Episode #274: Mitch Baruchowitz, Merida Capital Holdings, “Is The Trade Over? No…It’s Just Getting Going In Some Ways”

Episode #274: Mitch Baruchowitz, Merida Capital Holdings, “Is The Trade Over? No…It’s Just Getting Going In Some Ways”


Guest: Mitch Baruchowitz is a Managing Partner at Merida Capital Holdings, a private equity firm targeting fundamental growth drivers underpinning the rapid development of the cannabis industry. Mr. Baruchowitz has nine years of experience in the state-legal cannabis industry and is considered a national expert in the diverse licensing regimes governing each state.

Date Recorded: 11/5/2020     |     Run-Time: 1:09:59

Summary: In today’s episode we’re talking about investing in the cannabis space. We hear what piqued Mitch’s interest in the cannabis space and what the process was like to get a cannabis license in Connecticut and build and operate a 65,000 square foot facility. Mitch explains what led him to start Merida Capital and how he knocked it out of the park with his investment in the unicorn GrowGen. We chat about what types of investments he looks to make and what the impact of COVID and 2020 elections have had on the space.

As we wind down, Mitch shares why he launched a SPAC in 2019 before the craze began and what that process was like.

Comments or suggestions? Email us Feedback@TheMebFaberShow.com or call us to leave a voicemail at 323 834 9159

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

Links from the Episode:

  • 0:40 – Intro
  • 1:35 – Welcome to our guest, Mitch Baruchowitz
  • 4:20 – Mitch starting as a trading bandit and high-speed trading
  • 9:18 – Origin story in the cannabis space
  • 19:22 – Inspiration for Merida
  • 24:41 – Building Merida
  • 29:12 – Early investors in the fund
  • 37:18 – Launching a SPAC
  • 39:43 – Opportunity in the future for the space
  • 43:55 – Michael Kitces podcast on marketing/acquisition
  • 53:25 – Future of the regulatory landscape for cannabis
  • 57:50 – Global landscape for Cannabis
  • 1:01:11 – Other plans for Merida in the future
  • 1:03:35 – What people should check out; email info@meridacap.com, twitter @meridacap
  • 1:06:33 – Most memorable investment


Transcript of Episode 274:  

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.

Meb: What’s up, friends? Fun show for you today. Our guest is managing partner at Merida Capital, where he focuses on structured investments and private equity in the cannabis industry. In today’s episode, we’re talking about investing in the cannabis space. We hear what led our guest to the cannabis space in general, what the process was like to get a license in Connecticut and build and operate a 65,000-square-foot facility. He then explains what led him to start Merida Capital and why he examined the case study of his early investment in the unicorn rocket ship GrowGen. We chat about what types of investments he likes to make, and what the impact of COVID and the 2020 elections have had on the space. As we wind down, our guest explains why he launched his SPAC in 2019 way before the craze began, way before SPACs were cool, and what the process was like. All this and more with Merida Capital’s Mitch Baruchowitz.

Meb: Mitch, welcome to the show.

Mitch: Oh, Meb, thank you so much for having me.

Meb: Last time you and I were hanging out in the real world, it was at the top of the world in Las Vegas stratosphere. And now here we are on Zoom.

Mitch: I’d rather be at the top of the stratosphere, I think.

Meb: That was about a year ago. And I haven’t told you this, but I had originally, I think, seen you present at the first MJBizCon I went to, which was in 2018. And out of the odd 100 people probably that I saw that day, there were about 4 that I consider to be thoughtful, legitimate, reasonable. This was back in the first run-up in cannabis stocks. And I wrote down the names of the couple of people. And the rest, it was a little bit of a crazy scene. 2019 had some sort of retribution. After all, everyone lost all their money, it felt like. And we got to hang out. And then here we are in 2020, a day after the election, for listeners’ context, cannabis stocks are rocking and rolling. Good to have you on the show.

Mitch: Thanks. So, let me ask you, though. You didn’t answer the question, am I one of the four people you wrote down?

Meb: Yeah, exactly. You’re right. You were in the crazy bucket. But no, it was funny because I went to the institutional investor day. And as a quant public markets guy, I kind of sat in the back of the room. And I like to go to these events just also take stock of sentiment and everything else. And in 2018, it felt like ’90s internet. You could see where the money and the cash and the opening up of the sector brings out all types, particularly in Las Vegas. But there were a lot of legit people there too. So, yes, you made the list. Just barely, but you made the list.

Mitch: I remember that was a panel I was on with Abner Kurtin who’s done a great job with Ascend Wellness and another fund manager who I think runs a small fund. And I think MedMen came up if you remember. And I’d had some specific perspective on that on Twitter right when they IPO’d. And I just…I remember talking about on that panel and I think I got…you get approached, people chase you off the thing when really they should go into the back and chase you for your ideas. But it’s actually interesting you talk about retribution, though, because I do think ’18, when we talk about vintages, I think cannabis is one of those interesting industries where the vintage, even for us, I think we perform pretty well throughout, but I think vintages for the retailer has been…When you invest it is almost more important than what you put money in depending on, you know, if you knew how to, kind of, exit quickly and take your money, especially in the public markets.

Meb: Well, I mean, that’s the thing with startups and businesses of all types. I mean, if you look back at some of the best-performing companies in the last 20 years, the Googles, the Airbnbs, I mean, they were started during bear markets, financial crisis. So, there’s always opportunity. Before we get to cannabis, which we’re going to spend most of the time on today, you started out at one point as one of the Trading Bandits. Is that right? Did I hear that correctly?

Mitch: My brother more than me, but yeah. Intriguingly enough, when I was in law school, my brother was one of the SOES Bandits. And just for people, you know, I’m sure you guys know, but maybe my part of the world, which will add to your base, hopefully, of listeners, we were the people that could use an electronic system to take advantage of old market maker modalities the way that they used to trade together on something called SelectNet. And so my brother and a bunch of the early, kind of, traders who had access to technology could literally navigate between the bid ask spread when it was huge back then. It wasn’t as easy to make money as you think.

There were some hilarious moments back then early on. But what I was doing is I was in a stats class in law school and I kind of discovered that using a stats program called Lotus 123, which in the legal world was just arcane, but we were using it for stats, because I was taking a lot of the MBA classes too at BU Law. And I discovered you could actually, like, do a data capture and actually capture trades and actually create, like, an actionable, sort of, program off of someone’s trades that were successful. And eventually then in New York, about a year later, there was this whole conflagration of people doing that and then day trading was born and then high-frequency trading. And so we were really at the front edge of that. Yeah.

Meb: Would there still have been fractions?

Mitch: Oh, yeah. I mean, teenies and…I mean, it was so easy to make money. The guy from Staten Island who would come in hungover and just buy something and it would go up like a point-and-a-half. And if you sold it at the right time, you’d be fine. Guys making 50 grand a day, hungover, out of their minds. Now, don’t get me wrong. Within a year, that was like a very small window, two to three years of ease. They were Broadway trading, day tech, all these guys, and a small fraction of the money. The smartest guys, you know what they did? And this taught me a lot about the world. The guys who made the most money were the guys who said, “I’m going to get an economic deal with the back offices where I’m paying a penny a share and I’m charging two or I’m paying a quarter-penny a share.” The guys who aggregated volume and didn’t care whether you made money or not and just made money off your tickets, those guys, and the intraday, by the way, the other guys made a ton of money.

Just to tell you like how my mind is informed on these little economic things because I was at a law school. I didn’t realize how many ways you could slice a penny. My parents, my mom was a teacher, my dad was a very small entrepreneur. I knew nothing about these things. The guys who made the intraday margin loans were making on APR basis such insane money that it was like, okay, if you had like 500 grand to lend a bunch of day traders for the day who had no exposure, basically, and you were charging them the highest exposure they had that day from a net perspective using, like, leverage, people have, like, 40 to 1, I mean, you were…These guys are probably making like 7,000% a year on loans that were totally secure.

