Episode #135: Karan Wadhera, Casa Verde Capital, “We’re Still In Very, Very Early Innings For What’s Going To Be An Incredible Ride”

Episode #135: Karan Wadhera, Casa Verde Capital, “We’re Still In Very, Very Early Innings For What’s Going To Be An Incredible Ride”

 

 

Guest: Karan Wadhera is a managing partner at Casa Verde Capital. He spent over a decade in Asia as a senior executive with Goldman Sachs and Nomura and has had significant international experience.

Date Recorded: 12/4/18     |    Run-Time: 41:31

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Summary: We start with Karan giving his backstory that includes a stint at Goldman Sachs and some entrepreneurship. After some time studying the industry, he ultimately got involved in the Cannabis space with Casa Verde. Meb then asks about what Karan sees as a “why now” investment opportunity. Karan talks about the opportunity coming out of the existing black market that is transitioning into a legal market and a range of products that have more to do with other things than just getting high.

Next, the conversation shifts to the political landscape, and Karan provides some detail on the gap between the state and federal level, and the federal view of cannabis as a Schedule 1 controlled substance. He discusses how dramatically things are changing, especially in the political space.

Meb then asks about the investment landscape for cannabis. Karan talks about how volatile the public market space is, and how when evaluating the theme, Casa Verde saw an opportunity in the ancillary space, companies involved in the industry but not in cultivation, manufacturing, or retail. He then provides detail on the kinds of involvement Casa Verde has in the portfolio companies, as well as some background on portfolio companies leaflink, green bits, trellis, and metric.

Karan then talks about some of the areas of the industry that need improvement such as financial services until the industry reaches federal legalization, ag-tech, and biotech. Meb then asks about investor interest in the space. Karan talks about how more traditional institutions are now starting to explore it, and how U.S. investors will be limited on what they can do until there is a federal regime in place. Karan follows up with some resources available to learn more about the industry.

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Sponsor: Esters Wine Shop & Bar

 

 

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Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

• 00:50 – Sponsor: Esters Wine Shop & Bar
• 2:03 –  Welcome and an overview of getting Casa Verde up and running
• 6:31 – Overview of the opportunity in cannabis
• 9:37 – The political landscape around cannabis
• 14:40 – Decision to position Casa Verde in the private markets within this space and valuing cannabis firms
• 20:10 – The stage at which they are investing
• 22:05 – Looking at specific portfolio companies
• 27:00 – Where they are in the life cycle of their capital
• 28:39 – Potential opportunities in the cannabis space
• 31:14 – Institutional response to cannabis investment opportunities
• 34:20 – Resources to immerse yourself in the cannabis space
• 35:38 – Miss Grass
• 35:52 – Merry Jane
• 36:10 – MJ Biz Conference
• 37:01 – Most memorable investment
• 40:34 – Connecting with Karan; casaverdecapital.com

Transcript of Episode 135:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Sponsor Message: Today’s podcast is brought to you by Esters Wine Shop. I love drinking wine, but like most, I’m pretty clueless when it comes to buying it. That’s why I outsource the selection to my friends, Kathryn and Tug Coker, the proprietors of Esters. Last year, “Food and Wine” magazine named Kathryn one of their sommeliers of the year. “The L.A. Times” called it the best wine bar in Southern California, also calling it a “high-ceiling temple of vinous pleasure that doubles as a retail store by day and chill, intimate wine bar by sundown. Right now, Esters is offering listeners of The Meb Faber show a 20% discount on all month-to-month wine club memberships for the rest of 2018 with the code “Meb.”

So even if you’re not in Los Angeles, you can order amazing wines from Esters while enjoying big savings. And if you’re in a state that Esters doesn’t ship to, come on out to L.A., and I highly encourage you to stop at Esters for an amazing experience. Drop me an email and I’ll even join you. Whether you’re ordering online or going there in person, you’re gonna love Esters. So to browse Esters wine selection, just go to esterswineshop.com. And remember, use promo code “Meb” for 20% off on all month-to-month wine club memberships for the rest of 2018. And now on to the show.

Meb: Welcome, podcast listeners, it’s holiday time. We have another amazing show for you today in our “Cannabis Investing” series. Our guest has spent over a decade in Asia as a senior exec with Goldman and Nomura, he’s now managing partner at Casa Verde Capital, a VC firm focused exclusively on the cannabis industry and other related business ventures. Welcome to the show, Karan Wadhera.

