis?
Narbe Alexandrian 9:42
Yeah, so if I take you back to October 18 2018 or 16th 2018, October 2018 is when we legalized federally cannabis so after that date, it was legal to consume cannabis to hold on to cannabis to buy cannabis, everything recreational full legalization. And at the time, everyone thought that because Canada was one of the top first g7 countries to legalize, everyone, everything was gonna happen back to back to back. It didn’t happen like that it could have happened if COVID didn’t take place, but COVID really slow things down. So, in Canada, you’re able to go to the store and a dispensary buy cannabis, you’re able to, in some areas, smoke outside consume outside, you can gift for friends, you can you can do a lot, it is age gated, you have to be over 19 years of age to access it similar to alcohol. But you can do everything that you want. And you can do edibles, beverages, hash extracts, or dry flour, everything of that sort. So it’s it’s full fair game for that perspective. With the benefit there is that when you have full on legalization, similar to what we’re expecting in the US to come forth, someday soon, is that you have full banking support, you have full bankruptcy support, you have full insurance support, you kind of have the backing of everything, everything that any other business could do with the caveat that some of the advertising platforms because they’re based out of the US like the Googles, and the Facebook’s, you don’t have access to because it goes through the US, which means it’s federally legal from our standpoint, but for the most part, you can do everything that you want. And that really helps out so you have a lot of cash that you can raise, because now any institutional investor can invest in you. And likewise, you can put that cash into doing better clinical studies, more r&d programs, and just really getting to the nuts and bolts of like what the plant is that we have been able to touch for 95 years, which is the bulk of industrialization that we’ve seen in the world. And now we get to actually see that. So it’s been it’s been quite an interesting time. I am extremely bullish about the US. I am very bullish about Texas as well. I think Texas like speaking to some of the larger agricultural giants and greenhouse producers, but Texas is where a lot of the cannabis is going to grow upon a federal legalization or if Texas opens its doors up because of the weather, the amount of sunlight you get per day, the the humidity that exists within the state, it’s primed for what’s growing tax system was given away to the rest of the US. Same with Arizona. So it’s neat to have that type of lens of what’s gonna happen when the entire US opens up instead of I want to build a facility in downtown New York City, which doesn’t work in the long run in order to have that moat around your business going forward.
Shayda Torabi 12:28
So kind of on that vein, and talking or reflecting kind of what I was asking in regards to your portfolio clients, what are some of the more exciting projects or businesses that you’re seeing in the cannabis industry pop up, whether it’s in Canada or beyond? But basically what are people doing from? From a cannabis perspective, that’s cool that they’re coming to you and saying, Hey, we need money to fund this to go grow this thing?
Narbe Alexandrian 12:53
Yeah. So there’s three cool areas that we like that we’re really deep into at this point in time. One is on the technology and software side. So we’re investors in leaf link, we’re also investors in headset and headset, for example, is a company where they gather a point of sale data from something like 90% of the point of sale systems that are out there. And they pull that information together. And they give back that information to brands and retailers and venture capital funds and hedge funds and CPG, large CPG companies that aren’t touching cannabis, in order to tell them like this is what what Patel is showing us. This is what people are buying, they’re buying COVID hit and all buying one gram pearls anymore, they’re buying point five grams because they don’t want to share with anybody. The pricing has dropped by 20% since x date because of y reasons. So it’s a lot of insight of what’s going on. I found that when I joined the cannabis industry, we were lacking the data. So sense of what is going on, like what are people buying and everyone was shooting darts at a wall not knowing why they’re doing what they’re doing. They’re taking hypotheses that aren’t based off of data, but based off of what they think is right. And we know from traditional businesses that you can’t do that you need to based off of data. So headache came into play. These are the founders of leafly, which had a very successful technology exit to privateer back in the day, receiving their lockup was done, they want to create a headset, they got an investment from Nielsen, which is the behemoth that does this for from a CPG perspective. So they’ve been very successful. So I think the data and technology side is very interesting. The second piece that I think is very interesting is the biotech side, not biotech plant side side. On the plant side side, if you take a step back, we haven’t touched cannabis for 95 plus years of prohibition. We don’t know what its properties are anymore. We don’t like as much as we could have known how to been legalized. So we just turned it on over the last five years call it a saying that Yeah, let’s now look at this. So we’re missing on decades and decades of research that’s been done on vegetables, on fruits on tobacco plants and