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SLANG Worldwide (CNSX:SLNG) CEO on Co-Packing Facility Owned with Canopy Growth (TSE:WEED) - YouTube
Channel: Midas Letter
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Benjamin A. Smith: Welcome to Midas Letter
Live.
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Back in studio to join us again: Peter Miller,
CEO of SLANG Worldwide.
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Peter, welcome back to the program.
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Peter Miller: Thanks for having me.
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Benjamin A. Smith: Now, your stock has been
moving quite prodigiously lately; it was up
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about 36 percent over the last four sessions
last week, the week of April 1st to 5th, and
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today it’s up another 12 percent.
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The consensus feeling is that the Origin House
news, the acquisition, sort of set a floor
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based on what brands and distributor-centric
companies like yourself are worth, and you’re
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sort of the co-leader in the space.
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Can you comment more about those dynamics,
and how it’s helped raise your profile?
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Peter Miller: Yeah, I mean, we’re brands
first; distribution is an important part of
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getting those brands on as many shelves as
possible.
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So of course it was a, you know, big macro
kind of event for us to see Origin House get,
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you know, bought by Cresco for that price.
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So, very validating to the business model
on the distribution side.
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We’re in a lot of, you know, like, Origin
House, in a lot of stores in California.
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We’re also in, you know, ten other states,
Puerto Rico, Canada, and we’re more brand-oriented.
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I think, but no doubt it was helpful; people
were looking at that trade and saying what
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else kind of looks and feels and smells like
that.
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But I’d say we’re certainly more brand
focused.
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Benjamin A. Smith: Now your partnership with
Trulieve Cannabis.
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You were able to get on store shelves, you
know, the biggest MSO in the state by far,
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selling about two-thirds of the dried flower
content in the state, you were able to get
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on store shelves without any capital outlays.
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Now, of course, you know, most vertically
integrated MSOs are spending tens, if not
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hundreds, of millions of dollars to get organized
in state.
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So is that model replicable to other MSOs
in other states, or how were you able to do
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that?
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Is that in operation or not?
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Peter Miller: No, so I look at that deal in
the context of kind of earning your way in
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versus buying your way in.
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So what I mean by that is, you know, to buy
your way into a market like Florida, which
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is extremely exciting, you could acquire a
license, acquire an operator that has a license;
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in either case, to your point, you’re looking
8 to 9 figures to do that.
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But what we were able to do was look at the
landscape, talk to the biggest operator that
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you identified, Trulieve, and demonstrate
that our brands would pull people off the
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street into their stores, and our operational
know-how would streamline their manufacturing
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process and help them avoid probably some
of the expensive mistakes we’ve made over
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the years.
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So it was really an earn-in to that market,
and as such, it didn’t cost us any money
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to get in, and we’ll have product on shelves
very imminently, and we’ll be generating
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revenue in that market.
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And so that is obviously much more scalable
to do those kinds of deals, less dilutive,
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and it speaks to, you know, the spirit of
partnership, which we believe in.
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And in terms of other states, other markets,
of course we love Trulieve; and I think if
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they were in different markets, we’d look
to do things with them.
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But it was seen as really good for Trulieve
as well, in the market.
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You know, if you look at the stock as an indicator
of how people feel, it was very positive for
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them.
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So you can imagine there’s other conversations,
there’s inbound all the time with different
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groups, but we absolutely would work with
any multi-state operator, chain of retailers,
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anybody who helps us achieve our ultimate
goal of getting our brands on as many shelves
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as possible.
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Benjamin A. Smith: Okay.
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Now, another big takeaway I had during with
reading the report and doing some extensive
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research is going through the Clarus Securities
research that they put out.
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I believe they’re the first and only investment
bank that put out research on your company;
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I could be wrong.
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But one of the things that struck me was their
estimation of 52 percent gross margins and
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27 to 29 percent adjust EBITDA margin through
2021.
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Now, is that sustainable to have those type
of robust margins when you have to deal with
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a retail gatekeeper that is also looking after
their own margin profile?
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Peter Miller: We’ll see.
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I think we talk about this in context of like,
long term, what does this look like, and what
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it looks like is what the rest of the world
looks like.