Karan: Thank you for having me.

Meb: So Karan, you’re local in L.A., should have dragged you into the studio, but great to meet you. We don’t meet too many Goldman execs that then turn into cannabis investors, so I thought it’d be fun to hear a little bit about your origin story. Casa Verde’s been around for a few years and we’re familiar, but most of our audience probably isn’t. Maybe give us a quick overview of your pathway of getting Casa Verde up and running.

Karan: Yeah sure, so I think I’ve had a bit of a, call it, bifurcated career, but really running simultaneously at the same time. One has been incredibly traditional, I joined Goldman Sachs in the equities division out of college, starting in New York, then San Francisco, the Hong Kong, and eventually ending up in India in 2006 to help establish the firm’s first front office in the country. So I was in Bombay, helping to build that equities business and then I went and did something similar for Nomura as they were establishing their presence in India. And then more recently was looking after Asia X Japan, trading for them out of Hong Kong. So that was one side of my life, which was much more traditional in the institutional world.

And then before that, actually before even Goldman, I’ve always been a pretty active entrepreneur and investor. I started my first business in college, which was looking at doing new media and digital media consulting for record labels and artists, which how I started coming out to Los Angeles. I was in Boston at a young age. And then when I got to India, and in many ways people look at my career and think there’s just these massive pivots, but in certain ways, I think it’s all very cohesive in a way.

So I moved to India, and I was really excited about getting to Asia immediately, as quickly as I could once I graduated college because I could see the massive opportunity and economies building and booming, and that’s what India was at that time and still is. So when I got to India, in addition to my role at Goldman, became really active as an entrepreneur and investor there, helped start a digital media business which now has an 80-person staff and has been funded by big VCs in the U.S. and in India. I was an early investor in what’s now become the largest India-dedicated hedge fund. I was just always very active and knew that’s where I would want my trajectory in my career to go if I left the institutional world.

And so when I did do that eventually in 2015, I came to L.A. and started poking around as to where I should be spending my time, initially thinking it would be a little bit more cross-border Asia-U.S. related, given my background, and got introduced to the cannabis space and became incredibly excited. Because what we were seeing was explosive growth similar to what I had witnessed in Asian markets over the last decade, and also starting to really see this talent transfer of individuals from Silicon Valley, from Fortune 500, from Wall Street now coming into this space.

But what I didn’t see was really an institutional platform to really support those new businesses that were growing in the cannabis space. So that really drove a lot of my excitement. But then, even with all those sort of positive points, it took me about a year before I really settled on my path and what I was gonna be doing in cannabis.

Casa Verde as a platform had existed before I joined, my partners I’d known for many years before that, but I sort of took over in the summer of 2016 and really made it my big coming out, right? Emailed my entire network and let everyone know that this was the path that I was pursuing. And even though that was only a couple of years ago, given at that time was a pretty big step and certainly, I think, shocked a lot of people as to what I was gonna be doing and pursuing next. But, of course, as the industry’s evolved and has gotten so much more acceptance, it now, I think at least in retrospect, looks like a pretty solid move.

Meb: Well, it’s funny because, you know, rarely do you have a product that’s been around for thousands of years that all of a sudden really only hits its stride in the modern times. But I’d love to get an overview in your words, where you guys mentioned, there’s a quote that says you maintain a view that, “The cannabis industry will be among the most compelling investment themes of our generation.” So maybe talk a little bit about what you see as the why now, why cannabis opportunity?

Karan: It’s a very simple answer, in some ways. And then as you really dig into the cannabis space, you really start uncovering how much opportunity there really is, right? So in the way you were saying it, you’re absolutely right. It’s been around for thousands of years, if you’ve lived anywhere in the U.S., even growing up, it has not been incredibly hard to acquire from the black market. And depending on where you were in the U.S., whether it’s California or the East Coast or in Middle America, had various, differing levels of stigma attached to it. But obviously, this existing black market, what we estimate to be a $100 billion industry in the U.S. alone, has been there, it was always there. So I think in certain ways it was obvious, as we transition into a legal market, and this is globally, and moving out of the gray-black market and into a more sophisticated consumer product, there’s just incredible opportunity.