everything about sort. So there’s a whole array of r&d that’s taking place. On how do we make genetics more bulletproof to pests and, and mold? And? And how do we make yields stronger? And how do we make it so that you can grow a team genetic in Southern California or Northern California as well as you can grow it in Canada or you can grow it in Afghanistan, and you’re going to get the same quality and same product, similar to how you see tobacco in our Marlboro taste the same no matter where you go in the world, or how big mac tastes the same no matter where you go in the world. So that’s kind of like the gold standard of what Plant Sciences is chasing after. And the third piece that’s really interesting is the biosynthetic. side. So anecdotally, if you look at aspirin, aspirin was derived from the bark of a willow tree. But you don’t see any willow tree cultivation facilities anywhere, nobody’s growing bunch of trees in order to extract something out of the bark. Instead, we rely on lab created aspirin, which is let’s create the same compound in the lab using biological resources being yeast, most teach us to to create cannabinoids and we’ll kill off everything else and just leave that pure cannabinoid that’s there. And that’s the future of cannabis, as we see in the pharmaceutical lens, where you’re not relying to the plant anymore, we’re just wanting to know what you want to grab. And our thesis there is that you’re not going to see as much of that on the THC and CBD side, as much as you’re going to see on the 98 other cannabinoids that we just don’t see readily available in the plant as much as we want to. So that that’s a very interesting focus for us as well. And I think when you look at those three businesses, and I overlay, the fourth area that we’re really focused on is brands, because we just don’t see that consumer affinity that are the brand loyalty that we see in traditional CPG. Those are the four key areas that we’re really hyper focused into
Shayda Torabi 16:44
those all sounds like all things that are on my radar. So it sounds like I’m on the right track, which makes me feel good. I actually had one of the directors from headset on the podcast Jocelyn shell tra a couple episodes ago. So definitely I’m very familiar with both that business but also everything you said again, just kind of like highlight for the listeners. It’s so wild, how mature this industry is, and yet how immature the functions of running a business in other areas just are lacking in this space like data, like you said, I’m a marketer, by trade, I actually come from technology myself, I did corporate tech, branding and marketing. And we didn’t do anything without data. And yet you have this industry. That’s kind of like you said, I think this is right. But I think to also give us a break, that’s reflected because especially using United States as an example, every state is essentially operating under different laws. And so we don’t have the accessibility to research which I hear you I think that will open up a lot of obvious applications understanding and just will impact so many areas, but really, it’s just like it’s this new plant and, and so you said something that I am curious about just because, again, I try to pay attention so much to what’s happening. But I think there’s just always new information, especially in different you know, markets and so in America, and especially Texas, which also I appreciate your hat tip on Texas that makes me feel good about our state. I definitely am proud to be from Texas, but we just grew our first year of hemp flour. And it’s it’s interesting, it’s very interesting. But CBG is the big cannabinoid in Texas that specifically what the flour is being grown under, for that type of cannabinoid. Another big one for us in Texas is delta eight THC. So we’re seeing a lot more products being produced without cannabinoids, specifically CBN CBG. Like I said, those are really the most recent minor cannabinoids that are emerging. I’m curious if those are on par with what you’re seeing, maybe at a Canadian level, but also at a just international level of what you’re observing from these emerging cannabinoids.
Narbe Alexandrian 18:55
Yeah, two more in there. I totally agree the ones you mentioned CBC and thcv. So there’s another two that we’ve seen a lot of that creeping up in THC v. nobody really talks about it that much. But it’s an appetite suppressant, instead of it opens your appetite like THC does. So that can be used in weight loss drugs, for example. And that’s something that is a huge, huge industry, multibillion dollar industry around the world, and just matter of clinical research. So we actually take a step back, we have like these five waves that we have on our website of how cannabis, the lifecycle or the industry is going to evolve. And the fourth wave we’re in currently between second and third, which is in sillery, to CPG. The fourth wave is pharmaceuticals. And we know that there’s about 400 or 500 patents that are owned by the pharmaceutical giants that nobody talks about, but someone someone dug into it one time and then wrote about it. And and if you look at it from that standpoint of if we go through this clinical research timeframe, which is like 10 to 15 years to really understand that how this can not anecdotally, but scientifically affect the human body, then that there’s a whole vertical that we just barely have touched, like epidiolex is probably the only drug that we’ve seen from GW Pharmaceuticals that even remotely looks at that and that’s just basically CBD oil that that has backing from FDA.
