Tim Seymour: It’s really exciting to be here with Peter, who as you heard if you didn’t know Peter’s background. I mean this is a gentleman who’s been a pioneer in an industry that pioneering 10 years ago or even in 2014 was a lot more difficult than it is today. We had a chance to catch up in the green room and one of the topics just was a change in perception and how that’s really, really changed the playing field.
But before we get into that, I actually think it’d be very helpful, Peter, for the audience to hear a little about how you started out 10 years ago, because then I want to talk about Mettrum was one of the first real big transactions in the industry that inspired so many other operators to not only seek out major partners, but get going. I want to hear about that.
We’re here to talk about SLANG, because it’s been an exciting six months for your company. Start us just a little bit at the beginning of how you got here.
Peter Miller: Ten years ago cannabis was still this super illegal product almost everywhere. Probably similar us to today, but it was highly stigmatized, and obviously there wasn’t an industry. Canada had this grow for yourself model that was the result of a series of lawsuits where people basically said, “If Canadians have a human right to medicine and cannabis is medicine, then it’s a human right that we should be able to access cannabis.” That was a successful argument which led to the government trying to figure out how people would access cannabis. There was an RFP, a company that became Cannimed won that RFP, which is now Aurora, but ultimately it was new. They weren’t producing cannabis very successfully. There was another lawsuit, and the patients said, “We should be able to grow for yourself because not only can we not afford this, but it’s no good.” And that was successful.
Then there was this proliferation of quasi … well illegal if you were selling to anyone other than the three designated people you were allowed to grow for, and that created this highly distributed gray/black market in Canada. Fast forward to 2010, 2011, the governments trying to figure out how this should all be handled, and we had quite a conservative leader in power who wanted to just get rid of it, and his idea for getting rid of it was to commercially license a small number of producers that could be tightly regulated, carefully overseen and that was what was going to get rid of the riff raff in his view.
I was in tech, and my co-founder, Billy Levy, also was in tech, and we saw this is just a really interesting cultural moment, entrepreneurial opportunity and what the government really liked about us when we started talking to them was we knew nothing about cannabis, and we had no experience with cannabis, and in their view, if our business failed we’d go back to tech and we wouldn’t have the connections to put it in the streets.
Tim Seymour: Is that critical for anybody coming into the industry at that time? Was that the blueprint for, “I’ve never done this before and actually I’m a novice.”
Peter Miller: Largely speaking yes. There was a little lip service paid to a few people that were the absolute most proper participants of the old systems. There were a couple people, but really it was lawyers and bankers and tech people. People that had no experience, which was somewhat counterintuitive, but hugely beneficial to us. We applied. Successfully won a license in those early days, and that allowed us to draw early capital. We found another group that was also early licensed and merged entities and formed a company called Mettrum Health Corp. five years ago almost today. Time flies incredibly quickly. A few months after that, Fidelity led a financing to go public. It was the second company to go public in this space to Tweed before it was called Canopy Growth.
Tim Seymour: What was Fidelity thinking? I mean seriously. They had a lot on the line for reputation. When I think of Fidelity, I think of one of the more conservative financial institutions in the world. This doesn’t make sense to me.
Peter Miller: Yeah, and I think we might have been their first and last check to the space, mostly because it was an underperforming investment for a couple of years, but I think what they saw was that our team was a bunch of bankers, lawyers and tech entrepreneurs. Our chairman was the former CEO of TD Dominion Securities. Another one of our board members was the commissions of the RCMP. That would be like the head of the FBI here, and he’d just left his position as the head of Interpol, so we had a super cop, the banker, a bunch of tech kids who wouldn’t hurt a fly, and then we had an auditor on our board and it just read like the exact opposite of who you’d pull at a central casting for a weed business. That was like a lot of the folks. Bruce and Mark and the folks at Canopy. Similar profile.
Tim Seymour: Talk about how Canopy become essentially a partner, and ultimately your sugar daddy, but again, it’s a small community. Certainly back then it was even smaller. How did they view you, and ultimately for people that don’t know the transaction, what was the strategic element of this for them?
Peter Miller: By 2015, Justin Trudeau became Prime Minister of Canada at the very end, and that was really the catalyst.
Tim Seymour: By the way, Bruce is Bruce Linton, CEO of Canopy Growth. I don’t mean to be pedantic, but he is like Bono or Madonna, or Sting. They go with their first name.
Peter Miller: He’ll go down in history when they’re writing the book on legalization. He’ll be like the less controversial Joseph Kennedy, Sr. kind of guy who really was there at the beginning and jumped on the commercial opportunity post prohibition.