I think what we’ve really started to realize now is that there’s so many avenues in how consumers will interact with the plant. And I think that is something that, for lots of people, is just being discovered and understood now. Now, if you’re in California, where we’ve had a medical, more or less, quasi-legal market for 20 years before legalization, there was a much more advanced understanding, and people are using cannabis for medicinal benefits. But I think in the rest of America, it’s now just starting to get uncovered as to, hey, whether I’m a senior citizen, or I’m a soccer mom, or the vast demographics beyond the stigmatic stoner that was thought of before, there’s a whole range of products for you to consume it and a way for you to interact with cannabis, a lot of it which has nothing to do with stereotypically how we think of cannabis as something that you use recreationally only to get high.

So whether you’re talking about nutraceuticals, whether you’re talking about form factor, cannabis has historically just been linked with smoking. And the idea now that there’s beverages and edibles and topicals, a whole range of ways to even consume, it really is starting to open people’s minds about the plant in a way that they had never really thought about it before. So I think that’s what really got me excited about it, right there. The year that I spent evaluating the space, and really getting a deeper understanding of the medicinal elements, the wellness elements, and then also the recreational elements.

Meb: As you guys started thinking about it, you obviously have this massive opportunity. And part of it reminds me a little bit about late ’90s, early 2000s internet where it’s very clear that this industry’s gonna be booming. I just went to the big Marijuana Cannabis Conference in Vegas, which for someone who goes to a lot of conferences, was certainly unlike any conference I’ve ever been to because you see a full spectrum of a lot of money washing around, and a lot of, probably, businesses that are gonna be multi-billion dollars, and a lot of them that will flame out. Talk to me a little bit about the current political landscape before we get into more specific investing concepts and segments. I’d love to hear, it’s hard to talk about cannabis without talking about the landscape in the U.S. and internationally, and kind of how the politics shape the industry.

Karan: Right. So, of course, the one big issue with investing in cannabis, and the problem that lots of people end up having when they assess the space, is that there’s this big divide, right? Everyone is reading about how new states are coming online, whether it’s for recreational use or for medicinal market, that continues to evolve, but at the federal level, the federal government still views cannabis as a Schedule I substance, which is as bad as it can get from that perspective. We view it as badly as we would any other drug, which of course is ludicrous if you know anything about cannabis, but there’s a whole historical context that goes back to “reefer madness” in the ’20s and ’30s, all the way through the Nixon and Reagan era where none of these things were ever really resolved or re-evaluated. It just kept getting stricter and stricter.

So that divide makes for lots of challenges. However, I think if you look at it from a momentum of what’s happening politically, it’s certainly becoming clear that in the U.S., and obviously we’re just talking U.S. right now, things are evolving dramatically and you’re starting to see a lot of support now in the Senate and in Congress from representatives who want to bring the cannabis economy to their jurisdictions. And I think that is now starting to drive a lot of activity and legalization across the U.S. and I think ultimately will force the federal government to rethink their cannabis policies.

So there are a couple of initial bills in front of Congress at the moment that we feel very confident that will get passed, which will be helpful. The first is the States Act, which basically says that the federal government can’t interfere into cannabis businesses as they evolve and develop in the state level. Takes away a lot of the risk associated with the business at the moment. And the other is the Farm Bill, which is much more focused around hemp. But hemp, which is basically cannabis, the same cannabis plant with a much lower content of THC, also can extract CBD, which is another part of the cannabis plant, which has been linked to wellness and anti-inflammation and a lot of the medicinal benefits that are not associated with THC, which is much more about the high.

So I think in the U.S., the momentum is fairly positive. And to be completely honest with you, this current dislocation between federal and state governments is what’s been a huge advantage for funds like ours because it does keep a big chunk of investors and corporates out of the space and allows us to take advantage of that at the moment. And then, sorry, more broadly, internationally, the same thing is happening, except a lot of governments at their own federal levels are now moving to legalize both for adult recreational use and also for the medical perspective.