Shayda Torabi 20:19
Do you see that acknowledgement? Because it’s very apparent if you’re in the industry, obviously, knowing that big pharma is is there and that there are patents on I think variations of these cannabinoids. And I mean, if you get into the history of cannabis there used to be I’ve seen, you know, Bayer used to produce a THC type of concoction like cannabis used to be seen as more medicinal than anecdotal. So on that point, you’re right. But I think there is also the concern that I mean, it scares me a little bit that they’re just going to start producing this in a lab and how will that compete with the real plant? And how does that maybe hurt? I’m going to save you like smaller entities from wanting to play in the industry and taking advantage of creating products and building brands around these cannabinoids? Yeah, I
Narbe Alexandrian 21:09
think there’s a there’s a big difference between medical and recreational use of the medical side. If you’re a cancer patient like you, it’s it’s weird that, to me, it’s weird that cancer patients smoke cannabis. Because if you have something like lung cancer, like why you’re smoking any anything that’s heat that goes into your lungs, damages it over a long period of time, even if it’s a vaporizer, that’s, that’s warm, that goes into your lungs, from the medical standpoint, having the pharmaceutical companies jump in there and do those testing. And they have a lot of risk on the line relative to smaller companies who if they fizzle out, nobody really hears about them. That that’s that’s a very big positive for us. It also helps take away the stigma when you know that there’s clinical trials being done and clinical trials cost 10s of millions of dollars, every single one of them. And getting through that entire cycle of clinical trials is like probably less than $100 million. So it really helps the industry go forward, I think that there’s never going to be a time where consumers on the recreational side will want to work with a pharmaceutical company, they’re going to want to see brands that speak to them to understand them that brands are obsessed with the consumer and how consumers see the product. Now they see consumption. And it’s something that exists the CPG world not so much in the pharmaceutical world. And I don’t think that ever gets taken away. But I do think is that over a period of time, just because of the natural progression of any industry, you’re going to see maturation take shape, and you’re going to have your Coke and Pepsi of the cannabis world exists where you can have a lacrosse beverage that has a niche following behind it. But that might get bought out by Coke and Pepsi. And at the end of the day, like those are the two main companies and we’re going to get there. And I think it’s going to take maybe 10 or 15 years until we get there until the brands are washed out and and consumers have tried it’s the same brand over and over again to say that’s what I like that’s I don’t like this is consistent every single time I try it, it’s going to take some time. So this is the perfect time, in my opinion, to start a business with the cannabis sector, especially with the economic downturn that’s taking place, you have time on your hands to to really think about what you want to do. And then when things start popping up, and we figure out a way out of COVID then you ride the wave of growth and how fast cannabis is proliferating in the US and you become a successful entity from that standpoint, as well. So definitely think this is the best time to start a business.
