Emily Paxhia of Poseidon Asset Management joins Nick to discuss The $61B Cannabis Market, Overcoming Compliance and Regulation, and the Declining Social Stigma Around Cannabis. In this episode we cover:
Can you give us an overview of the Cannabis Space — size, growth, major sub-segments? Which segments are you most interested in? What areas do you not invest in and why? Raising a cannabis fund in 2013… I have to imagine you had to find a certain type of LP for that pitch to land. How hard was that? Regulation can be a break or a gas pedal –how have you or do you assess and underwrite the regulatory and legal risks in the space? To what extent are Cannabis businesses shut out of the existing financial system? Are there any other major differences in sourcing or diligence for a cannabis focused fund vs. your standard VC fund? How many cannabis focused funds are there and is follow-on financing risk significant when you’re dealing with a smaller pool of capital providers? In 2018 we saw this massive boom and bust cycle for cannabis and hemp companies. How cyclical is the industry and, aside from consumer consumption behaviors, what macro drivers do you watch closely? There’s recently been news that Molson-Coors has launched a CBD-infused drink and several major health and wellness retailers will offer CBD topicals. 5 years from now will all of the major household CPGs have CBD and Cannabis products available?
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Transcribed with AI: 0:00 Emily Paxhia joins us today from Brooklyn. Emily is a leader in the cannabis and industrial hemp investment space. She is managing director and co founder of Poseidon Asset Management, a dedicated Cannabis fund. Now in its seventh year, she is an early stage investor into startups such as Ascend Wellness Holdings, GTI, and Headset amongst others. Emily, welcome to the show. Thank you so much for having me. So tell us a bit about your background, you sound like a very brave woman, considering her investment focus, but I’d love to hear the story, you know, what led to the founding of Poseidon? 0:34 Yeah, um, so I feel like there are two paths to how we got to decide. And the most recent is that before this, I was, you know, I had always studied psychology in college and in my master’s program at NYU, and then I had a career in market research and consulting, where I was working for large companies like Viacom, American Express, Ralph Lauren Pepsi CO, trying to understand how they could develop new products or services reach new market segments, understand emerging trends in everything from e commerce to over the top viewing to mobile transactions and, and so you know, I was always watching for trends to develop and trying to seek the whitespace and ways for my clients to kind of get involved, they’re coming. So I was living in New York, and then I moved to San Francisco in 2011, and started to see stores like spark and apothecary, um, with people standing outside of them. And in a world where things were shifting from brick and mortar to e commerce, and to see people who, frankly, defied the stereotypes thanks to the war on drugs of who was consuming cannabis. It was people who looked like me and my friends who were standing in those lines. And so I started to dig in to try to understand the regulations in California and understand the potential opportunities. And then in 2012, Colorado legalized adult use, not the market didn’t open until January 2014. But it was very clear that there was a shift happening. So you know, where there is a shift, there’s often opportunity to participate because there’s a big delta between perceived risk and actual risk. And that was where we really jumped in from a science perspective. I launched the business with my brother, we put it together over 2012 2013 and opened it to outside capital in January 2014. I will say, I think we had a more open perspective on taking cannabis seriously because we’d heard about cannabis as a palliative care resource when first our dad was really sick and dying from cancer in 1995 96. And then our mom passed away in 2001, from cancer. So you know, you kind of hear about these things when you’re dealing with hospice nurses, and trying to understand courses of treatment and seeing all of the deleterious side effects of the treatments and the pharmaceutical drugs, frankly, that they’re introducing to the body. So cannabis was being talked about in that frame. And it’s something that just, I think, sat in my consciousness and made us more open to considering it, then maybe other people, 3:15 sorry to hear about both your losses. I’m also someone that runs a firm with my brother. So we have that in common. But can you give us sort of a succinct thesis on Poseidon? You know, can you talk about sort of the categories, and then also the stage that you invest in? 3:31 Yeah, so Poseidon has several investment vehicles under its under the firm. It’s our whole thesis to be the capital providers to the industry. And our belief is that investing into companies will grow the industry and the industry will then just start on a virtuous cycle. But our whole thesis is to invest across the entire, you know, kind of sub sectors of the space, including technology all the way through to cultivation and manufacturing. 3:59 And can you give us an overview, maybe of the cannabis space at large size growth, major sub segments, you mentioned a couple. 