So Canada being the largest, which just a couple months ago, turned into a fully recreational market. So it’s the first G7 country to ever have gone through that transition, which is very exciting. Uruguay has been legal for some time. And now across the globe, but heavily in South America and in Europe and obviously North America, we’re starting to see real changes take place. It almost always starts with a medical legalization of some sort and then transitions into adult-use markets down the line. So I think the global-political support for cannabis is as strong as it’s ever been.

Meb: You touched on a couple of points that I think are really accurate, the first is the expanding marketplace. I mean I know of so many friends and family that have never remotely been use cases for some sort of cannabis product that are now totally fine whatsoever with utilizing CBD oil to sleep, or whatever it may be. And the second, the politics, I think it’s funny because it’s always humorous to see how tax revenue and when things start to generate billions of dollars of money, change politicians’ perception very quickly.

I want to start to talk a little bit about the investing side now. So you guys…would love to hear the decision to position yourself on the private side. Because easily you could have said, “You know what? Maybe we’ll do a public fund,” or maybe you will at some point, I don’t know. But what’s the original thesis on…you guys have done, I think, about a dozen investments so far. What are you guys looking for? Why did you pick private? What’s the specific segments you’re thinking about targeting?

Karan: Good questions. So I think at the end of the day, we’re all looking to get exposure to the same basic theme, right, which is that there’s this massive cannabis industry that is developing and growing, legalization is taking shape worldwide, how do I get exposure to that theme? And as an investor in general, depending on what levels of access you have, there were only a few routes available to you. One is, as you mentioned, the public markets, which as you know very well and I’m sure have been speaking about or will speak about to other folks, is incredibly volatile, trades at certain times absurd multiples, and while you can certainly make money trading these names, at certain points it is very similar to the late-’90s kind of dot-com bubble you were referring to, right? There’s just a lot of euphoria and to some degree a lot of scarcity value, which is driving up the prices of some of these names. And they’re all trading on 2020 revenue estimates and beyond because the true market has yet to completely shape out.

Meb: On revenue estimates, I heard one of the guys speak at the Institutional Conference that you were on a panel at, and you may have heard the same guy speak, but said, “You know, you just can’t analyze cannabis companies with traditional valuation metrics. And I kind of just like…at the back of my room, my jaw hit the floor. I’m like, literally that’s exactly what people used to say about tech companies. I can’t believe this guy said that with a straight face.

Karan: It’s amazing. And you know, I wasn’t in the market when the tech bubble was happening, but my brother had just joined a tech boutique investment bank at that point. And I remember the stories that you would base valuations on comps, such as that, “Hey, this company has 20 PhDs and it sold for X million dollars, this new company has 30 PhDs, therefore…” right? Using crazy multiples. And while it may not be that directly absurd in the cannabis space, a lot of it is based on metrics that are hard to value, right? Like they acquired another million square feet of real estate, does that actually mean anything right now? You know, but using that as a guide towards a higher and higher valuation. So it’s pretty incredible to watch, and we’re definitely seeing it happen. The consequences of that are starting to already take shape and I think you’ll see a lot more volatility in the public names because you’re letting euphoria now sort of take hold, as opposed to reasonable fundamental analysis.

So like I was saying, the public markets had their challenges, and then a lot of what, and being in California, I’m sure you saw this as well, a lot of the opportunities to other individuals across the country were much more focused on, “Hey, my friend or my cousin has land,” or, “They’ve applied for a license,” or, “We’re gonna start a cultivation,” or, “We’re gonna start a store.” It was much more direct into one particular opportunity, which again, has a lot of concentration risk for people who want to get exposure to the theme.

So anyway, we didn’t necessarily see a great way to get exposure to the theme, and that’s when we started doing a lot of analysis into the ancillary space, which is basically companies that are involved in the cannabis industry, but are not cultivating, manufacturing, distributing or retail, it’s much more around technology, compliance, staffing, all these support services. You know, the common refrain is “picks and shovels.” You know, when you think about the gold rush, taking that sort of approach to looking at the cannabis industry.

And what got me really excited was a multitude of reasons. One is that being private just already you had a lot more reasonable valuations than what you were looking at in the public space. Two, you were dealing with a lot less competition in the verticals you were targeting. And then three, you were seeing a lot of these entrepreneurs from similar business lines in the past now seeing an opportunity in the cannabis space, so you were getting real pedigree talent coming in and looking to establish these businesses.

