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hello welcome to our viewers on crux investor comm and also to our listeners on crux cast our podcast series and for those of you who are new to crux ambassador please click the button on the bottom of the corner of the screen and subscribe to our YouTube channel we’re here today with Russ Stanley he’s managing director of beacon securities they’re a brokerage in Toronto Canada how are you Russ I’m great thank you how are you not too bad we’ve been at a conference this week in London cannabis Europa cannabis he wrote that and we’ve been talking to the the great and the kid see a lot of people from Canada and the US over for that yeah well we’re all looking for the next opportunity in Europe appears to be it so well we’re gonna get onto that in a minute I want if you can to explain to our viewers a little bit about what happened in the Canadian market with regards to cannabis I you know we’ve seen this rapid ascent some huge companies created almost overnight mm-hmm with not a lot of revenue yet yes and you know it’s come off a bit sure honey tell us a little bit about that sure so Canada as of as of October of 2018 adult use as it’s now legal in Canada otherwise known as recreational so subject to age restrictions and and and where you’re allowed to consume it it’s it’s now illegal for an adult to walk into a store only a licensed store and buy cannabis either either dry cannabis for for smoking or their you know there’s cannabis oils this coming October some additional regulations are expected to become effective that’ll broaden the the number of products that are legally available but so that that’s been the biggest catalyst over the last year right and that’s on the rack side yes I said a lot of these companies are also medicinal sizes right fair to say yeah most of them started off in the in a medical world we’ve certainly seen maybe a couple years ago when you know when the space first started to get investor attention there was maybe in there were maybe it doesn’t publicly-traded cannabis companies there now have to be 50 plus there’s over a hundred and fifty companies licensed to cultivate cannabis in Canada and you know Canada the small market of 37 million people so you know there will be some interesting dynamics play out I think the next several years yeah but the space is exploded in terms of the number of people growing cannabis and and that’s created some some other kind of ancillary industries as well I don’t know how much my countess I’m not sure many of our views do either and that’s why we’re talking to experts like yourself but you know it strikes me that the growing the producing side of things it there may be margin in it now but like most agricultural plays they do turn to Martian does tend to be reduced over time is that and do you expect the same thing here we do it’s a we think that’s a win and not an F cultivation is it’s certainly got challenges but as one you know one cannabis producer that came from the produce industry said you know every crop is is different and has has a learning experience associated with it but it’s still a crop and that means scale is important quality control is important but once you have those things nailed down it’s a matter of time before the before the margins start to erode so we do expect that to happen in cannabis as well right so that’s that’s a known factor and I mean it also is quite it’s quite helpful for people to understand that because you gotta think about where you invest so if you were looking at investing in the cannabis space you can look at the producers processors distributors and obviously the you know the selling that are either retailers off there sometimes those brands and so forth so on the print on the producers site if I look at where this is gonna go I’m gonna be slightly more cautious about investing there Chris is gonna have to be a wholesale well I don’t think I would be as many players in the market yes in ten years time yeah the way only some winners and losers there certainly will and and so in our view I think the key success factors for and licensed producers at this point to succeed within Canada are the ability to develop value-added products so go beyond the dried flower and develop higher margin products with some sort of value-added associated with them right now legally that’s limited to oils and-and-and capsules but we do expect that to expand it edibles and beverages later this year so strengthen that on that product development front is going to be crucial and and it’s also going to be as all revolving into a shelf space battle every province has its own rules and regulations with respect to distribution yep and it’s critical for

Canadian cannabis companies to have sales relationships in to obviously the core provinces of Ontario and Quebec but into other markets as well and so when we look at Canadian producers we ask how well are they developing products that will be able to sustain higher margins over a longer period of time and how well are they actually getting those products on the shelves okay so I mean the everyone’s looking towards the counter at a model the blueprint for how it could work in the US I could work in Europe we’ll say we’ll get onto that in a second but some companies I say almost overnight became billion-dollar businesses yeah with very little revenue so there’s the hope that expectation the sentiment driven up was that do you think based on fact or was it based on emotion oh these were these companies focused on the right things or did it not matter I think I think it will matter but I think there was a brightened time looking back where where it didn’t matter I think annex care CD played a role a few years ago there weren’t as many investment opportunities available for for investors I want to play cannabis well how do I do it here’s a list of 20 names right that’s you know that’ll narrow it down in a hurry we now have far more choice and that’s that’s good for