Joel P. (6:02)

Oh, wow.

Jacqueline Bennett (6:03)

Yeah. Now trades as a Kerner. It was then mtech, so ancillary non plant touching, which is why it was able to list on the Nasdaq. And so we've developed, we've aligned a lot of compliments between the two of us and we've been doing some investing together for the last 12 months. Advisory roles, we have a lot of exposure across the asset categories, but we really focus on consumer brands is one area I've developed. I'd say a near obsession with biotechnology in the last 12 months. It's fascinating for many reasons. And there's a lot of innovation happening in cannabis because the finished good is not to the same standard that we expect in other consumer categories. So it's sort of a first to market, getting product on shelves quickly but sacrificing things like nutrition and flavor and the experience of actually consuming, which is in other categories. We as consumers demand that if we're going to make purchases. And so there's a lot of room ahead for category leaders to be established and across. There's many different asset categories obviously that we can speak about, but yeah, so right now predominantly focused on we form special purpose vehicles and invest directly into companies. There will be some evolution of that in 2021. Northeast is particularly exciting right now with New Jersey, who legalized recreational use in November, and New York will follow shortly, as well as some of the surrounding states. So that's the sort of high level.

Joel P. (8:01)

Yeah, I derived like 2 to 3 maybe rapid fire questions from just big.

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Joel P. (8:30)

With a little help from us suggesting all of that. So one of the first things is, you know, all of us have pivoted. I think, you know, our journey to VC has been different. So I know you kind of did an operator role for a little while. So talk to us about how you were able to kind of adjust quickly to that different environment of wearing a different hat, probably wearing different, you know, multiple hats. How was that change? And then maybe another quick follow up is how is Carlisle as a VC different than other typical VCs. Because Carlisle, when you think of them, you think of like a typical private equity firm. So, you know, is there, you know, I'm assuming they're a little more rigid and more institutional, but, you know, love your, you know, your background on that and you know, kind of the differences that you notice with working with that fund versus kind of typical Silicon Valley or even typical New York VCs.

Jacqueline Bennett (9:22)

Yes, definitely. Distinct differences, I would say.

Joel P. (9:25)

Yeah.

Jacqueline Bennett (9:26)

So to the first question, the switching of hats. My mindset has always been even within an organization, despite how large I think about the growth of that organization, even if I'm in a transaction role. So I, for better or worse, seem to care a lot about everything that's happening and always looking for areas for improvement, enhancement, innovation, whatever it might be. So I think that to actually be working for an operation was quite a natural fit for me and probably maybe even more of a natural fit than more of a transaction banking role where I really enjoy the growth and seeing the teams and that sort of invested interest in building the operation. And so it was a natural fit. The flip side was, after being there for three years and we were relatively small company, I also, you know, with a pretty focused business model that then the lack of diversity actually ended up wearing on me. So. But I, yeah, the idea of being a part of something that is growing is very much resonates to the question around Carlyle. I can definitely speak to so part of my role at Credit Suisse and even actually at Babcock and Brown. So my first firm, we were, we were the client of all the big investment banks and culture in personality of firms, funds in general are always very distinct. It becomes a little more about the organization than the individual. Obviously, the bigger the teams are. And I think what happens with the, I mean, private equity and venture capital, very distinct. Obviously there's a little bit of a hybrid as depending on where the firms focus, you know, private equity operates more there, there's more formalities. There's, you know, very thorough diligence. There's fundamental analysis. There's all those sort of textbook learnings that are applied because they can't get it wrong. Whereas in venture capital, it's a little bit different. I mean, depending. No one likes to say that they're betting on a potential loser, but there's an ability to, to win some and lose some. Carlyle. So we were part of their venture fund, but that then folded into their tech fund in 2009 because during the financial crisis it no longer was a viable entity. For Carlyle, however, the culture resonated through. So we, you know, we would meet on a monthly basis, which is quite a lot.

Joel P. (12:18)

Sure.

Jacqueline Bennett (12:19)

Every. And I would spend the last week of every month preparing, helping put together materials to then present to have this inevitable debate where they were the experts and we, the operators were not. And then, you know, we. Then.

Maurices Brand Voice (12:34)

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Jacqueline Bennett (12:59)

Ended up just continuing with our intended strategy anyway.

Joel P. (13:02)

Sure.

Jacqueline Bennett (13:02)

So I think. And I mean, they were also, on the flip side, incredibly helpful in positioning for exit and just understanding that part of the process. So there was. There are. There are positives and negatives to very active investors, depending on the needs of the management team. And obviously aligned interests is always a good thing.

Joel P. (13:27)

Yeah. And it's definitely a big brand. I mean, so knowing that you're backed by Carlyle, I mean, people just already know you're pretty legit because it's a big brand, it's a big institution, so provides that validity, but with everything. Right. I mean, I worked at big companies and small companies, and there's pros and cons of both. And, you know, with big companies, as you know, because you were at JP Morgan, there's like multiple lines of leadership. Right. Anytime you want to do something, you got to get 20 people to approve it. And there's a lot of red tape, but it's JP Morgan. Right, so.

