For cannabis investors looking for exposure through exchange traded funds, there are more options now than ever before.
There are a variety of themes affecting the evolving cannabis sector in Canada, and around the world.
In this Masterclass, 3 experts have an in-depth conversation exploring where the most value might lie here in Canada and abroad, and what the most significant international opportunity might be.
Clare O'Hara: For cannabis investors looking for exposure through exchange traded funds, there are more options now than ever before. Today, we will be looking at a variety of themes affecting the evolving cannabis sector here in Canada, and around the world. We will be hosting an in-depth conversation exploring where the most value might lie here in Canada and abroad, and what the most significant international opportunity might be. We will take a look back as the first round of earnings from the legal cannabis sector are in and what those numbers are telling us.
Clare O'Hara: There's so much to cover, so let's begin. Today we are joined by Elliot Johnson, Chief Investment Officer at Evolved ETS. Vijay Sappani Founder and CEO of Ela Capital Inc. And Khurram Malik Head of Research at Jacob Capital Management Inc.
Clare O'Hara: We're just going to set the stage first to start off with and Vijay, I'm going to start with you. And hoping maybe you could just give us of an overview of the cannabis market in Canada as well as what type of companies are operating in this space.
Vijay Sappani: I think Canada has been going through an evolution, especially with the legalization of the recreational use of cannabis in Canada. But also, there's been new licenses coming. I know Khurram has been involved, probably even before me, but I've been in this business since 2013. And we've always been about cultivation, now there's processing license, there's new edible licenses coming. There's also tissue culture. So, the industry is growing in a very diverse avenue, but also Canadian companies are going global, so we're not just seeing from a Canadian perspective, we're also starting to look at US and we're looking at Europe. I just came back from Israel, and there's a lot of excitement happening there. The overall industry is that you start looking at Canada and Canadian companies, but also from a Canadian company perspective, you're looking into the global lens now, which is where the play is going to be.
Clare O'Hara: Elliot, what's your take?
Elliot Johnson: Yeah, I think that's absolutely right. I think to think of the Canadian cannabis industry, strictly as a Canadian story is to really understate what's happening right now. One of the things we've seen in the past six months has been quite a lot of news around Canadian companies in Europe. So Tilray set up of Portugal, this a subsidiary in Portugal. I know some companies are exporting now, cannabis oils to the UK and to Germany. As we see the developed countries in the world catch up to Canada in terms of legalization and the rules and so on. I think Canadian companies are going to be there first with products and be their first take advantage of that. One of the things that I think it's not often reported is that we have expertise that's been developed as a result of being first in this industry. And that really makes us between the expertise and the access to capital that we have in our markets, it puts us in a great position as the rest of the world comes along, to be there providing leadership and build our companies up as truly global companies.
Clare O'Hara: Right. And Khurram your thoughts?
Khurram Malik: Yeah, I'd agree with that. I think the world looks at Canada today, they're looking at us as a cannabis expertise jurisdiction more than anything else, more than maple syrup or whatever else people think of Canada. I think that's pretty important because we're the first major jurisdiction to go live with a federally legal cannabis program. Plus, in addition to that, our regulations are so strict and difficult here.
Khurram Malik: But if you can do it in Canada, it's dead easy to do it anywhere in the world cause everyone else's regs are considerably easier to operate under in terms of cost, in terms of your day to day operations and how you build your facilities and various parts of your value chain. I think that's pretty key, and if you look from an investor's standpoint, what's really interesting is that if you look at the large cannabis companies in Canada to here, Canadian execution is pretty well priced into their stock prices, all market capitalizations. If you're looking for upside from the bigger, more liquid names, it's really what they do overseas from this point forward, than what they've done in Canada today, or what they will do in Canada, let's say over the next 12 months.
Vijay Sappani: I think, just to add on to their points, every single legal jurisdiction right now has a Canadian presence. If you go to South Korea, if you go to Thailand, if you go to Lesotho, if you go to Uganda, every market, there's a Canadian presence. And also, to Khurram's point, I think valuation of some of these companies in those markets is dependent on, do you have a partner in Canada? And that's one of the biggest question people ask me when I go to new markets is that, can you find us an LP partner in Canada? Can you help us with SOPs, your standard operating procedures? I think Canadian companies are becoming global, and as new markets are opening up, Canadian companies are getting into these markets first. We should be edged; I think we'll continue to have.
Clare O'Hara: Elliot just jumping over to you, from an investment perspective what do you look for when you're evaluating the companies for growth potential in the cannabis sector?
Elliot Johnson: Well, I think first of all, you want to make sure that the companies have scale, the companies do have the expertise that we've been talking about, and that they have a reasonable access to the market in whichever segment they're in. One of the things that we find interesting when we're building our portfolios is just how broad an investment theme this actually is. And I think investors may not appreciate quite all the changes that are happening. It isn't really just about growing the plant, drawing the flower, and coming up with a smoke of a product, which is I think, a lot of people's concept around cannabis and marijuana and recreational marijuana.
Elliot Johnson: But these days, you're looking at a whole bunch of new formats that are being tested out, whether it would be edibles or infused beverages. You're looking at new ways of developing the product itself, and biosynthesis, which is the synthetic culturing of the CBD or THC components of cannabis is tremendously exciting from a production perspective. And that doesn't happen at all on the fields, that happens really in the lab. And then you've got the entire business side of it, and we're only seeing the beginning of that right now, in Canada with the first few retail licenses actually opening for business in the past few weeks.
Elliot Johnson: And so we're really at the beginning of a change here in terms of brand and retail rollout. And so you want to kind of look at all of that sort of thing and what we do in our portfolio team is, we try and divide up the universe into some of those categories, and try to pick the names that we think are in the best position to succeed in each of those categories to put into our portfolio. Because we think that this is an industry that's going to grow in a variety of directions, and it might surprise people kind of five, six years from now, exactly what the industry looks like compared to maybe what they thought it was going to be three or four years ago.
Clare O'Hara: And Vijay is that your approach?
Vijay Sappani: Absolutely. I mean, my traditional method of investing is I like to bet on the jockey more than the horse. I believe that A team with a B plan will do better than B team with an A plan. And that's been my investing philosophy. I always look at the management team, but also where are you in the cycle? Are you are cultivating play in Canada, where there's about 160 licenses? Or are you a first cultivator in South Korea, or in Germany? Overall, the cannabis sector could be divided into multiple spaces like cultivation, ancillary divisions, formulations, tissue culture, there's multiple things.