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So in consumer packaged goods, we look to
mature players; we look at what their margins
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are, and we predict that over time, you know,
cannabis will have a similar profile because
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cannabis is a consumer packaged goods category,
albeit a really exciting, you know, quickly
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growing one.
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So if you look at the Nestles of the world,
you know, they’re in the mid-20 percent
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EBITDA margin, and I think that there’s
some, you know, important gatekeepers, but
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it’s also important to remember that no
single chain of dispensaries is more than
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two, two and a half dozen doors.
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So while we’re in 2,600 doors, we achieve
that by working with the mom and pops, the
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chains, by not owning retail.
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We’re not competitive with retail, and as
such, we’re in the largest chains in Colorado,
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you know, from Live Well to Native Roots,
Euphora.
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We’re also in, you know, the big operators
on the West Coast: Harborside is a great account,
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MedMen carries some of our products across
their network.
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So ultimately, we want everybody to succeed;
the more retailers, the better.
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Obviously, fewer accounts creates simplicity,
and I don’t think anyone is in a position
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to have their elbows out and try to be like,
you know, major…
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Benjamin A. Smith: Squeeze you on margin?
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Peter Miller: Not yet.
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We’ll see.
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One day there’ll be, perhaps, a Walmart-level
player that sells a lot of cannabis, or an
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LCBO-type buyer.
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We’re just not seeing that today.
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It’s too early.
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Benjamin A. Smith: Okay.
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Now, it’s my understanding that SLANG products
will be coming to Canada sometime in 2019;
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that was mentioned in the Clarus Securities
report, as well.
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Do you still expect that to happen, and how
would that look like?
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Are you following the same model as you follow
in the United States, and have you partnered
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up with any particular retailer in Canada
once that rollout happens?
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Peter Miller: Yeah, great question.
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So we actually jointly own a licensed producer
with Canopy, and that will be the facility
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through which we do all the co-packing and
manufacturing for our brands.
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And the same way we have the largest retail
distribution footprint in the US, they have
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the largest footprint in Canada right now,
so we see them as a great partner to get products
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to market in Canada.
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But of course there’s, you know, provincial
sort of government distributors that, you
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know, other retailers will be able to order
off the menu, so to speak; so I think we’ll
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be in a variety of shelves, Canopy’s and
others, but we’ll be manufacturing all of
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our products through that facility that we
own together unless we don’t have the capability,
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in which case of course we’d use third parties
and partners like we do everywhere else.
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The supply chain will be organized in whatever
way it needs to be to achieve our goal of
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products on shelves.
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In terms of what the products will be, that’ll
be largely driven by what the final regulation
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looks like; the draft regulation, you know,
kind of indicates that vapes will look very
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similar to our vapes in the US, edibles will
be probably quite different initially, so
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there’ll be re-formulations that will have
to take place.
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But I still am hopeful that if the draft regulations
go final, we’ll be immediately, you know,
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there in the market.
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Benjamin A. Smith: Do you view selling products
online an extension of competing with your
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retail partners, thus you have no plans to,
you know, to create an online shop?
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Peter Miller: I think online will be really
important in the future.
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Today, we do sell certain pieces of hardware
online, especially with the Firefly devices;
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but again, we also have a great distributor,
Green Lane, who does a ton for us, and we
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have a great relationship and want to extend
that relationship.
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When it comes to THC products like finished
goods online, there are going to be some great
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third parties that do online fulfillment and
delivery, and I think we’d aim to be on
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those platforms, because you can sell stuff
on your own online store, but if you’re
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on one of the aggregators like Eaze in California,
for example, you’ll be in a really strong
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position to have real-time fulfillment.
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You know, delivery platforms that are emerging
like the one I mentioned, are game-changing.
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Benjamin A. Smith: Does that include Amazon
at all, like some of the big chains?
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Peter Miller: Could be.
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I mean, Amazon is selling a lot of CBD right
now, and I think sometimes they don’t realize
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it.
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Maybe they take vendors off, but then they’ll
pop back up again.
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So yeah, when people say We’re going to
be the Amazon of cannabis, no, you know what?
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Amazon will be the Amazon of cannabis.
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And so again, the same way that certain brands
sell products online, I bet they oftentimes
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sell a lot more of them through Amazon, even
if they’re sharing some of the margin.
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We just want to be where as many eyeballs
are and where as many people can vote with
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their dollars for our brands.