Meb: I always laugh when investors and particularly the media talks about brokerages like Robinhood as being this huge democratization. And I’m like, really, they’re like Sheriff of Nottingham. To be clear, an incredible business. But if you look at all the ways…Still to this day many of these brokerages make money whether it’s payment for order flow, short lending, intraspread, margin lending, all the way down. I say one of my favorite ideas, billion-dollar idea out there, is to start a brokerage that rebates a lot of that back to the consumer. I don’t know. Some of them do it one-off. So, like, Schwab, if you’re big enough, you can set it up so you’ll get some short lending. And if you’re smart enough, you can just invest the cash instead of having it be at 0% on and on down the list, but it seems like an opportunity. Anyway, totally off-topic.

Mitch: No, you’re right, though. By the way, interestingly enough, I mean, it is something that I think once you’re in a space like cannabis that’s still emerging, but I’ve been on the ad tech revolution, part of the day trading revolution, I’ve actually been really lucky I worked in market access, which completely revolutionized bond trading and turned it electronic. I mean, I think it’s been luck…Sometimes you’re always…When you look for career opportunities, I think people like that you were at another emerging thing and, like, when MarketAccess hired me they liked the fact that I understood day trading and that I’d worked on the World Trade Center Recovery Grant Program and understood regulatory, sort of, arbitrage and some of those, like, let’s call them the areas in law that were a little more bleed together, right?

Like a World Trade Center Recovery Grant Program was mayhem for a few years because no one really understood who downtown deserved money or didn’t. And so when you think of those things, I’ve been very lucky. But I will say that Ameritrade doesn’t offer free trading, basically, because there’s not money in making it in some other area, whether it’s selling the data off or selling you mortgages or…And I didn’t even know that stuff back then. But I will say that, in looking at how these guys made money 19 different ways, I realized I had a lot to learn about finance, I think.

Meb: Yeah. Look, I mean, this is a great business. I mean, we go down a rabbit hole on this, but we talk about a lot of these apps in 2020 that the VCs are fawning over and investors love but if you actually go through some of the math, I mean, some of these savings apps, you end up paying like 6% a year, but they’re like, “It’s only $1 a month.” And we’ll say, “Well, you only have 100 bucks. You want to do the math on that, consumer.” Many of them are predatory. Anyway, not the topic. Two eyes. So, you did some general counsel, chief compliance, banking, origin story rolling into cannabis but you were pretty early in the cannabis sector, right? And kind of on the operational founding side. Give me the origin story. We’ll get to Merida in a minute.

Mitch: Yeah. So, I got really lucky. Again, another, I guess, just lucky but unlucky, was one of my best friends, roommate, business partner had been hit…Actually, all the way back to 2000. He was one of our day trading partners with my brother and he had been hit by a car and paralyzed and just the life…His recovery was very heroic, but dealing with opioids was an incredibly challenging thing. And through our conversation, I mean, we were like brothers. So, it’s like we would have these deep conversations about his life and he just said, “I can’t live like this. I can’t live in this brain fog.” I mean, this is a really thoughtful guy who went to UPenn, like, really smart. And now he’s…every day he already has a challenge.

And the added challenge of opioids, which, as most people know by now, are not maintenance medicines. That is to get you out of your acute pain phase so that you can go on with your life. And unfortunately for America, they, you know, shifted into a maintenance drug, which is absolutely insane if you know what opioids do to your body. The receptors, the toxicity. There’s like four other medicines that have been launched that they give with opioids now, right, around other things they do.

So, he moved out to Colorado and because of the non-residency, he couldn’t own equity directly. He had gotten this, like, labyrinth of documents. And by then I’d shifted to be the General Counsel of Pali Capital, which was a pretty successful $250 million revenue operation. And I had a really large role in, sort of, looking at contracts, constantly doing things. I just said, “Hey, let me just do all the legal work. I’m really nervous that you’re not getting the stewardship you may need.”

And so in looking at those things, he discovered some business models that he could run, like, renting out a building that would rent…like the WeWork of cannabis way before anyone else and it was really forward-looking and he deserves a lot of credit for seeing that. And through the evolution of that model, I built all the financial models around it because, you know, every year I started adding to my life resume. I wound down Pali and now it’s banking, I was running Family Offices, a fairly large esoteric investing book. And what is more esoteric than cannabis?

And so by 2010, ’11, I literally had been so immersed in Colorado and California looking for ways that he could enhance his business that I felt it was going to be so enormous. It was so obvious to me it was going to be enormous. And what was more obvious to me was that no one was paying attention on the East Coast. If you were in California, you…the cooperatives and you knew how to get your cannabis from a medical card and everyone had a bad back. But in the East Coast, it was literally untalked about. And it just felt to me that something that is burgeoning in someplace. And Colorado is an interesting combo of techy but really sophisticated, but not quite California on the cannabis side. And I think…I started to say, “Wow, if this migrates just a little more, this is a revolution that’s coming.”

And so I started to really pay attention. And so we…In 2011, I had all these friends just, you know, East Coasters, we all kind of connected in the…Baruchowitz. In the Jewish world, we all kind of know each other through Brandeis or other places we went. And someone that I had known in the business world had been out there for two years kind of on the front edge of the cannabis revolution. And he said, “Hey, Connecticut is changing its laws. You should look into this.” There’s only going to be, like, four or five licenses given out. State’s got 3.5 million people. And you look at Colorado that has like 6 million people, but 5,000 operators at that time.

And so I, sort of, talked to my best friend, I said, “Hey, if you can bring a team back, I can write the application like a 10Q or 10K.” And I think we got a real chance. And it was kind of interesting because we were working with this group originally and I sent them like this 150 kind of…The law came out and I sent them a 150-item list. Like, “Here are the things I need to know so that I can feel comfortable that our money is going to be well spent and that we’re going to do a good job in the application.” And literally heard from them and it was like, “Don’t worry. We’ve got the politics locked up.” And that just kind of rubbed me real raw. And you know enough about me now and you’ve read my stuff that you know that I’m kind of a detail guy.

And I started…it took me three or four days before I can have a conversation with them because I was so enraged by that kind of response, that flippant, like, “We’ve got it covered,” because regulators…Having worked with a lot of regulators, especially at MarketAccess and Pali in countries, and you know that the first thing regulators think about is, “Whatever I’m going to do is going to expose me to risk. Am I going to be embarrassed?” And knowing that cannabis was this new thing and that Connecticut was the first limited license for-profit state in the country, I kind of got a sense early on that the regulators were deeply concerned about the stability of the people they were going to give these licenses to. Were these guys were going to be fronts for mafia and…?

So, we put together a 1,950-page application, which I wrote moonlighting from 8:00 at night after my kids went to bed to 4:00 or 5:00 in the morning almost every day for eight months. I would work from the road and do calls for nine hours while going around Connecticut looking for buildings and building this thing with this core group of three or four guys in Colorado. And we raised 800 grand for the application itself from Wall Streeters, you know, guys from sack to whoever, all hedge fund guys, one of which is my core partner, Jeff Monat, one of my partners. And I think you may have known Jeff through his…He was at Sage Rock and some other places, an analyst, worked at Goldman. He was an investor and Dan Lipton, who’s now our CFO, was an investor.

And all these guys, these really sophisticated Wall Street guys, saw what we saw, gave us money for the application that could have gotten vaporized. And then we raised an escrow and when we applied, the way that we described our company was so much more robust than other people who talked about their growing expertise or how great that cannabis was going to be and all we talked about is infrastructure, institutional backing, money, stability, safety, quality, all these things. And our score was so much…It was the highest gap between a winner and second place out of any state that’s ever passed the license since. And so now we own this license.

We found out we were in Vegas, me and my best friend. We cried for, who knows, an hour. We were nervous because they hadn’t told the rest of the state yet. So, we knew and couldn’t tell anyone. So, couldn’t tell my wife, couldn’t…I mean, we walked around for three days knowing that we had won and couldn’t tell a person. And then they announced it and the scorecard came out, and the next thing you know we got, wow, like, emails from every state that was saying it’s passing its law. So, now no one had ever done this before. We had no idea what we were doing. And the rules were draconian. And we started to build a company and started to talk to doctors and patient count.

Next thing you know, our company is still doing amazing, but that was building that day by day and watching the structure and the friction that was just inherent in an industry where literally no one had information or the ability to source supply chain was an extremely eye-opening experience, just knowing the questions doctors ask at that rudimentary stage I think has really informed what we’ve done forward.