Jacqueline Bennett (13:57)

Exactly. Yeah.

Joel P. (13:58)

It's interesting.

Jacqueline Bennett (13:58)

It actually, it almost creates a. It can create a culture of laziness, for lack of a better word. People really depend on their business card. They're like, oh, we'll win the business just because we're JP Morgan, not because we're coming up with the most creative idea or the most relevant idea or whatever it might be. And obviously, there are exceptions to that. And most of the colleagues who I tended to really resonate with were those who like to continue to be pushing at the leading edge and really thoughtful. And there is a lot of that at a place like JP Morgan, who's, in some ways, you need to be, but in other ways, there's complacency.

Joel P. (14:39)

Yeah. No, I've seen that too. And that's an interesting insight because I was at like an emerging manager talk like two days ago and that was mentioned. So if you work at like Wellington Asset Management or Sands Capital, one of these big firms, you just got to hit your benchmark, right? And a lot of times, if it's not too difficult, you've been doing it for like five to seven years. It's not, you don't have to really pull a lot of weight to hit that benchmark. So a lot of times you lose that hungriness too over time because you're getting paid well, your hours are good so that, you know, you do get kind of lazy because you are at that big institution. So I think that's, that opens up a lot of great opportunities for emerging managers. You know, people that are, you know, hungry, they're, they're kind of bringing in fresh blood new investment theses. So another follow up question is when you're talking about SPACs, because I used to, you know, sometimes I'll give these, you know, teach these new modules on different concepts and I recently started incorporating SPACs. But that was really just this summer, right, when you know, Chamath and Chamath has been just spacing all over the place, right? Like every, every month he's got a spac. He's probably done, you know, at least a dozen of them. So it's been a really hot thing the last couple months. But I'm curious how SPACs were perceived and how they've evolved, right, because you did one maybe almost two years ago. So have they, has the process changed? Obviously everybody knows about them now. Nobody really, I feel like nobody knew about them. Maybe two, three years ago there were still being done. But have you seen them evolve at all in the last couple of years?

Jacqueline Bennett (16:16)

Definitely. So my SPACs were big. I think back in 2011 and then 2017 there was a massive revisit and utilization of them. I think the SPACs were 20% of 2017 IPO total market cap. So it's interesting. So I worked on, we worked, used to work on, I used to work on SPACs in, outside of cannabis. And in those, the utilization of that vehicle for tended to be companies who had either gone through an IPO process and it had failed or there was some element of distress or a situation that was leaning towards big moments or small moments.

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Jacqueline Bennett (17:10)

And this was going to be their solution. And the fact that the management team of the SPAC is what the investors had bet on and their capabilities of doing a turnaround for say a weaker asset. Whereas in cannabis it's very different. So the challenge with cannabis, as I'm sure a lot of, you know, is access to capital because of the regulatory structure right now. And so, you know, a really interesting comparison is the US and Canada. So in Canada there's the private capital is a lot less accessible. And in that that is what motivated this mad rush for all these cannabis companies to list on the CSE. So I think in 2000, I think it was 2019, I met with the CEO of the CSE and at that time there were 400 cannabis companies listed on that exchange. Which is insane if you think about where those companies were from a growth stage perspective. The, the operators and just not the last thing you want to be is a publicly traded company with that type of scrutiny in such a tumultuous market. So then you compare it to the US market where there was a flooding of private capital, 2018, sort of massive spike in public valuations. And so that then the sentiment very quickly shifted. Everyone wanted to throw money behind these cannabis companies and there was a lot of private capital to do so, mainly venture, family, office, angel, then leads into venture. A lot of purely created cannabis focused funds, most of them actually and very different. A lot of investors got away with momentum and being there in the early stages where the only way to go was north and to the right. And so when the SPAC vehicle became known and mtech, now a Kerner sort of paved the way for. And that was. It was my business partner Tahira who was the cfo, not myself. Just to be clear. The you know, people became aware that that was an option. And so then you've seen and every single person started talking about spac. So there was a, you know, we want to raise a fund, but why don't we just do a spac? And we want to think of maybe on the company side everyone's sort of searching for these new forms of capital or access to capital via these SPACs, forgetting that you will end up being a publicly listed company. So that's which is a major factor. It doesn't. You don't avoid that, that part of the process. So that sequencing. So but I do think for there's so much opportunity in cannabis, it's only getting more and more and there is an appetite from traditional SPAC investors that have an open mind to cannabis companies. 2020 was significant. I think, you know, going into this year there's going to be a slowdown. We've seen some cannabis SPACs actually end up de spacking via a completely non cannabis related company, which is not unheard of in SPAC world. But so I think it was popular because of the absence of other options, being more private capital. There is so many tailwinds now in cannabis. It's actually, I feel like we have enough for the moment because it's just everything has been going in our favor. Just whether regulatory wise, the performance of some of the larger operators has been really strong. Stronger. I'll say stronger. Starting to resemble financial profiles that we would depend on in tradition in other industries or say more developed industries. So I think it's still a viable option. You know, we're in the. I think I may have mentioned this to you, Joel. In 20 this year we'll be looking to formalize a fund and we particularly given who's on the team, it keeps coming up. You know, why don't we just do a spac and I push back on it because of. I think it's a great additional vehicle to have. Yeah, I don't think it. I don't, I don't like the long term. I think there's a little bit of rigidity in it being a long term vehicle. There's too much distraction, there's too much volatility and so many of the other. There's so many variables in the market that it feels like you're managing so much that takes you away from actually the portfolio companies and the effectiveness of the fund. The investing vehicle itself.