Once Justin Trudeau won there was this sense that legalization may actually take place. We went from trading 1,000 shares a day at $1.50 and no one caring, to all of a sudden a bunch of volume. The stock went for a run, and the first wave of MNA started taking place. It was a small world. It still is a small world generally, but in cannabis it’s extremely small. I think we’ve been good about not trashing anybody, because you never, you’re going to wind up being partnered with, bought by, pairing.
Tim Seymour: How would you trash them?
Peter Miller: It happens.
Tim Seymour: It’s interesting, and not to get lost on this, but in some sense, some of the Canadian LPs that have been the most successful have been the biggest targets just because their market cap has exceeded necessarily what people perceived to be a valuation that makes sense, but some of the biggest players in Canada, in some sense they take a lot of heat for having been pioneers and being very successful in capital markets even when their businesses haven’t been as mature.
Peter Miller: It’s a tricky situation and since Canada’s a federally legal environment it was able to attract certain capital that didn’t have to be worried about the whole state federal issue, so Canada punched above its weight capital markets wise, because there was a time, going back to our transaction, we competed. We were fierce, but respectful competitors, and as we were looking at the space, ultimately conversation led to, “This is a powerful combination.” We had a similar number of shares outstanding and the transaction was .8 to one share ratio, so it almost cut Canopy in half. All stock. People said we were crazy. People said they were crazy for paying $430 million, but anyone who held on-
Tim Seymour: Big transaction.
Peter Miller: That would be a couple billion more. More than a few billion today, because that was an $8-ish.
Tim Seymour: Where were you after this transaction, because again, you had built your company, and yet one of the great companies in cannabis history takes you out. What was either your role in the new entity, or how did you take what had obviously been an enormous success and really how do we get to SLANG, which ultimately is also the combination of bringing a couple assets together, which we’ll talk about.
Peter Miller: The early days of Mettrum Health Corp. was my bootcamp operationally in the space, and that took us to the US quite a bit for recon. Visiting Colorado, especially in the early days you got a sense that Canada, while it was ahead on legalization and the capital markets had a lot to learn operationally and brands wise. We saw products go from an unbranded jar of cannabis with the little label maker saying, “Super Lemon Haze” to vaporizers, to edibles, to more sophisticated things. We already knew that was coming. The interest for me was to be part of that.
After the Canopy transaction on a very friendly basis, Billy and I decided to focus our efforts on the US. Making investments personally. Continuing to foster relationships that we’d formed years earlier and put all of our weight behind the next wave, which we saw as consumer packaged goods. We got our 10,000 hours in that limited license vertically integrated environment, which was great, but really hard to scale, and it’s really hard to be a great farmer, a great processor, a great formulator of finished goods. Great marketer, great retailer. Usually people consolidate to that later, and sometimes they break stuff off as we’ve seen in other industries.
Our view is this is going CPG. We want to be part of it. That was an early idea two and change years ago, but we jumped on that and Canopy liked the concept, but they couldn’t put equity into the business so we created a unique structure that allowed them to have a warrant to buy equity if the federal law-
Tim Seymour: Changed.
Peter Miller: Allowed them to do so.
Tim Seymour: Sounds like something we’ve heard of recently. A transaction.
Peter Miller: Which was affecting the template for what happened-
Tim Seymour: With Acreage.
Peter Miller: With Acreage. Other LPs have quietly done similar things, or they’ve spun out assets with convertible warrant structures. That was early. We were proud to be part of that, and ultimately the following two years led to putting together the assets, the people that were the best of the things we saw and the people we knew, so as SLANG went public this January, and we were incredibly lucky that we were one of the few deals that went way above and stayed above issue, decent volume. The trends have come in our direction. It’s not like any genius on our part, it’s just timings worked really well.
Tim Seymour: This is happening at a time when obviously if you think about the fourth quarter of 2018, you had all the major US multi-states coming to market. They were RTO’ing, by the way. You decided to IPO. I mean talk about that.
Peter Miller: Yeah. Most people did an RTO in Canada, where they backed into a shell, or a CPC. We did a full prospectus, and that, I think inspired a lot of confidence in the more institutional investment world, and when we were raising money, especially in New York, there was a certain reticence to be part of a traditional Canadian cannabis RTO, and people were really appreciative of the fact we did a prospectus, which was a little more work at the beginning. A lot more disclosure, but cleaner and I think was part of why it was a successful [crosstalk 00:11:45].
Tim Seymour: Yeah, I mean if you think about that, I mean almost every one of those multi-state operators that RTO’d in the fall, not only was there a market decline. That was an exogenous factor to cannabis, which certainly impacted cannabis, but it clearly was a case where the RTO was becoming a bit of a stigma.