And then, so about six months later, we were like, “We’re done. This is great. We’re not going to have to apply ever again.” And then, like, literally six months later, I’m in Minnesota for, like, three months killing myself and winning one of the two licenses there. So, this concept of MSOs that everyone trades, like, by late ’14, me and a core group of people were the first MSO, essentially, and then guys like GTI, they won in Illinois and in some other place. But we were, like, the first multi-state operator, essentially. And we still had no idea what we were doing and we were in the middle of spending, you know, 30, 40 million bucks at a time when no one had capital.

And I’ll tell you one other little funny thing that used to happen because it’s like so humbling and it’s crazy to think about. So, one of the first things there was an ArcView in, like, 2013. So, ArcView was another kind of organization that used to aggregate investors. So, me and my partner went out there in late ’13. We had just won this license. We were completely mind-boggled at what was going on. And so we’re walking around ArcView and everyone’s like, “Oh, I didn’t even know Connecticut was legal.” And we got a lot of, like, shade from people, which is funny because that’s how you get early phase, like, everyone…Like, just like for your world, the early quants, you guys would go in like “Anchorman,” you go brawl in the back and see who’s, like, a better quant. Because I used to hang out with the quants and I know you guys have a lot of ego about, like, who’s the best one.

So, everyone’s telling us how we’re such idiots because we run in Connecticut where, you know, Colorado, it’s just unlimited. And then they find out there’s only four of us. Definitely, a little bit of a change of orientation towards us. Then they find out that we’re building a 65,000-square-foot facility. And I can assure you that is the penultimate question you get of, “Show me yours and I’ll show you mine.” There were no indoor facilities at that point that big in the country that were legally operating. And that got people’s attention. And then people started to pay attention to that limited license world because they realized that when you’re only one of four, you could build this scale because you weren’t competing with 3,000 people in Colorado.

So, that was a hilariously…moment. And that’s when I said to myself…I remember at that event I said to my partner…There was a guy on stage doing, like, a TED Talk. And he’s, like, about to ask for money. And I said to my partner, “This guy is about to ask for 20 million bucks in front of 150 people,” or 200 people, whatever it was. And the ask was 600 grand and I turned to my partner, I said, “We are going to make so much goddamn money in this place.” Because that guy just spent an hour for this whole build-up to ask for 600 grand. People don’t realize this is going to be so much bigger. “Let’s figure this out.” And a couple of years later, Merida kind of was born out of that same mindset. So, that was really long-winded, but sorry.

Meb: No, it’s perfect because it illustrates a few points that are such great examples, but also rare. It’s pretty atypical to have such a massive industry that already exists. But shifting from black market to legit market and you hit on exactly the challenges and opportunities, less so today probably than the early days of simply hard work, determination, effort, intelligence, skill all applied to an area where, at its core, the people that were involved at that point were, you know, essentially, people that were involved in the black market farming and distribution. So, a lot of opportunity.

And then, of course, Wall Street and all of the rest of world, anytime the dollars start flowing, take notice. And it seems like in the early days, traditionally, like, the Family Offices, the individual investors tend to be the more entrepreneurial side. They have less restrictions. Talk to me about what was the inspiration for Merida. You didn’t just say, “Hey, look, I’m established, done with this,” but you actually said, “Okay. Let’s start to put some money to work.”

Mitch: We moved on and also won one of the licenses in Nevada. And what…First of all, the travel was gruesome the first couple of years just because you had to be on the ground. Now, Connecticut was easy because I lived right on the border in New York. So, that was simple. But Nevada and Minnesota were, kind of, grueling processes because you really have to be on the ground and look at the buildings and connect with people. And when you’re doing the application, I mean, it’s a couple thousand pages, you have to read every word. And as a lawyer, like, nothing…Things have changed a lot now, but in the early days, nothing went out the door that I didn’t, kind of, give my own eyes on because I just didn’t trust that a lawyer who didn’t have what’s at stake.

Like, for me, it was so entwined in my personality to just…I felt like every piece of paper had to have, like, my heart on it. And so I kind of really…like, it bled out of me. And I really wanted to…Because I was also…My partner was injured and this was like his vision to do a medical focus and really help advance the medical side. We felt like we were really helping patients and giving people access to a medicine that they hadn’t had before legally. Like you said, I mean, the illicit market has been there and, you know, as we talk about Merida’s evolution, and I’ll get into that because that’s Merida. I mean, I’ve probably spent the last year studying so deeply. In fact, I think the first time I really start talking about that was ’19, early ’19. Like, almost two years ago, I was telling people that the only thing you need to focus on is that shift of the existing consumer base from an illicit market to a legal market.

So, after all these states, I didn’t like to travel, and I also felt that some of the opportunity after winning all these states and developing the patient count and working with doctors and the VA in these states and going through all these things that there was a perspective on supply chain that I had personally, sort of, started to develop. And like a Tetris steam, I just felt like we, sort of, knew where the pieces need to be rotated. And there were a few things that informed that.

At first, it was like, how do I get 5,000 vape carts that I need? And it was like the people who own the vape carts companies basically wanted us to front all the money with no guarantee of delivery. So, we didn’t like that. Really didn’t like the research by Google way to get whether it was vape carts or packaging or…Basically, everything in early cannabis came from somewhere else and it was just borrowed. There was no specificity to cannabis. If you wanted a machine like Waters, Waters Company, huge public company, they gave you the machine that you would use to do daffodil oil or jasmine. They didn’t really have a cannabis machine in 2013. So, you had to get the certain valves and you had to really be careful about when you shut it down. Just making oil was a challenge.

And just as a funny example, and we were stripping out the CBD from THC in Connecticut to try to segregate before someone was like, “Oh, you can just order hemp CBD from Ukraine for like 500 bucks from a 55-gallon drum. What are you guys doing?” These are just little things, but then you realize it took nine months to meet the right person that told you that. And so I really felt like that the license process had become, kind of, crowded and fraught and I always loved…I think you just make the most money on the bleeding edge, and then turning that into a normalized thesis rather than starting out in, like, “Can I outrun every person?” because the truth is you’re going to eventually run into someone who has sharper teeth and is faster. And so in my opinion, you start early, and then you develop these normalized pieces. And then when everyone else gets there, you can actually be the provider or you can be the source of information or you just have such an information asymmetric advantage that you can do better as more money flows.

And so by late ’15, I really thought that one of two things had to happen for me to kind of get to the best and highest use of what I was really good at, which was structuring and seeing the macro picture. And actually actionizing a thesis, which I’ve done at Family Offices, and really taking, like, everything I’ve learned and putting it in the perfect tube. And so I was so disappointed by some of the ways that you had to search for stuff. So, I started to really think, instead of going state to state and trying to win these licenses, and it’s high pressure now…don’t get me wrong, MSOs have done great. If you’re early, that was a great trade. And I still own pieces of some of these companies, so it’s been an amazing personal journey on that side.

But I started to look at what we were using, what we were spending money on. And it really felt to me that someone, an investor could get into these companies early or use just, “Here I’m spending $10 million on equipment. You’re doing $20 million in sales. If I put my $10 million into yours, you’re going to do $30 million, give me a piece of your company for just my business, for my exclusive business.” And I realized that it was very hard to do that unless you also brought capital because these companies were starved for capital. And so GrowGen was the first example of a company where I said, “Show me that you can acquire stores that, sort of, bear out the thesis.”

So, before Merida even started, I got deeply involved in GrowGen and actually still had my investment banking license and actually raised money and invested myself and got a whole crew of people who had invested in other cannabis stuff with me telling them, “They have no competition. This is going to be tremendous.” And obviously, you know, it’s great to pick the story that actually bears out the, “Look, it’s trading at 22. We invested at 60 cents.” But the reality is that was the first major ancillary company that I got involved in and got involved big and it was the first investment Merida made because I just felt so knowledgeable about the company and so sure about their thesis and watching them execute that you could roll up stores and consolidation in the space that people weren’t even…They were able to roll up stores before people even understood the metrics about rolling up stores.

Meb: I was going to pause real quick because listeners who aren’t familiar, GrowGeneration is essentially a unicorn public market now, but you should have just retired, walk-off homer was the first investment, just said, “I’m done.” That’s it.