Joel P. (22:35)

Yeah, it's interesting. I haven't seen a SPAC function as a fund. My understanding of a SPAC is like, hey, I'm going to raise a bag of money. I don't know what the company is, but there is some company that's going to IPO at a fixed price. So I always thought it was like a company, but that's interesting. So you can also do it as a fund as well. And the fund is a holding company that will just have a bunch of portfolio companies in the company as like a holding.

Jacqueline Bennett (23:00)

Exactly. There's been a little bit of a, I'd say a mashup of companies. So one of the specs is Air A Y R so strategies. And at the De Spacking event they merged five companies.

Joel P. (23:17)

So when you say De Spacking. De Spack. Because I know like delisting securities Is it kind of like, hey, the SPAC went public. It had an ipo, but it didn't go well, so you have to delist it from the.

Jacqueline Bennett (23:28)

No, no. So d. So when with the spac, you. So you go, you have your IPO as the empty shell. And then the de spacking event is when you acquire the asset.

Joel P. (23:39)

Oh, God.

Jacqueline Bennett (23:39)

So then you become. So the SPAC will be called whatever it is. JOEL P. And then the, you know, the de spacking entity is going to be called something different.

Joel P. (23:51)

Sure. So when Virgin Galactic. When Chamath did Virgin Galactic, it was Chamath spac. And then he was like, I'm going to find some company. So you found Virgin Galactic, and then Chamat's vehicle de spacked and it became Virgin Galactic's IPL or spac. Got it.

Jacqueline Bennett (24:07)

Yeah.

Joel P. (24:08)

That's good clarification. I appreciate that. That's great. And then, so, you know what I'm really excited about having you here on is really just educating all of us on cannabis. Because it's not that I'm not interested in it. I just haven't learned about it. I haven't had any deals to really look at. So maybe you can, if you don't mind, maybe you can just unpack the whole ecosystem, you know, because I, I think there's some piece of it where there's like, agriculture, right. Where you're like, cultivating the plants, and maybe there's some tech to, like, you know, make the plants live longer. There's probably consumer goods. There's probably some data analytics plays I've seen. So maybe you can unpack that. And, you know, one more thing, too, is with the capital issues, I think I told you this story, like when we were on the call. So one of my friends, his brother worked at Guggenheim Partners and then left to work for some cannabis fund. And anytime he wanted to fund the companies, he had to get an armored truck and fund the companies with cash. So is that the reason why, that there's capital issues? Because you just can't legally use electronic money and you have to use cash? Or maybe you can address that and then maybe unpack the whole industry for us, if that's cool.

Jacqueline Bennett (25:21)

Yeah, no problem. And please feel free to jump in and ask questions. Or course, correct me if I'm going somewhere dull. Yes. On that specific issue. Because there's no. Because of the lack of federal legalization. There is. There's an inability for like, someone like a Chase bank or. Because there's an inability to deposit and there's no deposit insurance. So all these sort of. The risk associated with the companies is high. Plus you're limited. So as a, as a company like let's say Chase Citi, some of the larger national banks that tend to be the most highly scrutinized, then until there is federal legalization they cannot support plant touching cannabis companies. What is going to be the Safe Baking act, which is, will be part of the Heroes Act. So Covid relief in Q1 if that is passed. And obviously last night was politics aside for cannabis, it was a positive result because the, the Democratic party is more progressive. I think it tends to be a partisan issue. But the likelihood of the Safe Banking act now passing is high. So what that will enable is for banks to take deposits from cannabis companies, which is a huge change from a risk perspective. The ability to use credit cards, which we have not been able to do. So payment processing is a massive burden. There are banks that do support it now. So there's quite a lot of community banks, state or regional banks.

Joel P. (27:25)

Can you use like prepaid cards? Like put money, kind of like when you go to the arcade, like put money on a card.

Jacqueline Bennett (27:31)

You can use debit cards.

Joel P. (27:33)

Okay, all right.

