Hemp, Land, Water And Cannabis (Podcast Transcript) (NASDAQ:CDZI)

Editors’ Note: This is the transcript version of the podcast we published last Wednesday with Scott Slater and Graham Farrar. 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: Hello again everybody. Today, I am very happy to be joined by two guests, Graham Farrar and Scott Slater. Graham is the CEO at Glass House Farms; and Scott is the President and CEO at Cadiz (NASDAQ:CDZI), which is a publicly traded company on the NASDAQ, that is the largest agricultural operation in San Bernardino, California, which is the largest county in the U.S., and it has been sustainably farming mostly citrus and lemons there since the 80s.

So Cadiz and Glass House recently announced a joint venture where Glass House, which is one of the largest privately held cannabis and hemp companies in the world, to partner up with Cadiz to organically cultivate hemp. They’re working on up to close to 10,000 acres, so really interesting to hear what they have to say about that partnership, how it came to be, and I would say, as I mentioned last week, we’re at the outset talking about the three kind of actionable takeaways of the interview.

And I would say, this week, the main takeaway points I would say, first of all, you know, in the cannabis markets in general, we’re seeing a lot of ebb and flow in terms of revenues going up and then coming back down, wondering if it’s stockpiling, widespread job loss, how much will that affect the industry, I think we have seen some ebb and flow. Graham talks about how that’s, you know, a sign that the markets are just stabilizing and we will continue to see some of that, but I think cannabis has proven itself to be an essential item, recession proof item.

You know Massachusetts, we mentioned, is only allowing medical cannabis for the time being. We saw Ontario this week take away the ability to sell during this lockdown period. So some fits and starts, but mostly a lot of good news in terms of cannabis being considered a worthy and essential plan that can help people. So I would say bullish on cannabis sector, but obviously you have to do your due diligence.

So I would say the second takeaway and something that has been written about on Seeking Alpha and that we’ve talked about on the show is, you know, the importance of having strong balance sheets, not taking on too much debt, not taking on too much weirdly package debt, so something that Scott talks about in terms of Cadiz is their debt not being an issue. He says it’s a relatively modest amount. They feel very confident about where their cash balance is, so bullish going forward for them.

And I would say the third takeaway in terms of the actionable takeaways would be the sustainability of cannabis and hemp, and in these sectors that people are looking for, you know, what’s going to be recession proof, what’s going to have people still buying even not just during this COVID lockdown period, but afterwards, you know, what changes will be made. Certainly I think something we can agree on is something that’s not going away is something like cannabis and something sustainable like hemp material, you know, with the passing of the Farm Bill and that’s something we talk about on the podcast that Cadiz was the only NASDAQ listed company to really take advantage of that and grow their bottom line through the legal passing of hemp as something that you can farm and grow and distribute and sell. So interesting to see the trajectory of Cadiz kind of pivoting into the hemp space, and we get into a lot of great discussion about CBD and the THC, and CBD overlap, and how looking for other cannabinoids to come out and planning for that.

So a lot of great conversation and before we get to the interview, as I’ve been promising for the last few weeks, I wanted to update listeners with my own portfolio in the cannabis world. I mentioned that I am building a model portfolio, I guess, as we’ve had this podcast just over a year now and this is something I wanted to obviously do for myself, you know, put my money where my mouth is, but also share this journey with listeners and see and get ideas. You know I mentioned on the last episode how much idea sharing I’ve had with listeners writing in and commenting and what they think looks good, everything, you know, commenters, listeners, guests, everything has sharpened my viewpoint.

I will say – before I say the stocks in my portfolio I will say some stocks that I wanted to buy that I’ve since changed my mind about, one of them is 48North (OTCPK:NCNNF) up in Canada. You know I was really excited about that company in terms of women-led company producing women-focused products. We’ve had a couple of guests Oren Benoff a couple weeks ago, Shiry Eden, talking about kind of the catalysts and the worthwhileness of focusing on that part of the market. And then, management changes and it’s no longer women-led and which is obviously not a reflection of how well a stock can do, but I think the story itself is less exciting and I think consumers and perhaps investors will likely follow suit in terms of not being as excited about the narrative there.