4:07 Yeah, so there’s, well, it’s it’s very so you have the US market, which is on a $24 billion run rate as of the close of q2, with a $6 billion sales going through q2 and just the adult use market. And through the end of the year, we’re we’re seeing approximately a $30 billion market through 2021. The markets growing everywhere from 9% year over year in California, which represents hundreds of millions of dollars to over 100% year over year in the newer markets like Illinois and on the east coast. So it’s it’s a beast, but if you kind of average it out, it’s growing at about a rate of 30% year over year. And that’s been holding steady. When we first got into it in 2014. We were estimating a 36% year over year growth rate for the entire industry. And so that’s pretty healthy. And what’s most interesting in the US Especially is that you have high growth and EBIT da, so you’re seeing that the market is bearing the growth and that there’s also capital that’s going to begin flowing through to the bottom line. And with that free cash flow, you can invest more into the growth of the business at the benefit of the investors without seeing a lot of dilution if managed correctly. And that’s the kinds of companies we really like. I will speak quickly on the global opportunity. I do think that Canada was the first out of the gate with a federal program, both medical and adult use, I think they’ve seen what massive flows of capital and not good shepherds of capital can do in terms of potentially destroying a lot of that capital diluting their cap tables diluting the market and, and not showing a focus on that fiscal prudence and the focus on EBIT da, a lot of those companies still are not even positive. And I think there was a lot of overbuilt infrastructure and not a lot of clarity on estimating the true market size and the challenges that would be faced because of the regulations. regulations in this industry are like the brake and the gas pedal, they can really give you a lot of Go ahead. And they can also really slow progress. So you have to be very mindful of that when you’re focusing on the build out of infrastructure. On the global level, we’ve got what is starting to emerge to be a true medical market that seems to be being built on the rails of the EU GMP standards for pharmaceutical or wellness products. And so you’re seeing things happening out of Colombia, Mexico now has a medical program, they’re working on Adult Use program. And then you have regions in Europe that are really starting to embrace this and even the London Stock Exchange is now allowing allowing CBD companies to list there. So we’re very interested in that market, the US is our big focus. But we do like the thought of having a truly global medical and wellness market for cannabis on those on the rails of that kind of high quality focused manufacturing practices and distribution practices. So we do have an Poseidon does have exposure in the US, Canada, Western Europe, Mexico and Colombia. So 7:14 we have embraced that to a degree. It’s kind of amazing to witness it evolving in front of my eyes. We, you know, our HQ is downtown Chicago, but we have this small office in a suburb with the studio and just within 100 feet of me, there’s now a cannabis shop, and a you know, a or sorry, a CBD shop and then a cannabis dispensary about a mile from me. And I mean, you just see it evolving and growing. You know, I can’t imagine you know how much more it’s going to evolve. I checked on Amazon the other day to see if you could order CBD products and whatnot. And I still think that that’s probably coming in a bigger way. But I imagine that that billion dollar figure that you cited is is poised for some big growth over the next few years. 8:06 Oh, yeah. Yeah, I mean, you’ve seen like, on the larger scale for CBD, you have something like Charlotte’s Web hemp, you know, they just posted their earnings, it’s a lot more difficult to succeed on just the CBD side, just because of the there’s lack of clarity in the regulations from the FDA. And so I think that’s really made it difficult from the channel sales and brick and mortar and trying to understand the form factors that can be on the shelves and what you can say about it. So it is difficult, but I I am excited. I mean, I I can’t even believe so I’m spending time in New York this summer. But we are based in San Francisco. But coming back to New York, seeing the New York market starting to potentially laid eyes on opening its doors in 2023, which feels like a long time from now. But it’s actually going to go like lightning as it always does. And I’m just so excited to be back here and being able to have this conversation because when I moved from here to San Francisco, I couldn’t have even dreamed of it. So these are the moments when you realize that true change has happened. And in the course of seven years of running this business, I can’t believe the number of things I’ve seen that have changed and let alone the consumer perspectives that have truly shifted to embrace legalizing cannabis I went to in a country that’s divided over everything from how we manage through a global pandemic, to you know, forget it with the the elections, but cannabis is almost one of the most 9:32 unifying issues that I can think of. And then what sub segments of the industry D Do you focus on from an investment standpoint, right as I’m just thinking about, I mean, there’s there’s a whole tech side of this business, even it’s just pure software, you’ve got dispensary’s, you’ve got ag you’ve got processing and machines, you know to help process you know the materials. You’ve got sort of the THC side of the business, the CBD The