Vijay Sappani: My company, we always look at various sectors, for example, some of the things we're looking at are CPG brands, cannabis brands are just evolving. There's a company called SLANG, which was founded by a Canadian now based in US. There's a company called Highnoon brands, there's a company called Alle Foods, so there's a bunch of those. Those are not all the ones we're looking at, where we can also not just give capital, we're also bringing our expertise to help these companies grow.
Vijay Sappani: The other side is technology; technology is going to be a big factor. Typically, if you look at any of these pharmaceutical type delivery technologies, they will be absolutely a great fit into the cannabis sector. There are companies coming with a once daily [inaudible 00:07:53], once daily versions of cannabis, there's medical devices coming in. There’re a few emerging companies in that space. We're always looking for those, and it comes to the appetite of an investor. I'm a pharmacist, I come from pharmaceutical medical devices, I understand regulatory rules and regulations around the world. Not every investor might be there, not every investor will want to invest in the US or in Europe. It comes down to the appetite of the investor, and then decide on where they want to go.
Clare O'Hara: And Khurram what are you looking at?
Khurram Malik: Yeah, I would agree with everything, we're just maybe not unique. But the way we approach the starting point before looking at what to investment, and what not to invest. What to back or what to build as a company. Like Vijay we are regulatory specialists, we try to analyze our regs. I really don't care what the regs are today, in Canada, I care what the regs will be two to three years now. Which companies best suit ... Cause it's a young industry, it's a highly regulated industry. The most important thing in the industry, like this is not what the largest companies like a Cannabis Aurora are going to be here today or tomorrow. It's what Health Canada is going to pronounce 12 months from now or 24 months. That's what drives the sector.
Khurram Malik: At some point, that will not be the case, but for now, and for the next few years, it will remain the case. If you get the regs here, or you get the regs in Asia or something, you're well positioned, to figure out which company is best suited to take advantage of those regs to three years from now, cause it really doesn't matter what they are today, it's too late. And quite often investors get confused with hard mentality, right? Like these companies are doing something really cool and sexy state let's find something similar with another company that can do something similar today, but six months from now, that's too late.
Khurram Malik: You got to figure out what is the next interesting thing? What is the next opportunity that's been ignored, and will be filled? And which companies are best suited to take advantage of that? It starts from the top, and then your work your way down as opposed in the bottom working your way up.
Clare O'Hara: With that in mind Vijay, can you give us some insight into where you see Canadian and North American cannabis industry moving and maybe the difference?
Vijay Sappani: Absolutely. As we talked about this, probably now when my company which I founded back in the day TerrAscend was licensed. We are the 49th, 50th company out there. It was a big thing those days, there's about 150 licensed companies now. Cultivation is no more a major area of interest for the seasoned investors. Now, what is next? There’re ancillary products, talking about, testing laboratories, talking about apps, talking about devices and then there is the whole CPG space. We're talking about cannabis brands, we talked about SLANG, we talked about Alle Foods these are all emerging companies in this space. And then you've got this whole cannabis drug formulation play.
Vijay Sappani: I think it's a wave for somebody who wants to just invest in Canada, they should look at cultivation, but there's also the newer, tall processing license companies. Companies like [inaudible 00:10:28], MediPhharm, they're all the emerging players. There's also a newer sector in the tissue culture. Those are all emerging sectors. You don't find too many players in this place. Anybody is coming today is going to be a market leader, if they're really good. But in the US, it's a completely different beast. You get a lot more value at investments in the US, and this, the problem is you will have to do a lot more due diligence, and I would say the things we're looking at is more like companies that are in the consumer product goods side. We're looking at companies with international investment play, Canadian based. We're looking at medical devices, and some of those in the CBD side.
Clare O'Hara: And Elliot, do you agree or disagree?
Elliot Johnson: Yeah, I think Vijay and Khurram touched on an interesting point around the idea of where the regulations are, and what that kind of promotes in terms of the market. Canada, we've obviously we're famous for being first, and we're still rolling out the legislation here. In the US, the market is very different. There's a lot of new laws being proposed right now. There's an arc called the state's Act, which would make it federally legal, if it's legal at the state level. There's the Safe Act, which has to do with banking access for cannabis companies.
Elliot Johnson: You have some of the Democratic contenders for the primaries, for the presidency, seeking to have a Marijuana Justice Act, which would decriminalize a lot of the convictions that have been there because of the prohibition. You've had a lot of legislation moving forward, and some of it even President Trump has said he might sign one or two of these things. And so that changes the landscape down there and makes it pretty interesting. If you look at the state level, and you look at what companies are doing at the state level, even right now, some of the rules of the state level are much more relaxed than we have here in Canada.
Elliot Johnson: You see a lot more experimentation in terms of new products, new formats, new retail experiences, much more experimentation, then you're seeing in Canada. And so, it's sort of funny that Canadian companies might be looking to see what's working in some of these larger state markets in the US. But at the same time, US companies are looking to see what it might look like to have a fully legal framework in Canada and kind of envious of our access to capital and our access to customers who can buy our products with the trust and faith that the government is there behind them.
Elliot Johnson: These changes are really what's driving the industry right now in North America. And that's why I think, if you look at the industry, even a year from now it's going to be very different than it is today. As much as today is different than a year ago, before it became legal in this country.
Clare O'Hara: When you're talking about the individual states having a little bit of relaxed rules, when in Canada, what would be a specific example of that?
Elliot Johnson: Well, I mean, I think the big one is, when you look at brand advertising in the retail presence, right? There are stores you can go into in the states that you will find the experience of shopping there to be quite open and customer friendly. Whereas if you go into a retail store in Canada, you don't have kind of interesting package design. You've got a lot of warning labels on the product saying essentially, "Don't use this product." But in the US, that's not there, it's very much more of a free market with companies able to try to make their products seem attractive and try out different things. Now, that may not change quickly in Canada. Tobacco is something where you can no longer see products in stores, you have to know to ask for it. And then when you get it, there's warning labels on it. Perhaps that's where we end up. I think though, we will see formats for the use of the product, whether they will be edibles or beverages that probably will be pioneered by some of these companies south of the border. And then when we see the success there, companies in Canada will provide the same kind of price to Canadian customers.
Clare O'Hara: Right. And Khurram can you give us a little bit of your overview between Canada and US?
Khurram Malik: Sure. I think if we just look at those two jurisdictions, what's interesting is that there's pluses and minuses on both side of the border. The good thing about the US is that, as was mentioned earlier, the regs are a lot more open. What that means is, if you're a business down there, looking to establish something in a supply chain of cannabis whether you're a grower or a retail location or something between. You can probably get it up and running a lot quicker and cheaper and more efficiently and start generating cash flow. The downside to this is that, it's very easy to get licenses in most US states, right? You can suddenly go from a couple of growers, for example to thousands of growers almost overnight and have some sort of an oversupply situation.