Another company that I had thought of buying into was Aphria (OTC:APHA). We had Irwin Simon on a couple months ago talking about the stock. We’ve talked about them in terms of, you know, his previous success as leading Hain Celestial, and he certainly knows the CPG market, and that’s obviously a strength in the cannabis sector and his ability to focus on the global markets, not just Canada, you know, they also have an ability to get into the States when it’s legal there, but I would say, at this point, in terms of the numbers coming out of Canada and just a general kind of global picture being somewhat muted, I think at this point, and not knowing exactly where the numbers are going to come in and how much demand there exactly is, my focus is basically on the States at this point. I think that’s the place to focus on. I have one other sector that I’m focusing on, but – so I stayed out of Aphria for this time.

So in terms of talking about what’s in my portfolio I would say the one stock that’s outside of the United States is Khiron (OTCQB:KHRNF) and their focus is on Latin America. We’ve had some people from Khiron on in the past on the podcast, and we’ve talked about them. You know I love what they’re doing in terms of they’re really focusing on Latin American markets. Yes, there is some volatility in the Latin American markets right now. We don’t know exactly what’s going to happen, but I would say, it’s going to be a bullish development at some point down the line. The stock is cheap enough that I think it’s a good time to get in, even if it doesn’t pan out exactly the way you think it might. So, who they have on the Board, what their prospects are, the catalysts they have coming up, the prospects in Latin America, I like their management, so that’s one stock.

The other stock that I have not focused on America is Isracann Biosciences (OTCPK:ISCNF), which was, you know, the first Israeli company to be trading in the U.S. markets, trading for $0.15, so obviously, really light volume. They did just have a joint venture announced, a three-year deal in Israel to begin farm production there. So, I think again, Israel also a volatile time in general, but also unclear exactly what the picture is in terms of it being legal in Israel and what COVID brings to the picture and how much that delays legislation. But I think Isracann is an exciting prospect and something to keep our eyes on, and again, so cheap that, you know, it’s interesting to see the story play out.

So pivoting to the States where most of the stocks are, again, not very many, but, here’s the stocks that I like in the States. Trulieve (OTCPK:TCNNF), which is reporting earnings before market today, Wednesday, April 8, excited to see what they release, super bullish on Trulieve. I would say it’s my most bullish pick. We had Kim on – Kim Rivers on the podcast a couple months ago, great talk with her. It left me feeling more bullish and, you know, everything I read about them how they’re doing with COVID, how they’re making most of their money, not from acquisitions, but from growth within Florida, I think they can parlay that into other states.

Another company I like is Curaleaf (OTCPK:CURLF). We had Jason White, the first CMO, on last week. I’m bullish on their prospects. I know people have some complaints. I’m bullish on where they’re going. They’ve had steady leadership in the face of many, many management changes across the board. They’ve stayed with their management, which, you know – and looking at the cash they have, and their prospects for growth, I would say that they’ve handled their cash very wisely up until now, which is obviously also a vote of confidence for investors.

My last pick is Vireo Health (OTCPK:VREOF). We also had Bruce Linton on and no I am not just picking stocks where we’ve had guests on and there is no – you know there is no advertorial benefit to me picking these stocks, but I like what their focus is on, you know, in terms of growing medically, and then, when they grow that to then be able to parlay that. You know Bruce was talking about 10, 20 times growth when a state changes from being medical to recreational. So, I think they have some smart growth ahead. I like their leadership. I also like Dr. Kyle Kingsley, who is the founder of the company. I think there’s a lot of good there, and again, a really cheap stock I think interesting to see that story play out.

And in terms of the ancillary space, my pick-and-shovel is – my pick-and-shovel pick is GrowGeneration (OTC:GRWG) and I think we’ve also talked about that stock on the show before. Interesting to see what they do. The stock looks really good. Their cash balance looks good. They’ve been experiencing good revenue growth. So, I’m excited to watch that play out. And again, that’s my ancillary pick, also a lot of great stocks to pick from. This is not an exhaustive model portfolio by any means. I love to hear from you what you’re focused on. I know some people wrote in about iAnthus (OTCQX:ITHUF) that they were bullish on that, tough to see the news from that company come out, really, really some bearish prospects. I’m not sure that people holding on to that stock have much faith left. So, apologies to listeners, you know, holding on to that stock or that got smashed with that stock.

So that’s the final list. Trulieve, Khiron, GrowGeneration, Curaleaf, Vireo Health and Isracann. And also, shout out to our Twitter page @canpod1, posting a lot of content out there about these stocks, about other stocks, also a lot of these articles that I’m posting have also helped shape a lot and helped form a lot of my opinions. So, it’s not just this podcast, we’re trying to help investors, we’re trying to get you to grow your wealth, find ways to grow your wealth for new investors out there, for people looking to get into the space given what’s going on out there. I know not everybody is scared to get into the market. Some people are looking at this as an opportunity to get into the markets.