hemp, you know, what are the areas that you guys are really leaning into? 10:04 Yeah, so we are embraced the technology aspect of the industry early because we were when we first got into the space, it was really early and very different. And so we thought the ancillary aspects of the industry would be some interesting ways to participate without maybe taking on the risk of being on the plant touching side of the business. So we got involved in software solutions exactly to your point, like flow hub, which is a retail management solution. We’ve been involved in that since 2015, had said, as you pointed out the data analytics platform to, from my perspective of, you know, of record for the industry, because they have the real time data, they use, you know, smart technologies to learn and understand and clean that data. And as you probably know, you know, good data is very different from just data because that data can lead you down the wrong path. But we’ve done all of that. And then now more recently, we’ve started to get more into the e commerce pieces of it, some of the cultivation technology to help you detect early if you’re going to have a loss in your crops, and so that you can quickly navigate around that. I think that’s one of the hardest parts of this industry, I think a lot of people would not if they could avoid being fully vertically integrated, they would avoid it because it’s you’re running like seven, seven different businesses under one. And cultivation is extraordinarily challenging, and so many things can go wrong, and resulting in millions of dollars of lost revenue potential and resources. So it’s, you know, there’s a lot of things we do on that side. And I think it’s really important to the industry, because, you know, sometimes I hear investors outside of the industry, well, why can’t you just use existing point of sale systems or software solutions, and, and the key reason is that you would expose your business to incredible risk in terms of compliance. And in terms of being in line with what the regulations dictate. And not to mention that, but it just wouldn’t serve your business. Everything about this is efficient is about optimization and efficiency. When you’re trying to move as many people through the doors of the stores as you can, you can’t have a point of sale system that’s going to fail you and you can’t have data and inventory management systems that are going to let you down because you’re not compliant and be you’re just not moving people through the doors as quickly as you need to maximize your revenue potential. So those things are very important to us. The other thing we’re very much invested into is of course, the vertical operators you mentioned ascend wellness holdings and GTI. We are early investors in both of those couldn’t be more proud. We’ve also leaned in on companies like terrorists and and then we’ve done some espressos like in California with spark or in Arizona, such as copper state. And again, we do think that the vertical nature of this industry is kind of a crazy aspect of it, but it is a necessary aspect of it. Because it really is the way that you can see the EBIT, da really develop and strengthen that you can control your pricing and your gross margins. And you can just listen to the earnings calls that have been happening this week to hear that playing out for the operators, like GTI. And truly and truly, she has incredible gross margins down in Florida. So that’s how we’ve been 13:19 investing. Yeah, I love your comment that I think you said regulation can be a brake or a gas pedal. How do you guys sort of assess or underwrite regulatory or legal risks in the space? 13:33 It’s really through our experience of being in the industry and learning time and time again, about how regulation can go against you. But it can also create a moat. So examples of how we’ve gotten savvier about this are you know, back in the day in Colorado, there was the famous or infamous moment when Maureen Dowd ate an entire cannabis chocolate bar and had a total bug out session in her hotel room. I mean, I would have bugged out to and I don’t know who sold her the chocolate bar and didn’t educate her on that. But we’ve the industry that was a quick and, and so severe lesson to the industry about how we have to be much better about protecting our consumers as they’re starting to understand entry into this category. And so what came out of that was very clear demarcation of the dosage of the entire thing that you had to have it imprinted onto the individual pieces of the chocolate bar. So you can understand things like that packaging changes, things like that, that really and but you know what it meant for early product companies was a pretty significant blow to the business as they had to throw out a lot of packaging or a lot of product, they had to get product through or destroy it because it was no longer going to be approved within the new regulations around that. So you know, these are things when you’re investing in early businesses, especially as we were back then that you learned those quick lessons about how to think about everything from how do you cashflow on inventory, how much inventory do you start And so like, ideally, you’re you’re running very efficient large runs on these things to lower your costs. But at the same time, you also have to be mindful of well, what if something should shift, so you have to think about these things like they’re going to see another shift. And regulations up in Oregon, starting January one around the maximum