Shayda Torabi 23:31
Now I really appreciated that breakdown. And I never want to be like, you know that person who’s like, Oh, I don’t want it to grow, because then the big people are gonna get involved. Like, obviously, like you said, those players have money and resources that absolutely will help further legitimize this plant. I think what you said, I really like that stuck with me was just the differentiation between medicine and recreation. And I might even be so bold as to say I agree with you in the sense that I don’t really fully understand America’s using America system I understand a little bit I don’t understand the MediCal program as is because it’s essentially the same plant. I mean, I have friends who are growers, I have friends who are bud tenders, and I started picking at it asking, you know, what really makes medical marijuana any different than the products I buy as a recreation user? Is there any differentiation and, and to be honest, there’s not right? And so it’s this mass of which I think this is where my brain starts spinning. Is it really medicinal in the smoking state? Or was that a way for us to pass cannabis into the mainstream with the guise of medicine? Obviously, it’s medicinal. We’re not discrediting that it’s just to your point. Obviously, smoking is not the most medicinal, but people like to enjoy it. And so I find that we’re in this kind of crosshair situation of just using the word medicine to further promote something that the way that your application reflects of it actually being owned by the pharmaceutical companies and them actually selling Typically producing and creating consistency during the testing. That makes way more sense as a medical program. But that’s obviously not how America is currently rolling out cannabis. So again, from my perspective, people keep coming to me and my retail. They’re like, Oh, we’re going to be legal in Texas one day, great. You’re going to turn into a dispensary? And I’m like, maybe yes, but there’s a progression, right? You don’t just go and maybe you do maybe you know, something I don’t, you know, I,
Narbe Alexandrian 25:26
in my opinion, you
Shayda Torabi 25:26
don’t just go straight to recreation, you have to have a progression of something medical. And because Texas Medical program isn’t fully built out. It’s just as hard for me as somebody who’s observed the industry to actually think that we would just jump straight to recreation. But then what you’re saying is, we shouldn’t even really be in medicine, if we want to just be a recreation brand potentially, a
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Narbe Alexandrian 26:24
Yeah, I mean, I think there’s a difference between medicine and therapy. Because in some situations, you could say that medicine to me is over the counter medicine or prescription medicine and you see people that have Alzheimer’s or people that have serious cancers, that that that are that are really just beating their body up so hard and they take CBD or cannabis, maybe you just take it out of extremely high levels as well as per on a per milligram basis. That to me is medicine. To me the therapy side is I have anxiety and I want to treat this anxiety through cannabis. So if I take Canada as example like prior to legalization is 100% Medical, because the medical markets are open, and everyone was counting like these are this is a patient list I have these are clinics that I have medical is going to be here medical is going to be here. Fast forward to now we find that if you take the the consumer base itself, which is about 20% of entire Kenyan population is cannabis consumer, to break that down 58% of it are recreational users. 31% are saving the user for both medical and recreational purposes. And again, medical is the therapy and everything else mixed together. And only 11% actually use it for pure medical purposes. And I don’t want to take this like just like robots and robot cleans or whatever the cost medicine is tastes horrible. And I take it because I have to take it. Same situation here like the salt what I want to do so one out of 10 people use it for purely medical purpose. And that’s very different from you look at a medical state like Florida, where everyone says, Yes, I’m using it for medical purposes. Wait, what do you really do drill that back and create a recreational adult use program, you do find that a lot of those medical patients and I’m using quotations, which you can see, but the listeners can’t see are actually recreational users that are using a means to think really want it for therapeutical purposes. And that’s what they’re using it for.
Shayda Torabi 28:18
Yeah, I think that’s just an interesting observation. I’m hoping people are just paying attention. The podcasts for me is never like a and we finally arrived at the answer. It’s more just, you know, how do you start to navigate and pick apart and you’re obviously very knowledgeable, because you’re highlighting all these states that I like to think, again, that I have some understanding of and it is just crazy to see, you know, just how certain states are legalizing and what they’re legalizing. So Florida is an interesting one for me too, just because I think that they, to my knowledge, they have to be completely vertically integrated. Does Canada have any laws like that around how businesses are operating in terms of vertical integration? Or how accessible is it to actually get a license to grow or retail?