Jacqueline Bennett (27:34)

Just not, not credit. And so it's come a long way. I mean there's, there was, there are still instances where for whatever reason certain operations can't get access to those banks who are supportive. And so there is this cash component. I was on a panel, it was late 2019 and Cresco Labs, which is, you know, one of the large multi state operators. If you say sophisticated publicly listed operation, one of the, their employees who was on the panel with me, he was telling this story about he knew exactly how many $20 bills he could stuff into his backpack because he would have to take that cash to the bank because there was no ability to wire. So there's been an evolution from there, but we are still. There's a lot of gray areas, a lot of companies are nervous to support it. And you know that, that, that was also true. It's been true of other, other highly regulated industries. So you know, gaming, sex, alcohol back in the day. So it's not, it's there, there's, there's still some bifurcation across those more. Yeah, the highly regulated industries. But cannabis has a long, long way to go. It will be propelled forward when the Safe Banking act, we assume it will get approved in Q1 of this year. It doesn't impact capital markets. So there, it's unlikely that the New York Stock Exchange or the NASDAQ is going to open up to cannabis companies, cannabis plant touching companies. So they, it's interesting though because you can as a Canadian, I mean I guess because it's nationally legalized as all The Canadian large LPs like Tilray, Afria, Canopy, they're listed on the Nasdaq because it's, you know, they're federally legal or nationally legal within their jurisdiction. So that's one of the regulations. I'll start. I'm going to bucket the conversation a bit. So we regulatory constraint has been a and continues to be a massive burden and a restriction of growth in the US we'll sort of focus here because it's state by state. What that means is if you have a, you have to be a license holder to be able to operate. And in each state it varies. So in some states are Colorado and Oregon were the leading states in terms of legalization. A lot of states like you probably don't realize California had medical, had legalized medical marijuana back in. I think it was 1999. So a long, long time ago. And then recreational came in in 2000 and beginning of 2018. So the, if you think about normal, I mean me particularly coming from covering a lot of traditional companies where you're the things that you need to care about as an operator, if you're a, let's say a beverage brand that is non cannabis, where you're able to utilize all the marketing and advertising tools, you know, social media is obviously a massive part of advertising now and anything that has sort of a national stage, all those avenues for promoting your brand were not available. It's evolving a little bit now, but it's still restrictive because of these border restrictions. So anything that you do, that's why billboards, if you go drive through California, I don't know if anyone's based there now it's just billboards everywhere la the first time I went there and was paying attention, you realize it's just pot billboards all over the place because it's one of the only options that they have for advertising. Obviously not the most effective and very expensive but in the absence of other options. So you've got a, you know, you've got companies who have, you have to have a. You have to be successful in applying for a license and then applying and then being awarded a license. And each state is very different. So if anyone looking to, if you haven't been participating in the industry and you're looking to start whether it's investing, operating, whatever your, your preferred activity is, then you have to understand each state and really think about them as separate, you know, separate jurisdictions, which they obviously are. And then within each state there are many, many nuances. So you.

Joel P. (32:25)

For.

Jacqueline Bennett (32:27)

California, for example, and I learned this when we were looking to. We were selling this big alcoholic beverage company that's the majority of their locations are in California. And as we were thinking about converting into dispensaries, we realized that it got down to the municipality whether they wanted to opt in or opt out of cannabis legalization. So it's not, you know, you have your sort of broad, sweeping kind of state regulation, and then you get. And then you've got all this granularity behind that as well. So starting with the regulations and understanding that. Actually, my first recommendation, if anyone hasn't been operating in the industry and wants to start, go meet someone who has been and have them participate with you at the beginning. Because I think I may have said this to you, Joel. I feel like I'm seldom. I can, you know, seldom surprised in life. Just sort of a little bit more of a. Maybe a realist or. I don't know what it is, but I have been shocked by this industry so many times. It's just the complexities are so. Yeah. Rampant and surprising. And then you've got sort of behaviors that come with that that are a little bit surprising too.

Joel P. (33:41)

Sure.

Jacqueline Bennett (33:42)

So that's the regulations ever evolving. We now have, I think it's 36 or 37 US states who have legalized medical programs, and we're at 14 states plus DC who have adult use programs. So significant number of the population in the US now has access to cannabis. I mean, some of these states are still ramping to operational status. So that momentum is huge. We're going to have, we think, under the Biden administration now. I mean, we'll see what happens in the next 14 days. But, yeah, with the Democrat having the House and the Senate, then that's very favorable for the cannabis industry. If you're following any of the public equities, you would see that reaction in the stock prices to there. So there is going. There's only. It's only going in that direction, you know, and it's not just in the US So Mexico has legalized recreational use. There was a big policy rejection in Europe that was looking to classify CBD as a narcotic. There's been a lot of controversy there about novel foods. And so that was also denied, which is a big win for the industry. So it's slowly, you know, there's so much positive sentiment by The I guess citizens that really political parties. It's not in their best interest to oppose it at this point. Not in every single country obviously, but certainly on the western side. So that's. The time is now, but there's still a long, long way to go. So what just flipping now from that to maybe the operational side. So if you think about asset categories, Joel, you're asking about.