dosage of individual products up to 100 milligrams, I’m not sure why they’re moving in that direction, because it feels a little bit counter to what the rest of the market wants to do, which is to move to lower dose products. But it is what it is anyway. Things like that, that we’ve really paid attention to other things that we’ve paid attention to are up in Washington, we were early investors in cultivation, when Originally there was a cap on cultivation. And Washington’s a bit of a different market because it doesn’t allow for vertical integration. So retailers hold the pricing power. And so if you were in cultivation, when they blew that cultivation, cap wide open, all of a sudden, there was a flood of product in the market and B cultivation side, we were a little bit on the wrong side of that. Luckily, we were in the top five growers. So that helped to kind of, yeah, mitigated that the blow on that, but it wasn’t, it’s been tough in that market to be on that side of it. So those were early lessons we learned in those corners, we now know to look around and think about what happens if these regulations do change. And for example, they blow things wide open. And, and I think you have to think about that in states like Florida, where we’re seeing tremendous price compression, and other markets. So it’s it’s for us, it’s all about kind of assessing what the downside is, the downside potential is and also stress testing models for when things do change. 16:43 You know, there’s there also seems to be perception issues and a lot of inertia, in sort of old business. And we invested in a tech company that is in the ag space, and they do early disease and pest detection, and agriculture. And they had a customer in the cannabis space, right, this is 2018 timeframe. And we had this major issue with the bank. I mean, this is a bank that positions themselves as being very innovative and tech forward, and they wouldn’t wire the money to the company. And it literally, you know, it stopped the deal. And we had to escalate it up the chain. Finally, it was determined that the technology didn’t touch the plant, you know, so to speak. So it was cleared. But I, you know, I couldn’t I couldn’t even fathom what folks that you know, invest in cannabis, as a profession, and you know, have to deal with so many sort of old institutions that, you know, are going to create sort of barriers or headwinds? 17:43 Yeah, we’ve had, I think, five different banks over the course of managing our fund. And, yeah, and it’s been actually, like, one of the reasons we lost a bank account was because of our investment in packs, which is a device company, which at the time, yeah, it wasn’t even kind of, quote, unquote, out of the green closet in terms of the fact that they were a cannabis device company at the time, they were just like, oh, we’re too loose tobacco, like, whatever, you know, and so, but our bank kicked us out because of our investment into PACs. And yeah, and at the time, you know, you had like fidelity on the cap table of that company. So it is really wild to think through all of the ways that we have faced challenges. in this industry, we’ve also been lenders to companies and like, for example, one of the top five msos, we were a lender to very early on. And it was our check coming from that company for their interest payment that got us kicked out of a different bank. So, you know, it’s a very interesting time. And I think a lot of people who are getting into it now, I mean, there is better banking support now. And, like now we our bank actually is so wonderful. We actually earn interest on our money that we keep at the bank, as opposed to we used to have to pay hundreds of dollars. What 18:59 a novel concept. I know, right? 19:02 I’m like, I used to have to pay people to hold our money. I’m like, this makes no sense. But now you know, it is getting better. And I think that Oh, yeah, another time we lost a bank account was because a new fund that was launching got our ppm and went to the bank and said, We know your banking, Poseidon funds, we want a bank account, or they they originally got rejected, and then they kind of cost the state. Yeah, yeah. And then our bank was like, We’re so sorry, but you have to go because we can’t be this exposed. Amazing. 19:33 Are there other examples of where cannabis companies get shut out of the existing financial system in different ways? I think I think I recall reading that, you know, dispensaries are often like cash businesses, because for some reason they they can’t process you know, credit transactions, but you know, I’m not I’m no expert in this. 19:54 Yeah. So yes, they cannot and if they are processing credit cards are probably doing it through interest. Network but you there are some payments solutions now that are starting to emerge that are legitimate. But many of the cannabis, yeah, many, much of this is cash based, but most of them do have bank accounts depends on the quality of the banking relationship, of course, but the biggest challenges, so yes, payments through cash. Of course, we all know from traditional consumerism that if you can pay with credit card, your basket size immediately goes up like a significant percentage. So we’re already limiting our basket size, which is pretty sick. I mean, basket sizes west of the Mississippi are averaging around $49, a basket in the East Coast, you’re seeing more of like 100 to $115 a basket. So they’re pretty good basket sizes, but it’s it could be better and having to figure out how to get cash, if you’re ordering