Peter Miller: Yeah, there were a few black eyes that the Canadian markets got from different reports of transactions that went down, or a couple years earlier, and just less transparency makes people less comfortable. I think that there were a lot of issues in the fall. There were macro things that affected those folks beyond their control. We waited that out and I think over the long, long term none of that will matter too much because the people putting a fundamentally good business together will be successful, but it doesn’t change the fact that on the days the stock is up I get no calls, and the days the stock goes down I get a thousand calls. I’d rather have more days when it’s up than down operationally.
Tim Seymour: Well, all I can tell you is the S&P’s down 130 basis points right now, so I’m sure cannabis is down four.
Peter Miller: Yeah, and eventually I think you’ll see maybe things go the other way because in CPG where we believe this all goes, Haagen-Dazs will do quite well relative to the lower quality ice cream, because it’s one of the last micro luxuries you get. If times are tough a $10 pint makes you feel pretty good for the little bit of time that you’re eating it in front of Netflix.
Tim Seymour: Indeed.
Peter Miller: I think cannabis isn’t going to be bulletproof in a recession, and certainly the capital markets and the fundamental business will obviously move in sometimes different directions. The long term they’ll catch up to one another, but I do think that we are all lucky to be their investors or participants or thinking about either one of those things in an industry that does have so many macro tailwinds globally.
Tim Seymour: I want to get to the capital markets world because I think there’s no question that a big part of the evolution of the industry has been the capital markets dynamics for better or worse. Let’s get to that. Ultimately I want to get down to the essence of SLANG and how you view yourself and in a world where you’ve created companies, you’ve certainly focused on consumer products, but you’ve been referred to as the conglomerate of weed, or a portfolio of brands. How do you think of yourself? For a company that really has some brands that you brought together right away, and maybe you start with the genesis of essentially the Organa acquisition and Firefly, and bringing together well-known brands, and saying, “That we want to add on expertise to and take it to the next level.”
Peter Miller: Yeah, we do have a portfolio of brands. As a collection they’ve done almost a few hundred million dollars worth of sales at the cash register. I differentiate cash register because ultimately that’s where you can tell how consumers are voting with their dollars, and that’s how you know where you stand. How we break out geographically, well we do have one product or another on the THC side in 12 states, and a hardware in all the states and a handful of countries. We do generate more of our business west of the Mississippi where it is more competitive, with Colorado and California being the biggest contributors, but also the biggest contributors just tracking the biggest markets for cannabis.
As a consumer packaged goods company, we’ve organized ourselves as such. We don’t own any cultivation. We buy biomass and we process it into finished goods under our brands and our formulations, and we don’t own any retail either. Not because we think it’s a bad business-
Tim Seymour: I’m guessing some of your partners, your strategic-
Peter Miller: Yeah, retailers are our partners so we’d be competing. What you see typically in the grocery business, or most retail is that chain stores aren’t carrying other chain stores private label brands. Your house brands aren’t going to carried by your competition, and so by not owning retail we’re in almost a few thousand retailer environments and the success of those retailers is our success and vice versa. We’re not cultivators, we’re not retailers. We’re really focused on procuring biomass, making our finished goods, and then wholesaling it and distributing it to end retailers, and that’s a model that we’re able to operate under because most of our business is in those more mature markets.
In a limited license, early stage market, you just can’t do that because they require vertical integration because that’s easier to regulate. Going back to Canada, it was a lot easier to say, “Okay, five people are licensed and you each do everything from seed to sale, so I can send three government officials to your facility every month, which was insane, but that’s what they did, and we can go through everything much more easily than if there were 1,000 of you.
But once the stigma goes away, people realize the sky isn’t falling. The data comes in. Car accidents are flat. Opiate deaths are down. Most importantly tax revenue is up and they say, “Oh man. How do we get more tax revenue?” Well the way you get more tax revenue is license more people, break up the verticals and generally create a bigger industry and that becomes the phase where our business model really excels, but even in those limited markets, which you can’t ignore because they’re incredibly exciting, like Illinois is going to be hugely exciting with the new regulation that was announced. We look for partnership. We’re not elbows out. We don’t think that we’re the smartest and we’re the only ones that are going to be able to pull this off. We look for good partners, and a good example of that is in Florida, where we said, “This is too exciting of a market to ignore.” Florida, on top of the fact that it is a large population, the data is showing us they’re big cannabis consumers, and that’s a limited license vertically integrated environment.