Narbe Alexandrian 29:01
Great question. I’ll start off by saying our thesis is that vertical integration doesn’t work. Unless the government forces you to do it. There’s a reason why they force you to do it, they force you to do it, because when they’re transitioning from an illicit or illegal market to a legal market, they want to understand the supply chain of how cannabis works. And the best way to understand that is to say you need to do everything yourself, so that you can’t blame it on anybody else when something leaks. So we know that from planting the seed all the way to selling to the consumer, you’ve tracked everything in that process. Canada was like that as well. As legalization rolled around vertical integration, regulations got taken off and now companies can focus on what they do best. So to me Why say vertical integration doesn’t work in the long run is that to be expected to be a farmer, for through cultivation, to be a food ingredient manufacturer through extraction to be CPG company doing marketing and sales functions primarily, to some companies are doing pharmaceutical to do FDA approval for stuff. And then lastly, to own your own retail chain. You’re there’s capital issues of how can you get that much money to be the best at everything? There’s also talent issues like how do you find the best person each of those categories that can do it all. And if you’re vertically integrated, and you’re you’re planting for that crop for that harvest, and it turns out to be 15% THC or your harvest gets, half of it gets ruined. Well, guess what you’re vertically integrated, you have to sell that you have to sell that to the consumer or you take the hit. But if you’re if we look at that vertical integration doesn’t work. And we’re gonna go into horizontal integration, which is, let’s do the 123 things very well. And you’re a CPG company that’s contracting out a cultivator to make cannabis for you. And that cultivator comes and says, My crop screwed up, here’s 15% THC, you can say no, it doesn’t follow my contract doesn’t follow the service level agreement that we have between both parties, I can’t give that to a consumer, it’s not going to sell, you’re gonna hurt my brand, I don’t want it similar to how a candy and confectionery company of ours, if they have shitty chocolate that comes to their door, they’re gonna be like, I’m not going to take this, I’m not going to put this in my product. Like I’ve spent hundreds of millions of dollars, if not billions of dollars on educating consumers to tell them every time you come to me, you get the same taste. And if you screw that up, like, I’m not going to take the hit for that, send that back and eat the cost. And that’s where the future is headed. But to get there, vertical integration needs to exist at first, because it needs to give governments and understanding of the process and the supply chain to get them comfortable with it. And then slowly, they’ll take their foot off the gas, and let the private sector really take hold.
Shayda Torabi 31:37
That was great. I appreciated that I think that that is kind of a one of those hot subjects in the industry, because you do have certain states, which I didn’t realize it was more of the government mandating forcing it to be that way for their benefit. But it sounds like it is ultimately for our benefit, because it gives them the proper structure and framework for looking at how we can roll it out and manage it from a private sector. But knowing that there’s just two sides to everything, obviously, some people love that it’s vertically integrated. It’s a pride thing. They love to say they grow it they extracted, they’re the you know, bottle or they’re the retailer. And then I mean, my brand in particular is not vertically integrated. And I choose it that way. Because I’m not a farmer. I don’t want to have a farm. I don’t want to own a farm. And so I think as we look towards specifically in lieu of federal legalization, but state legalization, I have to look at Okay, well, how did Florida roll it out? How did Oklahoma roll it out? What’s California doing? How do we think Texas is gonna roll it out? Hopefully, Texas takes cues from, you know, the positives and not you know, tries to in force or something that makes it more challenging for us to exist to be successful. But it is still very much a gamble. But still with that question. What is, I guess? What are you seeing from a Canadian perspective in terms of like licensing, like, how are people having the accessibility of getting into the market, because I’ve been interviewing some people prior to your episode airing who are from specifically California’s cannabis market. And I think we all kind of understand how massive their market is and how difficult it is to get a license, which to me seems to be like the first step that any brand would need to take. And so I know people are listening, who are maybe thinking, Oh, I would love to, you know, own a brand one day or create something. But I mean, what’s the reality of somebody getting a license specifically in Canada?
Narbe Alexandrian 33:26
Yeah, Canada, getting a license is becoming easier and easier. At first, it was very difficult. So this is wave one of our five waves, we think cultivation really makes sense. When you’re ready, you’re one of the first ones out the door, and you have a license. And there’s a limited, Limited License state like called Maryland where there’s just not that many out there. Over time, like you see in Canada, where there’s 250, licensees of cultivation, if you’re 251, and you’re just getting your license. How do you compete with those? Both those existing companies that have scaled, they’ve gone through the experience curve, they know how to do it, they fail that some harvests, they’re succeeded other ones. They’ve got the right team together, and now they’re just becoming a low cost leader. How do you compete against that? And that’s the same thing like so in Canada, it’s easy to get licensed. So that’s that’s your answer to your question. But the bigger question becomes like, why would you get a license now? Why not focus on what the what the industry needs is specifically in Canada, in the US, especially on the eastern side, getting a license is everything like you’re one of the first ones there, a huge pent up demand in that state, you get that licensee can go out there. So to kind of pull those two together, if you’re a business in the US in a Limited License state, and you got your license and you’re operating at the back of your mind, you need to understand that in the long term. your license doesn’t mean shit, because it’s going to the barriers to entry are going to drop and it’s going to easier, easier to get a license. And what really matters is can you make money off of that business? And how do you read comics look, so can you dial back that vertical integration and focus on saying that Usually one to three things I do very well. And maybe it’s cultivation, maybe it’s extraction you’re really good at, or maybe it’s the brand piece, or maybe three selfies, but this is what I’m going to focus on. And now the vertical integration is going away. Let’s outsource everything else and focus on that. And if you thought of the tech industry all the time, if you went to the beginning of the.com, boom and bust, your company that was creating a snot CBD because it didn’t exist, like wasn’t a market back then let’s say you’re creating a website that’s sold. Just like in my coffee mug right now. And you’d have to do everything yourself, you’d create the HTML code from scratch, you don’t have server farm is one of your guest rooms would be a bunch of computers, you’d have to create the payment rails on your own as well to accept the payment, let alone nobody has smartphones. So who knows where that’s gonna go. Fast forward. Now you have Shopify, PayPal, Amazon Web Services, you don’t need to think of those things you’re just thinking of, I define my mugs, and I need to sell them. And then I’m thinking marketing only. And that’s where cannabis is going to go as vertical integration laws go away, and like getting licenses are easier. And it’s that it just becomes about who does it the best? And who does it at the cheapest cost?