to your home in California or when you’re going into the dispensary. There’s a little bit of that notion of like I’m pulling cash out of an ATM. So now I’m thinking about this in the amount of money I’m spending versus, you know, oh, it’s on the on the credit card, I’ll deal with it in the next 30 days, you know, it’s a little different. So I have done work for American Express. I didn’t know a whole lot more about this. So anyway, the that’s one of the big challenges. But I would say one of the biggest challenges, especially here in the US is the lack of access to the capital markets. So right now our names are all traded in Canada or on the OTC markets and not having the access to the New York Stock Exchange or the NASDAQ means that we’re not really getting our names into Robin Hood, which the population of people who are trading on Robin Hood are obviously the same. If you did a Venn diagram, very interested in cannabis or interested in crypto or interested in cannabis or interested in these high growth industries. So we’re leaving a lot of money on the table that could be going into these companies to capitalize their expansion. So that’s a challenge. And then I would say, you know, one of the biggest pain points in this industry is seeing the disparity of how privilege plays out and how the war on drugs that was extremely targeted and racist movement has disenfranchised communities of color and has made it harder to access participating in the business. And the thing a lot of regulators, I think overlook is, you look at the big operators, they have banking relationships, they’re getting lending, they are being able to expand their businesses, if you are a minority applicant who is trying to start an independent business, you’re not getting a line of credit or a loan from the bank, you’re not accessing capital in the same ways that these other operators are accessing it. And so banking reform has to happen because it would actually democratize access to resources for smaller business owners and for people of color. So it’s a really important factor. 22:48 Interesting. You know, Emily, are there any major differences in sourcing or diligence, you know, for a cannabis focus phone versus maybe your standard venture fund? 22:58 Yes, that’s an excellent question. So yes, there are huge differences. When I when we first got into it, you know, now we have headset data that our my firm really, really relies upon, we really rely on upon getting into these different markets and we are very reliant reliant upon boots on the ground. When you’re investing into other more mature markets. You can rely upon data flowing in through your computer screen, you can rely upon trends in markets, comps, all of these things in cannabis, so much of it as tangible. So much of it is uncharted territory. For Poseidon, we have basically lived our lives on the road for the past few years. Of course, during COVID, that was a bit of a downtime. It because in that made my life a lot harder, doing zoom meetings, trying to walk through facilities with people to understand the efficiencies of their operations does not work as well as getting to the campus getting to see what the facilities are looking like and understanding the ethos of the company. So we’re big believers of boots on the ground in person research, we’ve said and I always say when you’re investing the things you say no to are just as important as the things you say yes to and we’ve said no to far more things than we’ve said yes to. And we’ve done probably 75 investments in this industry through the course of our firm. And so because 24:21 you you did the diligence, and you found you found issues. 24:25 Yeah, exactly. I remember one time we there was this company, it was a lab testing company, and everyone was like this is the company they’re going to define lab testing in the industry. We we were in the market I won’t say where but we we made a call and we said hey, can we come by and do a tour and see what this facility is about. We rolled in and they had a receptionist sitting behind the tape the desk watching massive screen TV. We go into the back to see the lab testing environment. There’s not one sample in the lab. We were like where All the cannabis you’re testing and they’re like, Oh, well, we’re gonna start testing it soon we’re like, and they’re like lab quote unquote, lab technicians just sitting around, again, watching another big screen like big screen TV. And I was like, this is where the capital has gone into this company. Yeah. And so like 25:20 visions and flashbacks to that book Bad Blood with thoroughness. 25:24 Exactly. I was obsessed with that story, too, because of, you know, we had been running our firm for a while when all of that happened. And I was obsessed with it, because it was exactly what we were trying to get around by being insistent on being there. Now she did an amazing job, like, obscuring that and a smoke and mirrors. And then when they did the facility tours, but you better believe that’s exactly what was in the back of my mind when I was reading that book. So 25:51 Well, part of the tricky thing, I think, probably for your journey, and I don’t want to assume too much. But anytime you’re in a market experience, experiencing tremendous hype, it invites bad actors, because, you know, there’s some money that’s gonna chase it. And I remember he had we looked at a ton of pitches probably four years ago, that were very vertically integrated. I mean, I couldn’t believe the number of businesses that were shoved into one pitch deck. And the people without experience that said, Oh, yeah, we’re gonna do all this. I mean, it was shocking to me, you know, in the world of pre seed seed investing, where it’s all about focus. This, I mean, this just kind of blew my mind. But yeah, well, you know, we’d love to hear a bit about your experience raising a fund in when did you raise it? 2013? I mean, that must have been, there must have been a certain type of LP to land, and there must have been a lot of objections to overcome. 