We had a lot of conversations and ultimately the largest retailer selling the most cannabis in the state was the company we ultimately decided to work with. They’re called Trulieve and the way we looked at the Florida market was we could either buy-in or earn-in. Buying-in is obvious. You buy a license or you buy a company that has a license, and we saw earning-in as saying, “Hey company X our brands, we can demonstrate, will bring people off the street into your stores versus the other stores. You can look at Harvard bus-
Tim Seymour: How do you decide on a Trulieve? What was it? I mean clearly they are market leader. They’re one or two in every segment, but as you assess again an earn-in, it’s critical that you choose the right partner. What was it about Trulieve as opposed to Vitacan or somebody else in Florida. What did you see?
Peter Miller: To put it really simply Trulieve sells the most weed. That makes them by far the most appealing person to us because that’s our goal as well. Also, Kim Rivers the CEO is an incredibly smart person and really good operator, and just runs that operation incredibly well.
Tim Seymour: At this point, because of the nature of the operators, do you have a wishlist of where else you guys think you want to be finding these partners, and again, partner in the truest sense of the word. Kim is somebody that stands out for people to know Trulieve. I mean it’s a very well run company. It’s a company that’s been generating higher margins. Got out of the gates early. Tell me how you asset partnerships? In the places you are not yet, what are you looking for?
Peter Miller: On top of the metric I just gave, you also have to look for people that are practical and thinking further into the future about how we can help each other. We were talking in the green room with the CEO of a multi-state operator, but how it is a big pie and there are going to be a lot of opportunities to win, and there’s no business model that I can say definitively is the business model for the short to midterm. We can see in the distance how this probably breaks down and we can apply margins and basic metrics from other industry to cannabis, but at what point is that going to be the case.
We look for people that are practical. In terms of the wish list, this is obviously one of the places that’ll be really exciting.
Speaker 3: How about Illinois?
Tim Seymour: Absolutely.
Peter Miller: Illinois is going to be a great market, but again, it already is if you’re in the black market. You can look at human behavior. It tracks pretty consistently in the western world. Even though reported cannabis use isn’t always as honest like Vermont to Alabama, but I bet if you test the sewers of all of these cities, the THC content in the aggregate urine per capita is super similar.
Tim Seymour: I don’t want to be doing that.
Peter Miller: I’m sure you have analysts for that.
Tim Seymour: You’ve gone out of your way to talk about SLANG as being a CPG story, and I’m sure everybody whose in this room has heard cannabis industry being described as, “It’s about brands. Brands matter.” Good, because that’s a second derivative conversation that I think we were not having even 12 months ago. People understand pricing power comes with brands, sophistication comes with brands. That truly that’s how you stand out, but I want third derivative. Peter, how do you compete where everyone who I talk to says, “We’re building the brand.” How are you endeavoring to stand out from the crowd? It just so happens you’ve got some core hardware and house brands that I think have become staples of the industry, and therefore they’re out there, but I hear everybody talking about brands all the time and that’s great because that’s what it’s about, but I want to hear how you’re going to compete with all the other guys that are saying it’s about brands.
Peter Miller: Yeah, I think there’s going to be a certain special sauce, but a lot of it is just the textbook CPG playbook. The head of our sales organization came from Konica Minolta where he was selling the most boring product in the world, the office printer and photocopier. Now in cannabis he’s been unleashed to sell something that people actually want, but he still applies the same sales methodologies. He’s organized his sales team in a similar way and I think you’re going to see better and better bench strength coming from the mainstream into cannabis as the stigma comes down. But, the brand also has to stand for something and be associated with something. If you think about the original brand as the hot iron you’d poke your livestock with. It was just to say, “This is my livestock. This is my product.” There’s a lot of people with brand, but nothing to poke it with.
Our brands have been in market for a long time, so part of it, another thing our head of sales likes to say is the best ability is availability. If your brand is in a lot of places, that’s how you create subconscious relationships with people. I’ve seen that before. I’ve seen it in all of these places. I’m trusting it a bit more. They develop then a relationship of purchasing it. Then they form habits. The first few trips into a dispensary starts very conversational. You might be in there for 15 minutes talking to a bud tender, but by the 100th time you know what you want, everyone’s busy. They just want to come and go, so I think just availability is super important.
But then brands typically do have to stand for something or be associated with something. Nike isn’t just a swoosh. That’s how you tell a Nike, but they did reinvent the sneaker in the 70s.
Tim Seymour: Innovation. I had those Air Jordan’s that you could pump up the back and they still had me jump about an inch off the ground, but nonetheless.
Peter Miller: Hermes is coming off of 200 years of craftsmanship. It’s not just an orange bag.
Tim Seymour: What is your ethos? What do people know about SLANG?