Khurram Malik: If you're an investor looking at investing individually in US companies, you got to bear one thing in mind, it's pretty risky down there. Because it's hard to figure out what's the size of the market. what's the size of market going to be tomorrow? There's no data out there. There's no real cap in terms of what it's going to look like, it's a little dicey. On this side of the board, the plus it's highly, highly regulated. It's federally legal, it's very hard to get a grower license, like we have or a retail license. You kind of know, if you have one of those, it's a precious commodity to some degree, so you can somewhat control your destiny or as an investor looking at these businesses, you have a rough idea where this business fits in the grand scheme of things today, and maybe six months or 12 months from now.
Khurram Malik: The downside to cannabis, everything is more expensive to do here. And there's a lot less innovation, and there's a lot less variety of things to invest in, that's changing slowly over time. And it's purely regulatory based, it has nothing to do with the amount of money that's raised up here, what the motivations for entrepreneurs are out there setting on cannabis businesses. You have work on a very strict regulation. The good thing is it's less risky, the bad thing is, they have less things to invest in, and every investor dollar going into, let's say investing in the company that's raising money. That dollar will not stretch as much as it would on the other side of the border.
Elliot Johnson: And if I could just add to that, I think when you look at the companies and you kind of do valuation analysis on them. You really do see that risk premium baked into the valuation analysis, and so Canadian companies are typically a much larger market cap. And therefore, trading at a lower valuation to their sales and revenue than what you see in the US. You can kind of take that in two ways, one is you could say, "Well, it's safer to invest in Canadian companies," I think that's definitely a true statement. That being said, there may be more upside in the US if some of these laws change, if some of these companies are really able to become true multi state operators and build out a true national platform as some of the regulations change down there. You have to decide what kind of investor are you? What are you looking to get? And what kind of risk are you willing to take in some of these investments? And that's a big part of our process to try to figure out, how to balance that in the portfolio and make sure that investors are getting an appropriate amount of exposure to the industry, well having an appropriate amount of safety built into the portfolio construction.
Clare O'Hara: I was going to ask where do you see the most value? Are you looking south of the border? Are you looking more in the Canadian market? With all that we've said now, what would be considered as the most valuable?
Elliot Johnson: Well, we look at both markets and intend to be long term investors in both places. We're not necessarily trying to pick one market as a winner over the other one. What we do know though, is that, the maturity of the markets is very different. And that is more than just kind of, do they have a certain kind of product? But I see it more in terms of what's their access to capital. What's the maturity of the regulations? Some people could look at regulations in Canada and say, "Well, they're stifling the industry innovation." On the other hand, I think the point was made that it also why we have talent here that the rest of the world wants.
Elliot Johnson: Because if you can do it here, you can do it anywhere, and the expertise that we're developing in Canada is worth a great deal. The opportunities are very different, I think you probably want to have some mix and balance of those different opportunities. It's one of the things that's so exciting about investing in cannabis, because you have increasingly the sector is segmented into these different kinds of applications, from medical to recreational and everything in between, as well as the different geographies in which people can operate and where the markets are developing as well the end user and consumer and so we really don't often see as investors markets like this that kind of explode from out of nowhere, as what we're seeing in the cannabis market today.
Vijay Sappani: I think the most important thing is, what is your appetite for investing? And then if you summarize all the things we have said, the three key factors are look at the management team, look at the opportunity, what is the opportunity in the market? Is it California? Is it Nevada? Is it Canada? Is it Massachusetts? And the timing of the opportunity. Now, are you the first cultivation license? Are you the 50th cultivation license to what Khurram said, if it's in Oregon you may be the first one, but there could be potentially hundreds of those coming just right behind you.
Vijay Sappani: You want to do an analysis and as an investor, if you're not sophisticated to understand these, you may want to go with a fund like an ETF, where you're basically diversifying a risk, or look at other investment opportunities, which fit your appetite. But the things we use is always the same principle, look at the management team, what is the market? What is the company? Where is the opportunity? And what is the timing? Are they licensed? Are they going to be licensed? And where are they with regards to other players in the market?
Clare O'Hara: And Khurram would you agree with that, when you're looking at the most value?
Khurram Malik: It would, I mean it depends on the personality of the investor as well. For the average retail investor, our advice has always been investing in ETFs if you can find one that's reasonable. This is an early stage sector; it was fraught with risk that the biggest companies has handled. Every six months, it looks dramatically different the sector. It's an old investing paradigm sort of saying, "What is your investor's personal [inaudible 00:20:12]? What is your capacity to understand the US market risk to Canadian markets? If you understand the Canadian market better based on if you live in Canada, or you live in the US, then take that expertise and go find something that's interesting that you think you know, better and figure out how to do it. If you don't have the capability to do that, then investing is easier.
Clare O'Hara: Right, Elliot you know you brought up the current and pending legislation in the US, which includes the farm Bill, the Safe Act and states. Just thinking forward looking, what can we expect to see in the US cannabis market, the next 12 months or forward?
Elliot Johnson: Well, I think these changes are very significant. Having the State's Act in place will get rid of any uncertainty about investing down there, because the federal and local level legislation will align. And I think that will cause a changing access to capital for those companies. Because there's going to be a whole bunch of investors who currently on the sidelines that will now feel comfortable getting in. The Safe Act with access to banking is a key part of any business. I mean, anybody who wants to run a business without the ability to use a bank is going to have some problems. But I think the interesting thing about the next 12 months is that you've got this US presidential cycle.
Elliot Johnson: I mean, amazingly it’s a two-year cycle in the States, and there's the all the primaries that happen. And the question really becomes, does this become an election issue? If it becomes an election issue, is it supported by one side more than another? And do we then have to wait for the outcome of the election in November of next year? Or is it something where it's possible that one side takes it off the table entirely, if the president decides that he supports it? Then he takes it away from the other side as an election argument. There's a bunch of variables there.
Elliot Johnson: It's not clear which way that political wind is blowing, but what is clear is increasingly at the state level, states are voting to support legalization of cannabis. When you saw the farm Bill, making hemp legal recently, that was another crack in the door opening toward legalization of the entire industry. And I think at this point it's certainly our opinion that the genie is out of the bottle, if you want to look at it that way. There's no way this is going to go in reverse, it just becomes a more and more progressive set of changes until the US catches up with Canada.
Elliot Johnson: How it all works out is hard to say, but I think what's likely to happen is through this process, we're going to see the bigger companies get bigger as they try to build out truly nationwide capability and prepare themselves for being legitimate on the world stage and then try to compete with Canadians in other markets such as Europe, where we already have a head start.
Clare O'Hara: And Vijay is that your opinion too?