So, we want to help new and veteran investors alike, but definitely, a soft space in our hearts for the new investors and the novice investors who are looking to build and grow their wealth. Okay, so that’s the model portfolio. Again, love to hear your thoughts, comments, questions ridicule, no I don’t want to hear your ridicule. Before we begin, a brief disclaimer. Nothing on this podcast should be taken as investment advice of any sort. I [have positions in the stocks mentioned in my model portfolio: Trulieve, GrowGeneration, Isracann, Curaleaf, Vireo Health and Khiron.] You can subscribe to us on Libsyn, Apple Podcasts, Spotify, Google Play and Stitcher.

Scott and Graham, welcome to the Cannabis Investing Podcast. Really happy to have you on. Thanks for making time in these circumstances.

Scott Slater: Thank you very much.

Graham Farrar: Yes, happy to be here. Thanks for having us. I guess by remote is the right way to do things these days.

RS: Yes, we’re already – we are setting the trend. So, if you could each talk to me how you got to the cannabis industry, how – what was the journey that led you there?

GF: Maybe I guess I can start with that one since I might have started a bit earlier. So, this is Graham speaking. I’m the President of Glass House Group, have been in the cannabis space for decades, but I’ve really been in the cannabis space on a – you know kind of professional level for about five years now, which doesn’t sound particularly impressive in a normal industry, but – in cannabis it makes me, you know, kind of one of the oldest kids in the candy store, if you can say it like that. We are one of the largest producers in the state of California, which is, you know, obviously, one of the largest economies. It’s certainly the epicenter for cannabis on our planet.

We’ve got a half million square feet of licensed and operational greenhouses. We have four open and very busy at the moment adult use dispensaries, so one in LA, one in Santa Ana, one in Santa Barbara, and one in Berkeley. We have a 22,000 square feet manufacturing lab. And then we own four brands: Glass House Farms, Field Extracts, Forbidden Flowers and Mama Sue. And so, we’ve been in the, you know, cannabis space for quite a while through those assets, but we, I think, have a broader kind of limbs, which feeds into this partnership, which is we really see us – ourselves as a product company that owns its supply chain in the products we work on – we deal through a cannabinoids lens.

So THC is obviously the one that people talk most about when they talk about cannabis. CBD is pretty well-known now, but there’s also a hundred other cannabinoids out there and with, you know, our experience from the THC side of the house, it’s very portable and applicable to the hemp side of the house where we’re working with Cadiz in this joint venture. So, everything – you know one’s a Saint Bernard and one’s a Chihuahua but they’re both dogs, so the work that we have been doing over the last, you know, decade or so really fits right into what we’re doing here at partnership with Cadiz.

RS: Alright. Scott, you want to give us your – how you got to Cadiz and where we are now?

SS: Absolutely. The journey has been – is quite a bit different than Graham’s actually, which is what underlies the – one of the primary benefits of this joint venture. Cadiz is a publicly traded company and we have been involved in agriculture and water supply natural resources for a very long time, always looking to maximize the beneficiaries of our assets, which are principally land and water. We have nearly 50 square miles of land, 35 miles of which is continuous, and our principal asset, which is a differentiator, is a long-term sustainable reliable water supply for just about anything we want to do an overlying land, and historically, we’ve been through a variety of crops principally in citrus and lemons, and we have always been about trying to implement a water project from the property and with the passage of the 2018 Farm Bill, we began to be targeted I would say by people who were interested in the hemp space specifically, and we didn’t want to be in the general hemp space.

We saw a lot of people that had a focus just on cultivating hemp without a strategy on processing and distribution, and we came to Glass House and to Graham, specifically, on the basis of recommendations for people who wanted to joint venture with them and come into us, which we thought was a great complement to Graham’s operation, and we just decided that we had a better and more direct path just with Glass House, and that’s ultimately how we came together with Graham, and we’re delighted because we think we have an intention and a joint strategy to take our land, our reliable water supply, and push forward into the entirety or fully integrated hemp operation.

RS: And how did the partnership come about? How did the joint venture come about? How did you two meet and how did you two decide to join forces?