Peter Miller: Our 510 thread to be technical, but our cannabis vape is one of the first-
Tim Seymour: Explain the 510 thread for those that don’t understand the literal linkage here.
Peter Miller: 510 is just a diameter in millimeters of the threads that you spin the cartridge onto the battery, but it’s the generic. It’s the USB standard thing for vaporizers. Lots of people have it. It’s almost an agreed upon form factor. We were the first in market with one of those a lot of years ago. It’s become very competitive, but our brand is based on both innovating in that space and then competing successfully in that space.
In March, we still had the number one selling 510 thread vape in Colorado after facing over 150 competitors that have come and gone over the past seven years on that product. Then on the Firefly side of things, we just are launching a new dry herb vape, but we were one of the first with a convection drier vaporizer, which I can get into a lot of technical mumbo jumbo, but basically it just allows you to capture a lot more of the flavors, a lot more of the cannabinoids. It’s more of a connoisseur product, which again, prices it higher than most people are interested in paying, but it’s based on innovating in that space, and it authentically delivers value to someone in the market that wants that.
We have products that have history. We have products that are differentiated. Debra has a report on the vape space, which you can look at.
Tim Seymour: That’s a fascinating report, by the way, which, if you didn’t know what 510 was before, you’re going to know what 511, 512 … I’m kidding, but the bottom line is, it’s become … First of all, I mean it’s a very competitive segment. You’re competing with not only Pax, but you’re competing with the entire content of China. You’re competing with … I see deal flow all the time, and half of them seem to have a vape element to what they’re doing.
Peter Miller: I mean on the supply chain we leverage China. We’re not saying that the 510 cartridge that it actually goes into, that’s a piece of hardware we’ll buy from a third party. What’s inside it matters. If we all agreed that this is the size of a beer can, you’re no longer competing on who has the cheapest, best can. It’s more about what’s in the can and how you describe the relationship people have with what’s in the can. That’s how I see the 510 thread side of things going.
Then with Pax and the proprietary battery and cartridge model, there’s a bit more of a technology angel there, but we’re starting to see, even with the proprietary stuff, Pax and everybody else, the sales are basically equal to the high end formulations of the 510 category. It’s going to be very competitive, but what we like, and a better model is that we’ve been competing.
If you go, again, to Colorado, Oregon, California, Washington, all these places. It’s highly competitive, so when we’re looking at acquisitions, we really like management teams that have succeeded in those markets, because they’re like athletes that have trained at altitude. You bring them down to sea level and they have that extra edge because they’ve been just duking it out. Not to say that-
Tim Seymour: A vape, or a cartridge that’s been particularly successful in California, which is the most competitive market. It’s the largest market in the world. That’s the guy you want.
Peter Miller: Yeah, from a management standpoint, and I think we’re all witnessing a shift in brand trends from the giant monolithic top down brands like Craft and whatnot, to the more regional plays. Just generally speaking, and it’ll happen with cannabis too. There’s a certain regionality that people are drawn to and so, even if you have a 510 thread vape in Colorado that’s really popular, it doesn’t mean it’s automatically going to be welcomed by the Washington market, or the Oregon market. Especially the Oregon market who really does care about the local craft story at a good price. That’s why in our portfolio we’ll have products that technically have similar characteristics in Colorado and Washington, but they address totally different markets, and we don’t see them as overlap and they’re both doing incredibly well.
Tim Seymour: Not only are we talking about geographic, but we’re certainly talking about consumer demographic targets too right? We’re talking about different price points, and I do want to hear about the Firefly 2 Plus because that’s a Rolls Royce that’s rolling off the assembly line soon. Talk about that. I mean you’re addressing different demographics, and yes, the consumer in Colorado is different than the consumer in Illinois. How do you view that?
Peter Miller: The vape category now segments pretty clearly because it’s mature enough that you’re starting to see these trends. When any of these-
Tim Seymour: In the Green Market on page … It’s very interesting.
Peter Miller: Exactly. Since it does become, at maturity, almost as big as bud, and it’s hard to say at maturity, but today, if you looked at last year in California, flower made up about 40% of the market, pre-rolls were 8% of that, and so you’re seeing a 32% pure flower that you grind up, roll up and smoke, or put in a bowl and smoke, or cook into food. Whatever the case may be, that’s flower. Then if you looked at vape it was around 30%. Almost neck and neck, and so what you’re seeing in-
Tim Seymour: And growing at a faster rate.
Peter Miller: Growing quickly-
Tim Seymour: Figuring that’s 40s.