Mitch: I don’t think I made enough money in it, unfortunately. But no, it’s been great for Merida and it’s been a flagship and it’s been something we’ve built incredibly. I mean, we built that company. That was not an investment per se. I mean, I was deeply involved with Darren and Michael, the two executives. We spent hundreds and hundreds of hours together. In fact, the first deck that looked like a real deck was built the three of us and I, kind of as the banker, just kind of took it around, figured out the square footage metrics and what kind of stores they should buy. And when they looked at an online e-commerce site in ’16, why we didn’t buy-in. I mean, I was deeply involved in a lot of their fundamental decisions.

And that knowledge then it came to me that I really needed a vehicle because so many people were sending me their deals and saying, “Hey, can you vet this for me? You’re the cannabis guy I know.” And I realized that, look, as generous and magnanimous you want to be with your time, I was drowning in other people’s forwarded decks and I saw some that I really liked and I saw some that were utterly atrocious and I felt like, you know, I could do a good job in a vehicle, but I wasn’t an asset manager per se, although I’d worked to build Semper and some other asset management products. But I felt like a small fund to start as a proof of concept that I had just…I needed dedicated capital to make these moves, these aggressive moves. And I wanted to invest in just ancillary data technology, quality control, things that were so nascent that just the TAM was 50X what they could ever supply day one.

And so GrowGen, New Frontier Data, Steep Hill Labs, and a few other fundamental companies. And I think some of it is luck. It’s not just about being early. There were a lot of early companies that imploded. I think GrowGen, though, was something where my knowledge and my expertise and my experience with them merged with an opportunity in front of them. And those two executives, Darren and Mike, have done such an insanely great job that I couldn’t have ever predicted it was going to be big, but I remember…I mean, but just to show you how hard it is to get to where you are, when Merida first launched, I mean, people’s…We had just lost in one of the high stakes processes in Maryland. And it was one of the most devastating personal defeats in my entire life. I mean, something that really, to this day, made me sick to my stomach. I mean, I literally got physically ill when I found out we hadn’t won because of the amount of money and reputational risk I put, and I was launching Merida a week later.

So, it was a devastating personal loss about like, “Oh, the momentum. We’re going to win and everyone is going to be excited. And FOMO is going to be on our side.” And so literally, it was going back to people and telling them, “We’re launching something that’s different. We don’t need to win a license this time.” And I think maybe that loss and the way we dealt with it with class and honesty and transparency, and then what happened, like, actually six months later was great because we launched Merida. And we got a little bit of capital, but there was a lot of skepticism.

And like you said about Family Offices, I remember one of the early Merida discussions, the Family Office I worked at had set me up with like this billionaire who seemed interested and he was like, “I can’t wait to work with you guys. What are you doing?” I sat down and I’m like, “Oh, well, I’m building this facility and I’m also launching this fund.” And he goes, “Oh, wait, this is the cannabis thing, right?” I’m like, “Yeah.” And he’s like, “Oh, I didn’t mean to put that on my calendar. I’m sorry.” He just gets up and leaves. So, I was like, “Maybe this is going to be…On the way to the bank, it’s going to be a little tough and…”

So, we started out my co-founder and me. It was only two of us. We had one or two people moonlighting and helping us, but it was tiny and it was real slow. I mean, it took us two months to raise the first $2 million. We put some of that into GrowGen, some into New Frontier Data. And it was extremely difficult because we had to explain to people, like, Maryland, what happened there. And then six months later, there was a group that won in the jurisdiction where we applied. They turned around and said, “Your expertise and what you guys are doing is amazing. Why don’t you bring what you built or what you built that didn’t win in,” and we merged, and that company, I was very successful. And even though we originally lost, our investors are now on their way to making an amazing…given that they lost and it was zero, all those investors are now on their way to a huge win.

And I think that showed people that we were going to fight. And I think you want that in a manager in an emerging space that this, like, little scrappy corporate lawyer who has done all these weird investments and talks really fast and he’s, like, super excitable that he’s going to fight, and then my partner was more of, like, the ice to my fire. And after, like, six or seven months, but we still steered at GrowGen and every day I traded, like, 2,000 shares and we were so excited. And so people, they used to throw shade on GrowGen, like, “Why are you in this crappy little public company?” And I just told them, literally, since day one, I said, “Just you should buy the stock and just trust me. It’s going to be big.” I didn’t know anything non-public back then. Once we built it and it went public, I was like, I knew nothing other than I knew that they had no competition and that this space was going to be really, really big.

Meb: You’re well on to fund three now, but walk me back to those early days. Who were the early investors, was it individuals? I assume at that point, startup cannabis, VC private investing firm wasn’t a ton of endowments and CalPERS. What was, sort of, the evolution? And also what’s the…Give us the sort of 10,000-foot pitch on what are you guys looking at as far as themes and companies, etc.?

Mitch: You mean back then or now what am I looking at?

Meb: Take me through both.

Mitch: Okay. So, back then, I mean, really, the early investors were really people who had invested somewhat…because I’d shifted from the state-based thing, I tried to keep some distance between the investors who had done that on the state-based level and people…I didn’t really go after the original investors too hard because they were already allocated and liquidity was an issue and you just knew that they were, like, “Okay. I’ve invested in three or four states. I’m kind of tapped out.” And then the concept of this, like, it’s not a direct company. It is a black box in an open field that no one knew.

So, that pitch to them after hearing me say, “Minnesota, here’s the demographics. Here’s Connecticut’s demographics. Here’s Nevada’s demographics. Here’s Maryland’s demographics.” Now, it was like, “Just give me money and trust that I know what I’m talking about.” I don’t think that was the kind of pitch that people were wildly excited to hear about, especially when they were illiquid on the first three that they…It’s almost by winning they locked up their capital. It should have been like, “Oh, we lost. I have all this capital you want to put into cannabis.”

So, the early investors really kind of like entrepreneurs themselves. A lot of hedge fund guys in New York that couldn’t touch it officially themselves. Lots of smaller Family Office guys, and kind of every once in a while there was, like, this crazy investor who was like, “I do everything from skydiving insurance to whatever.” And that guy was…he wasn’t writing big checks, but he had a network of people that were crazy. I mean, some of these pitches went so off the rails that it was people walking in and, like, the whole room smells and, like, “Well, that guy’s already smoking so much that he’s probably a yes.” Right? So, you just let that guy…You don’t say too much. You just kind of stare at him, you know, like the silent treatment like Michael Scott from “The Office” and just hope that that guy writes a check.

But it was really small investors, which means you really had to kick and scratch. I mean, I probably had to do 500 investment meetings. And fund one actually hit 99 investors at the end of ’17 when things really started to look good. And it was like, “Oh, my God, we have to do…” We barely are getting into fund one. Now we’re already in the fund two. But fund two was so easy to launch because everyone had seen in action. And back then we were really focused on business models and ancillary companies that we were using their products or services themselves that really had a quality of being an underpinning of one of the legs of a stool that cannabis would need to stand up.

And I felt this really early and, again, maybe a lucky stumble. I felt very sure that companies that served the greater regulatory good and the greater consumer good and the greater patient good, by scaffolding the industry, those companies were going to be wildly successful. And luckily, that really was one of the things we looked for. We look for companies that the TAM was just so much larger than their infrastructure can handle now that the growth rate. So, we were looking for companies that if you weren’t growing 100%, 150% a year, we weren’t even looking at you back then. And we also were trying to make the most of, “Hey, we’re writing a 500 grand check. Let’s make sure we get some advisory shares for the fund.”

And so we did have this thesis of, like, saying to people, “We’re going to help you grow your business. We’re not just going to invest. We’re going to help you build your company.” And with my governance background, it was very easy for me to sell them on, “I’ll help you scaffold the governance, but you have to actually pay every dollar we took,” which was very non-private equity. Everything we got free went directly into the LP. So, it was so easy to generate alpha in fund one because, basically, all these young companies were so excited to work with someone who understood the state-based that land grab war game, but also understood ancillary and broader, sort of, application.

And then so fund two, we started to shift a little bit and look at more operational stuff. Like, “Hey, maybe we should be looking a little bit more…not just ancillary. Maybe we should be looking…” because now there was a huge event that happened. As you said, ’18 was a weird vintage. So, ’18, all virtue of easy money disappears. So, by late ’18, you had MSOs were not spending anything on state…they were no longer expanding unlimited amounts just to get in every state. They were no longer selling these decks of, “2022, here’s how much population I could serve.” That had totally disappeared. And I felt like given our operational underpinnings, originally, that we could be a fairly strong operator, number one, but in the context of a fund and use our ancillary.