26:46 Yes, when you’re raising money, a very savvy fundraiser once told me everyone’s going to look for the way to say the reason to say no, and you have to have the reason why that note becomes a yes. So we started so our first fund was an evergreen strategy. So we were able to raise and deploy as we went, whereas our ladder funds were venture structures. And so you know, you had to do a raise to a close do a capital call deploy. And that first fund was, it was very expensive to run it that way. Because it was a hybrid hedge venture stretch strategy. And so there’s a lot of components to the, you know, the track, you know, all everything about managing that fund is just more costly, but it gave us a lot of flexibility. We were emerging managers. I’m a female manager, which is also not, I mean, to tick off all the things that make it hard, raising a fund in cannabis, raising a fund as an emerging manager, meaning it was our first fund raising money as a female, I actually think our brother sister dynamic was not to our benefit, because I think people didn’t take us seriously. Maybe they thought we were like a family kind of like cute, like, Oh, that’s cute, right? So yeah, and so the very, I still have the voicemail from our very first investor, I remember we were on a diligence run to check out a hydroponics, a series of hydroponic stores to understand that whole landscape. And this investor called and left me a message while we were in kind of like a bad service area. And so I kept that voicemail. It’s kind of like our first dollar I friend, you know, your frame, your first dollar, I kept our first voicemail of our investor saying he was in. And the first investors who joined the fund were, interestingly, lawyers, and the thing around that is what is kind of what I was talking about is they understood the real versus perceived risk. And they thought this was a real opportunity. They understood the risk wasn’t going to be tremendous to them as an investor from the standpoint of, you know, when we were first having conversations, people were like, could we go to prison for investing into this? I mean, it was really early days. And we had to do a lot of educating. And if you look at our documents, that the amount of risk factors in there are staggering around investing in cannabis. And so I always say disclosures, oh, my God, and I just I get very sweaty when I read them myself. So I can only imagine him like how other people must have felt. So it was, it was a tough time. But you know, it was our belief that you have to start somewhere. So start there and raise the money deploy. And we believe that our track record and our dedication and if we became true thought leaders in the industry that it would change the course of conversations. And so that’s what we’ve, we’ve done and now, you know, we seeded it with our own capital of around $100,000. And we’re now over $200 million as a firm, 29:39 so well done. Well done. Thanks, Emily, you know, how many total cannabis focus funds are there now? And is there some follow on financing risk? Right, is that a significant issue when you’re dealing with a smaller pool of capital providers, 29:56 always and that, you know, that was a large part of why We launched our second fund. So we’ve, you know, been investing, the first one was very much an opportunity fund. I mean, the industry was early. So the companies were early. And then we saw and at that time, we had been hoping that we’d see enough change that we’d see more traditional venture and investment firms coming into the space for the series A and later. And instead, we did not see that, in fact, we just saw a vacuum. And so that’s when we decided let’s launch our second fund. It’ll be series A or later stage focused. So there would be we knew there would be some overlap between the two funds, where we’re kind of following on to those companies that we thought were really doing well and hitting their series A targets and, and then there would be new companies that we had missed maybe in the earlier stages that we could invest into. And so that’s exactly what that fund ended up being. I’ll never forget we closed our our fundraising for that fund on March 31 2020. a terrible time to be closing a fund because the world was ending a global pandemic had hit and nobody knew what was going to happen next, the world was shutting down. But we were having 31:09 press pause on the capital call, right? 