And what I also loved about it is that, unlike other industries, and tech in particular, were often referring to, “This is gonna be such a disruptive technology, this is gonna change the way things are done.” In cannabis, we’re so fortunate we’re not dealing with that, right? We’re actually laying the foundation, we’re creating the landscape for how businesses operate here. So a lot of the businesses that we have ended up investing in have started to become ubiquitous and leaders in their particular segments, which also got me really excited because. obviously, you could make a real strong impact if you come in really early into some of these spaces, and I think that’s the area that we found most exciting. So yeah, the fund, only invests in private deals, and more specifically, only invests in the ancillary segments.

Meb: Maybe walk me through, to the extent that you can, and if you can’t, that’s cool too, one, what is the traditional check size? Are you guys kind of Series A, etc.? I know you had a big news announcement this past week, partnered up with Tiger, but what’s the traditional business stage you’re looking at? Is it multi-stage? And how do you kind of envision you all’s involvement? Are you trying to get on a board seat, are you trying to be passive, what’s the general investment process?

Karan: As you sort of mentioned, I think we’ve transitioned into a stage-agnostic model now. Whereas domain experts, we feel really qualified to be doing early-stage seed checks up to a sort of growth check, which is probably what you’re referring to in the $50 million transaction we did with Tiger Global in a business, call it, metric. And I think when we started, it was much more focused on early stage, and to be honest, it’s all kind of early stage, right? The industry’s just getting going. But I think as we evolve, we definitely want to be more stage agnostic because we think we’re in the best position to assess any of these businesses.

And in terms of proactivity, we’re incredibly proactive. We lead most of the transactions we’re involved in, we take board seats or at the minimum board advisers in every deal we’re involved with. And I think more and more as we grow our business and have some years under us, we’re much more a strategic partner to our portfolio companies. So I think what we bring to the table is an incredible amount of, now, a bit of institutional knowledge in the space having gone through 15-odd transactions working with folks sort of across the board and bringing that expertise from a business development standpoint, or even for fundraising purposes, we like to be very hands-on. And, aside from capital, I think that’s what attracts portfolio companies to Casa Verde.

Meb: Is there any sort of portfolio companies you can kind of walk through the thesis that you feel comfortable with?

Karan: Sure, yeah, absolutely. I’ll give you an example, one of our businesses is a company called Leaf Link. Leaf Link has now quickly become the leading wholesale marketplace for retailers and brands. So think about it like Amazon, but instead of it being consumer-facing, this is business-to-business. So retailers, dispensaries are on the platform, and they are reviewing the brands that are on the platform and they’re replenishing their inventory for their stores. And on the surface that sounds like a pretty straightforward business, and makes a lot of sense. I think you would be surprised to learn that there actually aren’t that many of these businesses in terms of traditional industries that have any real market share.

And again, to my earlier point, what Leaf Link’s been able to do is really create this ubiquity of how wholesale transactions take place. And so they started in Colorado in one market, and they’re doing a few million dollars a month in transactions on their platform. They’ve now grown to multiple states doing tens of millions of dollars of transactions a month on their platform and have brought on thousands of retailers and thousands of brands. And slowly what you’re moving to, again, like we talked about, was this idea of ubiquity, which is just that this is how wholesale transactions take place in cannabis, and it’s much more easier, it’s much more streamlined, and you’re able to have this tech-forward industry because we’re building it from scratch.

So Leaf Link is a great example of that, and we could see that early on because we assessed how are brands doing business now, how are brands able to get in front of retailers, and then also the opposite. And what we were seeing in our diligence was that retailers were having to make phone calls, text, email, there was no set parameters on how they were re-ordering inventory or dealing with their brands, and Leaf Link has now been able to establish a bit of that centralized portal, you could call it. So that’s one where we’ve been incredibly active and involved early and has had a tremendous result.

Meb: Can I talk you into one more?

Karan: Yeah, please. We’re huge believers and we’re really excited about maybe a boring theme to most but is exciting for us, which is compliance. I think that is the core of what makes the cannabis industry so different than other industries, and honestly, what makes cannabis one of the most transparent industries in the world. When a market legalizes cannabis, and we saw this first with Colorado starting in 2013 and 2014, they want to make sure that they’re able to properly track and trace the entire industry and ensure the product is not moving off into the black market, or that for health and safety reasons they know what’s happening. Because, you know, people have trepidation, cannabis moving in to the legal framework is a new thing.