So, that’s when we started to really develop that ecosystem connectivity pieces that you and I have discussed that we discussed that night. You saw, I mean we had three ancillary companies speak and I think you got a sense of that event, like, how we had really turned a flywheel. People talk about the flywheel virtue, that connectivity. But I think you saw that night that we really were onto something and that the companies we were working together and they wanted to work together. And they looked at Merida as a hub for capital and guidance. And really some important pieces like whether it was instead of them just working so hard to get it, we were starting to become a little bit more of a lubricant that made their lives easier. Our whole thesis was always, remove friction from our companies because that will give them an advantage.

And so as we started to get more involved in operations, we stumbled onto a few things like the largest dispensary footprint in Michigan for a really great price. One of the Virginia operations. And so as fund three launched, we were launching fund three into a more hybridized model than what we were doing in fund two. And fund one was pure ancillary. I mean, we did invest in one operator. That operator got sold to Cresco, which is a public company. And that was a perfect example of our ability to source liquidity in a space that had totally locked up. And so we got really, really fortunate. And then fund three was launched while, again, the MSOs were still retreated.

And so fund three, which has been…We are now much more of a traditional. We have the QP side, we have the LP, we have the accredited side. We have an offshore. We’ve built the infrastructure to be a more traditional private equity, sort of, hybrid, you know, opportunistic. But fund three has been able to look at that whole ecosystem, the 5,000 companies we vetted, the 45 or so entrepreneurs that run these companies, the SPAC we built within fund three that fund three is a sponsor of the operation. The fact that we were the first to market in Virginia, the first one to bring medical marijuana to Virginia, even though we got the license eight months after three MSOs.

And so we’ve been able to take everything we’ve learned from ’11, ’12, and ’13, ’14, ’15, all those conversations, knowing what people like you think and other investors, take all that knowledge and all that feedback in a really humble way, absorb it all, take it in, and then turn it into what we think is an incredibly powerful recipe for growth, for risk mitigation, and a thoughtful approach to the space. And so now what we really have identified, we’ve really been able to really dig in on our thesis. And now what we really look for is one of two things. We look for companies that remove friction in a fundamentally unbeatable way. And I don’t want to go into, like, the specifics of that because that’s like a four-hour conversation.

But we basically, we think that we at this point can understand what is the core friction that can hold the space back, a company back. And so because we believe there’s this normalization coming, whenever it’s coming, that if we can find companies that remove friction in the right way, that when normalization comes, these companies are going to be so fundamental to growth and normalization of the space, of the consumer, of the thinking, of doctor education, of medical, whatever it is, that that kind of company is a good risk at this point because the upside is so significant and we can risk mitigate through our ecosystem and other things.

And so that’s one company. Now, it’s easy to find someone who removes friction. It’s hard to find a company that has that fundamental piece that we look for, that removing friction, but that grows in a normalized space. And then the second thing is we look for companies that have no natural friction to their growth. So, that would be like a license in Virginia where we felt like it’s a great risk, 4 licenses, 8.5 million people. So, there’s not much friction if you want to grow in that environment. And so we look for those two fundamental characteristics before we really get too deep, and then the rest is just hard work, grit, and the ramping and voracious consumption of information.

Meb: Let’s go and talk about the SPAC now. I can’t just keep glossing over that. You were also early to that as far as launching the SPAC in 2019. Right?

Mitch: Yeah. We did that early. I mean, it’s…I guess, in timing-wise, we were a little early. And we also listed on a NEO and on the NASDAQ so that if we did want to touch the plan. I mean, the problem is so many SPACs got launched. And there are some of the SPACs we’re competing with for deals now. These distributions SPACs that are running out of time or some other reason. But they’re willing to accept terms that we just don’t find make any rational economic sense long-term. And our whole thinking is we are company builders, we’re not just investors. And so what we do in this SPAC, we think, has to be something that provides so much long-term value to the shareholders that we’re not just going to…we’re not going to cut off limbs just to get a deal done. And now we’re competing in a much more crowded space.

But I will say that when it comes to specific cannabis deals, we have a huge advantage because of our connectivity in other areas. And we just want to be thoughtful about it. We have 24 months. We’re not in a rush as most SPACs are. We’re looking at a variety of things. We have a great team at the SPAC. And we’re not in a rush. But I feel very strongly that when we do something, it’ll be something that provides a tremendous amount of long-term value to SPAC, but now there are 9 billion SPACs out there, so in one way, the world kind of caught up. And these SPACs are just people who opportunistically like the structure and are willing to just do anything to get a deal done.

And so in 2017, ’18, I watched a lot of people do cannabis deals and I sat on the sidelines of some of those deals and said, “Wow, that stock is trading at 15.” And then, you know, a year later or 2 years later, I’m investing fund 3 at 20 cents. Some investors got pummeled. I’m willing to be really patient because I think we have a lot of confidence that our investors are patient as well and they’ve seen such…fund one and fund two returns are kind of strong. We have a lot of institutional confidence at this point. So, we’re not in a rush.

We just think that the shareholders deserve our patience. It’s not about just building your legacy. There’s no legacy. I mean, I think most people would rather be wealthy than famous. So, I’m trying to be the guy no one knows who’s just doing really smart transactions that people go, “Hmm.” I like when that light lights up in people…the light in people’s eyes light up and they go, “Wow. You guys really were thoughtful.” And it’s not just me. I have a huge team of brilliant people that deserve probably more credit than me at this point because they’ve made me far better than I ever imagined I could ever be as an investor. And some of it is just being open and listening to the models and digging in, but I think at the end of the day, it comes down to hard work in everything.

Meb: Talk to me about 2020 for a little bit. We’ve kind of gone through this evolution of this nascent industry that’s growing up. I’m curious to know if you think that, like, early days this, kind of, arbitrage of hard work and intelligence and effort applied, is it a scenario where there was a lot more low-hanging fruit then versus now? I mean, are you still seeing a ton of opportunity in 2020 as, you know, there’s been a lot of more traditional players getting involved in both VC, private equity, public markets, operators, etc., public companies in other industries? What’s 2020 look like? And oh, by the way, feel free to talk about the pandemic and how that’s affected what’s going on too.

Mitch: So, just in terms of opportunity set, I think the public markets have…It’s pretty clear what the articulation is there other than maybe GrowGen and there’s a few other ancillary companies. Those are producers who are trading Canada and they’re listed, you know, the F stocks with the F at the end, the four letters with the F at the end, or five letters. And those are largely operators directly producing cannabis for multiple states. I think a lot of value…If anything, we feel like it’s probably the easiest time for us to invest. There’s never been better. The pandemic sucked a lot of capital out of the space. Pricing got a little dicey. And so many people have gotten pummeled that our competition for deals has never been lower, in some ways, because we’re not looking to do that shiny object, big target investing.

In fact, I’m writing an article right now called “In Cannabis, Bigger is Better ‘Til it Ain’t.” And I think that if you just care about returns, then who cares if you’re in the biggest deal or the biggest syndication or…? So, we tend to stay very focused on value and alpha rather than what people think is hot. And I think for us, I have to say, I mean, we feel like there’s a ton of things that are just obvious winners that other people just don’t care about. Maybe it’s too hard to penetrate into the thesis or maybe they just don’t have the expertise or the legacy or the connectivity to these companies to really evaluate it. But medical data is something we think is like just such an obvious winner when it comes to insurance reimbursement, worker’s company insurance, the clear and unabated movement to a more normalized medicine.

Again, normalization is a word you should keep in mind, because it’s, what does this look like when that $70 billion of illegal consumption goes into the legal market? And obviously COVID…and I’ll get that in a second. But COVID has clearly accelerated that. and I’ll explain how. But just to finish the thought, there’s a lot of normalization that’s coming. And so we’ve spent a tremendous amount of time working with New Frontier on, what does the consumer think? How do you get that data? What does that look like in the traditional world? So, one of the products that I’m probably the most excited about, I mean, I get so excited, but I can’t really talk about it because it’s about to explode is, how is ad tech world going to look at the cannabis consumer, the 45 million people or more who consume more than once a month who their online activity has never translated to their cannabis activity because they weren’t able to do that online?