Joel P. (35:41)

Yeah. So as like a vc, right. So how. How would we unpack that? So there's, you know, just based and just jump in because I'm thinking there's like eatables. Right. There's like B2B. There's B2C. So maybe walk us through that whole ecosystem maybe from your standpoint as an investor, how you kind of look at it and what you're excited about.

Jacqueline Bennett (36:01)

Yeah. So we classify the firm and we identified three pillars essentially. One of them is kind of a cbd. One of them is biotech, one of them is consumer brands technology. So pretty broad, but there's natural overlap between the three. Biotech has been a recent. The last 12 months I've seen. Spent very significant amount of my time with an Israel biotech company that started. So the Hebrew University of Jerusalem is. Has a very advanced medical cannabis program. They developed a technology that converts oil into a nanometric powder and then actually have realized subsequent that it's relevant to other oils beyond cannabis. So it's become a much bigger company. That was my, I'd say initiation into what's happening in terms of disruption at the ingredient level. And because of. It's interesting because I don't know who on the call now is a consumer, whether it's edibles or flour or whatever form factor you like, whether it's, you know, THC or cbd, whatever it might be that the. There's not a lot of. There's been a few issues. One is efficacy. So what do you get? Like what. What's on the label is actually what you're consuming. There's the flavor. So there's not a lot of attention paid to getting. I don't know. I'm not one who actually enjoys the taste of cannabis. Meeting chocolate or whatever it might be. And then the other is the actual. The dosage. So what these technologies and nanotechnology has been moving into the industry pretty rapidly. And so if you can create a consistent product and have it controlled for things like flavor, you know, onset offset the form factor. So can I turn my. Because, you know, oil and water obviously don't mix. So the ability. The fact that You've got this nanometric powder. Then it has the ability to be used as an ingredient in all different types of whether it's beverage icy poles.

Joel P. (38:19)

And real quick, just for our education, nanometric powder is that. Can you just explain what that is? Just for our learning?

Jacqueline Bennett (38:27)

Yeah. So nanotechnology generally speaking which is you know it's across industries but the idea is you, you manipulate the constituents or the compounds of whatever the material is.

Joel P. (38:42)

Oh, got it. Okay.

Jacqueline Bennett (38:43)

By converting the. From the oil into and the reason it's you know again oil you need powder form for it to be able to mix with things that beverages is a really obvious one. But also thinking about different foods and heating and all those things it really impacts the constituents and the composition of what the product is.

Joel P. (39:01)

Sure.

Jacqueline Bennett (39:02)

So what I find. So the reason why we're going down that angle as one of the pillars is because they're. And you see you know, health and wellness, broadly speaking and, and you know the plant based foods, those trends, it's all part of the same movement which is how do we put better products into our bodies or on our bodies. And so I like the way that I think about things is I tend to want to get to the. You know, it's like where do the problems start with a child or an individual? Like where's the like the grassroots of something. And that's what to me is the biotech. I mean you can think about it from a obviously what the plant is being grown and that is one thing to think about. You've got to make sure that there's sort of compliance with the quality of the grow and you know, pesticides. All these things that we understand about agriculture generally speaking certainly apply to cannabis. It is fundamentally a commodity. So that's what I've been spending a lot of time and find particularly interesting also because I like when something has the ability to disrupt sort of at a horizontal level. So different categories, different end markets, different industries, different use cases. It just gives it a much more exciting and there's more impact capability. Obviously it creates the opportunity for a larger enterprise value down the track. But I get excited by that sort of disruptive impact capability. So that's one aspect where I think is really interesting. I didn't have a science background and I've had to you know, learn and read and speak to a lot of people. It's been interesting and I naturally have become interested in it the brands. So cultivation would never invest in a pure cultivator. It's just not first of all it's not our skill set. And secondly it will eventually become a commodity. And if you look at the trends of pricing for cannabis in the markets as they've come online, and this is why the black market is still understandably not really going anywhere because the ability to make money in the legal market is actually, it's far more challenging because of things like pricing pressure and taxes and all these sort of deterrents. So a lot of, I mean cbd, the pricing for the price for wholesale CBD was plummeted in 2020. Some really strong operators, manufacturers, even just the, you know, part of the sort of supply chain through to a head of retail and distribution were wiped out. And it's purely because of, there's so much volatility in that sort of underlying commitment commodity price. Some states you need to be vertically integrated the license so Florida for example, you need, you needed to have a vertically integrated operation, meaning you needed to have cultivation, manufacturing, processing, retail, distribution. Many states don't have that, but in some states you do. And so therefore you have to bet on the entire vertical operation which is in, you know, it's hard to, there's such different assets. So to have a farm and to, or a greenhouse or an indoor grow, to run a successful asset of that nature versus develop a brand and or retail or you know, consumer facing business, entirely different skill sets and experiences and needed to do those successfully. And so all of a sudden you've got someone at the helm of that entire vertical. So we're starting to see it break up more now. But these larger, you know, there is obviously benefit from, from a margin perspective to control and quality perspective to control the vertical. But it's in other industries we started to see much more horizontal integration as opposed to vertical because you're, you're applying that same skill set but across different verticals as opposed to the entire supply chain.