So the way they tackle that is a whole…Basically if you’re a licensed business in the cannabis industry, meaning starting from cultivation all the way up to retail and in between, you have to report almost on a daily basis back to the state government as to the movement of all your product. So if we’re talking about a plant, in most recreational states the form of tracking is through RFID tags on the plant. And then it’s traced throughout its growth as leaves are falling, as buds are growing, is it being dried, is it being trimmed, is it being packaged, is it being warehoused or shipped? It needs to be tracked at every moment, it has to push that back into the state system.

So as we looked at this space, we realized that someone’s gonna have to come and make this process a little bit easier for customers because this is onerous for big pharma, let alone SMEs in the space. And so a number our investments have been in businesses that provide some functionality that’s useful to their client but also automates the compliance needs for that business.

So we were investors in Green Bits, which is a point of sale, not too much different than something like Square, but again, automates compliance on the back end so that the retailer remains compliant just by using this point of sale versus another, or a more generic mainstream counterpart. We invested in another business called Trellis, which focuses on inventory management, and again, offers that automation of compliance to the cultivators. And then most recently Metric, which was our largest check to date in the space, that is actually that state government compliance platform that’s most dominant in adult-use states, which people are having to report in to, and so that was another investment that we made. So we’re big fans of compliance.

Meb: I can sympathize being an SEC [inaudible 00:26:52] registered company.

Karan: Yeah, exactly.

Meb: Our biggest line item is basically legal and compliance, so I think that’s right on. Where are you guys in the life cycle of deploying your capital? I think you recently closed the first fund this year. Are you halfway through, are you totally deployed, a quarter of the way through?

Karan: We’ve deployed quite a bit, so we’re in 15 companies, we’ve followed-on in many of them. I think you were asking on check sizes, it varies from half a million dollars all the way up to millions of dollars, depending on the particular transaction. So we’ve been incredibly active and deployed quite a bit, yeah. The fund closed last year, and I think we’ve done nine transactions already this year, so it’s been very active for us.

Meb: Does this include any of your entrepreneur elevator pitch potential companies? I was laughing because I was enjoying watching listeners, this was like a “Shark Tank” style show where entrepreneurs would have 60 seconds in an elevator to pitch a crew. And I was laughing because one guy was coming up with a valuation of like $200 million, and then the very next one was a company doing a half a million in revenue that was trying to sell part of the company for a market cap of like 500 grand. It could not have been more of a barbell-like situation.

Karan: And to be fair, that’s very representative of what the cannabis market is, you know? It’s still very dislocated, it’s unclear what valuations should be. And again, we’re very valuation-sensitive, we try to bring people back to Earth all the time, and if it’s too outrageous, we definitely won’t engage. But no, unfortunately, Casa Verde did not invest in any of those elevator pitches that you saw in that show.

Meb: What do you think, as you look forward in the coming years, is there anything, if there’s entrepreneurs listening to this podcast in this space, is there anything that you say, “Man, this is missing. There’s an area in cannabis ecosystem that, man, it’s just a great opportunity, and I wish some entrepreneurs were tackling, that just doesn’t have a great, kick-ass business model or application yet,” is there anything that you think has really got a lot of potential?

Karan: Yeah, I think there’s still a number of areas that need a lot more innovation and great entrepreneurs to solve problems. I mean there’s some obvious ones, you know, financial services, until we get full federal legalization there’s a lot of opportunity there to start solving for payments or banking solutions. We’re very conservative as we think about those spaces because one of my key qualifications for an investment is I’m looking for companies that are gonna be a big part of the cannabis industry for the long term, right? Not solving some short-term issue. So that doesn’t mean that if you come in and have a payment solution, that doesn’t mean that you’re immediately gonna be displaced by more mainstream players when things open up, I think there really is an opportunity to be the leader in the cannabis space, then potentially be acquired by one of those players or compete head-to-head.

So financial services, I still think there’s a lot to do on the compliance end, we’re still looking at that space. We haven’t made any bets in the AgTech space, I think that is really interesting, right? For the first time in a long time, you now have a really high-value crop, so that usually drives innovation as people now need to continue to focus on how to be more efficient in production.