Peter Miller: It might be the dominant sector, and it’s segmented a few ways. You actually see premium priced vaporizers, both on the oil side and on the hardware side. You see the discount stuff. You see the value stuff in the middle. You see specialty and we address all of those markets. The Firefly on the dry herb side is a Rolls Royce. It’s not going to appeal to everybody, but the same people that … Like my father-in-law will buy a bottle of wine, he’ll tell us about it for an hour, and then he’ll pour it through a crazy system of God knows what. There’s a bunch of hissing sounds, and out of the bottom he spins it. He really cares and knows what he’s talking about in that way, but a lot of people I know buy boxes of wine and pour it into a Dixie cup and it’s just a different buying pattern. In vape, the Firefly is definitely catering more to this crowd.
Tim Seymour: I’m guessing this group of people care about the Firefly too and a dynamically heated with every inhale in a titanium shell. This is the kind of stuff that I think people are paying attention to.
Peter Miller: There’s better mousetrap components to it. The temperature curve does align to capture all the cannabinoids along the spectrum because it’s not just THC, and as the market evolves and people get more sophisticated. Now the CBD gets a lot of attention, it’s a dominant cannabinoid next to THC. Totally different effects. Symbiotic in a lot of ways, but there’s other cannabinoids as well, and they all decarboxylate at different temperatures, and having a temperature ramp that allows you to capture them all, as well as the turpines that provide the flavors, which also have a lot to do with the effect, the volatilize at different temperatures, so a product like the Firefly 2 Plus helps you really get that full connoisseur experience. We’re also extending that brand-
Tim Seymour: Who else is doing that? I mean this sounds to me, especially again, and the technology behind truly heating the product to the level that truly brings out the optimal impact. First of all, how are you testing for that, and ultimately how long did it take for that product to come off the assembly line?
Peter Miller: The product was developed by a guy who left Apple to start Firefly a handful of years ago, and while he will often bring up the value of the stock options he left behind leaving Apple 10 years ago, he did create a beautiful and highly technically capable product, and not a lot of people have created these convection dry herb vapes because of that complexity, and because the consumer that uses it has to be a bit more sophisticated. There’s a lot more competition in dry herb vape on the conduction side, where it heats more like an oven for a couple minutes, and then you inhale. Pax does an incredibly good job with that. There’s a handful of others. As the dry herb category maxes out, I think you’ll see that not flatten, but you’ll have your market. Rolls Royce isn’t selling a million cars a year.
Then, if you go down the exact opposite end of the spectrum, more to the distillate side of things, we have a product that’s growing like gangbusters in California, but a lot of that just has to do with the fact that our supply chain is tight and we’re able to pull the price lever and convenience for people. A company that did that extremely well, better than anybody was just acquired by CuraLeaf last week called Select. A distillate based product. They just did an amazing sales job, organized their supply chain well, pounded pavement, were incredibly aggressive on pricing. Would nearly consign product, and built an awesome market share.
Tim Seymour: A lot of people, when you start hearing about the technology behind the vaporizer, I think people also mistakenly believe that this is a place that the tobacco company will come in and that there’s some transference between an e-cigarette and essentially vaping, especially a dry vaporizer. Break that down. Talk about why you’re not terribly concerned about Jewel or anybody else that seems to dominate in the tobacco world right now.
Peter Miller: The important thing you hit on is that the early cannabis vaporizers were just repurposed e-cigarettes, so they all ramped to 600 degrees, which would be optimum for nicotine, but not so much for THC. You’ll capture all the cannabinoids by 422 degrees, which is funny, but it’s not 420.
Tim Seymour: Not 420.
Peter Miller: We would have set the temperature to that, it would have been funny marketing, but we wouldn’t have had as high quality a product. The purpose built cannabis vapes, there aren’t many of them. With big tobacco, they’ve placed their bets. Altria made a big investment in Cronos, another Canadian licensed producer from early on that went through a few ownership groups, but now is Altria’s bet. Pax has a certain DNA from when they were Pax Labs before they spun off to be Jewel and then Pax Labs, and I think it’s just a fundamentally different experience and use case. Tobacco versus cannabis. The only similarity is that the dominant way to consume historically has been historically, but that’s pretty much where it ends. Totally different effects, both positive and negative, although I shouldn’t say there’s any positive, but I mean there is scientific arguments for nicotine in a well rounded-
Tim Seymour: Yeah, but typically people go out to consume an entire cigarette, whereas, the ideal dynamic, or at least part of what the dry vaporizer is solving, and solving from a efficiency of use of product, by the way, some very expensive products that you don’t want to really burn through too fast, but sometimes people puff and wait, and puff and wait and come back in 20 minutes, and you don’t smoke a cigarette like that.