Joel P. (43:32)

Yeah.

Jacqueline Bennett (43:33)

So I'd say there's still a lot of, there's still a lot of value just going back to sort of where investing is interesting. As you see, we're laser focused on the Northeast now. So there'll be primary licenses that will be available. You need to know how to write the applications and have the right constituents to win them. But then you can you come in at a very low value to then build an operation that will grow. Whether they sustain is one thing, but there's going to be, it's basically white space, a lot of white space in the north east for recreational cannabis.

Joel P. (44:12)

Yeah.

Jacqueline Bennett (44:13)

So we're laser focused on that. And another thing to note and sorry, if I'm jumping around, just, just let me know or jump in. We are very strict on active investing and the reason for that is, the main reason for it is there's too many changes going, happening all at once in this industry. Whether it's new entrants, regulatory change. You know, I always ask companies or management teams, you know, is there a risk of you becoming obsolete? If what happens in the federally legal environment, does your business, is it still viable? Because that's a real question. Do you know there's, we've seen lots of the CPG and alcohol companies that are investing. Constellation is probably the big headline. They invested 4 billion into Canopy which was a disaster now just given where valuations have gone. And so you see like AB, InBev, Moore's, Heineken, they've all been, they've all participated in cannabis in one way or another. You're seeing obviously on the tobacco side there's been a play on the pacs was a big headline deal. So all these large corporations will have a strategy, whether it's educated, whether it's just. We know we can do it because our balance sheet is bigger than the entire cannabis industry as it stands today. But when federal legalization happens, there will be floodgates and it's going to be, it's not like the, you know, the legislation we passed and then the next day everyone's participating because there's a, it's a long lag in the implementation but the, the capital will come in very, very quickly. Acquisitions or in house innovation. And so we're very, you know, I utilize my background and my relationships to make sure that we're in touch with those who are either, you know, M and A teams at, we'll say Nestle for lack of a better example or the corporate venture vehicles that like an ABM in Bev. Knowing that ZX Ventures have been looking at the industry for a while, we want to know and need to know and can help our portfolio companies almost position themselves to be either an acquisition target or make sure what they're building has enough moat that they're not going to be wiped out when these larger, very well resourced companies who do have experience in those types of assets are ready to participate. Because in an environment where there's absence of growth in, you know, we're kind of, we'll see what happens in 2021. Cannabis is a very easy market to look at for inevitable growth because it's still so small.

Joel P. (47:18)

Yeah. So somebody had a question about food. So do you feel players like Nestle, General Mills, do you think they'll eventually come in for eatables? And you know, I got another maybe provocative question. You know, I live next to a bodega. How many years is it going to take for me to be able to buy, you know, buy a blunt like from. From the deli next door? Like, do you think it'll ever be that mainstream where people can just buy weed from, you know, like a, like a cigarette store? Or do you think that'll just never happen even when it's legal on the.

Jacqueline Bennett (47:53)

Recreational side, just think about it exactly like alcohol.

Joel P. (47:57)

That's what I thought. Yeah. It's just like when you buy black and milds or just cigarettes and it's. I feel like it's just as risky as drinking and driving. Right. I don't feel like it's any more risky than anything else that's already out there. Right.

Jacqueline Bennett (48:10)

Yeah. And it's also. There's a, it's, you know, it has a THC products. There is a. There's a reason why there's a age limit being 21 is because there is, you know, impact or unknowns around the impact of a developing brain. So those things are real. CBD is very separate. And because, you know, CBD has. Is the. Basically the physical impact that's the compound. So not psychoactive. And that's when you see companies like Nestle who have, I mean, we give or take. There's a lot of, A lot of the large CPG companies are. And alcohol brands are in conversations somewhere because again, it's just an obvious growth area.

Joel P. (49:05)

So.

Jacqueline Bennett (49:06)

But it's not going to be as you're not going to have in a Whole Foods, you know, like, although I guess Whole Foods sells alcohol. But you're not going to, let's say cvs. You're not going to have a CVS that's going to have a psychoactive or be able to buy cannabis, so. Or THC so freely. It will still be probably in this sort of dispensary type.

Joel P. (49:34)

Yeah.

Jacqueline Bennett (49:35)

Um, well, because it will continue to be highly regulated. Medical is a different story. Um, it's going to be, you know, pharmaceuticals. We have the GW Pharma, which has had the first cbd FDA approved prescription drug, epidolics. That's the beginning of something. But you know, CBD is also still. We had the 2018 Farm Bill which D listed CBD, hemp. Hemp as a Schedule 1 substance.