Shayda Torabi 36:05
Yeah, I think that’s a really fair point. Because I think for a lot of us there is that fear. I mean, obviously, you want to be the first mover I understand wanting to get that license. But then at the other end of the spectrum, at least personally speaking, I feel that being a first mover, I’m oftentimes looking around and realizing everybody’s looking at me in terms of what to do, especially in a market like Texas, where I mean, it’s just so new, and we don’t really have leaders that have defined themselves yet. And so when you’re trying to navigate the market, it is just a little bit of, well, I think I’m supposed to get the license. And I think I’m supposed to do all these things. But you’re still it’s like the other shoe hasn’t dropped. We don’t really know what that industry is going to be like, but I appreciated the tech reference, because just working in tech, it kind of like gave me a little bit of peace of like, Oh, yeah, I remember like when we used to do everything on our own. And now you’re right now you kind of start outsourcing different components, as people have gotten, you know, better access to the web, now you’re able to build applications and have better tools. And so I think it’s definitely encouraging. I want to make sure that we talk about the big news that has kind of been published recently. I don’t necessarily know how to frame it, other than saying you used to be a part of canopy growth, which is, was that the parent company? And how can it be reverse fit into that? Because y’all are the VC, but they seem to be more on the actual CPG brand side? And so what was that relationship? And now what is the current relationship?
Narbe Alexandrian 37:36
Yeah, so if you take back to the beginning of 2017, originally, we were part of canopy growth. We’re an in house venture capital platform, we spun out and became a public company in 2018. As we saw the markets becoming frothy and there is capital at the table there. canopy growth, only 27% of us from an economics perspective, and we had multi voting shares, that we could never get bought up by someone else. That gave him 84% ownership from a voting perspective of the company. So there’s a lot of restrictions that you have when it when that takes place. Like they’re invested by constellation. They’re on the NASDAQ, they’re on the TSX. It’s really hard for them to invest in the US, which is why you see these exotic structures taking place. So we we see the opportunity to us, especially when Biden got elected. And so we wanted to really get those get more strategic flexibility in order to attack the US market. So a couple of days ago, we announced that we’re selling our interests in carousel tweet tree lawn dirt, Mirabella says three out of three out of 17 portfolio companies to canopy growth at an implied total transaction value of $297 million, representing an invested return on invested capital of 5.6 times and an internal rate of return or return of 101% per year that we own those investments. So incredible, incredible amount of success from selling those three companies, it’s our business to sell our positions and take that money and invest in new positions. So part of those proceeds in the money that we got, we took that and we bought back the shares that canopy growth owned, which eliminates those dual class structure of multi voting, shares and subordinate voting shares, and really improves our strategic flexibility. So we’re gonna have a significantly bolstered balance sheet at closing, we’re gonna be able to explore new opportunities for investment for Acquisition for mergers, that we couldn’t do before, with a particular focus on the us that we couldn’t do before as well. So very excited to see what 2021 brings us. And the ability to have that much cash and be open to attack in the US, and really diving deeper and deeper into some of the states that we’ve been following for quite some time. And we have a plan that we want to unveil to the public in the new year. That gives you an understanding of what we’re going to do with that account. So I’m really excited that in Stay tuned to hear more about that.