SS: Well, why don’t I start on that, and then, Graham, you can fill it in for them from your perspective. The honest truth about this is we were doing visits in New York and in Europe in 2017 or – yes, 2017, started in 2018, and there was some interest in what might be happening with hemp and we said, well, look, we’re following the Farm Bill, but it’s not there that – and we were a little unsure about what was going to happen. And then, as we ramped up into 20 – the end of 2018, the Farm Bill was a reality and we got a lot of interest over the fact we had so much land, so much water and the interesting character of our property and its isolation and it’s sheer size and magnitude, and we had companies from Canada – I’m not going to use their names, we had companies from Canada, companies from Europe and in the United States who were interested in trying to develop a hemp presence in California and a name that was on everybody’s list was well they were going to partner with Glass House and Graham, and it just so happened.

It was really luck.

I’m on the Board of the company called Limoneira, which is in-citrus and is our principal citrus farmer, and we got a recommendation from Harold Edwards who said – who is the CEO, who said if you were ever going to be in the hemp space, that guy you got to meet is Graham Farrar and Harold brokered a dinner and the rest is history.

GF: That’s a good explanation. I think it reminds me of something that I would say which is a – that I’d rather be lucky than good any day and I think the harder we work, the luckier you get. And so, there’s quite a bit of serendipity in it. If – one of the things I like to do in our operations is kind of look down – you know look at the foundation of building blocks, right. And so, if look at what you need for a successful hemp operation, you need land, water, sunshine and in the operation side of it, right, and Cadiz has the land and the water in spades. They’ve got more water in their aquifer underground there in San Bernadino… so it’s, you know, the largest aquifer in the Western US. And then, what their primary focus is doesn’t actually need the land, and so, you know, if you’re using an analogy it’s almost if you were tunneling down to a platinum deposit, and then, you realize that the right technology, all the dirt you’re pulling out of the tunnel was filled with gold, right.

And so, we have this case where we have the operational product background, they have the land and the water and us putting those pieces together doesn’t actually disrupt or take away anything from Cadiz’s primary, you know, mission that they’ve been on for many years now. And so, that – you know that opportunity is the kind of thing that you just can’t – you can’t find in many other places where you can have 10,000 acres of virgin, organic land in the Southern California sun with all the water that you need to go with it. It actually has to be a pretty isolated region, which certainly there are some operational challenges too, but there are some huge benefits, which you – you know you frankly you can’t make if you don’t start with them, right, separation from pesticide drift, virgin land that’s is already organically certifiable versus some of the things you find in the Midwest, which will take three, four, five years to get to organic qualifications. A distance away from residential population centers, you know, the ability to have security by isolation, the fact that it’s in the middle of a basically Federal, you know, preserve all around it, so nothing can ever get closer to it like these are things that make the – it and the partnership a really unique fit, and, you know, it’s – you know the serendipity that’s inherent in that is hard to overstate, so it really is exciting.

And I don’t know if we mentioned it, but I think Cadiz is a NASDAQ listed company. As far as I know, the only U.S. listed public company that is in a partnership to really take advantage and capitalize on all the additional tools that we’re given in that 2018 Farm Bill. So, it’s a pretty unique – as far as I know, the only – place where we have, you know, a cannabis company and a hemp company, you know, form together like this.

SS: Yes, you know, just one last piece on this, which is you just – you can’t make it up. It is what it is. We are – Graham used the word unique and that is a word is – we’re really over used in the modern world, but in this context, we are. The sheer remoteness and the physical layout of where we are in our isolation is a detriment for some things. For this, it’s fantastic and where I was going to close on this point was our land was originally platted in the 1800s and the original land surveys and platts noted that the land was suitable for raising hemp, and as we began the on-ramp to this opportunity, we discovered that, and that’s just – you know – again, it’s an – Graham used the word serendipity, it’s a great story. It’s a true story and we’re delighted to be where we are.

RS: And talk to listeners a little bit about, you know, speaking of the 2018 Farm Bill. It’s been a bit of a rocky roll-out and not a very clear path, I think, especially for investors and consumers looking at the hemp and the CBD space for that matter kind of navigating that has been difficult terrain I would say. How has it been for you both navigating the regulatory picture there? And kind of the second part of that question would be in the face of this new reality that we find ourselves in vis-a-vis, you know, the coronavirus, how does that affect or does it affect anything?