So, these are huge consumer taxonomies that have almost no data on them. I mean, think about it. When you go to buy a car, Meb, they know a lot about you from your online traffic or your Gmail or other things and they’ll say, “Hey, you Google, you know, Toyota 4Runner…” I’m just making it up. You Google car, you’re going to get a lot of car-related ads in the next couple of weeks. You know you’re going to. And you know what? In cannabis, you don’t really understand how to even find those people. So, I love the concept of owning data and having a huge consumer profile base where you can say, “You’re a cannabis brand. You’re a coffee brand. You’re…” Maybe Toyota has discovered that, you know, people who smoke cannabis love Priuses. That data is worth so much money. Those are the kind of boring things that we’re digging so deep into. So, when you say like, “Hey, is it crowded? Is it over? Is the trade over?” No, the trade is…It’s just getting going in some ways.

Meb: On that topic I was laughing because I was like, I’m just picturing the Venn diagram with cannabis consumers and online pizza ordering from Domino’s is like a pretty 99% correlation. But the funny thing about this is I was listening to a podcast the other day, and this was specific to the financial advisory space and investment management. And the guy…This is Michael Kitces’ podcast and it was focused on traditional planning. But the marketing guy said, you know, they spent a ton of money. And it’s kind of an interesting equation in our world because you can pay a cost of acquisition of $10,000 to acquire a client and it’d still be a great deal because of the long-term perspective. But…

Mitch: Oh, yeah. By the way, I did ad tech. I used to write ad tech patents for startups in 2007 when I was moonlighting for MarketAccess.

Meb: The point of this long-winded story was that they found that a high correlation, the best performing subset that ended up converting to clients, high-net-worth clients was birdwatchers, people that that was their interest. Their interest was bird-watching, and that had the highest conversion rate. It’s no longer a secret.

Mitch: Do you remember the click fraud days? And like I said, I was lucky to have done some dabbling in ad tech and I had invested a bunch in ad tech companies in ’07 and ’08. But you remember the private jet shares. One competitor would find out the budget of their competitor and they would just keep clicking because they were paying 50 bucks a click because, you know, if you Google private jet shares they think they’re getting a $15,000 a year client, and they would drain their competitors’ budgets. And I don’t know if you remember that…I don’t know if it was Marquis or someone. This was like a real war online.

But if you think about it’s not just about conversion, it’s just understanding who that consumer is right now. We’re talking like the beginning. We don’t know what the cost of acquisition and other things are, but I will tell you this much, New Frontier Data has as a product out there and it just launched because they had to get the data first. And it’s like a river. If you’re not standing in the river when this is happening, you’ll have no idea what to collect, why to collect it, what trends. And so New Frontier just launched its product and I think they have 4X the amount of clients that they originally expected. And so that’s a private company in our portfolio, New Frontier Data. But we’ve been invested since ’16 in fund 1. And fund three is still aggressively investing because we feel like we understand…

Again, I think one thing that’s really important for us is we’ve developed this competence that we’re seeing things and we ask the right questions and that as a team we have enough of a cutthroat, rigorous investment process amongst each other that discussions are robust enough that we’re going to get to good answers. And if we shouldn’t be adding on to something, then we won’t, but if we should be, then why would we build something and not take it over the mountain? You want to be a mountain and then you want to be a valley. Now we’re in a place where we can be a valley in cannabis and start collecting the water not having run off everything.

And I think that’s the most exciting thing is taking this to the next level where it feels to me like things are more definable, companies are much more mature, and yet pricing hasn’t significantly changed in nearly 2 years because, like you said, it was easy capital in ’17, ’18 kind of went from easy capital and everyone making 50% gains overnight into, like, getting annihilated by the end of the year, ’19 was just an absolute disaster from a capital perspective into the vape prices. And then to bring the question, what you asked before is now COVID. So, you had the vape prices, which really put a dent in companies and really froze the industry for a few months until it was discovered that no legal products had anything to do with the vape price that actually hurt people and injured them.

And now COVID, which created a huge dislocation upfront, but might be the most fundamental accelerator that the cannabis space even seen or ever seen largely because of other things that were happening, which COVID has now really crystallized, which was, you already had a rapidly evolving professional regulatory scaffolding for states. Well, what happened in COVID? Those regulators had to step up and figure out how to keep cannabis dispensaries either open or, from a medical perspective, how to make sure that they’re considered like pharmacies. They were deemed essential early on. They were deemed essential before food was deemed essential. So, that was a huge thing.

And I don’t think you get that unless you’re professional regulators. Not the guy who lost the bet at the Department of Health in 2015. And that guy ran the program for six months before he just tapped out. And I mean, California, you know, it’s been just a mess for California for three or four years, but now the BCC is getting their hands around how they should regulate it. And I think COVID really got people to take a step back and say, “How do we…This is a real industry now. There are a million consumers in our state. How do we deal with this so that we end up with the best regulations, the fairest regulations of you to the consumer or the patient, you know, medical patients?”

And I think the other thing is, while the pandemic has been an absolute national tragedy, that we can’t have more compassion for people who have lost family members and it’s been awful, it really has driven significant demand amongst existing cannabis consumers, but more importantly, because of safety and other considerations, it’s actually created a huge shift from the illicit market to the legal market and that, I think, is going to be the fundamental story of 2021 where instead of 15, 20 of legal billions of legal sales, you’re going to have 25 in the illicit market instead of being 65, it’s going to be 60, and you’re going to start to see that cannibalization go on hyper-speed.

And when that goes on hyper-speed, understanding what the next phase of normalization is whether it’s an ancillary company that serves, again, a consumer-facing business, whether it’s a consumer packaged goods company, a packaging company, whether it’s a producer who is in the right state like in Illinois that is shifting so quickly, or Michigan. Understanding those things, I think, is why we feel like this is our moment. At Merida, we have never been better prepared and better positioned. And the industry has never been in a better position.

There are professional operators now. These aren’t the guys that are growing. You have CEOs who are sitting in the executive suite and strategizing. And so they’re using more data and analytics and more automation because they’re not the grower who tells you that if you use an LED light, you’re going to start the downfall of society. These are not the passion or…It’s not like passion players are bad, but the early passion players were not people who have corporate governance backgrounds or cared about investor returns. They just wanted to grow the best products. And while those people are still growers at places, they’re not growers who are also on the phone raising capital while they’re trying to attend to a plant.

And I think that separation between a grower and the professional operator now is another thing that even before COVID was happening, but has now gone on hyper-speed, now you’re professional compliance people, health executives. And much like chiropractic care in the ’80s that wasn’t reimbursed, I think you’re going to see more focus on medical than anyone can even predict. And I think that’s the one thing that when everyone talks about the safe factor, what’s going to happen in the federal legalization, no one really talks about medical research being the most neglected part of the cannabis space because one person in Mississippi controls who gets those plants to research.

Once it’s egalitarian and everyone in the world can do medical research, doctors are going to start to see that epidemiological data, that empirical data become real data. You’re going to see a lot of white papers and next thing you know, it’s going to be an arrow in every doctors’ quiver if you have cancer, if you…appetite, neuropathy, all the things that go with cancer, everything that goes with pain, sleep, and you’re going to start to see some real disruption and dislocation in the medical field. And then reimbursement comes and people might need it for anxiety is going to want to get medical cards. And I think you’re going to find one of the most under, sort of, explored areas of cannabis is going to be medical side.

And like I said before, if you see the obvious that is non-obvious to other people and you have some corporate competence, you can be early and structure things and not feel like you’re absolutely on the deep bleeding edge. So, whether it’s a medical data or whether it’s a company that has some IP around a transdermal or whether it’s a cream that can help people who are on anti-psychotics and may have set response, I mean, real medical problems are going to be addressed by some of the deconstruction of the cannabinoids in cannabis. So, the medical is another just obvious thing.

And then, again, on the heels of COVID where now you have a better regulatory scheme, you have more people focused on safety than ever before. And curbside delivery in Colorado, the most mature market in the world, no delivery. COVID hits, hey, delivery sounds like a good idea. So, all of these fights. And then, obviously, you have the five ballot measures. I mean, something happened the other night that has never happened in cannabis, a new first and a real first. South Dakota became the first state to ever pass a medical and recreational law in one shot. You can’t even tell people how big that is because they’ll be in South Dakota. What are there, 750,000 people in the state, or something like that?