And then we made our first biotech investment, which was also a co-investment with a large, strategic, Imperial Brands, one of the largest tobacco companies out of the U.K., in a business called Oxford Cannabinoid Technologies, which is starting to explore how uniquely formed cannabinoid compounds can start to attack some of the largest indications in the world, from pain to cancer to gastrointestinal, etc. Obviously, the medicinal side of the cannabis industry is very exciting, but a lot of it is based on anecdotal feedback rather than clinical research. So I think that’s a huge opportunity, you’ve seen that, you know, I’m sure it will play out with certain big public names like GW Pharma, but there’s a lot more to explore, and I think we’re super-bullish on that end as well.

Meb: So talk to me, as you guys went through the process of raising a fund and closing it and deploying it and probably eventually raising some more funds, hopefully, in the future, we have a lot of institutional investors, professional investors who listen to this podcast, what has been the interaction response to date? I mean if I had to guess, and I don’t know the answer to this, I would assume most of the interest, investors, LPs on your side, have been high net-worth individuals, family offices, sort of entrepreneurs and business people that have sold businesses because a lot of institutions tend to be pretty cautious about these things. I mean we’ve had a marijuana ETF filed for like three years now, but none of the custodians will hold the public stocks. What has been the institutional response?

Karan: So I think you’re spot on. Definitely, our LP base has primarily been made up of family offices and high net-worths. I think what’s changed, and I’ve seen this at each step of the way over the last few years, is that there’s definitely more and more comfort. I’d say the more traditional institutions, the pension funds and the endowments, are now at least starting to explore. It’s clear they have to learn about the industry. They need to understand who some of the important players are, and while they may not be able to deploy capital this day, it’s certainly something that will come in the future. So I think they’re already starting to do their work and do their research.

I think that’s been the most incredible thing to me, right? There’s a common refrain that the cannabis industry moves in dog years, everything’s accelerated, but it’s very true, you know? I remember writing out investor letter at the end of last year saying, “Hey, in the process of raising money for this particular company, this was the first time I’ve really seen genuine interest from the more traditional venture community,” right? All your sort of name-brand institutional investors were now taking meetings, where six months ago it was just a simple ignore of the email.

And now, we’ve now seen multiple venture firms step into the space and start investing in companies, and obviously, Tiger is one that we’ve worked with on a number of transactions. But I think that just continues and continues to evolve. And once the venture and private equity funds are deploying, then it’ll start moving up the value chain into their major sources of capital, and I think the institutions will have to take notice and will have to start investing.

I think the U.S.-based folks will be a little limited on what they can do until there is a real federal regime in place, but I think internationally as their own countries are starting to legalize at a federal level for medicinal or recreational purposes, I think you may start seeing activity on that end. And obviously, Canada moving into the space has, again, given a lot of credibility to federal institutions there to start getting active in the space, so I think it’s gonna start having the kind of domino effect.

Meb: All right, so let’s say there’s some people listening to this, whether high net-worth individuals, institutions that say, “All right, Meb, Karan, I’m convinced, I love this space,” what are some good resources for them to get up to speed? Are there any good websites, books, podcasts etc. that you think…conferences, etc., that you think are good places for people to kind of begin the journey to really get immersed in the cannabis space?

Karan: Yeah, I mean I think certainly visiting a legal market, walking into a dispensary, understanding just from a consumer standpoint what is happening here and what the experience is, that will give you a lot of insight immediately to start understanding, “Oh wow, there’s still such a long way to go here,” right? Even in more developed markets like California or Colorado have a lot of investors who have vacation homes in Aspen, and when legalization took shape in Colorado and they were starting to see cannabis products come out at their dinner parties and things like that, that’s when it became obvious and clear to them. So I think visiting a legal market’s really important, if you’re not in one, I think it’s important to see how that’s taking shape around the country.

In terms of resources, you know there’s a number of cannabis-focused media outlets now, depending on what you want to learn about. We’re invested in a couple, one’s called Ms. Grass which is much more around a female-focused media platform, talking about how women are starting to interact with cannabis in various ways and products that make sense. Then another’s called Mary Jane, which is much more entertainment, lifestyle sort of focused. But there are a few business ones out there as well that you can quickly google and a bunch will pop up.