Shayda Torabi 40:03
Yeah, that’s awesome. Congratulations on that move, it obviously frees you up to be more focused in other markets, which I know you’re not gonna probably share too terribly much. But I have to ask, you know, what excites you about the US market compared to fully existing in Canada? I mean, Canada is a big country, too. You have a lot of consumers, I was also going to maybe caveat and ask, is 20% a lot for Canadian cannabis consumption? Or could that be higher? And so how, you know, why not go after the 25% of Canada instead of getting into America? I just it’s it begs a lot of questions. So I’m just curious.
Narbe Alexandrian 40:41
We already have a portfolio of Canadian cultivators, extractors brands, and the like. So when you look at the Canadian market, you have 20% of consumers, you have 20%, that are intenders, as they intend to use it with for the next 12 months, 60% of those, I’ve tried it, and then you have another 60% that are rejecters isn’t, I never want to try it. But you’ve also seen 25% of those 60%. Try before, mainly homemade edibles with the data showing which, as we know, was probably the reason why rejected is because you had a bad, bad trip off of that. So the Kenyan market, we still believe in it. But there’s so much value in the US market to capture, you have 36 Medical states 15 recreational states, you have companies that are pumping cash, they’re cashflow positive, you have enterprise value to revenue multiples of four times in the US versus seven times in Canada, you have enterprise value to EBITDA multiples of 15 times the US versus close to 30 times in Canada. So think of it in a way that it’s a bigger market. It’s half the price of what you see in the Canadian market in terms of how much your company costs. And these companies are actually cashflow positive versus the Canada associate that struggled to get to cash flow positive. You put all those together, sprinkle in Biden administration coming in and talk about decriminalization, sprinkling the more acts as well, and I sit on the NCAA board, as a board member as an as the treasurer of the DOL for profit. put that all together, this is a perfect storm to jump into. And, and there’s a lot of opportunity to be made. And we’re just so grateful to be thinking of getting in there and getting in there post closing of this transaction. And just bringing the the amount of knowledge that we’ve gained out of the Canadian and global markets into the US and really helping shape that providing capital to companies. And in really seeing this through all the way to federal legalization, which I believe is a way not an F.
Shayda Torabi 42:39
I couldn’t agree more with you. I just wish I knew a little bit more on that timing. Make me feel a lot more comfortable. No, I think it’s exciting. I think y’all watching just how it’s rolled out in America has been, it’s just been wild. I mean, especially being in Texas, I literally was born and raised here. never dreamed of cannabis ever being legal in my home state, let alone like being in the industry personally. And so to be here, it’s just kind of like, Whoa, we are in the middle of cannabis prohibition, it is happening. And it’s wild and exciting. And and so I guess parting thoughts. I’ll ask you, you know if there’s anything else you want to add, but specifically, as you’re looking into specifically the American market, maybe this is applicable for anybody in cannabis. But just because I know about a lot of us listeners, of course, what are you looking for in terms of exciting brands that you would consider investing in or that you think are cool? I mean, I know you mentioned that kind of categories of types of brands or types of products or types of applications. But you know, what are the things that you’re looking for? Is it education focus? Is it having, you know, a really good brand experience? Is that experiential stuff?