But what it means is it’s going to be the first thing to really skip medical as a normalizing step for regulators and people. In 2015, you would never skip medical. You couldn’t because people had to feel like there was this constraint around the program so that they didn’t want, you know, like, the Jeff Sessions attitude of like, hey, if you smoke cannabis, the next thing you know, everyone on your block you’re going to be out there with knives trying to murder them or reefer madness kind of stuff. And I think when you get to this real South Dakota that the world doesn’t come to an end when someone uses it for epilepsy, a pediatric patient, the world doesn’t come to an end when your neighbor pops an edible instead of drinking that night.

And I think Colorado has already shown that and other states where it’s mature. And that is a watershed moment because there are still a few big states, North Carolina, Georgia, Tennessee, Alabama, states with real populations who haven’t made significant moves to even pass medical bills yet. And so if they do that in one shot…

Meb: I mean, it feels inevitable. In every election, you have more and more dominoes falling, and not only in cannabis, but in somewhat related industries. You mentioned kind of the psychedelics and alternative medicines. I’ve actually been surprised how quickly those are opening up in spaces and it just makes sense. Give me a prediction. When are we going to get a banking law passed? We got a…Well, I was getting ready to say, we have a new president in place, but by the time this comes out, it still might be not decided. What’s the future look like for the regulatory?

Mitch: It’s hard to predict that because, obviously, it’s really hard to predict if you don’t know…First, remember, in Congress, there are some races that are still undetermined. I mean Republicans could end up flipping the House, it looks like now. But I think this…You used the word that I’ve used on Twitter. I’ve used it a lot. In order to calm people’s nerves, I’ve often said that I don’t know why anyone cares about blue wave or otherwise. Not that they shouldn’t care, but that the inevitability of cannabis growth, how many times have I used it on Twitter in the last three weeks? This isn’t inevitable because people don’t want to consume in the illegal market.

In fact, there is this almost bravado of people saying, “I will not consume in the illegal market anymore.” And so I think on the banking side, it’s pretty imminent. I would say that something that allows for traditional financial institutions to participate whether it’s banking or lending or other things is definitely a 2021 thing for sure. That is absolutely I feel 2021. If I had to guess there’s going to be…This is hard to predict, so I’m going to make a very specific prediction. I would guess that you’re going to see some noise about maybe an EO, like an executive order coming out, whoever’s president. And I could actually say…

So, here’s the prediction. I think Trump might, in his lame duck, make some noises about that and that will create enough momentum that you will see…especially with the states that just passed. Missouri is going to be one of the best markets that no one talks about. It’s like Oklahoma. So, those 190 operators…Remember, as you get bigger, you get a bigger constituency who can push harder. So, the momentum that…You have more state delegation to have pressure now. And I do think, and I said this somewhere, I don’t even remember, that I’ve always been a little bit disappointed that national political figures who are in states that have very progressive voter bases haven’t been more active on the local level, but I think at the federal level there’s so much momentum for something to get done. It’s not acceptable that people don’t have access to additional capital, that people can’t use their credit cards or their debit cards.

And I mean, you don’t want to…Insurance is going to reimburse for cash. I mean, how do you do that? So, I actually think it’s probably first half of 2021. I always caution people, and this is caution on the five ballot measures as well, nothing changes overnight. You still have to build the law. You have to build the framework. And so it’s not like tomorrow someone’s going to walk in and buy…New Jersey. In New Jersey, the biggest Google…I think the highest Google search the night of the election was like, “How to roll a joint.” It’s not like that. I don’t know if you saw that, but that’s not the kind of data I normally consume, but it’s worth…New Frontier does get data on trending things on either Twitter or Google. And it’s worth knowing that these things…But first of all, let me explain to the patient base of New Jersey. There are these things called pre-rolls. You’ll be fine. You don’t have to know how to roll a joint to consume it that way. So, I think early ’21.

Meb: That’s funny. Well, this is what politics has driven everyone to. They’re just anxious and had enough. My thesis had been that given that it seems inevitable and what we know about politicians, there’s two things they love. They love taking credit for something and they also love revenue. So, in my mind, it’s such a no-brainer. And I actually thought that it was potentially going to happen in 2020 as posturing before the election of either side trying to really push it. And I thought the executive branch, like you mentioned, might have tried to out-woke the other side by saying, “Look at this. Look what we’re moving forward.” It didn’t happen, but still might. Still might.

Mitch: It’s the political version of “Name That Tune.” I’ll do it in two notes, Meb. But you know, I think the problem with that, though, is, again, I think it goes back to that federal-local interchange. It’s not like Chuck Schumer is calling up Andrew Cuomo and saying, “We should get a bill done in New York,” which actually should happen more. If you really believe it should be legal at the federal level, Chuck Schumer, then why wouldn’t you be working? You’re one of the most powerful figures in New York. It’s not like you only have to focus on the Washingtonian, but that just shows you that some of that is like empty signaling. But I will say that the revenue is a big issue. But what we’ve seen in a lot of these states is there are a lot of hands that want to shape it. And because people want to shape it, whether it’s unions or bankers or whoever it might be, a grower, nursery owners, whoever feels like they should have their hand in, that gets in the way.

Meb: Are you guys solely focused in domestic? Do you do international? I mean, Canada would be the obvious closest. But what does the rest of the world look like? I mean, there’s obviously some massive markets of cannabis users historically illicit, I mean, all of Asia, Africa, I mean, on and on. What’s that look like to you?

Mitch: Well, we’ve done some really specific idiosyncratic investments in Canada that we think are nichey, but they’re huge revenue, like, we feel very good about. We’ve made an investment that’s coming, Premium Five, in Canada that is like a white-label supplier of very specific concentrates that are very difficult and require a lot of historical expertise. How the people got the historic expertise, no idea, but ultimately, they are…So, we look for, again, a very specific company that removes friction even in Canada or otherwise. So, we like what they’re doing. We’ve looked at a bunch of Canadian things recently. We think we found a few that are interesting because of what they’re doing in Europe.

So, more broadly, we do own a very large chunk of a lab in Italy that is going to be one of the certified labs for API’s active pharmaceutical ingredients to the broader European market. Europe is much more…First of all, everything in Europe is all country-based. Our federalist system is the only system in the world for cannabis like this where states can pass and the federal government can do nothing. But that’s also a great quirk because, in reality, that’s why nothing matters at the federal level. This space is moving forward no matter what happens. So, no one should be like, “Oh, the federal government didn’t pass things. I want to short cannabis stocks.” It’s a bad move. You’re going to get smoked eventually long-term. So, not a great move.

But in terms of Europe, it’s very pharmaceutical-driven. It’s very centralized. So, the things we’re looking at that we find very interesting are, again, these natural low-friction companies or friction removers for that specific thesis of how do you become a company that provides expertise or product or something to a market with very low friction? Three years ago, everyone and their brother in Canada was rushing to Malta. Malta was going to be the place. I’m going to dominate Europe out of Malta. I mean, that and $2 nowadays gets you a Metro Card. I don’t even know if that does get you Metro Card, actually. But the point is everyone rushed into these thesis and said, “Malta, Malta, Malta, or…”

And I think what you see now is a much more thoughtful approach, but there’s definitely some Canadian companies doing interesting things in Europe. Africa, Asia, those consumer markets aren’t there yet. And those are much more centralized. You see some crazy things in this space, but I think in Asia, that’s like a 2022, ’23. You’re going to have to see those markets get comfortable because you’re not going to get cannabis entrepreneurship until you have the consumer base. And China, I don’t know how that market opens for cannabis yet. But it’s interesting to notice societies that have a much more natural, organic, holistic…there’s Buddhist side, there’s Shinto, or even in India people who have a connection to plants and herbs and not having a legal market at all, which I find an irony.

And it’s definitely something long-term. I’m getting much more involved because I’m doing a lot of…I’ve definitely done, as a little research project, a look at those markets. And we’ve put ourselves out there enough where people have now reached out. And so I feel like there’s a few things, but I don’t find anything that feels like it’s a fire under my feet just yet, but, you know, Meb, I’m always on the lookout. And once we get…We’re a dog with a bone and once we think we found something that’s the obvious hiding in plain…or that is non-obvious to other people that we think is obvious, we do tend to spend a lot of time even if we have to be patient.