investors hopefully over time that means that you know stories with substance survive and those that fail to execute or we’re never really had a sound plan to begin with those of those will fall by the wayside and that’s healthy but scarcity certainly played a role I think at the outset we’re now at a point where you know growing cannabis is you know people are beginning to realize that cultivation is just one part of the story you need to be able to turn that product into something and then you need to be able to get it onto shelves and and we’re seeing fewer and fewer companies that are they’re passing those additional milestones so there were certainly some promises made and some companies have delivered and others haven’t and have they suffered they’re starting to like people are starting so we’re starting to see what we’d actually call security so action we’re starting to see days where you know your screen it has a mix of green and red it’s it’s not just all names being painted with the same brush every day I think we’re starting to see decisions being made about you know one company not not delivering on commitments or promises made to investors while another company has done a better job of that and we’re seeing a flow of funds I think into those higher quality members okay okay that’s that I find that interesting Chris to me it’s a fairly nascent industry okay so an account it is like two and a half years ahead of everyone that’s nothing it’s not very long no if I look back to the technology boom you know who their main players were back then you know most of them not around today it’s a different sort of industry I suspect it’ll be the same here you’ve got people who’ve not been in the space very long telling us are the world’s experts on this topic so I’m let’s see how that play to play it plays out but the other thing that strikes me is like any in any other industry one company trying to be all things to all men so being a producer in a processing distributing selling that’s a tough gig because at some multi skills required yes a lot of money to do that so people tend to focus and get good at one thing or the other so the the bigger players in the Canadian market at the moment well so the big hand folio you’d call you know you look at canopy growth the world’s largest can’t cannabis company you look at aurora cannabis you look at áfreeá chronos you know those are those are some of the biggest names in the in the space then you you get kind of down into the next tier of producers in terms of scale and you’re looking at can trust hexo and organic gram and these are all companies that are they’re involved currently all throughout every step of the the chain as you as you mentioned right I think over time all these companies understand that cultivation is going to become increasingly competitive right and their margin low margin you know it’s made sense to be in that business for now not just because there is margin available but also because it’s secure supply you know we’ve had an under supply situation in Canada for quite some time and that was only exacerbated with the legalization of adult use there wasn’t quite enough product ready for ready for shelves as as people had hoped so but you know lay call all shortages become surpluses it’s a question of when and not if and so that that day is coming and I think these these all these companies know that cultivation is not really a part of their long-term game plan and they’d rather spend their time on value-added activities we’ve also seen for example a number of those players look externally to extraction companies so once you’ve grown cannabis in order to convert it to something else you need to extract it and then use use the resulting concentrate as a or disel it as an input into another and into another product yeah and while all these companies have built out their own extraction capabilities a handful of them have gone a step further and employed or recently employed third-party extraction companies

fundamentally refineries for the yeah so we are seeing more specialization I think that you know the tier point that’s going to intensify as certain parts of the of the supply chains start to develop as cultivation becomes less attractive to to anyone who’s not doing it at huge scale and ultra-low cost yeah we’re gonna see companies try to try to excrete extricate themselves from that from that part of the part of the business so that to me that says with producers there’s gonna be a lot of losers yes and a few winners and the winners are going to do things like start putting patents or pigments yeah it states onto certain strings of varieties as they’re doing in agriculture today in the US you can’t grow certain types of potatoes because of the he resides with one company you need to get a license say and that’s one potential an area where someone could be looking making an investment that would make sense but trying to pick a winner otherwise it’s gonna be but hidden mess over the next its going it’s gonna be a challenge and it’s complicated by the fact that you know we think that the the best margins are in manufacturing right okay let’s come on to that but yeah you know you’re limited in Canada right now with the extent to which or the extent to which you can actually package products in a way that’s appealing you know most people look at the way these cannabis products are packaged in stores and and say it’s a very clinical look it you know and that’s for regulatory compliance reasons and not because that’s that’s not a market or marketing person’s dream they look at that packaging and say that don’t use products themselves there’s a lot of limitations around the way they can be packaged primarily to avoid making products attractive to underage kind of like the cigarette market very similar right so the yeah the packaging is very similar to tobacco products right and and that’s why not surprisingly you know you’ve seen cannabis companies recruit people out of the tobacco industry