Vijay Sappani: Absolutely. So, I think my focus always has been focus on the tangibles, and not to worry too much about things that you don't control. I don't think anybody who was talking about regulations today is speculating including the politicians, because they don't have an idea of which way it's going to go. I always try to focus on companies that have ability to scale to add on Elliot's point. It doesn't matter whether it's going to become federally legal or not, does this company have a capability in terms of management, in terms of access to capital, in terms of market strategy to grow into every single state? Look at companies like Medmen or Curcan have been growing into every single state. And that's what we're looking at in the US side. Again, what are they? Are they cultivators or they brand? are they retail stores? And, what is the growth curve has been? Are they trying to grow into every new market? Or are they trying to stay into a few smaller markets? To Elliot's point I think, eventually, when this whole federal legalization come, I think there's going to be a few massive companies and some of this bigger companies would get bigger and bigger and small, some others smaller ones will disappear.
Clare O'Hara: Khurram, do you find yourself paying close attention to legislation?
Khurram Malik: again it’s all about regs for me. We do forecasting your eggs as part of our daily sort of business. Yes, as I was telling you earlier, as far as the US is concerned, yeah, it's all trending in the direction that it'll be easy to run cannabis business and maybe take things across state lines. How that's going to flash out over the next couple of years and quarters remains to be seen. But I think it's going to be easier but regs can be a little tricky. I'll give you an example. The farm bill passed in the US a lot of fanfare. We've got the hemp backed up here as well, by the way, which is somewhat similar in terms of how hemp companies can operate with CBD but it's great. The farm bill passed, but it doesn't really mean anything, necessarily, in terms of the day to day operations of business. You got a farm bill that's passed, you got almost no experience in the US when it comes to hemp growing, that has to be developed.
Khurram Malik: Where's that coming from? Likely Canada. The FDA hasn't ruled on CBD. If you got a proper legal department, you can't ... If you grow hemp in a certain state, you can't take across state lines. People think they can, they can take it overseas they can't do any of that right now. It's not done. You got to understand the psychology regulations, they may look good, but they don't necessarily have an impact until years down line. In terms of how it actually impacts companies, so it's tricky. But for the average investor, stocks are based on future expectations and future momentum. There's enough momentum with something passing, or President Trump saying something to have a dramatic impact on stocks. If you want to play that game, you can but you really have to do your homework when it comes to regulations in terms of how they will impact Whatever you're looking to invest in.
Elliot Johnson: If I could just add to that, I think there's a set of investors that you can look at to get a sense of where the US market is going. And so, one of the things that we thought really was very interesting in the last 12 months was the investment that constellation brands made, that Altria made into Canadian cannabis companies. And when you think about that, you got to ask yourself, why would these giant US consumer packaged goods companies buy a Canadian company when there are all of these state level operators in the US that are in their domestic market? And the answer is because it's still such early days in terms of the story in the United States.
Elliot Johnson: But these companies want a foothold in the market in a way that is completely in line with all legislation around the world. Canada, again, is the winner because we get to attract capital. But I think they tell a story of investor sentiment to a large degree and there may be an indication of where other investment is on the sidelines. And so, I suspect that if you look at most institutional mandates, they're very conservative in the space. I think even a lot of investors in Canada, outside of the retail channel are still looking and maybe dipping their toe into this sector, and they're not in yet.
Elliot Johnson: When you think about that, just from a sort of supply side of capital or a demand side for the equities, depending on which way you want to think about it, there's a huge investor pool that typically is in the market in any public company that really isn't there today yet, in the cannabis sector. And that is a big part of what we think the story is going to be over the next 12 months to your question, because we think that increasingly, those investors will become comfortable with participating. And then they'll be looking for ways to do it that are in line with whether it's their investment policy, or whether it's their legal jurisdiction of wherever they happen to be.
Clare O'Hara: With that in mind, just staying on the US for a second, when we're talking about the legislative changes, is that going to affect Canada's lead in the cannabis market? How will the shifts in the US Canada sector effect that overall? Will we lose the ground that we've already made?
Elliot Johnson: Well, look, there's no question. I mean, if you're the first person in a race, and everybody else is standing at the start line, your lead is going to be bigger than everybody else till they start moving, and then it inevitably has to shrink. Canada definitely has had a headstart, I think, obviously, the extent to our head start is diminishing, every time there are changes in another country in the world. Now, we can capitalize on our lead as I think we're doing quite a bit in Europe, where a lot of our companies are investing and developing the markets there. But if you believe as we do, then this becomes a global phenomenon and everybody eventually catches up to Canada from a legislative perspective, then it's unlikely that Canada remains the top dog as an industry.
Elliot Johnson: But that doesn't mean we wouldn't have a huge industry, especially a huge industry by Canadian standards. I mean, I think this is a place where we're very lucky to have been first and we can pat ourselves on the back for having done that. There's just no ignoring the US as a market, right? There's no ignoring the consumer market is the biggest in the world. Vijay mentioned SLANG, SLANG boasts that they make one sale every second, on average. That's a big market and they're only 10 states out of 50 have legalized marijuana down there.
Elliot Johnson: You can see the size of that market, Canadian companies some of them have decided to operate down there, but a lot of them have not yet. While we've been able to develop production, we've been able to develop a lot of the skills around this. The market is developing to some degree without us, south of the border, at least without some of our larger players. We had a lead, I don't think we're going to keep it forever, but I don't think it's going to be not worthwhile. And I still think that investors can do very well in Canada, because it's again, still very, very early days, even in Canada.
Vijay Sappani: I was going to say no, to this point. We may not be a global leader as a country, but many of the Canadian companies are either already operating in the US or international. And when I was looking at South Korea, South Korea was talking about legalizing cannabis and I was involved in it. And then two days after I'm seeing an ad on LinkedIn Canopy is looking for a government relations manager for Japan and South Korea. Canadian companies are going international. They are in Europe, that major market. Privateer, which is still here in Canada has got assets in US.
Vijay Sappani: Terra and it's publicly known that they have done acquisitions in the US. There are Canadian companies that are cash rich, that are already operating the US, and I think once the regulations change will be pouncing to bio companies. Canada as a country may not be a global leader, but Canadian companies, many of them will continue to be a global leader. And it'll go vice versa, American companies will start buying Canadian companies, but also can Indian companies like canopy or Aurora and Aphria and TerraAscend of the world will be buying companies in the US. And they've already demonstrated to that they're actually having footprint in Germany, in Portugal and Spain, in the UK, Malta, Lesotho all over the world. I think the next decade; Canada will continue to have some kind of a global edge as a country. But also, I think as companies in the world, they will be having some presence in the global stage.