Joel P. (50:10)

Sure.

Jacqueline Bennett (50:11)

But then there's still a gray area around what you ingest so it's fine for topicals.

Joel P. (50:16)

I've seen that. Yeah. Because they have, like, hemp chapstick and I think I've seen, like, cigarettes that have, like a hemp flavor, but can. Hemp. Is it. Hemp isn't a derivative of cannabis at all, is it?

Jacqueline Bennett (50:27)

No, hemp is a different plant.

Joel P. (50:29)

It's a different plant. Yeah. But I guess. Does it have any. Can you get intoxicated off of it or is it more of just like a flavor, like a scent?

Jacqueline Bennett (50:38)

You know, it's interesting that you. It's. It's a timely question because there. So it's. It is. It was descheduled because it doesn't have. Tends to have a very low, low, low percentage of thc, which is the cycloid dim. But there's a compound. So THC is delta 9. Delta 8 is a derivative. So it's one molecule away from delta 9. And it's derived from the hemp plant. But it has a similar effect to delta 9, but it skips. Not part of the schedule 1 classification because it's derived from the hemp plant. But in effect it's the same. So there's a lot to discover. That's the beauty of it, I guess. One interesting.

Joel P. (51:37)

Go ahead.

Jacqueline Bennett (51:38)

I was just gonna say, for the women on the line, I see at least one.

Joel P. (51:45)

Yeah, there's a couple in here. Yeah.

Jacqueline Bennett (51:48)

So second to the brain, the female reproductive system has the most endocannabinoid receptors, meaning that our bodies are. The reproductive system actually interacts with cannabinoids most effectively. So there's a lot of really exciting. I'm spending actually a decent amount of time in that direction as well. Well, but there's been a really lot of great discoveries for, I guess, the lifecycle of a woman.

Joel P. (52:18)

Yeah.

Jacqueline Bennett (52:19)

So it's good. It's good news.

Joel P. (52:21)

Could it also. I guess. Would it also help, like, with fertility if it's kind of. So it could be like maybe some innovations on the fertility side as well. Yeah.

Jacqueline Bennett (52:30)

The easiest way to think about it is just inflammation. So anything that is. That results from inflammation in whatever part of the body, then there's. It tends to alleviate that and depending on different. So different. There's minor cannabinoids as well. And they. So we're actually working closely with a beauty brand and the founder and CEO. She's a. She's a science background, has been doing beauty for decades, and she innovates with formulations. She's come across some really interesting effects of these minor cannabinoids. So acne treatment or whatever, anti wrinkle, but it's all natural. And so all this stuff, the reason why, I'm sure we all know this, the reason why we're so behind in research for something, a plant that is so directly relevant to our physiology is because of the war on drugs, essentially. Yeah, they can talk about that. That's a whole other conversation. So you think about this parallel of regulations evolving in a way that are favorable and allow things like research and allow distribution and access. And then you've got, you know, there's over 140 compounds in the cannabis plant and we're only at the early, early stages of discovery. And and Joel, I think one of the things you asked before, just specific to the cultivation side is there's also biosynthesis happening now. So lab derived products that have becoming pretty successful in a market absent consistency because of the processing that a lot of the brands have been using and the companies, companies have been using, then biosynthesis, particularly on the pharmaceutical side becomes very attractive and obviously scalability.

Joel P. (54:29)

Yeah, it was one thing I was going to bring up because I think I mentioned last time I've invested in some food tech companies focusing on lab grown meats. So I was thinking there's probably definitely some innovations on lab growing. Some of the important parts of cannabis that could provide some value. I think that's really interesting. And then one thing that is also challenge along with scale when it comes to food tech is the texture, the flavors. Because I don't know if I would necessarily say that I enjoy it like you said, right, the taste of cannabis. But you know, I live in New York City so every couple of blocks I'll catch a whiff of some weed and it, you know, it smells nice, you know, it's a nice aroma. You know, I mean that's just my personal preference. I'll walk by and I'll smell it. So you know, how does that, you know, when you, when you have the smell, the aroma, like trying to combine that into like a cookie or a bar, you know, that's probably things that, you know, where you kind of lead into like the synthetic biology, the taste, the texture, making sure it is appealing. There's probably some testing that needs to happen when people are trying it. So I guess what are, what are some of the thoughts you have with, you know, if Nestle were to acquire some eatable that maybe has some, you know, derivatives of cannabis in it, you know, what are some things that you've been thinking about or you know, just with consumer Brands, what are some challenges that they've had with, you know, getting product market fit?

Jacqueline Bennett (55:52)

Definitely it's been a, it's been a big head scratcher for me when I first came into the industry. Now I kind of get it. The. So back to that, the technology, the company that we invested in, they solved that problem.

