Run time – 16:58 (Transcript below)
David: I’m David Kretzmann, here at MjBizCon and joined now by special guest, Chris Walsh, the founding editor and vice president at Marijuana Business Daily, the organization that’s putting on this event.
Chris, I figure we can jump into it, maybe you can give us some background on, who you are and how you found your way into the cannabis industry.
Chris: Sure. I think like many people in the industry, I didn’t expect to be here. And if you had told me 10 years ago this is what I’d be doing and this was an actual industry and a business opportunity, I would have laughed. I’m a traditional journalist by training and worked at mainstream newspapers on business desks and reporting on a lot of different industries. Then I moved to South Korea and lived there for two years and was an editor at a newspaper there, and came back in 2011. When I had left two years earlier, when I left Denver, there were no medical marijuana dispensaries, it wasn’t an industry. When I arrived after living in Korea, there were more dispensaries in Denver than Starbucks.
There was this whole new industry cropping up in this legal gray area, but it seemed like a fascinating thing to cover as a journalist. Two co-founders of the company now, had this idea to provide business to business coverage of this industry and so they hired me to launch that. At the beginning we were just a website and I was just writing and editing on my own. The industry was a lot different back then. There were a lot of the people running businesses had come from the underground. I think there were some of those stereotypes that people associated with this industry permeating everywhere. Over time though, it’s grown really quickly and we’ve grown along with the industry. Providing events, and market research, and magazines and so that’s been the 30,000 foot view of our journey.
David: This morning you gave the intro presentation and you highlighted all the different countries you’ve traveled to on this journey. Maybe you can talk about cannabis becoming really a global opportunity, and what that landscape looks like today and how it shifted since you started covering the space.
Chris: Yeah, when I look back at the last seven years that we’ve been covering this industry and doing market research, I think one of the most surprising things is how quickly it has become an international movement and industry. I got my MBA in international relations to hopefully get into that side of the business in general. And if you again, had told me a couple of years ago that we would have an international show, that we’d be speaking and doing market research in other countries, I wouldn’t have believed that either. Basically, the international landscape has evolved in just the past year or two and you’ve seen this huge wave of legalization across the world. With each country pioneering new models and figuring out how to do this. But it’s extraordinarily clear now that public opinion of marijuana has changed around the world.
I think people are recognizing the medical benefits and no matter what country they’re in, they’re realizing that, you know what? This thing has been demonized for so long and there’s all these other drugs that people are taking to help them with their pain or whatever ailments they have and it’s not such a bad thing. Then you’re also seeing … There’s case studies now and people are saying, “Well, these countries or these states in the U.S. have legalized and guess what? The sky didn’t fall.” It’s helping people, it’s creating jobs, it’s boosting the economy and trickling throughout communities. This wave in the last year or two has been shocking. The potential of that, you can see where this is all going. It’s going to be like any other business and product out there. There’s gonna be some countries or areas that don’t legalize ever, or not in the foreseeable future, but the whole world is already shifting that direction. I don’t see anything that will slow that down.
David: As someone who really has their pulse on the industry on a high level, global level, what’s a country, a theme, a trend, a product that you think should be getting more attention? That might be overlooked, either by investors, the public, or the media at large. Is there something that sticks out where you think this one area within the cannabis landscape should be getting more attention than it is right now?
Chris: It’s exactly what we were just talking about. The global development of this industry. A lot of people don’t realize how quickly it’s moving or that it is a global industry now. That’s the biggest surprise when we talk to people. In the U.S. they say, “Oh yeah, I knew California did it. Of course Colorado a while ago. My state has it or it’s on the ballot or they’re considering it.” Then you talk to them about recreational marijuana legalization in Canada at the federal level. A lot of people don’t even know that’s happening. Then when you say, “Well yeah, a lot of the countries in South America have legalized medical marijuana.” By the way, Uruguay has legalized recreational already, a couple years ago. Many countries in Europe, and Lesotho in Africa, and Thailand’s moving in that direction. When you bring up all these countries people seem to have no clue. Again, I think that’s because it has developed really quickly and no one is really looking at that bigger picture. They’re just focused on a micro level in their area.