Clare O'Hara: Right. Khurram, I want to ask you, you mentioned how hemp farming in Canada is something that maybe we are a leader in. Is there certain areas or sectors within the cannabis market, that maybe we have a leg up and we will for a while?
Khurram Malik: I think so, if you look at hemp expertise after China, I think we're the largest producer of hemp and we supply a lot of non-CBD based hemp into the US market today. Yeah, that's an expertise we have the Americans don’t have; they just don't have it. Also, they don't have the infrastructure, right. If you drive by the heartland of the States, you see these silos, they're corn silos, or they're wheat silos. There's nothing else in between. Where are you going to build the hemp silo? There's nothing there to do it. I think as Vijay reiterated; I think our lead is going to remain for a while. It's not going any time soon, and most Canadian companies are very happy that the Us haven't got their act together in terms of the federal program, because yeah, we're missing out on the size of the US market to some degree, or mostly Canadian companies but we're killing it overseas in other countries, and we're very happy.
Vijay Sappani: I think the one advantage that you're seeing from a hemp perspective that the US is CBD, now CVS is starting to sell CBD products. Walgreens is trying to sell CBD products. I've been evaluating some companies that probably started about six months back, have revenues of two to $3 million a month, and they have about seven employees. I think the CBD in the US is something significant hemp CBD that we don't have yet in Canada, but to Khurram's point we have global expertise and Aurora has acquired some hemp companies.
Vijay Sappani: There's a few other cannabis companies that have acquired hemp companies, including TerrAscend has acquired company and US itself a hemp company. Once the regulation starts changing, I can see that within the next 30 to 90 days after the changes to regulations, probably 10 Canadian companies will be doing acquisitions in the hemp side. I know many of these companies have already identified these companies, they have started doing MOUs use with them, but they're waiting for the regulatory changes. They'll start doing these acquisitions and they will start growing in that space.
Khurram Malik: The subtle point there, is that there's a lot of hemp base in the US, not a lot there are some. But it's not grown efficiently, it's not grown cost effectively, it's actually the margins aren't as great as you think. But if we were operating as Canadians in the US right now, the margins will be dramatically better, the scale be dramatically higher. And that will take a while for that to translate to the US.
Elliot Johnson: And if I could just add to Khurram's point about the cultivation space, and how much land you have available and that kind of thing. The other reasons that we're really bullish on Canada, and I always think about the access to capital that we have is the biosynthesis as a way of developing the molecules of CBD or THC is increasingly becoming relevant because in the medical application, a drug company is going to have to make sure they have exactly the right amount of the stuff in their product. And similarly, from a consumable's perspective, if you're making edibles or infused drinks, it's the same thing.
Elliot Johnson: And that stuff doesn't necessarily have to be grown, but to develop it is expensive. Because you need to have facilities that produce these things synthetically rather than necessarily fields and fields of plant that you're going to cut down. And then you're going to extract the something from the plant. And the cost of that favors those who have access to capital at a lower rate and have the scale. And again, we've said a few times the expertise and the talent to be able to put those into action. That kind of thing is an advantage that you can potentially retain even after the rest of the world shows up because it's going to be the barrier to entry there because of the cost and the complexity, to develop some of those skills and to develop some of those facilities.
Elliot Johnson: And that's something where I think Canada can really increase its lead much more so than if you were to look at it at a purely agricultural commodity. Purely agricultural commodities tend to be things where the value drops, as it becomes more widespread, because the world is a big place, and we don't have all the land, though we do have a lot of it. But it would be better to be a knowledge based and technology-based advantage 'cause that sort of a thing tends to be more durable.
Khurram Malik: Yeah, I agree it really comes out of building a brand. The Canadian brand is very strong overseas, it's been strong for decades by the way. If you look at British Columbia, its number one export is illegal weed to Asia, more than any legal product, right? It's the Canadian bud [crosstalk 00:35:16] has always been BC bud but in a lot of jurisdictions. On a fundamental basis, other jurisdictions like Germany, or the US may come online with better fundamentals in terms of scale, capital, innovation, but if we are at the door first and we maintain a certain Canadian brand in the broader scape, it's talking to people head, that must be a long time.
Clare O'Hara: Do we already have that brand before we even legalized just because of the BC bud?
Khurram Malik: In Asia we do yeah.
Vijay Sappani: I can also tell you in some of the Asian countries that are now legalizing hemp, including China and India, some of these markets, that kind of hemp you find in those markets are not great. They actually now importing hemp seeds from Canada and some of the eastern European countries. I know in India, a project they have imported hemp seeds from Canada. The reputation of Canadian hemp being superior, is actually global. People are looking towards Canada for that.
Clare O'Hara: Just to stay on the international market for a second. BJ, you mentioned a lot of different regions and countries, but what would you say is the most significant international opportunity right now?
Vijay Sappani: Well, I think from a Canadian perspective, the market just south of US is huge. But when you want to look outside of the US, Europe is an emerging market. UK has legalized medical cannabis, there's Malta, Portugal, Spain, many of these markets in the Europe is opening up. Germany has legalized, well to some of those markets, there is insurance coverage already planned. Australia on the other side, New Zealand, some of those markets are coming up.
Vijay Sappani: Now, when we look at investments, I don't know if you realized there was a company called Nevada, which Aphria acquired, which is, again, a global supply chain venture. There's a Canadian company called Materia Ventures, we're looking into it, who are putting together supply deals across Europe and Latin America. If you look at where we look at the biggest opportunities is going to be from a from dollar sense, it's going to be Europe. And then there's always emerging markets, like in the Asian continent, but also Latin America markets like Brazil. When Brazil opens up that's going to be a huge market by sheer population. Immediate opportunities I would say is going to be Germany, UK, mostly in the European markets.
Clare O'Hara: Elliot, what are your thoughts on the most significant international opportunity?
Elliot Johnson: Well, I think as it has been said, it's going to be about developing exporting a brand, and being able to them back that up with production. We've seen a lot in Europe lately, but I mean, I think we can list kind of any large economy around the world. And there's big opportunities there for us. If you look at more mature industries, international brands strength is unbelievably useful, and it's worth so much. How much is the Coca Cola brand worth, for example?
Elliot Johnson: It's unbelievable. And so that, I think, is something that we need to think about as we look at some of the deals that Canadian companies are doing to expand into some of these countries, because I think there's a huge first mover advantage of being in their early with a product that is attractively presented and the customer starts to use as their first exposure to a really a whole bunch of new different things.
Elliot Johnson: I mean, I'm not sure that most people will be using cannabis in a smokable form as things develop. I'm very excited about what the edible formats are going to look like around the world. And so, I think it's going to be all about getting those brands developed and getting them out there. And Canada, I think continues to have that advantage because we're fully legal here, and we're not constrained in individual province, and we can kind of move around that we've got access to the banking system.