31:11 Yeah, exactly. We were like, yeah, that was a concern, like are investors going to be able to find their capital calls. So that was another thing we were looking at was, you know, some lending that the banks could do for them. And so anyway, I mean, that’s not abnormal to have a solution for that. But it was just concerning at that time. And then, you know, it was great, because we finished deploying that fund in q2 of 2021. And now we’ve got our third strategy that we’re running. And yeah, so we’re always focused on where the next round of capital is going to come from. But luckily, it does seem like there are more groups coming into the space, in spite of the challenges at the federal level. And so that fear is not as much as it was. But it doesn’t take a lot of research to look at what’s happened in the markets this year, where you hit the highs in February. And then for example, Credit Suisse that to their, their firms on their platform. We’re no longer allowing you to trade in cannabis names, who had big funds like Wasatch pulling, I mean, hundreds of millions of dollars have been pulled out of the sector. Because of that, in the last few months. It’s been unfortunate. But, you know, again, it’s all about paying attention to what’s happening when you’re an investor. And in January and February Morgan, my brother and business partner and I were talking about, did we miss it or that because the markets were starting to run really hot, and we really wanted to be able to get some more bites into some of these companies. And it was tougher at those higher levels. But we’ve definitely use this drawdown period to continue to establish further into these names because I mean, then now the cue the q2, earnings that are coming out, it’s just proving that that it’s working, these companies are working and and they’re impressive. So on every measure, not just stacking up against each other, but on a high growth consumer product category. cannabis is looking like a champion for their EBITDA and other other things that they’re driving through on gross margins. 33:16 Does Poseidon move later stage and continue to increase? Hmm, over time? 33:21 Yeah, I wouldn’t be surprised if we see a public market strategy coming out of Poseidon in the next six months. 33:28 Very cool. Emily, there’s recently been news that Molson Coors has launched a CBD infused drink, and several major health and wellness retailers will offer CBD topicals. I’d love to hear your take, like three to five years from now. Will all the major household cpgs you know, have CBD and cannabis products available? 33:52 I think we need some clarity from the FDA about how this can all work because I do think the retailers have a little bit of heartburn about what happens next. It’s interesting to see how private industry is moving so much faster than the policy makers and regulators are in terms of defining what these markets should and can look like. But it isn’t it you know, it is a natural move for the wine and spirits and beer companies to start shifting into these categories for a few reasons. You’re seeing a generational shift of millennials away from alcohol and to cannabis and in general they’re just not as interested in partying as earlier generations are I’m not sure what to think about that I have some thoughts. I personally am not. I’m not on that same page, but I I like both cannabis and different cocktails and beer, all that good stuff. But um, you know, so that it’s smart for these companies to be tracking those trends. And then Gen Z is really almost the very first cannabis native generation To be entering into the workforce having a share of wallet that they can dedicate to cannabis. They’ve been around when legalization has been more pervasive than not, and have been watching these trends, and it’s not as stigmatized for them, like we came out of the era of cracking an egg in a frying pan, this is your brain on drugs, Nancy Reagan scaring the daylights out of all of us dare to, you know, keep kids off drugs, all of this been like chaos, and, you know, is a very fear mongering time around drugs which cannabis gets lumped into. And it’s just not. And I think I would put it way more in the categories of coffee and wine and spirits and those things. And so and then, of course, in the CBD world, it’s wellness. And so a purely wellness, there’s no, you know, really, you can’t really feel the effects of it and that level. Um, so anyway, all of this goes by way of saying I think it’s very smart for the beverage companies to be thinking about how to participate in this because trends are changing. 36:01 Emily, you’ve launched the Poseidon mastermind program, can you tell us what that is? And who should apply? 36:07 Yeah, so Poseidon, one of the things that we pride ourselves on is active investors is that we have a whole network and an ecosystem that we can leverage to help businesses kind of get a booster to get going. And so that comes in every form from introductions to banks that we know are working with the industry are really strong insurance providers or inter integrating synergies of different portfolio companies in the space. Like we have a company that does packaging solutions and pre roll solutions for the industry, which is a real pain point, because these things sell and you got to keep going and there’s supply chain disruption. And so a couple years ago, in Vegas, we have after the mjbizcon, we had a party with all of our portfolio companies. And the amount of business deals that got done at that party was so rewarding to see and people saw such tremendous value in it. And then when Patrick and Celia came over from canopy Boulder, they really brought forth this idea of formalizing this into the mastermind program, which is for companies that are looking to get into or get going in their business. They don’t want to go through a full business accelerator, but they want a little bit more support. That’s what the mastermind is about. It’s about us being able to make introductions, providing feedback and support. So they’ll have focus from people on the Poseidon team in different areas, helping them with their business, but also helping them in terms of connecting in and growing their business. So I consider it kind of like the boost program. 