right because there probably isn’t another industry where people have become very expert at selling a product that their government doesn’t want there itself so you know it’s it’s that’s a challenge that you know that industry has found a way to navigate and and in create an increasingly difficult environment and tobacco in Canada or pertinent cannabis in Canada right now faces very similar challenges success but let’s come back to where I think some of the innovation will make a difference and that’s in the processing side okay say you’d safe the racks I’d it’s there’s you know what do they actually print the process the flower and they create what right now it’s legally it’s just boils and capsules filled with oils right later this year we’re expecting to see more products hit shelves specifically edibles brand and concentrates for for vaping and beverages as well so yeah so we actually met someone last night at the conference he does lick words yeah where’s think we’ve seen popping tea beers whiskey’s wake up without a hangover sounds good yeah it’s the dream right it’s only we drunk yeah and obviously in regular drinks that you know makes you feel good and that’s what I mean about this innovation no but but even that guy was saying he had a proprietary technology allowed him to do this right where and he would licenses out to other people you know he wasn’t caught he was in conversation with a large drinks company one of the world’s largest top-level court to allow them to add this you see do you think those things are gonna be faddish I mean just momentary what do you think there’s some longevity to you things like that oh I wanted specifically beverages there’s a debate there’s a you know they’re they’re that category is legal in a number of US states that if they will you eyes adult use so we can even though Canada from a federal perspective is is seemingly a few years ahead of the us from a regulatory perspective at a product level in terms of what’s legal in a given state the u.s. is a good example or a good window on the future for right for Canada and and and so we see beverage products being you know with with varying degrees of success in some markets some of its technology around around actually getting that the cannabis product to dissolve properly so some of its technology and some of it you know is is perhaps about getting consumers to change habits you know if you’re at a dinner party you know you if you’re always going to be drinking wine and you know do you want to drink your cannabis or would you rather eat your cannabis or vape your cannabis so there’s a consumer habit or a user have it there that needs to be needs to be dressed or marketed around but that’s an example where we’re branding and where I P could play a tremendous role in value

creation for for investors and and we’ll see more of that but the beverage categories had mixed success in the u.s. I’ve worked in the beverage space I’ve also worked with cigarettes and product innovation which comes from the processing side drives the marketing activities the the extent to which the delivery of the cannabis whether it be medicinal or recreational it is important because it gives the marketing people something to work with the branding variety to work with so it’d be interesting to see where these collaborations come from you know as you say people outside need to come in with the relevance prerequisite skill set to help this evolve over time it’ll be interesting to see how it plays out but where where everyone’s still learning as they as they go yeah I think that I think that’s the thing that’s really important to state here is that it’s it’s early days mm-hmm we spoke to maybe six guys last night at a function after the conference probably got seven different answers as to I I got five different eyes which surprised me in terms of how companies develop markets okay they were talking specifically about Europe and I think they’re some of them think it’s going to be a breeze and some of them you know say it’s a little more complicated than that but maybe some lessons to be learned about what you did in Canada and certainly what’s going on in the States I mean can let’s get into that because I think that’s fascinating because you’ve got each state has got the ability to make let this work or not and then on the federal level you’ve kind of got some ambiguity as well we said what’s been happening in the States the US is a fascinating market perhaps like a lot of Canadians I spend more time looking at the US they do okay yeah yeah yeah it’s fascinating market as that’s a big market it’s a big market you know as a Canadian we we just assumed ten to one whatever an industry sizes in Canada just assume it’s ten times bigger in the US you’re probably in the range so yeah huge huge market but it is a collection of 50 different markets each state has has its own way of dealing with it importantly it’s still cannabis is still illegal at the federal level now medical you in state in states where medical has been legalized there’s basically an amendment to the to the spending bill in the US that has passed a number of times since 2014 the spending bill well basically you know the federal government’s own spending bill there’s been a rider attached to it that protects medical businesses from federal enforcement so medical has received this this protection from from the Department of Department of Justice for several years now and and recently the House passed a version of that rider that extends that protection to adult use so that would be a huge win if if that makes it into the final version but otherwise it’s still federally illegal so roughly 33 34 35 depending on how you how you count them states have legalized medical use right in some way we’re now basically Illinois earlier this week when governor Pritzker signed off on the bill there we now have 11 states that have legalized adult use as well so roughly just over a hundred million Americans now live in states that have