Elliot Johnson: We've got access to capital markets. And so, I really think where it's going to be in and likely, then you could look at what are our big trading partners, obviously, the EU as a huge trading partner, the UK, Australia, New Zealand and those places are big. But as it has been said Asia are obviously, agents to market everybody goes after for all the business and who knows what a foothold in India or China could mean in the next 15 years if you can become the go-to brand and some of those places.
Clare O'Hara: And Khurram, do you have any other additional thoughts on the international market?
Khurram Malik: I do. I think Western Europe is interesting particularly Germany as a general principle, because the regs are better. At a look at the Canadian regulations for medical just made better regulations. You have pharmacy participation, doctor participation, insurance coverage, it's the way it should be here and hopefully we get there otherwise, this lead, we could talk about it will shrink in some ways. It's on the onus of the regulators to figure it out. Now, we look at things a little differently in terms of how we look at the world. I run a cannabis company, which is a licensed producer as well and we're in Canada, but really what makes it interesting is we do overseas.
Khurram Malik: I have no interest in being the 16th company in Germany. Germany's done for me. We'll do stuff there, but we won't do it very aggressively. I want to be the first or second into other countries. Whether it's in Asia, or Africa, or parts of South America, that's what interests me. Now that takes years to achieve like Vijay said, South Korea just came up with some regulations recently. They didn't magically happen; people have been working on those for years behind the scenes. We're in countries as well, we've been working for years helping to influence them develop the regulations, which gives you some privileges of being early and not always.
Khurram Malik: And that's where it gets interesting, because 36 million people are in Canada tiny market, there's more people in California that there are in ... All of California. The GDP of California is higher than the GDP of Canada. So yeah, these international markets are massive. And yeah, there's more bodies in Asia than there are anywhere else. Just for that reason, it's pretty exciting besides Africa and so is other parts of the world, which are just coming on their own programs. You look the world generally right now; I'd say the vast majority of the of the planet will have some sort of medical regs in place at some point between now and five years now. Considering where we were a few years ago. That's dramatic. And that's very quick. So, but yeah, but Canadian brands will be in most of these, jurisdictions, which looks very exciting.
Vijay Sappani: I'll tell you this . I've been looking at the Asian markets, I'm now looking very significant in Australia, in Sri Lanka, Thailand, South Korea and other markets. But also, the reason why I wouldn't write off Germany is that when I look as a Canadian where my dollar is, Canadian dollar to a Sri Lankan rupee versus a Canadian dollar to the Euro, how much do you have to sell to really make a profit. I'm looking at profitability, but also a market like Germany, which almost has about 90 million people as full insurance coverage. So, you want to look at the big picture, I would rather be the 10th company in Germany than be a first company in Sri Lanka with having no access.
Vijay Sappani: I've been talking to the CEO of Materia Ventures, which is Deepak Anand from CCI. And these guys have been doing a great job. They're looking at how do they get into the European market now, but also, they've got applications into Thailand and Sri Lanka, in Fiji and some of these markets. To your point is that these are emerging markets you want to get in, but I wouldn't write off the European markets, because the European market is where my dollar is going to get me the biggest buyer.
Khurram Malik: Finally we disagree on something. So, I agree with that point but I'm not going to agree with that because so if you have a young company, you've got limited resources, you got to pick your spots, you can't be in every country on the planet. So, you figure out where you have your best buying for your buck.
Vijay Sappani: Absolutely.
Khurram Malik: I'd rather be the first into a new jurisdiction, which is set up where I had some influence what the rules are, like. So, it's somewhat, is in line with what I have that I'm bringing into the country and at scalability. It doesn't mean I'm going to do 100 million revenue today, but the potential is there to do it versus, being one of however many there are in another country. So, we will do Germany, we just won't do it in the same infrastructure, heavy, aggressive way as we would do it, let's say-
Vijay Sappani: 100%.
Khurram Malik: An African country.
Vijay Sappani: And that's the same thing, as in Canada. There’re 150 licenses now. So, when we look at investing in Canada, what is your focus? And then if you're going to be just another 20,000 square foot building, do we want to invest into you? Or do we want to look into companies that are investing into your markets. Other thing to keep in mind, we're looking at internationalist political stability, including in European countries, you want to look into, what are the positions of political parties. The last thing you want is a new government coming in and completely scrapping IT. And especially in the developing countries in Latin America, and Asia and Africa.
Khurram Malik: Pretty volatile.
Vijay Sappani: It's very volatile. So, something you want to keep in mind. So that's where I look into, companies that have expertise that are doing it. I like to rather work with them than me having to do everything on every day.
Elliot Johnson: And I think just to add one thing that people don't appreciate about Canada, maybe outside of Canada is, our human capital in Canada is unbelievably strong. It's a very international country. We're a country of immigrants for a large part. We are a country of people who speak all kinds of languages from other parts of the world. The education level in Canada is incredibly high. All of those things add up to the ability for us to actually export our expertise, export our products, and so on to all corners of the world. That's not always this case in other places. That's why we can be excited about talking about this and why Vijay and Khurram are actually talking about building companies in other countries and its sort of almost normal for you to be looking at that. And I think that's something that not everybody would appreciate about Canada. But we're first but we're first with people who actually are able to take advantage of that.
Khurram Malik: That's important. It's a good point to emphasize what we're exporting to the rest of world is intellectual human capital 100%. We produce most expensive cannabis in the world because we're forced to do it. That's the only way we can grow. So, it's not like there's a massive export, there's a little bit initially until these get up and running like Germany, but we won't be exploiting Canadian finished products here as much as some people maybe are thinking.
Vijay Sappani: I think you're right, so I'll tell you this, I met with the Danish Health Minister in Canada, but I also know Deepak with the Materia he's been consulting with Malta, Lesotho, Thailand. A lot of these emerging companies and emerging markets have been reaching out to Canadian experts to help them build the whole regulatory framework in their own countries. Canadians are actually helping build a framework, which is great for Canadian companies, because we already compliant.
Clare O'Hara: Great. So, I just want to switch gears a little bit, cause the first round of earnings from the Legal Cannabis Sector are in and Elliot, many are seeing the numbers are not promising. And so, I'm just curious, what are some of the long-term fundamentals of the cannabis sector in Canada, or globally?