GF: Sure. So, I think it’s an interesting… I think I have a slightly different perspective coming from the cannabis side than the average farmer because for me, the hemp regulatory framework is exceedingly easy, right. I mean we’re coming from the land of cannabis licensing where applications take multiple years, and you know, you look into applications, you know, six inches thick in terms of the things that we have to apply for in the – and then you come to hemp and all of a sudden, you know, it’s a $900 application that’s three pages long and in some cases, it’s actually pretty easy. So things like testing THC to make sure that you’re under the 0.3% limit dealing with testing labs, testing along the way, manifest all the things that are onerous to the average, you know, tomato farmer for campus farmer is like really that’s all we have to do.

So, we – I think we have a pretty different perspective on it, and we have really leveraged both Cadiz’s and our political and regulatory understanding, so, you know, we had a fantastic meeting with the State of California that included the Head of the CDFA, the Head of the CDPH, the San Bernardino County Sheriff, and one of the San Bernardino County Supervisors, the Head of the BCC, so basically had every regulatory agents, both municipality and state-level sitting around talking about how we can make, you know, Cadiz the crown of the jewel of hemp farming in California. And then you have the Supervisor for the County saying, yes, and we want, you know, San Bernardino to be the setting around that jewel, right. So if you think about from that point of view, a, it is easy for what we normally do, and b, we’ve got a lot of local support because this potentially could be the largest agricultural operation for the county, which is the largest County in California. You know, it’s – there’s a lot of people excited about what this could bring and so, we’ve got a lot of support and went behind this and how we make this happen.

SS: It’s interesting. San Bernardino County is not only the largest County in California, it’s the largest County in the United States. It’s so big you could take eight of those little East Coast states and stuff it in their boundaries. It’s – and it’s an interesting County that has had its ups and downs and because of Graham’s experiences in the regulatory environment on the cannabis side, they made the perfect partner for us in this instance, and I do want to emphasize the point that we started with. We do have experience with land use issues on a grand scale, and in this instance, we chose to reach out directly to local law enforcement.

There was – in the implementation of the 2018 Farm Bill and now as the states received and tried to ramp into the hemp regulation, there was a lot of uncertainty and confusion about the differences between hemp and cannabis, and we directly connected with the County Sheriff on law enforcement and brought them out to the farm and explained what our operation was and went through a friendly consistent open transparent process to educate them and for them to educate us about what they were looking for, what they were concerned about, and try to address that directly. That led to a comfort level at a regulatory level in the County from law enforcement from the Board of Supervisors and that relationship has been very strong and ultimately grew to what Graham described as an invitation by the Governor’s Office to come to Sacramento and to walk through how to do it right, which is, I think, a great start for us.

GF: I think, you know, we don’t want to make anything seem like it is too easy, but sometimes the perspective that you come at it from makes a big difference, right. If you’re coming out as alfalfa farmers and you use this, you know, we’re kind of – essentially there’s no regulations and you step into this, it just kind of blows your mind. If you’re coming out from a licensed cannabis cultivator, you kind of keep looking around wondering if there’s something you’re missing because it seems too easy, and I think if we go back to the foundational thing, you know, the US government and state governments are trying to make hemp work.

They don’t always get it right on the first try, but their goal in which something is different than in often times with cannabis frankly is to make this a feasible thing, so I think where we’re coming into it, our prior experience, our background, the joint partnership together is – has all the right ingredients to be one of the people who is successfully navigating to sell in that environment.

RS: And then, in terms of the coronavirus, how is that affecting things or does it affect things?

GF: So, I’ll say what right now everyone’s arguing over who gets to work at Cadiz right now. So, I say we’re just partly tongue in cheek, partly true because it’s about as isolated. If you’re thinking about social distancing, being in the middle of San Bernardino County far, you know, 30 minutes from any town and when you’re having workers where you have, you know, maybe two to three workers per 15 acre block, it’s about a socially distance as you get. So from a true operations point of view, it’s a great place to be. From a supply chain and logistics point of view, you know, I think that’s kind of a day-by-day thing.

You know, obviously if schools cancel and people don’t have day, you know kid care and can’t make it to work, that’s going to impact everybody, but we are – we’re pretty well set up for that because our staffing levels on the scale that we’re doing are really pretty low and as long as the seeds making in the ground and the, you know, irrigation pumps keep working, we can do a pretty good job slow rolling things or stretching things out and things like that. So sun keeps shining, the water keeps flowing and our plants will keep growing and those things starts don’t simply disrupt right now.

RS: And Scott, are there any issues that are of concern in terms of capital or issues of debt in, especially, as we see kind of the capital crunch happening, the economy shrinking, people – you know investors being scared, is there a concern there?