37:39 Emily, you’ve said that other VCs like to take shortcuts, what shortcuts Do you think they take? 37:45 Definitely on diligence. There’s, and this is not in cannabis necessarily. It definitely is in cannabis. But it’s also outside of cannabis. Like you only have to look at some of these filings. For example, the wework IPO, the amount of diligence that did not happen on that company. And if it did, then the amount of diligence that got overlooked. I mean, the fact that Adam owned the trademarking of we were like, owned the IP is just astounding, he just tears. 38:15 Yeah, 38:16 totally agreed us. But I was like thinking about our checklist, which is like three pages long. And I’m like, that would have been a huge flag. And we would have had to reconcile that before putting money into the company or walk away. And sometimes it’s so hard to walk away because of the FOMO because of what everyone else is doing. Yeah, people made a great money on that investment, but maybe not people in the later stages. And there could have been more money made if it hadn’t been so egregiously overlooked. So things like that, that are astounding to me. And I think there’s just it’s one of the things when you see money moving fast. And so we have a little bit of a privilege of prudence in the industry, because capital doesn’t move as quickly. And so you have to be a little bit more mindful about your allocation. And founders are put more to test to answering to those diligence requests, I will say that there was that crazy period of all the artios and I think a ton of artios, meaning reverse takeovers, companies going public in Canada. And I mean, I could not believe the money that went into some of those quote unquote msos and the lack of diligence on really what assets they had, or even understanding how cross collateralized everything was. And that’s what you’ve been seeing over the last few years to is the unwinding of all of those assets and lawsuits between investors and companies and between investors and investors and not understanding really what they had as assets. And and, and then the management team just taking, you know, taking the golden parachute and walking away at the expense of the shareholders. And so I feel like we sidestepped that whole thing, and I’m really glad we done. 39:54 Doing the right thing takes a lot of hard work. Not everyone wants to do the hard work. 39:58 No and it’s not always The popular thing I remember people asking us, why didn’t you invest in this name or that name? It seemed like, you know, absolute loops at the time. But we, we had to stand by our focus. And that’s it. At the end of the day, that’s the only way you can sleep at night if you’re a fund manager. 40:19 Emily, who were the biggest influences on you and your approach to investing? 40:24 Yeah, well, I do love Buffett and Munger. And that’s largely because my brother is like, a Warren Buffett, you know, worships at the altar of the Oracle. But you know, I do just like the kind of the pragmatists in investing, and I like the way that they kind of just tried to focus on on business. And so those are two of my idols. Cathy wood, the queen of ETFs, she is definitely a bit of an idol To me, it’s pretty cool that she’s kind of running that game and game. She’s running that that aspect of the investment landscape in a pretty admirable way. Chris Sacca is another one, he seems to be a mission focused investor. And, you know, that’s we view this as is investing into a mission and something that we believe has a net positive impact on society. And so he’s somebody who’s definitely a inspiration to me. In fact, I just saw today he’s launched a fund focused on companies that are focused on the environment. So 41:29 that right, yeah, okay. Must be outside a lowercase. Interesting. Yeah, it is. It’s totally new strategy. Emily, what do you know, you need to get better at Excel spreadsheets. I saw this, hire somebody for that, please. 41:48 No, I mean, I’d like to be good at it too. Because I just believe in being able to, I just get very paralyzed and Excel spreadsheets, even though I know how to I obviously know how to read them. But there’s a lot of, you know, I wish I had learned more about macros and things about how to work in them. And I just think they’re very, they’re very useful tools. And I like to know how to do the things that people also do who work for and with us. And so I do admire people who can dig in on the nitty gritty of those things. And I saw a meme the other day, that’s this guy said, I’m fighting for my F in life in an Excel spreadsheet right now. And I was like, that’s, that’s how I feel. 42:31 And then finally, here, what’s the best way for listeners to connect with you and follow along with Poseidon? 42:37 Okay, so we’re at Poseidon dot partners. We’re actually we’re hosting a pitch forum at the end of August. So accredited investors can tune in for that. And also, companies can put forth applications to be selected and then I’m at impacts one on Twitter impacts 10 years and it’s EMP a x one, or EMP x 10 on Instagram, and we’re at Poseidon invest mint, on Twitter. So you can find us around hashtag harness the greenwave. 43:16 Well, she is Emily packs here the firm is Poseidon asset management, one of the leading cannabis funds in the country. Emily, thanks so much for the time today. Thank you so much for having me. Take 43:26 care. Transcribed by https://otter.ai