Elliot Johnson: Well, I think I've heard that people have sort of maybe disappointed by your earnings. But I think there's been this expectation among investors that we have legalization day, and then suddenly, we have a fully formed industry and it's just not what's happening, it's not realistic to think about things that way. To put the to the first quarter in perspective, we've only recently got stores opening in Toronto and that rollout is still happening. I think there are three stores now, there are a few more coming online over the next few weeks. Right now, it's such early days, in terms of the retail rollout, the edibles don't become fully legal until October 17th of this year. So, all the formats that we're excited about for Canadian investor ... Sorry, concerned Canadian consumers, that's not showing up until the fourth quarter of this year.
Elliot Johnson: We've been talking about this whole time about the changes to the rest of the world, and investments being made in other countries and, exports to Europe and all of those other things that companies are doing, these are early days, these are still very much in the investment and building the business and building the products and building the stores. And that's where I think people should be in terms of thinking about what they're seeing coming out of these companies. I don't think that what we've seen today is indicative of where things are going to be in two or three years, as we're able to actually get on our feet.
Elliot Johnson: I think, it's probably reasonable to say the expectations were sky high, particularly last October, when legalization day happened and people were, buying marijuana and midnight plus one second in the first province and all of that kind of stuff. That's great. And it's good that people are excited about it. But that does not make a market that people are used to using and if you think about it as compared to other goods and services that people buy. So, I would say it's still a stay tuned and wait and see and I think that companies should be given quite a bit of leeway by investors to actually develop what they're doing. And people should look at really what has happened in the past quarter in terms of developing and executing on their business plan.
Elliot Johnson: In most cases, the companies that you can invest in, have clearly articulated, what it is that they intend to do, they talk about it on their earnings calls, they've got it in their investor presentations, and you can follow along and say, are they actually moving in the direction that say that they're moving in? And if the answer to that is yes, then I think, there's good reason to stay the course.
Clare O'Hara: And Vijay what are the numbers saying?
Vijay Sappani: I think I'll say this, I come from pharma medical devices. And often, if you look at the most profitable companies, they are in the regulated industries. The barrier to entries will actually reduce the number of players, and not just number of players who are getting in, even the number of players who end up staying in the game. So, having seen the kind of numbers in pharmaceuticals I think cannabis is like probably like way more profitable than any of those industries. I think it will continue to be. To add on to Elliot's point, it's just an early stage tip of the iceberg. Goes back to my earlier point, I was look at management. Does this company have the management? Does this company have access to capital? Can they actually deliver?
Vijay Sappani: When I look at a company that I have no knowledge about, or I look at Khurram's company, I would probably invest in a company like this, that's just my personal knowledge of companies. And probably that's what investors have done mostly, I think, as to Elliot's point as the more access to a product from a retail perspective comes in, but also supply comes in. Companies are just still scaling up; they're trying to build more product. You have to have product to sell if you want to make money. So, this industry will look very different in two to three years from now, I think there will be companies that will be going bankrupt, there's going to be companies getting acquired pretty much every other day sooner than later. But in the end, as an industry, this is going to be a very profitable industry compared to most others. This is far more profitable and CPG, and far more far more profitable and pharmaceuticals for now. And I would continue to keep investing and betting of this industry more than anybody else.
Clare O'Hara: And Khurram your thoughts.
Khurram Malik: Yeah, I think so I think Canadian companies are getting sort of hit by two additional dynamics. You've got the US companies reporting results as well, a lot of trade on Canadian exchanges. And yeah, their revenue ramp has been prolific, and you don't see the same with Canadian companies. Again, it goes back to regulations, it's all just easier to set up stuff in the US and get it up and running and start collecting checks. So that's part of it. The other part of it is if you look at the three or four largest companies in the Canadian space, they're not actually interested in making money today, because they've got the balance sheet. And it's a real legitimate business plan how they approach the market.
Khurram Malik: The other thing is spend whatever you have to spend to gain market share and then keep it and squeeze out everybody else when things sort of normalize and then you sort of make money. So yeah, for them the game is simply just spend whatever you'll spend, we'll get back to being profitable later on because we have a lot to worry about right now. So that's what's paints everybody in a certain way. But you do it profitable companies coming out on the smaller side in Canada, which have margins, which you can sort of look towards. I think for those companies in the next two quarters in Canada, it's still going to be about the top line, the revenue line. But at some point, later this year, probably Q4 the earliest, you'll have a greater emphasis [inaudible 00:50:15] finally, but about the bottom line. Are you making money yet? So that hasn't quite happened yet. But again, it's happening in the US cause they are earning money down there.
Khurram Malik: So it won't have a different time people. It's really looking at, okay, what are people doing today to get ready for what's going to happen 2020 and what's going to happen 2021. That's when things get interesting from a cash flow earnings standpoint.
Clare O'Hara: Right. So, Elliot let's talk a little bit about the importance of active management for cannabis funds. Your company has an actively managed ETF. So, what are the benefits when it comes to looking at this sector?
Elliot Johnson: Well, investors in ETFs, are typically having to choose between passive where there's an index that's built by a computer and active, which is what we're doing with seed, which is our marijuana ETF. Where we're actually picking names and deciding how much we're going to hold on them. And the big difference between the two is, well there are few differences. One is how well can you react to the news and the changes that are happening. And in this sector, in particular, where we have so many changes that come about as a result of M&A announcements or news about regulation changes, you really need somebody to be able to react quickly and make sure that you're positioned properly for what the news is.
Elliot Johnson: And so to take an example from last Summer, in the Summer, cannabis companies in Canada had kind of sold off and we're at a low, we decided to overweight the larger cap names in the industry, because we thought there would be a huge run up in the share price of those companies into the October 17th legalization day. That turned out to be a correct call. And we delivered quite a significant amount of extra value over the passive index products that are also here, at that point in time. The other thing that I would highlight in terms of active management is, not all these companies are going to succeed, right, as Vijay said, there will be some bankruptcies.
Elliot Johnson: Currently, we in our database at Evolve, we track over 250 companies that are involved in the cannabis space. And we like kind of 50 of them, and we have a few that are on our radar. And then there are some that were just simply not going to touch. If you take a computerized index approach to just grabbing all those that fall into the bucket, you're going to have ones that do very, very poorly. And that means the ones that do well have to compensate for that portion of your portfolio. And one of our jobs is to try to avoid the disasters. And if we hold a name, and we're wrong about it, we need to recognize that we're wrong quickly and trade accordingly and remove it from the portfolio and replace it with something that's going to do better.
Elliot Johnson: So those are the kind of hallmarks of active management that, people, I think generally appreciate, which is why actively managed funds in Canada is a much bigger asset class than passive index funds. But I think in particular, when you're looking at investing, you can invest in broad sectors like the S&P 500 with an index fund, that's fine, you're making a bet entirely on that economy. But for an industry like cannabis, where we keep saying over and over, we think it's going to be very different in two years or three years from now, it's very difficult to have an index that is appropriately built that will be doing the right thing at the right time, all the way along that journey.
