Today, I am happy to be joined by Jeff Mascio, CEO of Cannabis One Holdings (OTC:CAAOF), a publicly traded company headquartered in Denver Colorado. Prior to Cannabis One, Jeff worked at Smith Barney, Merrill Lynch as well as a fund manager, and was President of Meridian Capital Advisors.
- 4:00 – Jeff started in the cannabis industry 5 years ago when Amendment 64 passed in Colorado. Started a hedge fund to fund cannabis space, but there was no path to success after raising capital so Jeff took over in 2016. Invested $2 million for 4 licenses in 2015 and have since expanded into 5 states with more than 500 SKUs. Retail concept called The Joint. Merged recently with One Cannabis after sending them a cease and desist letter.
- 6:00 – Competitors aren’t really competitors, but banding together can survive the tidal wave coming from Big Pharma, Tobacco and Alcohol. Franchise model that Cannabis One. Had planned on franchising The Joint but One Cannabis Group brings franchise expertise – had sold 14 franchises, now up to 30. Fits well in cannabis space because lots of areas that are underrepresented. Moving towards the branding of the industry.
- 10:00 – Coming into states that are already developed; acquiring dispensaries that already have stable revenue and profits. Have already penetrated local market. Following Apple model – not the first to market, but the best. Spending efforts on Western states, because East Coast is still behind, but plan on being in all 11 retail states. Also in Mexico and Canada. Slow process that moves quick.
- 12:10 – MSO space has seen many acquisitions fall through. How CAAOF decides who to partner with. Making sure they’re EBITDA positive; cash flow positive. Now making acquisitions that are accretive to top and bottom line. 70% of cannabis companies that aren’t profitable now will perish. Going forward, institutional capital will increase.
- 16:00 – Jeff expects cannabis descheduling to happen before presidential elections based on lobbying sources. Though it’s only rumors, it makes sense given widespread support for legalization based on profitability and tax revenue. Cannabis is a high value card.
- 19:00 – Many cannabis companies trading with depressed valuations. Hard to then raise capital. Those businesses will likely not survive. Natural part of the business cycle. Strong businesses that haven’t yet scaled up can also rise to the top in this next wave of the cannabis market when institutional investors come in more. Lots more consolidation coming and strategic investing and the strength of management will be salient.
- 22:30 – Cannabis One management changes over the past year. Also many changes industry-wide. An example of what they’re looking for in partnerships: Jerry Velarde at Evergreen Organix in Nevada, that merger still on track, currently on hold because of the stock’s depressed valuation. Management changes based on scale up the company went through and as stock tumbled and thus couldn’t be used as currency, scaled back that management that was brought on board for expansion. Shrink to grow. Targeting partnerships now with the most talented management teams.
- 27:20 – Vision of open international borders for cannabis. CAAOF working with Mexican government on legalizing cannabis that’s set for April. Plant grows well in Mexico and with passing of USMCA, cannabis should be included in that treaty and it won’t be any different than any other commodity. Waiting to see how Canada develops before going full steam ahead there.
- 31:30 – Consumption cafes is definitely part of the future for cannabis retail; alcohol and cannabis very similar in consumer behavior – not as many online sales as people thought, similar to alcohol. Big box retailers like MedMen (OTCQB:MMNFF) not the future of the industry because it’s unsustainable. Shelf space is essential for growth. Colorado still leading the charge.
- 37:00 – Valuation levels coming down where they’ve been oversold. Traditional model of investing applies in cannabis space – using same metrics as other sectors. Retail investors in Canada aren’t coming back; they came from oil and gas sector and lost a lot of money in cannabis; they’re not jumping back in. Private equity and US institutional investors are now coming in and kicking the tires. Sophisticated investors starting to show up. Investors need to be cautious and avoid falling knives. Companies operating in the black will be the strong ones to survive into the next chapter.
- 40:00 – CBD market took off as a result of legal framework; wholsesale costs of CBD have come down greatly. THC and CBD complement each other; going forward they’ll be treated the same. In the future will use all of the cannabinoids.