SS: I think there would be for a lot of operations who were, again, looking into this space, but not for us. We were fortunate to do sort of tightening up our balance sheet and we are in a good position on cash and debt as we move into the – into this growing season. And the land has been prepped; the seed is going in; we’re on schedule; saw some pictures yesterday of what was going on and Graham’s been out there; pretty routine like it just looks fantastic. We’re very excited about it. And it’s one of the things Graham mentioned earlier as we are a publicly traded company with audited financials and everybody can follow along, but we’re well situated.

RS: So it sounds like for both of you you’ve done a slight pivot into the hemp industry. It’s going pretty smoothly. Has there been anything that has surprised you about either for the positive or just surprised you in general about taking on this partnership and about this pivot itself?

GF: Let’s see. I think we definitely have learned some stuff. Every part – agriculture always has a learning period when you go into a new climate or area. So, you know, we kind of – we expected the heat of the summer. We knew that we have the water, which always feels good. We learned some lessons around when and just how, you know, dry that win can be, so we’ve made adjustments on that. We’ve actually – right now, so in the next month – we’ve planted some this month and the next month we’re doing our first full planting, which will be 250 acres, which is actually our third planting.

So we weren’t surprised by the fact that we were going to learn along the way. So we did some small pilots so that we could work, you know… on a five and 10-acre scale before we try to do it on our, you know, 5,000 and 10,000-acre scale. And so, we definitely incorporated those and the results you already are seeing are – you know we’re getting the results that we expected and hoped for there.

So the plants are doing really well that are testing. We actually have a direct seeding project that starts today, which will be some more good learnings for us. And again, already working on driving those COGS. We know where the market is going. Certainly, didn’t expect, you know – what we’ve seen in terms of the prices changing is exactly what we expected. They’re finally just actually starting to get to the range of the models that we built around this. I actually anticipate that we’re going to continue to see good consumer demand, which is the main thing that I look at. And so, the ups and downs of the supply side or just to settling of the market, which is no surprise at all to us.

So I think, you know, really things are looking good. I’m excited. I think that the market is going to clean out a bit. I think the folks that were kind of weekend farmers or dabblers are going to come back to reality and many of them will go back to the crops that they already know and understand and I think that our perspective on – you know crops are grown and are sold and we are putting together a supply chain to supply products that we intend to sell more than we’re to building a supply chain to be a spot market producer for others, and I think that’s going to play out really well for us over the next couple of years.

SS: I would just add, I think from our standpoint, we did decide to go into a two-phase testing program and that was really important for us because we did come out of the first test cycle and knew that we were in the right place. Proof-of-concept was there and under the weather conditions, the temperature, all of the things that were going on in that segment, timing and when we went in, the plants are hardy and they like the environment, and what we knew about the isolation was physically verifiable, but we wanted to see proof of the success of the cultivation and we did learn and it has been more or less dialing in, and Graham and Orin’s team have been terrific at responding to that dialing in, so to speak. So, we’re extremely pleased with where we are and bullish on our prospects for this growing.

RS: Talk to us a little bit also about – you know you talked about reaching out to the community where you are also discussing the natural kind of success that we have growing in the states of hemp and how, you know it’s always been there and there has been a return to that. What’s your sense of the next few years in the industry? How do you see it growing and in which ways do you see it growing? And kind of how fast do you see that trajectory? And is anything about where we’re at in the current state of things? Do you think that’s going to affect the industry at large?

GF: So let’s see what I think. I think that we’re going to kind of – we’ll see a settling of the market. I think we’ll – you know putting CBD in Jack In The Box hamburgers is silliness. But there’s a lot of places where I think CBD is going to have real consumer benefit, and, you know, I tend to kind of look at these things through the product lens of where it is, what we’re cultivating, and, you know, why is it valuable and how does it get used? I would say that CBD is going to find a real good home, and, you know, maybe even pass over into almost like a cannabinoid multi-vitamin. I definitely keep in mind that while we know THC and CBD well, there’s a 100 other cannabinoids in the cannabis plant that are really just starting to come to light.

The Farm Bill restricts Delta-9-THC, but basically leaves the door open for the rest of them. So, we’re very interested in exploring genetics that allow production of cannabinoids beyond CBD. You know we have a number of brands, one of which is Forbidden Flowers, which was done in partnership with Bella Thorne. We own that brand nationally. It can be sold direct to consumer. So you start thinking about, you know, an acne cream that as CBD for its anti-inflammatory produce in it that helps through the acne being sold by Bella Thorne, 22-year old girls across the country over Instagram, right. So, those are the kinds of things that I think we’re seeing and this becomes the foundation for it.