legalized adult use at the state level even though technically it’s still illegal at the federal level now there’s there’s a couple of bills well there’s several of note but there’s two pieces of legislation that are making their way through the through the federal government’s process that could legalize or at least provide some degree of safety for cannabis at the federal level but until something’s done it’s not done right okay so people are looking at America is the next Canada we love here going out by the way times all right ten times we’re looking for ten times but the reality is it’s taking a lot longer than people have hoped as well so what’s happening is you seeing a lot of the US companies come list on the TSX that’s right but that’s short short time well they’ve they’ve listed on their Canadian Securities Exchange so that’s something we should talk about as well but sure sit so the TSX and the TSX Venture the venture being the junior to the two the TSX those are those will be traditional homes for Canadian listed companies the Canadian Securities Exchange was until several years ago virtually unheard of okay it had been around for for some time but there really weren’t that many companies and as an analyst I had never written a report yeah on a CSE listed company until about two years ago so the exchange has really made a name because the TSX and the TSX V you have current policies say they won’t list a company that is violating US federal law

so these US companies that came public many of them last fall multi-billion dollar market caps were effectively forced to list on an exchange that nobody had heard of until over the last you know the last few years it’s been a fascinating story to watch because the CSE is viewed as a very junior exchange and you know like I said I never would have pictured myself writing up companies that were listed there or no but that strikes me as I kind of walk around you know people of course we can’t do it here but here’s that the wording over here is slightly different so yeah but the connect the Canadian government have allowed this mm-hmm they welcomed it I think you know certainly cannabis is you know a lot most provinces has been accepted for a long time sounds of growing and use yeah but American companies have had to come up here because the US government has not made their mind up yet that’s right there’s some indications there’s there’s there’s been progress right there’s been some some winds recently that we’d call you know I think you know people will look back and say that was an important turning point when for example the the House of Representatives a little earlier this year passed a bill that would allow banks in the u.s. to serve state legal cannabis companies without fear of penalty or prosecution so that would be a huge step and that that one has what you might call political legs because that will help take cash off the street these companies are still largely cash run businesses you are talking physically about bags of cash right they get moved people being paid in cash suppliers being paid in cash and that’s that’s just not safe so that it’s the legislation is called the safe banking act yeah it’s next up is the Senate it’s not a slam-dunk to get through the the US Senate because the Senate’s still controlled by public and party right but it does have a lot of support from both Democrats and Republicans in the Senate so there’s optimism that this legislation could get passed in 2019 and and that’s limited to banking but it would be a huge step and easily the most meaningful piece of legislation we would have seen relating to cannabis okay I’d love to get into that but I gotta keep bringing this back to choice was there like the investor folks watching this might now like so question for you is you got these American companies coming up onto the CSC are they gonna stay there or gonna move back I think if they will list on a US exchange as soon as they can why because they’ll have a broader and deeper investor audience there are a lot of investors out there that won’t buy a CSC listed company yep there are a lot of investors out there that you know even if they were TSX listed they would pressure the company to list on an either in New York or Nasdaq so they will want to do that to to get a bigger listing it’s their home market and home-field advantage is is always something that people prefer to have so which is understandable but you know primarily it’s about it’s about you know a broader investor base a deeper investor base there’s still a lot of investors that haven’t touched cannabis yet you know that run a considerable amount of money and until and unless those companies are accepted on a US exchange they may stay on the sidelines but once they get on you know this is about taking down your cost of capital and that you know basically that means trying to get your share price up good way to do that would be to get a US exchange list and we’ve certainly seen that the Canadian companies which of course aren’t violating any any federal laws yeah they were able to list they’ve been able to get listings on New York or Nasdaq yeah they on average get a significantly higher valuation multiple than companies limited to the TSX or the venture so there’s a very clear you know cost of capital when to getting a us list so we’d expect them to go as soon as they can okay so people watching this should also be watching those companies to see they either get in now or you know wait wait just wait till they move yeah whatever you want to do let’s get back to distribution sure are the four pillars it’s a distribution to me now this is an area rife with licensing and permitting issues politics politics you know it’s a very interesting space and it’s where the the timeline is unknown like producing I get timeline easy the processing kind of easy expensive but but easy in terms its understanding the time but with with this side of things this is where it becomes difficult not just the states but something else we’re gonna talk about in a minute which is Europe okay is how do companies tippy-toe their way around licensing issues and the states in terms of getting getting this through is it what is what is the process that they could follow every state handles it differently and when it comes to