Meb: As we wind down 2020, hopefully we do, the alien invasion…and we still got two months left. Who knows what’s going to get thrown at us. But let’s say the world goes back to normal next year, what’s the future look like for Merida? What are you guys…kind of the 10-year plan? Are you going to continue to invest? Is it wrapping up more SPACs? You got any other ideas? You got a bit of a curious mind that you’re thinking about working on?

Mitch: Yeah. I mean, we’re definitely continuing to build out the operational vertical and working really hard on the medical side to help drive some of the IP. We really think that the medical side is going to be just phenomenally big. I mean, whatever the vehicle is we’re going to continue to invest because this doesn’t feel like work to me. I mean, it requires a tremendous amount of sacrifice, hard work, willingness to deal with very difficult things, and there’s going to be bumps in the road. And it’s been…When we first met, I think I said to you that good thing I have a good dentist because I’ve had my teeth kicked down my throat 15 times in this space. Like every three months, something happens where you’re like…just when you feel like you really feel like you’re hitting your stride. But we now tackle that as sort of happy warriors. So, it doesn’t feel like work. It feels like everything we’ve worked to know and to own and to think about is now aligning and that the difficulty that exists is much harder for other people than us.

I think over time, it could be a partnership with a much larger traditional private equity fund who wants to have an incredibly aggressive approach to cannabis and they have more capital than we have access to. It could be a lot of things. But I do think a partnership with maybe one of those traditional institutions that would surprise people, you know, that they’re getting in aggressively could be on in the offing. I mean, we’ve had a lot of discussions with those traditional, sort of, white shoe private equity firms. They have to be completely comfortable that, again, there are these really aggressive 22 people running around willing to consume information and, you know, sort of lift up every rock and sniff every piece of cheese no matter how old it is and…I mean, when those partnerships could be in the offing, I do think we’re going to invest.

We want to build companies that change a space that is rapidly changing that are going to be a normal industry eventually. And we want to have a role in shaping that. And I hope we’re doing a good enough job that we do have that role. And nothing’s going to change in ’21 or ’22 or whenever, but, I mean, it’s weird, some people have approached us, some really large institutions. And as long as the right thing comes, we’re open to anything. We don’t have to be the big brother or…We’re David. We’re not Goliath. I don’t even know who Goliath is. I mean, give me some rocks and a slingshot and some sandals and let’s go.

Meb: So, for the other investors listening to this who are curious, whether it’s an advisor or an institution, an individual, what are some other resources? You mentioned a few in this podcast. It can be research-based, it can be data, it can be other investors you think are thoughtful in this space. But anything else people should seek out to try to become educated in the space in general?

Mitch: I mean, I would definitely go to info@meridacap and sign up for our commentary. I hope you found it as an interesting, funny, engaging piece. I mean, we don’t put out a lot when things get crazy, but I do have another one coming. The anthology of them is if someone wants to read 400 pages or everything that’s happened to this space in 2016 and with a huge amount of humor and pop culture references and maybe a little reference to the Russian face slapping championship, well, that’s out there.

Meb: What’s the website for the listeners?

Mitch: So, you just email info@meridacap.com and we’re happy to put you on the list and we don’t charge for it or anything. It’s just about engaging with people. But I think there are a lot of resources now, like New Cannabis Ventures is a really good resource to look at. Obviously, read the Yahoo Finance articles. I mean, every day there’s an article on cannabis. And you know, the other resource that I really like that I think are intriguing is subscribing to stuff like the International Cannabinoid Research Society which puts out like what’s interesting in forward-looking research for people who want to get more academically and really understand what cannabis is doing on the medical side.

But then the whole point is there are not a lot of resources where you can get this, like, trustworthy sourcing. I mean, there are so many articles that are really just advertising or advertorials or something that mimics. I would be active on, like, Investor Hub or Yahoo Finance. There are a lot of articles. And Kiplinger’s just had an article, “The Top 10 Stocks to own in ’21.” It was kind of funny, our stock was in there. And the way they said is, like, “These guys were the early investors in GrowGen and if anyone can find a good deal on a SPAC….” So, the fact is Kiplinger’s is writing about it now.

So, I think what you want to do is you want to get your RSS feed set up, maybe put out some use cannabis or cannabis investing. We’re happy if you want to write us an email to give you like 5 or 10 buzzwords that you can put in your RSS feed and help you scaffold. I mean, we really want to be a good resource and a good steward of the industry as well. It’s not like, “Oh, if you don’t invest with us, we don’t care who you are.” No. We really do want to have this, like, real engagement with people because the questions they ask might actually give us insight into what’s next for us. And so we try to be a siphon and a reservoir of information and…

But we are a good resource for information, that much I could say, I think we are a really strong place to get on our list and get some of the information we put out. My Twitter feed is @MeridaCap. I think the fact that a guy like you subscribes tells you that that’s high praise indeed. I think we put out some thoughtful pieces. We were the first people to talk about New Jersey maybe passing a worker’s company reimbursement law. That’s good to know because there are six companies in Jersey that operate right now. So, we’re not putting out, like, actionable, “Buy this stock,” but we’re putting out more, “Here’s something that’s happening interesting in the space.” But it’s an opaque space still. Yeah.

Meb: We’ll add links in the show notes, mebfaber.com/podcast, to some of our favorite pieces that Mitch and crew have authored. Mitch, as we wind down, what has been your most memorable investment during your career? It could be good, it could be bad, it could be cannabis-related, it could be other. Anything come to mind?

Mitch: Well, I mean, it’s hard not to use GrowGen as a…Whenever you can make 30-odd X on a company in 3 years that you built, worked with a great group of people as a family, sweated it out, then help them file there S1, their first one, then helped them list, and now they’re one of the most valuable cannabis companies. I mean, it’s hard to say from four years in cannabis in a space that…I used to joke with my wife that, like, “We built this out of nothing. We had no idea what we were doing.” And we used to just laugh about it. Right? This was built out of an idea. The company that we invested along that idea was this huge company and people used to, kind of, ridicule us. And I’ll tell you why I think GrowGen really is the one. I mean, I’ve made some other great investments. I invested in an ad tech company. It was sold for like 50X once. That was great for money, but this was more on the…There were a lot of people that came along with us in GrowGen and a lot of people have made a tremendous amount of money. And that is what I think I’m most proud about.

Meb: We’ve got to wind down here, but it actually gets to a fun topic we can talk about next time, which is when you speak to investors, and this is public, private, and not just related to cannabis, but so much of the returns are driven by the big outliers. And Michael Mauboussin has put out some research that looks at this and venture capital and public markets. And public markets, it’s like 5% of stocks determine all the return. So, you have to own these big winners. And the way the indexes do that is you’re guaranteed to own them, but the way you end up having these outsized returns in the private equity and VC is, like you mentioned, these 30-baggers.

The challenge that I would love to discuss, not today, though, Mitch, is how you think about position sizing once you have these big winners because they become such a large portion of a portfolio if you’re sitting on a 30-bagger, but you see great potential, great growth in this company. That’s where it is one day on the way to becoming a 50 or 100-bagger. But it also becomes a huge part of your portfolio and possibly could WeWork and go back down to being a five-bagger. It’s a good problem to have, of course, but I think it’s a challenge for a lot of…

Mitch: Always take some liquidity.

Meb: Yeah. To scale out as you go up and rebalance. People love to think in binary terms, or in or out, but taking little chips off the table with big winners is always good behavior. Well, good. We’ll have you back on when it hits 50 and 100. Mitch, this has been a blast. I think we mentioned already, where do people go when they want to find out more info?

Mitch: Well, meridacap.com. Or you can just throw an email to info@meridacap.com.

Meb: Thanks so much for joining us today.

Mitch: Oh, Meb, thank you so much. You know I’m a big fan. One of the best podcasts. This is honestly like a small bucket list dream for me. So, thank you so much for having me.

Meb: Great. We’ll do it again.

Mitch: All right, Meb. Thanks a lot.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us a message at feedback@mebfabershow.com. We’d love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. My current favorite is Breaker. Thanks for listening, friends, and good investing.