I actually do definitely recommend going to a conference. The one you mentioned, that is the one that we’ve attended every year, the MJ Biz Conference in Las Vegas. That is, by far, the largest conference. You really get to get a sense of all the businesses that are involved on the expo floor, from cultivation to equipment to brands to software, sort of everyone is there. So I think it’s helpful to visit there, and you can actually have conversations and understand how these businesses function.

I think the more you’re able to really get comfortable with a few of these spaces and sort of touch and feel the industry, the more excited you end up getting. Because I think while a lot has happened, and the public euphoria would make you sort of think you missed, potentially, the cannabis opportunity the reality is that we’re still in very, very early innings for what’s gonna be an incredible ride.

Meb: We’ve got one more question that we always ask our guests, and that is as you look back on your career so far, personally, professionally etc., has there been a most memorable investment or trade that you’ve been involved with? This could be personal, it could be great, it could be terrible, anything in between, but it’s usually the first thing that comes to mind as the most memorable investment that you’ve ever made.

Karan: Yeah, so I’ll bring this more into my old world and where you currently are as well, more sort of equity side. Coming into Goldman and really getting excited about the technology boom that we were seeing in [inaudible 00:37:44] in ’04, I was…and also at the same time learning about the unique financial instruments that you can use to really level on the upside at the bets you want to make, that to me was brand new, I wasn’t familiar with options trading. So I bought a lot of long-dated calls in Apple starting in 2004 all the way through the crisis and made a lot of money doing that, a lot of personal money that way. So that was always fun, and because it was part of [crosstalk 00:38:14]…

Meb: What was the thesis, was that an old-school Peter Lynch, you just loved the iPad, no, the original iPod? What was the thesis?

Karan: Yeah, yeah. So you know what’s so interesting? Yes, so obviously, the iPod was the only real product out there that was getting market share, and it was really interesting, because I worked on the sales desk there and one of the best things about being on the sales desk is you can speak to so many different investors, all the research analysts, you get to be on the calls to understand what investors are thinking and what they’re asking, so it’s such a great place if you’re excited about public markets, which I’ve always been, it was a great, great place to be.

So I remember being on the phone with a super-deep value investor who was looking at Apple, and I was just so confused. Because at that time, at any time, really, everyone would never think of Apple as a value play, maybe only now, right? And what was interesting about it was their penetration at that point in the non-iPod segment, such as the computers, laptops, and iMacs, and that world was so irrelevant but had such great margin. As people were adopting the iPod more and more, and the sort of closed-end ecosystem would…the prediction was you would move into the laptops and the larger ecosystem, the Apple side, was that you didn’t have to move that much to see tremendous gains.

I think that’s what got them excited, and just hearing that got me interested as well. And then around that time, the iPhone was long-predicted, starting even in 2004, that there would be some ability to add a phone functionality to what the touchscreen iPod was, or the various iterations that were coming out. So I think that’s what got me excited and helped cover a lot of my recreational expenses over the years.

Meb: I love it because this illustrates why I’m a quant and not a discretionary analyst. I remember the first time my buddy had an iPhone and showing how awesome it was, I was like, “You know what? I don’t get it. I’m perfectly happy with my Razor,” my [inaudible 00:40:27] phone I had, “I don’t understand.” Little did I know, the world’s first trillion-dollar company here in the U.S. Karan, where can people find more info? They want to see what you guys are up to, they want to follow your writing, your talks, where do they go?

Karan: Yeah, I mean our website’s the easiest, casaverdecapital.com, we also…you can follow us on LinkedIn and Facebook and Instagram. Not as active as I should be, but we do try to put out whenever there’s something important or relevant that we’re involved with, try to use those mediums for publicity. But yeah, our website and any of the social channels are the right way to go.

Meb: Awesome man, thanks. We’ll post links to all those, mebfaber.com/podcast. Listeners, Karan, thanks for taking the time today.

Karan: Absolutely, thank you, Meb.

Meb: Listeners, you can find more at mebfaber.com/podcast. We always welcome feedback at themebfabershow.com, please give us a review. We’d love to hear good, bad, anything in between. Subscribe to the show in iTunes, Stitcher, Overcast, and my favorite, Breaker. Thanks for listening, friends, and good investing.