distribution the most most interesting state is California which is you can imagine is reputationally yes reputationally you know the biggest cannabis market in the galaxy in the known universe perhaps so but interestingly and this is where we’re where and why we’ve seen some some transactions in distribution space the the the regulations in California give the local municipalities a lot of control over whether or not they even want to host cannabis operations and while California to everyone outside of California we would think that the state is universally supportive of cannabis in reality the vast majority municipalities don’t currently allow cannabis companies to set up shop so actual distribution is is no slam-dunk they have a separate license for distribution in in California because the market is so big and has that outer layer of complexity where there’s some markets where you’re where you’re allowed and some markets where you’re not and every other state no other state I don’t think has a separate license for distribution at this point and maybe maybe that’ll come but right now California is the only one that has a separate license just to distribute cannabis and so we’ve seen a couple of the bigger multi-state operators now its plans to acquire who are focused on distribution in California because it is such a big market and such an important part of the value chain of supply chain that it’s worth focusing on and and a couple companies have built some real scale around that but it’s it’s a it’s no easy feat to actually get your product on the shelves in California yeah as attractive and as big a market as it is yeah it’s it’s a lot of work to get your product out of you’re out of your lab and onto a shelf so Bob cities and send me from for me when I’m looking at it from outside like it you know what are the companies they’re gonna make is I question I ask myself is will regular wholesale distributors be able to take you know you count us all as a product whether it be CBD TSA wherever and get it into the various market so could a regular whole so distributor be that person or do you think they’ll be specialist distribution companies set up because of the regulation component I I think we’re gonna see specialization continue it’s important to know that because every state regulates cannabis differently in the US and it’s federally illegal it’s also currently illegal to move product from one state to another so every every state is an island and Wow there might there ordinarily outside of that there would be sound business reasons for having something that was a bit more centralized you’re not we’re not going to see that in cannabis for quite some time so so right now if you’re distributing cannabis as a standalone business you’re doing it in California and unfortunately you’re not you’re not allowed or not supposed to be moving product outside of California that’s fascinating because they obsessed me that at some point when each state kind of gets the point where you know it is legal on the medicinal side you know as a roll up of these distribution companies can create create a sort of Lars you there’s a lot of money to be made there it seems to me there will guess the hardest but you’re telling me and I believed it before is the hardest piece of the jigsaw puzzles so far I think it is you know Cresco ABS just announced plans to acquire acquire a company called origin house which is you know has a presence on or as penetration into 70 or 80 percent of the dispensaries in California for Nia but ki relief has announced plans to acquire a company called select rush has similar distribution strengths so we’ve seen some of the larger multi-state operators looki California and say we need to get we need to get big there we need to do in the right way so we need you know the linchpin so to speak here the true point is distribution yeah and they’ve they’ve responded by or moved ahead by you know announcing plans to acquire companies that have focused on that historically so it’s a fascinating market it’s obviously big and and everyone outside of it would would think it’s slam-dunk to build a cannabis business and can’t in California but that’s not the case it’s a tough market to navigate and these two acquisition targets have done a good job doing it so far people looking at the European Union as a kind of you know similar set up to United States and I guess in many ways it is independent countries with their own rules laws regulations etc understanding and getting development stage in relation to cannabis and cannabis products hemp included a few people of Tours is going to be relatively easy just know you just apply for the licenses and and we’re done I think you know what I think having experienced what America’s going through being through and going to continues to go through the thing it will take a bit longer to do that but the general sense was it’s not okay may have disagreed on timing but what they’re all agreed on it’s happening yes so for people to try