David: At the Motley Fool we’re a community of investors helping fellow investors. How should investors be thinking about the opportunity right now? Obviously the past couple of years it’s been largely a speculative market. You don’t really have companies with much in the way of track records. But slowly but surely, that is changing and potentially with full legalization on the horizon, recreationally in Canada, you’ll start to see that legitimized market emerge. But how should investors be thinking about the opportunity over the next few years?
Chris: The number one tip I give to investors is don’t get caught up in the hype and don’t think this is gonna necessarily be a road to overnight millions. I think that’s where you’re gonna see a lot of mistakes. People are gonna say, “Marijuana this, I’m just gonna invest in it,” without doing due diligence, without really understanding the industry or how a regulatory system works in various areas. Because this is one of the most complicated industries I’ve every seen. There’s a lot of hype around it and people are getting sucked into it, but there are some bad investments out there. There are a lot of companies that aren’t gonna be around in a while. There are strategic companies out there that are looking to the future and positioning themselves, but there is going to be pain for a lot of companies down the road until this industry really matures. So just because a company’s opening and serving this industry in some capacity, it doesn’t mean it’s a good investment. A lot of them aren’t a good investment.
You have a lot of people trying to latch on to the cultivation side and invest somehow in that. It’s gonna be a great opportunity, but there’s also gonna be consolidation, it’s moving to a commodity in a lot of areas. So there’s going to the big players that emerge and if you invest in them, great. If you invest in all the little ones, you’re gonna be out of luck. You really have to approach this industry like you would anything else and really research it and understand the factors that influence how it’s progressing and what affects a company. For instance, a lot of people say the best investment opportunity is in what we call the ancillary companies. Those are the businesses that provide services, technology, to the industry or to consumers, cannabis consumers. ‘Cause they don’t touch the plant so there’s less risk there. Especially in the U.S. where it’s not legal federally. But the problem is their client base is then affected by anything from a regulatory change in a city or a state, to consumer trends. A lot of people forget to look at that part.
If there is a crackdown on businesses selling marijuana in a particular area, that’s going to then affect the company you invested in that serves them. I wouldn’t make any bets on this industry until I had spent literally weeks researching it. Unless they’re small investments. A lot of the public market in the U.S., almost all the stocks are OTC, they’re traded over the counter so there’s not a lot of oversight, there’s not a lot of disclosure. A lot of them don’t … They’ll release revenues once a year and you can’t tell what a lot of them do. I covered the high tech industry at its peak in 2000 when I was right out of college. And this reminds me of that, where people are just throwing money into the industry and there’s companies … there’s gonna be the Pets.com of the cannabis industry that generated a lot of hype and there was really not a lot of substance or future for it and it implodes.
There are opportunities of a lifetime to invest in this industry, absolutely. But there are gonna be a lot of people that make some huge mistakes.
David: And along those lines, today’s a pretty big milestone for the industry with Constellation Brands expanding their investment and partnership with Canopy Growth in a huge way, to the tune of $5 billion Canadian dollars. Something you mentioned in your presentation this morning was that you expect cross-border partnerships and investments to accelerate, so maybe you can just expand on that. What type of partnerships and investments should we be watching for, both as investors and just people interested in the industry as a whole?
Chris: I mean, the deal that was announced was shocking and I don’t use that word lightly. It is by far the biggest business development I’ve seen in this industry. And it could very well be a game changer in the sense that you have this outside, mainstream company that poured ungodly sums into a cannabis company. I mean, $5 billion Canadian dollars, $4 billion U.S. With options to purchase, basically double their stake and it seems like take a majority control of the company down the road if they want to. That signals that these mainstream industries have been researching cannabis. They’ve been looking for ways in and a sophisticated player has determined after … I’m sure there was a lot of market research, that it’s making a huge bet on the future of this. I think its stock was down after this somewhat substantially in trading in the hours after. My guess would be that the average investor is saying, “You’ve completely overvalued this company and the opportunity.” I don’t even know myself how Canopy will use $5 billion Canadian dollars. Those details will come out down the road.
