Marijuana Business Magazine February 2020

Likewise, we expect profitable, vertically integrated multistate operators (MSOs) to gain operating leverage in this environment and benefit from the lack of capital to finance competitors. We believe the moat for these operators gets deeper in 2020. Lastly, we expect to see cultivation in particular as a highly profitable business in the near term in states that are converting from medical to adult use or where medical markets are first coming online. Each state exists as its own unique commercial micro-climate, and the supply chain build-out and maturity naturally takes more time than consumers, operators and investors often want or expect. This creates a supply shortage, driving up the price of wholesale flower, which is a trend we expect to continue in these states in the near term. Which sectors in the industry interest you most as an investor, and why? We are very positive on vertically integrated MSOs on the East Coast and Midwest. There are some very juicy markets coming online in 2020 and potentially even more in 2021. We believe these operators will see some very exciting growth and profitability. We are also excited for California brands to start emerging as winners. We are seeing several of our portfolio companies take market share and win from a positioning standpoint. Again, we believe this is an environment where winners pull away. Have changes in the industry affected your company's investment thesis? The industry looks completely different from when Navy began investing in the industry in 2016. We’ve seen the less-than-perfect rollout of the Canadian legal market, a one-way trend toward legalization of both medical and adult-use cannabis in dozens of states, the initial attempts at both building brand identity and the creation of the multistate operator in the United States. From a business-model standpoint, the irony of the market today is that vertical integration in the U.S. commands a premium because of the lack of capital and bumpy implementation of freshly legalized markets. Capital flooded into Canada to support capacity Money Matters | Nick Thomas MEGA EQUIPMENT & SUPPLY ™