and work who the winners will be is what I’m trying to get a get a sense of here which is right gonna stick with those you know four pillars as it were so on the distribution side I mean it’s even further about them than the US operations in here right so what are your hopes for Europe where do you see it today what do you think is Kiko yeah this is tough I think I think when when when I get together with my peers we kind of say is Europe where Canada was 2015 is it 2016 is a 2012 we don’t know if there’s if I had to if I had to say there’s a consensus it’s it’s kind of 2014-2015 Wow and that’s sort of it’ll be it’ll be interesting a number of the Canadian producers though they’ve seen the opportunity in Europe it’s it’s obviously a much larger population base than in Canada so a number of times yeah a number of Canadian companies have made efforts to to work their way into Europe I think that the potential mistake or the risk that a number of them are gonna bump into it is the belief that that it is a common market and that you know it’s simply a matter of establishing a beachhead in one country and then the whole market opens up for it yeah I think what what many of us expected and certainly you know we concluded from our from a time here at cannabis your hope is that that’s it’s not the case you know I’ve heard of a brexit yeah it’s a bit of a went sure if anyone so yeah it’s so yeah it’s it’s that’s that’s case in point so it’s going to be a really complex market for companies to navigate and you know a lot of Canadian lp’s have been chasing Germany for example and see that as good but there’s a couple of companies in Germany countless we work in Canada primarily companies sort of made inroads I think Aurora cannabis is a standout there Cronos as well so there’s been some Canadian companies that have made moves a number of them have participated in the RFP process around around establishing cultivation in Germany so you know it’s it’s huge muscle what do you think about do you think that for us mover advantage will help them or do you think at some point like other industries people just gonna come in take them out build their own system I think that you know cannabis as a product is so politicized that there’s always going to be a degree or at least the excuse for nationalism and so I you know I think that if you’re a company from from any country other than the country you’re trying to target you’re gonna have to do very carefully that’s usually going to mean partnering with a local provider and then you’ve got to get the right partner and the economics so I think it you know Germany could be a huge market opportunity but it’s got to be done carefully I don’t you know I think that it’s a it’s an earlier stage market for example from a standpoint of what cannabis can be prescribed for if based on what I’m hearing I think physicians are a little bit less or a little bit more cautious in prescribing cannabis than perhaps they are in some other markets so there’s a number of different different factors at play but from a from a corporate perspective Canada’s is far more clear and how things or how business is done in cannabis and in a lot of other markets that’s still evolving so you you probably need a local partner mmm even if even if it’s not forced by regulation then you’re still gonna need a local partner just for practical business purposes because it’s a different market but do you think I mean you use where’s nationalism okay nationalism is great but then you break that down into conservative liberal mmm-hmm or something yeah the Canadian markets perceived as being we over here in the UK they’re more conservative you’ve got a lot of states okay so countries across Europe in the same way waves up you know populism but it fundamentally under under that says these kind of very conservative views in a way that perhaps Canada in California less so see do you think those things are inhibitors to is it cuz that affects politics and politics is where the sessions getting made right I think so I think that you know one of the one of the items so there’s there’s a compound in cannabis called CBD for example and we’ll use that as as a good talking point here CBD is is a compound of cannabis the second most common one after THC CBD does nice so explain there’s two things for everyone straight CCPD THC is what gets you high so to speak that’s the psychoactive component it is believed to have some some medicinal properties it doesn’t just get you high but that is when you know when people and when you commonly think of someone smoking cannabis that’s that tea is THC that’s going on and that’s the thing people most people rail against yes because it’s a drug it’s a gateway drug it’s viewed as a gateway drug it’s it’s an intoxicant you there are concerns most of the most of the concerns in Canada in the u.s around around legalizing that that are around

road safety yeah yes I’m not we’re you know that’s a we’re not saying necessarily see it’s a perceived as being as because there’s the other compound is CBD right which has a number of potential medical applications in fact a drug was approved by the FDA last year that’s that’s used for PD a couple of rare forms of pediatric epilepsy that’s based on CBD CBD CBD doesn’t get you high it’s non psychoactive this is purely medicinal and could be I’ve used to be tennis elbow it worked within a half an hour there’s amazing we’ve seen videos of people with you know various ailments you know made to feel a lot better than words they may be making sure shaking or it’s known for as anti-inflammatory properties rightfully and so I think a lot of people are starting to learn about it it’s become very trendy in certain parts in the u.s. we’ve seen a number of big-box retailers start to embrace the the product where they can but it’s it’s still very misunderstood and it’s bring back to your question around politics and around voters there are a lot of people that still don’t know that CBD doesn’t get you high right so they see a CBD product on a shelf where they you know someone offers them a CBD product to try and they think I know thing I don’t want to get high that’s that’s gonna this is terrible I saw a clip of a sheriff in the United States those are always great cliffs great clips where he went and closed down 14 health stores because they were stocking CBD because he thought CBD was THC right there’s a sheriff on the town seemingly an educated guess welcome a being the head of law enforcement there you go right confusing to them gonna be confusing to people here who are not you know aware of his front and center on the the issue so to anyone who’s a little one step removed from that