But again, people not realizing the global nature of this and the potential, probably sent the shares down. Because they’re like, “Well it’s just the Canada market or Canada and the U.S.” and they don’t realize what is probably Constellation’s play is global dominance. This will open the door for other big companies to feel comfortable getting involved. The reputational risk of being tied to the marijuana industry is evaporating quickly. Canada will be the hub of that because it’s federally legal, but you know it’s coming in the U.S. as the landscape changes. And you’re already seeing mainstream companies there get involved, like Scotts Miracle-Gro has invested hundreds of millions of dollars in the industry. There’s a big tobacco distributor in the south that has now made investments in the hemp industry in the U.S. and in Canada. So this is all going to create this global ecosystem where you have partnerships. You’ve had Israeli companies come into the U.S., medical cannabis companies there, and have partnerships to operate facilities or open them, and Canada’s very involved in that.
They’re trying to get in all these new markets and providing their expertise and money to get on the ground and cultivate marijuana and get involved in producing products and exporting. That’s the next wave we’re going to see, is the global nature developer, where businesses are not confined to their own country, or state, or province anymore.
David: Does it surprise you at all that an alcohol company is really the first company to make such a huge investment in the category? ‘Cause on the surface you would think that there’s a closer connection between consumer packaged goods, pharmaceuticals, tobacco and cannabis, rather than beverages and cannabis. So why do you think that the beverage industry is turning out to be the first mover, making such a huge investment?
Chris: I mean, at first glance it would seem to be odd, but we’ve been expecting this for a couple years. With big alcohol being one of the major industries to move forward with this. I think they’re looking at the overall trend of patients and consumers of cannabis are using it differently. They are not necessarily smoking it. And that’s another misconception about the industry, is that smoking as a percentage of how cannabis is consumed is going down. These companies have put the research and innovation in, and are developing new products. You can ingest cannabis in many ways. You can drink it, you can eat, you can take it in pill form, you can use it in lotions. There’s bath bombs that you can soak it up that way. I mean the list goes on and on. I think that big alcohol is a consumer goods company and they I think, see that consuming cannabis in beverage form down the road, may be a very popular thing to do.
Now it still is a big bet, because in the U.S. that’s very popular. Edibles and drinkables, but a lot of countries aren’t really allowing that type of way to consume cannabis for those types of products. How they fit in this, may be different than a lot of people view it. They’re gonna use their expertise in branding, in distribution, in developing a global business to support Canopy. Their expertise is not going to be just in the beverage side, right? It’s running an international company that’s got expertise its in a lot of different areas that apply to a lot of different areas in cannabis.
David: Got it. Wanna be respectful of your time, so wrap up with one final question. Obviously, you’ve been following the industry for a long time now. So many different moving pieces on so many different levels around the world happening in the industry. What personally gets you most excited looking out over the next five years when you think about the cannabis space?
Chris: I think the growth potential that I am now absolutely sure is going to happen. Up to the last year or so I didn’t really know where things were gonna go. It was still an experiment everywhere and you still had big pockets of resistance in terms of accepting this, from the public or regulators. I’m excited to see how this all develops globally, especially when the U.S. makes this shift. And I have no doubt now that it will. It’s a matter of will it be a year or two, will it be five years? I think when key people in the U.S. start realizing the potential of this and they see a country like Canada moving forward, there will eventually be a big enough push to change the laws for good in the U.S. The U.S. just giving its weight and expertise in the business world in general, and its influence overall globally will be another game changer when it gets involved.
Seeing which regions become the leaders and some might specialize in cultivation ’cause they’re climate and work force. Others might specialize in another area of the industry. So seeing how this all develops around the world is gonna be fascinating. I also think there’s a big race, there’s gonna be a big race going on as countries look to find an economic opportunity and support their people in what is amounting to basically a brand new industry. Those that are embracing it, like Canada, are extremely smart. Because it’s gonna create jobs and economic activity. And to figure out what other nations rise up and do that will be the fun of watching this evolve.
David: All right, well I’ve been talking to Chris Walsh of Marijuana Business Daily. Chris, thanks for taking some time to talk to the Motley Fool, and for putting on this event.
Chris: No problem. Thanks for coming here.