The cannabis industry is one of the fastest growing industries in the U.S. With new legal cannabis legislation each year, new markets are opening within the cannabis industry offering endless opportunities for entrepreneurs interested in getting involved. Harry Brelsford of The CannaTech Group sits down with Steve Gutterman of Falcon Brands to discuss profitability in cannabis through the pandemic, recession, tax changes, and a continuing growing industry.
Video Transcription
Harry Brelsford
Yeah. And I think you hit on something again, as I bookmarked New Cannabis Ventures, you know, there’s about 10 sites I peek at every morning over coffee, you know what I mean? Just Warren Buffett can’t be wrong. I heard that dude reads for like three or four hours in the morning, so I follow his lead. But that’s really interesting about operations because yeah, what you’re definitely seeing and this isn’t news to you, but maybe some of the listeners is the flight to profitability is really, you know, it’s we’re talking layoffs, we’re talking cost cutting, we’re talking this it’s the typical Gartner Hype curve right a couple of years ago. We’re all frothy and now you know we’re in the trough to come out long term and hockey stick to the right again, but but that’s that’s interesting. You said that because I’m seeing that a lot. Does that make sense that Oh, yeah. Carpeting the pencil man. Oh, for sure.
Steve Gutterman
For sure. And I think I have a couple thoughts on that. The first is that cannabis is a somewhat but not in tirely recession and inflation proof commodity, meaning, of course, we are still going to see sales. But basket sizes in California and across the country have declined a little bit as inflation has gone up. And it makes sense, right? If you’re paying more for gas and rent and power, then you may either look for cheaper weed, or you may get one or two less products, right. So I think that that’s, that’s real, and that has forced cannabis companies to become particularly attentive to and attuned to profitability, something that was happening anyway, but it’s really accelerated that focus. Having said that, and I think this is the second and more important point, let’s step back for a second cannabis has gone from zero to $50 billion in revenue over just a handful a year. And so to paraphrase Mark Twain, the the death or the troubles of the cannabis industry are somewhat exaggerated, right? I mean, like, this is an industry and if you’re looking at the prints right now of the large public MSOs, everybody’s generating way more revenue than they did last year, and everybody’s generating EBIT da, and really good margins. And like we just talked about a second ago, were profitable, and were profitable in what is generally considered the most competitive state in the country. So the hand wringing and the hand wringing about stocks and capital markets in the industry in general, is overblown.
Harry Brelsford
Yeah, yeah. Yeah, it’s, you know, markets inefficient, which, again, can be good. You can arbitrage inefficiency, right, that creates the exact arbitrage opportunity. So I’m cool with up and down. What was it a friend of mine? Bulls make money, bears make money, but pigs get fat. So you know, you just, it’s okay, guys, it’s okay, that we’re going to have natural market corrections. One thought I had while you were talking was, you know, this probably is my fourth or fifth economic recession rodeo, if I were to count it up. And what I saw is a child in the Alaska oil industry in the mid 80s. And they finished the pipelines. Right. And so it’s a natural resource economy. So they didn’t meet 50,000 workers anymore, right. And so there was a post, you know, post construction letdown. And the economy, here’s what I found is that the sin taxes were almost like consumer staples, they basically state they did pretty well. So we’re talking liquor, we’re talking palm stores, you know, those were, they were throwing people are trying to sell stuff, man to buy food or whatever, adult entertainment. And you get the point. And I think cannabis falls to some extent into that syntax area. Now. You’re right. It’s it’s not 100% bulletproof, but it is something that people will like, the other thing I just had this conversation yesterday, was, you may see a little bit of the economic concept of substitution that literally had this conversation that people are like, well, you know, $20 bag of edible peanut butter cups, will carry me, you know, at $20 up and Seattle 24. I think, well, that’s gonna carry me a week or two weeks, we can have two weeks. Versus you can even do the same with vodka, right? Alcohol can be far more expensive than weed and it comes down to the substitution effect. Depending on your relationship with alcohol and weed, if it’s to relax at night, this individual was sharing sharing that they’re substituting because if you ever had that conversation about weed versus alcohol
Steve Gutterman
Yeah, sure. And and I generally agree with everything that you just said, except I’ll quibble with with one with one piece, right, which is, and this is a frustration. I think everybody in the cannabis industry shares. There are many people that use cannabis, because it has a materially positive impact on their lives, right? They, they smoke because they are Yeah, they’re trying to relieve anxiety or they have seizures or you know, you name it. And so, I think that the notion that and maybe my, my beef isn’t with you. It’s with regulators and tax administrators, the notion that we we as an industry and consumers should pay a sin tax on products that are really essential for health. Really, I would say it’s more of a wellness tax. And it’s kind of bogus. Right. And so, for example, I was gratified when recently, California, reduced some of the cultivation taxes eliminated for theatres. And I think that was a really, I think that was a really good step. Now, on the other hand, you have LA, considering additional taxes on unincorporated counties in facilities and unincorporated counties. And so that’s a step back. Right. And so I think that what the education, the content that needs to continue to happen is that cannabis and alcohol and cannabis and adult entertainment and cannabis and some of the other things that you talked about are not their similarities, but they’re not equal, right? Cannabis is a substance that makes people’s lives better and should be taxed and regulated accordingly.
Harry Brelsford
Wow. And you know, I’m getting to know you better. And unfortunately, what you’re going to discover is I am a little chippy, you know, so yeah, yeah. Right. I have a I have a fake Texas accent. So I’m just trying to have a little bit of fun. But hey, in any event, where could people possibly see you as we head into the show season? mjbizcon. Anything else stand out of mind where people might be able to see you live? Yeah, you
Steve Gutterman
know, we’re being a little bit judicious in the things that we’re appearing in. And just just because I think that’s good practice. And, and also, we’re working on a bunch of, we’re working on a bunch of big stuff. And when, when that happens, we may be a little more, we may, we may start pounding the pavement a little bit more. Right now. We’re definitely going to be at mjbizcon in Vegas and in the fall, and then we should be back at Ben, Zynga in April. And then, and then we’ll see about additional appearances. Yeah, love
Harry Brelsford
Ben, Zynga. Unfortunately, I have a collision. Apparently they have one in September in Chicago. Yeah. I’m not going to happen. But I sure like that spring one down in Miami. Now that one?
Steve Gutterman
Yeah. And I will tell you that we just made the decision to not do a speaking engagement at that one. But having said that, I think Elliot and Patrick Lane do a great job and the whole Benzinga team does. We’re definitely planning on being back in April and so it’s just, it’s just a matter of picking our spots a little bit. Yeah,
Harry Brelsford
exactly why we’re gonna get you back next quarter. If you don’t mind. It’s hopefully good for you. It’s certainly good for us. Continued success and I’m gonna keep an eye on Yeah.
Steve Gutterman
Awesome. Awesome. Well, I look forward to talking again.
Harry Brelsford
All right. Take care. Bye bye.