yeah it’s very easy to be missing yeah you think right which kind of comes on say the fourth pillar okay which is the which is the selling side of things okay so first thing that needs to happen is education yes okay so we’re clearly saying this medicinal which there’s probably gonna be a lot of wholesale selling going on so that’s you know sales guys going on the cars and talking to wholesalers of this product either into doctors right in the doctor’s offices in some case or you know whole food type establishments or health health establishments where they may be selling these types of you know AIDS for people and then there’s gonna be direct to public to retail marketing that education process someone’s gonna pay for that it’s going to take some time not going to get it right again this is a time lag here so again like any any product that’s trying to get into what any innovator who’s trying to break into the market it’s gonna take time to do that if someone’s gonna pay for that someone’s gonna pay for it at first it’s going to be you know it’s it’s effectively going to be early adopters who are willing to pay up for the product yeah they’ll be effectively subsidizing that by willing to pay up for the product for you know sometimes because they like trying new products yeah some sometimes if you’re like one of my one of my friends you just love to tell people the new product you’re trying so but you know some of that will be just economics playing out where you know the first people out of the gate who were buying the product are gonna pay up for it because there won’t be that many providers of it there won’t be that many suppliers so they’ll be able to price it appropriately to try to recover some of that spend so you’re right you know I do think that that’ll be that’ll be a problem that and the other risk is that if you don’t make it easy for people to spend money on education you’re you’re probably gonna make it easy for people to miss educate and that’s that’s a tremendous risk you’re no doubt gonna have products that are making health claims that are either unsubstantiated or just or just just plain nonsense so that that’s frankly I think the risk in any sort of and that’s a risk in any health product or any any product we’ve seen that’s purported to have health benefits there’s gonna be somebody out there you know spinning a web of interesting tales around yeah what it can do for you and and so we we do think these products have a lot of have a lot of potential health benefits but they’re there’s going to be some aggressive selling out their aggressive claims made and and regulators are gonna play a huge role in in terms of what though allow the risk from a commercial standpoint is that regulators are gonna take a start strict and then relaxed over time approach which is you know almost the you know what we’ve seen to some extent in in Canada where CBD products are effectively required to be packaged the same way THC products are and what that

means is that the public doesn’t necessarily or they have to self-educate but otherwise the public doesn’t necessarily come to understand that they’re they’re very different compounds you could t tracks getting on here okay I can I can understand retail is going to be a marketing first millions and millions of dollars spent on packaging and creating brands and you know reaching by online programs kinda like the you know the vape jewels they they did a great job and that’s to you know millennial or millennial they’re getting old now they are then he was getting we need a new name or is he are sold to buy Instagram or there was social media just generally sort of social mean I can see where these innovative products will be able to do that we’ve had loads of those types of companies approached us be companies we should go amazing brownie skill but no business acumen whatsoever but they’ve had of them they’re gonna be a billionaire so that never happens right okay okay but I can see where they were workers that to me that’s just regular retail marketing branding something I get that right the bit that interests me and it’s probably gonna be a bigger market is the medicinal use so have the pharmaceutical companies worked out how they monetize this because the from silicon has spent a lot of time lobbying tens of millions of dollars in the states because they don’t want people coming insurance coming in right at issue in all of that do you see some of these bigger canvas companies being taken out or maybe they already have been partially or entirely by from civil companies looking to corner certain parts of the market because if these products are become more and more accepted in terms of you know to climb a tree or whatever saying they can do we’ve seen a handful of what we call partnerships right between between a major pharmaceutical companies and and and it’s really right now it’s limited to Canada Canadian step other distribution right right that’s exciting they’ve got the product but to come back I think to your your question around how big farm is responding or so far they’ve been extraordinarily cautious and to your point they do spend who knows how much money on a lobbying but a lot of that is spent defensively you know they’re spending it trying to protect market share or defend themselves and some other way protect themselves from new entrants defend their IP portfolio it’s not necessarily spent on offense which is going out and finding a new market opportunity so I think that I wonder if culturally they haven’t seen or there aren’t as focused on the growth opportunity yet and so it might require you know more product development that directly threatens their position in for example pain medication you know if we see more attraction for cannabis product alternatives to opioids if we see those products really start to take Shera where away from traditional pain medication then that’s when I think you’re you know you might see Big Pharma start to become more involved in the in the cannabis