Peter Miller: No, exactly. It’s more social in some ways. It’s also more personal in a lot of ways, and yeah with the Firefly Mini, not to keep hawking it, but I will because that’s my job.
Tim Seymour: Why not.
Peter Miller: It does lend itself to that stop and go. It heats up in a few seconds. You take your puff. You put it down. Hasn’t destroyed the product because it hasn’t heated it up like an oven, and so that is certainly a use case that’s different tobacco to cannabis.
I think what we’re seeing broadly speaking is big alcohol saw cannabis as a threat. We’ve talked to everybody you can imagine, and some of them are more candid than others about how they’ve been talking about cannabis in board meetings for over a decade. They still don’t know exactly what their move is, but the dust cloud on the horizon is now like a stampede you can see coming right at you, so a lot of people are trying to figure out where they should stand, so you’ve seen some big alcohol partnerships with cannabis. You’ve only really seen the one big tobacco partnership.
You’re seeing some pharma stuff. If you looked at what cannabis generally could address, whether it’s CBS, whether it’s THC, whether its other cannabinoids, you’re addressing a multi hundred billion rec market. You’re addressing a multi hundred billion sleep market. A multi hundred billion pain market. The list goes on. That just also goes back to the opportunity sides for all of us and how it’s not going to be like ride sharing where there’s only two apps I want on my phone, or social media or search. It is a far more open market to more participants, more opportunities to win and this whole cannabis fad isn’t going to blow over. They’ve been using it for thousands of years. It’ll be used for thousands of years into the future, and there’s this market opportunity that’s taken place due to regulatory shifts, but I don’t see that ending either for a long time because at some place in the world, they’re still going to be very strict on cannabis for a long time. It’s hard to go from beheading people for it to full legalization overnight. We’re coming off a much less aggressive position in America, but still it hasn’t happened overnight. I’m sure my parents, and their friends were talking about how cannabis was going to be legal any day now in the 50s and 60s and that didn’t play out for a long time.
Tim Seymour: It’s funny you bring up the rest of the world. Why don’t we just go there real quick. It was going to be part of my fast fire. Let’s do a little fast fire. This is where I just want to ask Peter a phrase or something, and Peter’s going to quickly give me his first thing that pops to mind. Doesn’t have to be one word. It can be anything, but most interesting country in the world outside of North America for cannabis right now?
Peter Miller: I mean if Mexico doesn’t count, I would say that they are talking broad legalization, which is interesting. I think western Europe is going to play out a lot like the US, but since the EU can move a little more quickly together it will do so. Germany has been interesting already for us, so I think western Europe’s hard to pick down. Germany’s probably the most interesting today.
Tim Seymour: Acreage Canopy deal. Your thoughts.
Peter Miller: I think it was great for the sector to see Canadians using their paper, using their position to make bets on the US. I think it’s currently facing a little bit of a tussle with the fund that came out against the deal. I think we’ll see the confidence level people have in the deal in terms of how closely the stocks trade to the deal price. Right now it doesn’t seem like the confidence is huge, but I think it gets done, and I think it’s going to be great for everybody.
Tim Seymour: Who’s your cannabis idol?
Peter Miller: It’s incredibly tough. There’s capital markets people that have paved the way massively like Bruce. There’s people that have paved the way in the culture that have taken a lot of risks. Even the people that some people like to make fun of, like the Tommy Chong’s and the Cheech and Chong jokes and the list goes on, but I think the DeAngelo brothers at Harborside did a huge job for the industry period, never backing down, so it would be incredibly hard to pick. But the celebrity, the capital markets, the activist crowd have all done their piece.
Tim Seymour: States act. State banking? Time? Any way you want? When you hear that, what does that mean to you?
Peter Miller: I think State’s Act means liquidity to me. The banks get comfortable. The exchanges get comfortable. The institutions get comfortable and then there’s a ton of liquidity in the space that isn’t there today.
Tim Seymour: Put your investor hat on, one of those folks, because we know where you sit, but public or private right now? Where should people be?
Peter Miller: Depends what your time horizons are and what your risk tolerance is. You can invest in a public O through financings that come out every few months, usually at a discount to the price, and with some of the bigger names you can hedge it, and so if you’re faster money you obviously have a lot of options in the capital markets. If you have a longer term view there’s some interesting privates you can play as well.
Tim Seymour: Difficult question, as you sit as a CEO, but single state or multi state operator? What’s the best model?
Peter Miller: For us, we were the original multi state in a lot of ways because we’ve had products in multiple states, and depending how you define operations, operations in multiple states. I think what people usually talk about is they talk about vertically integrated limited license, and they say MSO, and then there’s the competitive states. We personally prefer the competitive states for a lot of reasons, some of which I got into.