Narbe Alexandrian 43:54
Yeah. So I’ll start off by saying, we look at what everyone else looks at, which is fundamental, and how are you making money, what your economics look like, do you have a social justice program in place, and all those typical things that an investor wants to look at when they’re looking at the cannabis space? That stuff like you can find online, but I want to add a bit more to that, because I just don’t want to give that cookie cutter response, what we’re really looking at the brand side is getting into the head of the operator, and, and really understanding how they see their consumer base. So though the difference between strong CPG brands and a weak CPG brands, really comes down to how management in the company understands the consumer. And what we’re looking for isn’t a cannabis company. We’re looking for a company that’s consumer obsessed. Like they want to know everything about the consumer. They want to get in their minds to understand what they like what they dislike. They want to ask them did you like that product, you didn’t like it My bad. We want we want companies that are hyper focused on this is the problems that I want to solve for my consumer and it’s not ideal. Just want to give them cannabis, it’s, I want to solve for sleep, I want to sell for anxiety I want to solve for partying out, or this is what the problem is that are gonna solve for cannabis consumer. And I want to get in their heads, I’m gonna do everything I can to give them the best customer support best customer service, understand the prototype of, of who my consumer is, and really get in their heads. And we’re seeing some of that happen in California, because it’s so competitive that you really need to do that in order to stay afloat. We’re also seeing that trickle over to the rest of the states as well. So when we’re looking at brands, like we look at the operator, if I was to come to you and say I have a CBD brand, I have it in mind, here’s a nice polished deck, I’ll sell you the business entire deck. For $50,000. Not even a lot of money, chances are, you’re gonna say no, this is just a PowerPoint. What fuck am I going to do with that? But if I said, Okay, I taken this deck, and I’ve executed it put a team together, I’m an extra like, six stores, can this be worth $50,000? Now, sure you’re getting there. So it’s not about the idea, it’s really easy to say I want to create a cannabis business, it’s about the execution. And to get to the execution, you really have to dive into the head of the founders there. And that’s the same type of investing that we see on Silicon Valley in the tech sector. But we just haven’t really seen that happen in the cannabis space yet. And that’s what we want to bring to the table with our entry into the US.
Shayda Torabi 46:26
That was the best thing you could have ever seen. Everything you said of this episode was gold. So I hope people are really getting a kick out of this episode. So seriously, thank you. But I think you said a lot of things that I again, I believe in, I understand, and I know. But that’s the whole point of this podcast, right? It’s like to kind of say it in someone else’s voice and experience that these are the things that brands need to give a shit about. And it because there are cookie cutter brands out there. I mean, you’re right, this is it’s basic, it’s like this is what you need to do to succeed. And so those brands start with those brands don’t blast. And so what I’m really caring about is personally building a brand that lasts building a position in this industry that lasts, but also helping others along the way. And so that’s really the point of these conversations is just to help encourage and give insight into, you know, the things that you and I are maybe a little bit more passionate about, because that’s what lights our souls on fire. And so I think in the same vein, there’s, you know, many different areas that people can be in the cannabis industry, there’s many different areas of education of points of information of points of research, and we’re just scratching the surface. So it’s hard to kind of know, all of it, but it’s nice to start to chip away at it through conversations like this. So I really appreciate you being on the show. Is there anything that we didn’t talk about that you want to add anywhere that people can maybe connect with you or your brand online to get more information about what’s going on?
Narbe Alexandrian 47:47
Yeah, you can you can visit email@example.com, you can look for me on twitter at Rb 87. Feel free to reach out to us. We’re really nice people. We’d love to talk to entrepreneurs to learn about their business, what they’re doing right what they’re doing wrong. Everything you tell us stays within us and educates us educates the public, as we put out more thought, thought thought leadership pieces out there. So I got really excited to be part of the show. Big fan of it. Wow, I
Shayda Torabi 48:16
honestly did not know where that episode was going to go when I first reached out to nirbhay to interview him. But I’m really grateful that we were able to have that discussion. Because, again, I just think, you know, Canada is really evolved when it comes to cannabis, the way that their healthcare and medical programs are rolled out period as a country are obviously something for other countries, specifically America to take note of. And I think watching how that has impacted their legal cannabis market is really fascinating. And then when you kind of add in the layer of man, like one day, wouldn’t it be really freakin cool to be able to see brands, you know, kind of in both areas internationally kind of operating and doing what they do best. So kind of getting away from this vertical integration and being more specific towards a niche or area of focus. And then being able to grow that brand internationally. It’s just it’s really exciting. And we really are in the, you know, the formative years of cannabis. And so there’s a lot more that we have to come and I think looking to companies like canopy rivers, who are such leaders in the industry when it comes to where people are investing and spending money. And obviously you want to follow the money because that’s where people are going to be spending and purchasing and paying attention to money talks, if you haven’t heard that saying learn it Money Talks. So I think these VC firms are really disruptive because they’re spending money on brands that can help really push this market forward. And so with that said, thanks for listening to another episode of To be blunt. Welcome to 2021. We have a amazing roster of guests coming to you this year. And we’re just getting started. So buckle up, and I will see you guys on the next episode.
Unknown Speaker 50:03
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Transcribed by https://otter.ai