space it unfortunately might come not as not as a you know a proactive growth maneuver but rather as a response to someone eating their lunch for them yeah you say that but again we’ve seen a loss of instances where if we if we let’s take insulin it’s about a bucket bag here in the States over 300 50 bucks right it’s nuts from from you know something which was killing away for free by the if pharmaceutical companies do get involved you know they make a lot of money on their you know orphan drugs mm-hmm yeah they make this they’ve got some big brands out there which they’ve created and they charge a lot of money for us well for relatively you know minor ailments it’s a danger that if pharmaceutical companies get involved the pricing of cannabis products or associated products could get out of control there’s risk there and and I think to bring back to when your earlier questions around IP that’ll be the the real the real you know the real risk would be if if you can patent just about everything and then the Big Pharma gets involved in yeah that’s the scenario we could see you know when it comes to cannabis it’s very difficult to patent a strain is it is pot we I think it is possible there been some isolated cases where where some things have been done there’s also been relatively little work done on IP in general just because until recently there were limited options for actually enforcing yeah your your IP portfolio but I we we have we have spoken boat company aside well when they say we’re but a company which has got a

strain which they’ve got them such a property on it’s very fast you know very high THC component to it or the ability Oaks extract high levels and they have got a patent on it and they are restricting people so there is there is the risk there it’ll be interesting to see the way it the way it plays out I I think it’s it’s it’s going to prove tougher to build IP around around it you know one of the one of the one of the interesting points that came out of a luncheon that we we just attended was the view that that big pharma loves to deal in an active pharmaceutical ingredients they love a what powder is one compound and a lot of a lot of what what people benefit from or feel when they consume cannabis is what is the result of what you might call the entourage effect which means it’s not just one compound it’s the hundred or so compounds and terpenes and other various constituents within cannabis that are having an impact so it’s it’s a group effort it’s a team effort rather than just one compound doing the work so right from both an RD product development standpoint and from an IP yeah an intellectual property standpoint these those are two things that that are that are very different beasts for traditional Big Pharma to get involved in so to be it’ll take time for that type of scenario to to evolve if it if it ever did so the risk is there but I just don’t see it being imminent okay okay so I know wherever type of time you’ve got you’ve got somewhere else to be in a second but you have agreed to talk to us on a regular basis yes – thank you very much hold me to it but if I could spin us with one questions so if we if we agreed that there are kind of four blocks these four blocks so you can be a producer in the processor you can be a distributor or you can sell cannabis products whether it be medicinal or I don’t use any any variant they’re they’re all which space would you play in oh that’s who that’s a great question and a very tough one to answer I’m gonna go with producer for now okay for now for now I thought in five years in five years at that point you know I think retail is going to be a real opportunity as well okay where do the margins sit I mean today they right now if you’re if you’re making the product you’re that’s where the margins are best you know it would seem that gross margins if you own if you’re basically a you know if you control your inputs or have low-cost inputs and and you’re making a branded product out of that you’re doing gross margins in some markets of 60 70 Plus 5% right it’s great business will that Holt I think that it’ll hold for the winners of the branding war if you can develop the coca-cola cannabis whatever a product might be whatever format it is then then you’re gonna be able to continue to produce some great margins there will be some losers along the way but they’re there that field is wide open there isn’t a coca-cola of cannabis yet so that’s why I’d say that that’s where I’d love to love to be fighting right now because there isn’t an 800-pound gorilla in that in that area yet okay and so it’s it’s a relatively wide open field eventually and maybe it’s not five years out maybe it’s maybe it’s less than that maybe it’s three years out you know you’re really gonna want to be as close to the consumer as possible and that’s why our retail is going to be increasingly important that’s interesting because if I look at our you know retail experience certainly in terms of the marketing side of things you can have lots of people trying to just insert themselves into that food chain absolutely interesting again to see who the winners are there can there be a coca-cola in this space we shall see we just thank you thanks for time appreciate the insight it’s a very good first introduction to cannabis to Sony to the UK audience and for those you know what a wider field perhaps haven’t like to cannabis as an investment option we’ll get into some detail next time I speak on a couple of topics first thing that’d be great thanks we don’t thank you for yours thank you very much for watching our video we do aim to give you informed and intelligent information with which to make your investment decisions so if you liked what you just saw please give us a thumbs up and if you want to see more insightful in-depth honest and unbiased interviews then please click the subscribe button thanks again for watching and we look forward to seeing again Singh

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