Overall, you know, there’s a good amount of hype in the market, but it’s not all hype and if you look at it from that point of view, I think this is one of the most exciting new agricultural products, and then the derivative products from that that we’ve seen, you know, arguably in the last 50 or 100 years, so I think it’s – you know so really excited. I certainly look at the things happening and any one of those shoes could drop and make our, you know, 10,000-acre project look small all of a sudden. So, I think it’s pretty exciting to see where this could go.

SS: I think from the – sort of the global consciousness standpoint that there is a significant part of the environmental community, the community that’s concerned about global warming, that looks to hemp and its potential fulfillment of specific purposes as being a great tool in that fight. It is a – efficient user of water in much less so than other crops, especially cotton, and could fill some of those purposes, the use of hemp as a fiber for purposes of garments, for use in the building space as hemp create the use as a plastic substitute.

These things matter to a lot of people, and as we are in a world in which ESG guidelines and sustainability become important, so too will the emphasis on trying to find alternatives to traditional ways of doing business, and we think that as time goes, one of the great tricks will be to see whether or not we can multi-purpose our hemp for utilization in a variety of market segments, and as those segments emerge, so too will the breadth of our appeal, but we are very interested in supporting long-term sustainability and using our water efficiently for the highest and best uses.

RS: And do you see anything that might throw a wrench into, you know, the plans for growth there? Do you see anything offsetting kind of the road that’s been taken? Or do you think the passing of the Farm Bill, while a rocky roll-out, it’s kind of inevitable that it’s just kind of green lights ahead I would say?

SS: Well, I’ll say we see green. We see a lot of green in front of us and I would say we’re following the basic principle that Graham has laid out, which is, you know, we’re farming to distribute, we’re farming to sell and we’re being cautious about what we do and how we do it. But to – for what we see thus far, we’re on plan and we’re happy with our progress.

GF: I would echo that. You know I think there’s no business where you don’t have bumps, but business leaders and business operations are measured by how they navigate those. And as Scott mentioned, I think, you know, we’re taking a slow and cautious long-term approach, not a quick hit, you know, windfall kind of approach, and I think that’s going to serve us well because I anticipate this market is going to stabilize out and you’re going to see some real winners in this new crop.

RS: And Scott, speaking to investors for a minute, you know, speaking about Cadiz, what are your kind of vision for the next few years in general for the company?

SS: Well, I think we want to continue to be opportunistic. I think it’s – Graham laid this our really well when he was articulating the fact that our – thrust of our business doesn’t require us to use all of our water on our land, and we’re looking at an environment where some of the water on our property can be allocated to hemp. We’ve got a joint venture agreement with Glass House, which contemplates the irrigation about to 10,000 acres for hemp and we think we can accommodate that on an opportunistic basis. As the market emerges and the demand develops, we can use our land and water for that opportunity. At the same time, we do have lemons out there and we are also interested in, as other farmers are historically, at conserving the water from our property and using it for municipal industrial development.

So, as we look forward, we have, I think, a great mix and a great opportunity to choose where we want to deploy our water at any given time given the surrounding economic circumstances, and we see, I think, for the first time, an agricultural development that can be competitive with the use of water for municipal purposes, and not only competitive, but perhaps exceed that value. So we are prepared to ramp into the 10,000 acres of hemp as the demand emerges to consume that. And in the meantime, we have the ability to deploy our water in other places. We have the proposal to take water into Southern California.

We have a 226-mile pipeline which runs to the north from Cadiz Northwest to Barstow, and then, ultimately, the Antelope Valley. So, we are going to continue to progress all of the potential uses and I think the hemp opportunity gives us great versatility and in doing something that farmers have often done, which is to take the water and move it to where it needs to be used.

RS: And in terms of, you know, anything coming up for the stock in terms of, are you concerned at all? Or I guess what would your advice be to investors looking in, you know, at the stock market, scared about maybe the hemp/cannabis industry in general, and then also kind of scared to put their money in at this point, what would your advice be to them?

SS: Well, I think that your earlier question was a great one, and in terms of where we sit, in terms of our cash position and our balance sheet, we look really strong on our balance sheet. We – our debt is relatively modest in the $65 million, $75 million range and we are a $0.5 billion enterprise with the versatility associated with the beneficiaries as I’ve described and I guess our cautiousness and our bullishness at the same time with how we are planning to grow into the hemp space should give investors great confidence that we’re not over supplying and we are not interested in just the cultivation aspect. We would never be in this space to do that. We are fully bought into the model of a fully integrated operation where we are growing, processing, and ultimately distributing and that’s what our joint venture contemplates.