Clare O'Hara: Right. And Khurram do you have any thoughts on active management?
Khurram Malik: I do. I agree with what Elliot says. This is a more mature, stable industry, and it just sort of humming along automobiles or whatever. Passive management kind of makes sense. There's the efficiency to market. So, what efficiency actually means is that the information out there, everyone sort of has it, it gets out there quickly and so market prices adjust reasonably well. In the cannabis space, not so much. Highly, highly inefficient on the operating level, but also at the public market level. So I think, if you want to beat the overall whatever indices ETFs, sort of benchmark themselves against, you can add a lot of value in an earlier stage sector, because the portfolio managers that are covering it can do that deep digging and gather inefficient information we call it alpha, and actually generate an outsized returns, than you can in a more mature sector, where everyone's got pretty much the same information.
Vijay Sappani: Absolutely. I think I have to agree with both. And it's a very nascent industry. So, which means you just cannot be all about plugging in numbers into a computer, you have to be actively involved. Like I said, for me, it's about knowing the management, knowing the business plan, a lot of the investments are made. And I'll give an example. I'm not investor in MediPharm, but I'll give you as MediPharm as a great example. When that company came in, I knew the management team, and I was like, "This company is going to do really well, because the management is fabulous." And many people ask why would you invest in a company that has just got a license when you could go invest in a big company, which is sort of a full licensed producer? But then they have actually executed many of the [inaudible 00:55:02] processing companies like MediPharm, [inaudible 00:55:04], have done really well in the market.
Vijay Sappani: So it goes back to having a good knowledge of the industry, the market, but also being actively looking at the management of the company is their business plan, where they tend to go and that's how it is going to be probably for the next three, five years.
Clare O'Hara: So Khurram just to go back to you for a second, where do you think investors should be looking when they're considering investing in this space?
Khurram Malik: It's a good question. So generally, I sort of tell again, it's how much [inaudible 00:55:29]. I mean, if you put the effort in, then you can pretty much go anywhere. You can find a diamond in the rough. But if you tend to stick with the more liquid names you can get in and out and pretty quickly and there's more information on them out there. So, they're safer bets. ETS are awfully obviously my reference number one. Canadian companies generally yeah. If you're looking for the total players, the extraction companies that make sense. There's a bottleneck right now in the extraction. At least for a short period time. That's a good place to be.
Khurram Malik: If you're looking at the larger companies that are here. Yeah, what are they doing overseas? Who's got the best positioning to go overseas and set up operations. That's the way I would look at it. It's all international right now, as far as Canadian plays are concerned. If they were purely a domestic play, I would probably avoid it, even if they got everything else brilliantly figured out because the overall market [inaudible 00:56:11] going to be very difficult in Canadian markets in late next year and into 2021.
Clare O'Hara: And Vijay specifically for family offices, that want to explore these investments, where should they start?
Vijay Sappani: I think again, it goes back to Khurram's point is how much time do you really have to invest in to digging into. I just came back from Israel, I met with 34 companies, maybe one of them, I'm going to invest. I was in Vegas at MGA base I met 117 companies I invested in two. So, the question comes down to how much of do you really want to be involved? But I think it'll come down to also your risk appetite. So, I'm looking at and I know many others are looking at international opportunities where the risk is high, the growth opportunity is higher. But I also know even if my traditionally [inaudible 00:56:53] you would probably go to an ETF. I know, other Canadian friends who will say they don't want to be investing anybody international, they want to do Canadian.
Vijay Sappani: So the most important thing I would say is it comes down to your appetite and how much time you really want to invest into. Now we as at right now, we're looking into more branded companies, we're looking at companies that are having international supply chain deals. So that's our focus is about going above and beyond the cultivation play. And but also have many, many friends who will keep asking us, which are the best licensed producers to invest? So, it all comes down to the appetite of the investor.
Clare O'Hara: And Elliot, can you add anything with your perspective to the family offices and where they should be starting?
Elliot Johnson: I think Khurram and Vijay have made the point very well, which is you need a lot of time and work to figure out what it is you want to do. And obviously it's your investment risk appetite. I would suggest that in its sort of anecdotal, but I believe that most family offices, like most institutional, pensions and foundations are under exposed to this market. If you talk to some portfolio managers who say have a have the broad Canadian market as their benchmark but by mandate, they're not allowed to invest in cannabis, they're not happy about that constraint, because they're not able to perform very well versus their benchmark, because they're missing a significant part of the engine that's really doing very well for Canada at the moment.
Elliot Johnson: So I think, you need to look at the asset class and say, well, let's assume high volatility, it's been traditionally volatile in the past, which is, maybe something we think that might become more subdued as it matures, we don't think that it's always going to be highly volatile, but maybe for the time being, you continue to assume it's volatile. But you also assume that it's also kind of got a very high growth possibility. And so, you put it into that part of your portfolio, which may be a small portion of your overall equity exposure, but could be a meaningful driver over time.
Elliot Johnson: And then as you're reviewing your portfolio, every quarter, you need to be deciding, does it still belong in that category? Or, at what point has the has the industry grown up if you want to think of it that way to justify a more mainstream position and manage it accordingly. But I think to miss out entirely on the cannabis sector right now is a mistake and I think that you're leaving a lot of performance on the table by not being in there.
Vijay Sappani: Great. Cannabis is like what the technology sector, the Internet sector is through the 90s. I have a friend, very successful venture capitalists in the tech sector. So, he and I have a deal. Anywhere I invest in cannabis, he's going to put money with me, anywhere he invests in technology, I'm going to put money with him. I don't know anything about the tech space. He knows it well. I know the cannabis space. He trusts me. So, I trust him. But also, for many family offices there's are conferences. I think there's a [inaudible 00:59:48] Conference, there's many conferences out there. I think, to Elliot's point, if you don't invest in cannabis, now you're really missing out. And especially somebody in a family office, you want to diversify, and now is a good time to get out to some of these conferences. Start reading some of these reports.
Vijay Sappani: There's a couple of conferences coming next week. Get out, get your feet wet, get to know and also talk to people. Many family officers, I have relationship with many family officers who talk to you about cannabis and I talked to them about real estate and technology. So, talk to some of the ones that you know, and start getting into the industry. There's always a starting point and now is it.
Elliot Johnson: Well, I want to thank all of you for joining us today on today's discussion on cannabis. There's so much for advisors and investors to learn in this very rapidly changing sector. And I'm Claire O'Hara from the Globe and Mail. And this has been Asset TV's Cannabis Investing Masterclass.