As an investor though, I think the MSOs represent a good momentum trade because people have muscle memory, and the Canadian trade was so rich when it was limited license vertically integrated and you saw Canopy go from 89 cents to $70, and it has a much more similar business model to a Cresco. I’m not going to give you stock ideas, but I think you can’t go wrong with MSOs.
Tim Seymour: I agree. I agree. Next big strategic in the sector? Who’s going to splash in? Whether it’s a Constellation style that may never be done again in terms of the relative size to the industry, or to the players itself, but whose next? Hazard a guess?
Peter Miller: I think it’s going to be one of the non alcohol CPGs. I’m not sure which, but Buffett was bobbing off at his conference last week about how it would be a mistake for Coca-Cola to get involved in cannabis, although they actually bought a company that had CBD water a couple of years ago, so obviously not too deep in the weeds of his investments, but I think it’ll be someone more like that then it will be another big alcohol company.
Tim Seymour: Coca-Cola not close? I’m asking?
Peter Miller: Yeah, they bought a company. I think it was called Dirty Lemon, or something, and they had CBD in the product. They removed the CBD. This was pre-pharm bill. I’m not sure if they put it back in. They’ve dabbled. I think Unilever is going … I’m not going to tell tales out of school. I think there’s going to be a lot of people doing things in CBD initially. Already there have been announcements. I think it’ll be a big CPG player that is non alcohol.
Tim Seymour: Somewhat related THC infused beverages as a market segment. Exciting?
Peter Miller: THC infused beverages get a ton of attention. I think CBD infused beverages might be a bigger opportunity near term. I can say the reality of the situation is, and this is someone who has a beveraging market, is that in California, it was 0.8% of the market last year. It’s never more than a percent of any mature states market, but it’s getting a lot of attention. Huge investment, and there’s a bit of a gap between the reality and the possibility. We have to let data decide what we’re going to put resources behind. Vape and edibles represent more than half of the entire industry, so that gets half at least of our attention.
Tim Seymour: Constellation isn’t in this to suddenly be the Corona of THC beverages?
Peter Miller: I don’t think so. I think Corona and a lot of these folks are in the lifestyle business. The mood enhancement business, and if someone’s on the beach with a Corona and a joint, they want a piece of the action in both hands. They’re not going to make you put the joint in the Corona and shake it around and drink it back. That’s gross. I mean it’s a decent ashtray when you’re done.
Tim Seymour: Probably been done actually.
Peter Miller: Probably. Yeah, someone whose had a few too many of both, but I think that the big alcohol companies probably see this as, “Yeah, it doesn’t have to be the round peg in the square hole.” They’ll go where the market goes. The data will guide you and you can’t force things into existence the market doesn’t want. Hopefully they want it though eventually.
Tim Seymour: We’ll end with this. The future? The future for SLANG? The future for the industry? It’s not a one word answer so I’ll give you a second.
Peter Miller: Yeah, I mean the future at the highest level is that people will be consuming more cannabis in the future than in the past as long as there isn’t some massive population like Malthusian check, but I think cannabis consumption is going to continue. Legalization I expect will continue also for so many reasons from tax revenue to social justice, all the way down.
I think in the actual business environment, the models will shift more to the real world economics. You’ll see more of the CPG focused guys, the retail focused people, the cultivators and all of those verticals will be compelling to different investors for different reasons. I think for SLANG, we’re going to continue running our playbook as a branded product focused company. You’ll see us making more acquisitions to develop the portfolio with a regional focus, as well as a category focus, and I think that for all of these companies that do a good job regardless of any market ups and downs, they’ll be very successful.
Cannabis gets compared to tech sometimes. There’s obviously some major differences, but in the sense that they were both big waves that took place, you saw Amazon start before the dot com crash and live through it and be one of the most successful companies in the world. There’ll be cannabis companies that fail. There’ll be more that fail than succeed. People talk about the green rush. They don’t talk about the green flush where most of these companies aren’t here, but the good ones will be, and they’ll be bigger and better, and if you’re in this industry, you’re incredibly lucky to be part of an industry that has this secular trend of growth. If you’re just a cannabis consumer, you’re incredibly lucky that you’re not going to have your life ruined by a small arrest and conviction for possession, and you’ll just have an availability of more product generally. I hope we see destigmitization. The market will expand. That’s my crystal ball.
Tim Seymour: Great. Future sounds bright. Peter Miller and SLANG Worldwide. Thank you very much.
Peter Miller: Thank you. Appreciate it.