So our risk profile on the hemp space is a little bit different. We don’t face a lot of the regulatory risks that some of the operations are in. We are sun raised and organic, instantly certifiable as organic. We’ve always been that way and the land is relatively virgin, complete isolation. So, the regulatory aspect which threatens some of the operations that are out there, we see the problems that other farmers are having. We nip those problems in the bud at the regulatory level and locally, and then, we have audited financials. Again, we’re a public company and very transparent in what we’re doing. And on the municipal supply side, it’s ironic, I suppose, or fortuitous that California is now looking at a dry season again and amplifying the importance of clean, reliable water for people.

So, if you believe that the value of water as a sustainable commodity is going to go up, I think that’s a pretty much given in our history, and you like the sustainability of the hemp play and the versatility. I think they’re the perfect investment and a great way to sort of hedge the notion that the highest and best use of water will be what Cadiz is always looking for and if it continues to be a twin tower of hemp on that prospect and water supply for municipal use, we’re the right company.

GF: I mean I could say – I sure wish all my portfolio had been in Cadiz over the last two months here. It looks like a pretty good spot to be on a personal level. From the cannabis side, I think, some interesting things. One is cannabis tends to do very well. Anything that kind of soothes people’s pain and anxiety does well in recessions. We’re certainly seeing that on the pure play, the THC cannabis side right now. Our store sales are the best that they’ve ever been. I think on last Friday, you saw the best data that you’ve ever seen across our entire ecosystem, buy-out more than 30%. That busyness continues there and we’re, you know, certainly seeing a kind of – society is telling us, we don’t get to tell it, but society is telling us the things they want and that appears to be toilet paper, food and cannabis. And so, we’re seeing people really stock up.

We’re seeing people consider it an essential need. Certainly in California, where we’ve got a 21-year plus history of considering cannabis and its derivative products as medicine, it’s being defined as an essential service. As you know, the kind of the government processes roll out. So, I mean I guess certainly wishing for success for everybody in our public markets. Also feeling very comfortable to be in the industry that we’re in through what’s potentially a bumpy time and the cannabinoids that we can do through hemp and in THC are the same that we can do through cannabis. So, I think there’s a lot of portability between those two industries and if this continues to drag out, expect to continue to see the flight to cannabis for the society as a way to deal with stress, anxiety, sleeping and health issues that we’re seeing already.

SS: Perhaps the market is seeing a little bit of that or telling us a little bit of that. I think against the incredible headwinds that are out there, our stock, over the last month, is up over a buck. So, I think maybe the investment community is seeing a little bit of that.

RS: Yes, the cream tends to rise the top and fear pushes a lot of people out into the markets, but I think people that understand the markets and do their due diligence, you know, there are profits to be had for sure.

SS: Yes.

GF: Vices always do well in recessions, and I think, you know, cannabis and its derivative products fit into that and we’re seeing the early signs of that already, you know, where the consumer can retail and their purchasing. So, if – you know if I was an investor and I believed in the cannabis market, either side of the line, hemp or cannabis, I would feel very comfortable, you know, as this is a safe haven to put money into and a good place to be betting on because it’s going to do well now and it’s going to really accelerate as we come out of this.

RS: Yes. Okay, well, any parting words for listeners?

GF: I mean I guess I would say – you know the – my foundational question to folks would be, you know, do you believe in the cannabinoid product space? And if you do, you’ve got two different lanes. You’ve got a hemp lane with everything about THC and the cannabis marijuana lane with THC, if you believe in those markets, which I think most people do, then your question comes down to betting which jockey, which horse do you bet on and sitting from where I sit, the partnership between Cadiz and Glass House Group looks to be the safest bet with the most reliable producing assets out there. So I’d say, you know, answer those questions for yourself, but if you come to the conclusion we did then what we’re doing is a pretty good spot to be.

SS: That – I can’t top that, really. I think that that’s it.

RS: Alright. Well, we got it. We’ve got a mic drop. I think we can leave it there. Scott and Graham, thanks so much for joining us and talking to us about Cadiz and your joint venture and your business and your thoughts on the industry.

SS: Thank you.

GF: Appreciate the opportunity.

SS: Thanks for having us.

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