Marijuana Business Magazine October 2019

Marijuana Business Magazine | October 2019 20 Legal: It is critical to engage counsel to ensure legal ownership or transferability of the licenses, patents and other intellectual property necessary to conduct cannabis business. Valuation: Cannabis companies tend to have optimistic assumptions, and these rosy growth expectations can make valuations unattractive. Portfolio: Our portfolios are customized and built with top-down sector allocation prior to the introduction of subsector tactical tilts. Target investments are only chosen after those two steps, and timing thus plays an important role. What are some of the investment mistakes you’ve made over the course of your career? What lessons can you share for our readers? I participated in the first dot-com boom, the real estate bubble, the craft beer explosion and now the cannabis megacycle with many lessons and much experience gained over the past quarter century of investing: Betting the farm : Only invest what you are willing to lose—remember that, by definition, all investment for future return is based on speculation and that forces outside your control can impact your best-laid plans. Water-cooler advice: Investment excitement combined with advertising restrictions means a large amount of word-of-mouth information sharing, a channel that often results in compromised information accuracy and poor decisionmaking. Homework is fun : Investors are well served to create an effective barrier between excitement driven by social pressure and investment based on sound diligence. Hiring an experienced cannabis investment professional is advisable in this industry. The beanstalk : Growth to the sky occurs in fairy tales. While tremendous growth supports major bull markets, a step back is often needed in order to take two forward. This time is different : A phrase repeated during every bubble, with its fallacy remembered during every crash, this mantra is a deadly combination of hubris, euphoria and amnesia. Could you share your thoughts on valuation? One of the tenets of sound investing is that an investor does not pay more for an asset than it is worth. This statement may seem obvious and logical, but it is forgotten and rediscovered at some point by every generation in every market. There are those who would posit that value lies in the eyes of the beholder and that any price can be justified as long as there are investors willing to pay that price. While this may be true in the short run, in the long run it is proven patently false. The value of any firm is thus largely a function of three variables: its capacity to generate cash flows, the expected growth in these cash flows and the uncertainty surrounding these cash flows. It remains important to remember that because we tend to value those metrics we can measure most accu- rately, we are often precisely wrong rather than being approximately right. How do you view the impact of cannabis 10 years from now? In order to place cannabis into context, think about how the world might look 10 years from now. Employment : Technological advances will largely free us from the shackles of traditional employment and over 90% of current occupations will no longer exist. Genomics : Advances in genomics will allow us to bend the arc of evolution with their potential to address aging, even possibly cheat death. Nanotechnology : Innovation in nanotechnology continues to advance at staggering rates with super- flexible chips that can encircle a strand of hair along with biodegradable electrodes a current reality. Connection : There are just over 3 billion of us who use the internet today, a number that will increase to 7.5 billion within 10 years. The innovation generated by 4.5 billion more brains contributing to our collective progress is simply unimaginable. Artificial intelligence: Ten years from now, it is likely that the space between human and AI is blurred beyond recognition as smart devices and smart humans converge via the ubiquitous use of nanotechnology. We will certainly do business with more strangers across greater distances, requiring us to build longer bridges of understanding across deeper chasms. Socially acceptable cannabis consumption will add community, compatibility, collaboration, contribution, compassion and consciousness to its individual lessons of creativity and contemplation. Investors are well served to study this generational wealth-creation opportunity and to shepherd their capital in a responsible and ethical manner for the greater benefit of society. This interview has been edited for length and clarity. Money Matters | Nick Thomas Nick Thomas covers finance for Marijuana Business Magazine. You can reach him at nickt@mjbizdaily.com.