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I wouldn’t rule out online, but I do think
we’ll leverage partnership every step of
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the way to achieve that goal.
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Benjamin A. Smith: Okay.
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And lastly, I wanted to give you the platform
to talk about what investors can expect upcoming
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throughout the next three quarters, finishing
off 2019.
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Obviously you’re limited in what you can
talk about specifically, but perhaps you can
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give generalities of what investors should
expect.
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Peter Miller: Yeah, so we’re not going to
guide specifically on revenue or what deals
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we will or won’t do, but in terms of the
kind of deals we’ll do, I think we’ll
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be on a parallel path.
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We’re both kind of pioneering and colonizing,
if you will.
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We’ve pioneered form factors from the 510
thread vape under the O.pen brand, to the
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convection vape on the Firefly side for dry
herb, and with the Pressies, which is a pressed
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pill format, single serve, at the cash register.
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And it’s important to note that brands don’t
become brands just because they have a cool
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logo; they have to stand for something, they
have to have some history, something that
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differentiates them.
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And so when we’re looking at acquisitions,
we’re looking for companies that have done
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that, that have history, that have differentiated
themselves.
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Even if the market’s competitive now, you
know, Nike is in a competitive footwear market,
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but they basically invented the modern sneaker,
you know, 40-odd years ago.
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Benjamin A. Smith: And they keep reinventing
it.
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Peter Miller: And they keep reinventing it.
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That’s why Nike is Nike; they did something
that was unique, that was different, that
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was compelling.
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The swoosh is a great way to identify that
it’s Nike, but there’s some meat there.
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You know, Hermes is coming off centuries of,
you know, fine craftsmanship.
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It’s not just the orange bag.
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So when we’re looking for brands, we’re
looking for something like that.
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We’re looking for maybe regional coverage
that we don’t have, and we’re looking
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for subcategories or segments where we’re
not very well represented.
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We’re not in, you know, topicals.
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We’re not doing a ton on those kind of lower
volume categories right now; we started, you
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know, a vape, which is right near the top,
with edibles, with gummies.
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That’s the highest sort of product category
within edibles.
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So acquisitions, you know, we’re going to
target will be to fill gaps regionally and
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in the product portfolio.
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Those products will have brands that have
a history or something that differentiates
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them.
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Benjamin A. Smith: And of course, you’ll
be keeping an eye on the Banking Act or the
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States Act, to see what develops, so you get
THC on shelves, perhaps, in the future?
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Peter Miller: Absolutely.
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Safe and States are super interesting.
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I think Safe maybe could even happen a little
earlier, politically speaking, because the
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co-sponsors aren’t controversial.
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Everyone, I think, would appreciate the clarity
that the banks aren’t exposed to any sort
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of, you know, racketeering, money laundering,
whatever Cole Memo violations there could
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be.
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So if that opens the banks, I think the banks
then open the exchanges, and the exchanges
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open a ton of liquidity, which will be very
interesting for everybody in the sector.
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Benjamin A. Smith: And then, de-prohibition
comes after that, presumably?
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Peter Miller: Yeah, you know, I think there’s
like a wave, and I think I’ve said it before
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on this show that, you know, once the tax
revenue starts flowing, then I think people
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want to just keep that momentum going.
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And if you look at the history of Prohibition,
some of the big companies that emerged as
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consolidators like, you know, AB InBev, Constellation,
etcetera, you know, we’re talking multi-hundred-billion-dollar
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market caps in aggregate.
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You know, cannabis is getting pretty wild
in terms of valuation; you know, the good
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companies will fulfill, you know, those promises
that the valuations sort of suggest, and the
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bad companies won’t, and things will diverge.
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And we believe that looking forward into the
future, we’ll be one of the good companies,
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you know, selling great product with, you
know, a diversified portfolio of brands, and
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our strategy will not have changed.
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We’ll be a brand company with a great portfolio
of products, leveraging partnership to get
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those products to the shelf, and not exposed
to the volatility of commodity prices or the
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challenges of retail.
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Benjamin A. Smith: Terrific.
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Well, a great update as always, Peter.
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Thanks again for joining us in studio.
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We look forward to following your story as
the year rolls along.
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Peter Miller: Thanks for having me.
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