Joel P. (56:08)

Oh sure.

Jacqueline Bennett (56:09)

So what the process actually is that they encapsulate. So when the oil is broken down into what is nanoparticles, they encapsulate the particles. And so what that does is it enables them to control for things like flavor release, how it interacts with the body. But flavor is a big one. And one of my, I'd say aha. Moments of realizing that this company was the right company to spend time on is we were working with the U.S. one of the number one food and beverage, certainly beverage product developer in the country. And he was blown away by what this technology could achieve, not just for cannabis, but because all these other companies were trying this constant battle between nutrition and flavor. And you think about, I don't know how many of you pay attention to if you've got older parents who are in the senior category and they start to look at buying and consuming special foods for senior people, there is, it's a, it's appalling what is available and what's out there to cater for that stage of a body, I suppose. So that's one category that we looked at disrupting through this technology because there's been no advancement in achieving great flavor to make sure that all the, you know, the nutrients and the goodness, the health benefits were in whatever the product is. So there are solutions out there. And again, this is why I'm particularly excited about this one company. They're going to be relevant across many industries because this is one thing, sorry, I'll make this quick point, but one thing I love about this industry is that there's a little bit of fatigue in Silicon Valley technology generally speaking. Obviously for Those in their 20s, maybe you're not fatigued, but there's this sort of very reliable model of founders new technology, large tech behemoth acquisition and so so on and so forth. And there's been a little bit of stunt, the willingness for, I'd say courageous entrepreneurship has been a little bit impacted and I get some of this feedback from some of my VC, you know, pretty leading VCs in, in the industry. So what cannabis I know noticed has in encourage is a little bit more of that risk taking experimentation again. And in some instances like this company, capsoil they, what they've actually ended up discovering is some is a technology that is disruptive across pharmaceutical, cosmetics, food, superfoods, et cetera. And so that to me you've got a little bit of that like fresh energy that is really encouraging creative thinking. And I like when this solution is actually going to be relevant beyond cannabis.

Joel P. (59:23)

Sure, that's really helpful and I want to be respectful of time. I know we're like one minute over. Could we keep you for like maybe one or two more minutes to do questions? Yeah, so why don't we. It looks like I got a couple of rapid fire questions here. I guess when it comes to forecasting the industry, I think you covered this, I guess, you know, just there's so many changes happening. Right. So it's difficult to really understand if something's going to be obsolete or not. So I guess with that one probably just being as agile as you can. Right. And just being quick to the changes. Yes. And you talked about the medical cannabis, it looks like. Okay, so can legal, can cannabis companies potentially be competitive with a legal mar. I guess legal versus illegal. Do you think there's any pricing wars or arbitrage or just concerns with just better pricing when it's illegal and how does that impact the market?

Jacqueline Bennett (60:14)

Very much so. In fact, you'll speak to the supply demand ratio is still in favor of the cannabis brands. And if you ask a cannabis brand who their greatest competitor is, they won't comment on other brands, they'll say the black market for exactly that reason. So it's just there's a tax law called 280e and what that it disallows cannabis companies to deduct anything below gross margin from their taxable income. So you're getting taxed at the gross margin level. So all operational expenses are dollar for dollar, which is you can be two or three times, have a two or three times high tax rate depending on what state you're in because of this particular tax code, which is a massive deterrent. I mean it's, that will evolve, that will change over time and it's pegged to the Schedule 1 classification. But it's a real, I mean the companies have really, really struggled. And you know, the impact of 2020 there was obviously there was a lot of carnage and a lot of companies would have done better just from a cash flow perspective in the absence of this really tough tax code.

Joel P. (61:37)

Yeah, that's really helpful. Cool, that was really great. Any other questions? Anybody else, feel free to just shout it out and we'll try to give Jacqueline back her time. I know we're running a little over, so if you got any quick questions, feel free to just shout it out and we'll just do those real quick.

Audience Member (61:55)

I just had one very, very quick question. So in the context of essentially vice goods or goods that some people consider to be vices and others are more supportive of, do you believe in theory that it's possible for governments to ever tamp down something that is an obvious social good that people could benefit from? So even with crypto right now with a number of different currencies, we're seeing so much appreciation. There was a cryptocurrency called potcoin a while ago and it didn't gain much traction. Do you see any possibility of institutions and authorities actually impeding something if a lot of people want it in a decentralized fashion, or do you think that's not the case?

Jacqueline Bennett (62:34)

I think it depends on where the values of the administration lie, what the economic benefits will be and do they outweigh the sentiment of the population. And I think that is the decision making. I mean, you. I've been, I'm so astounded by and really mortified by the, what I've discovered and this is about cannabis specifically, but I understand the relevance of the question. Is it. There are so many benefits to, from the plant and just, you know, from cancer, like epilepsy is a well known one multiple score, like all these major, major positive impacts to these long term conditions or well known conditions. But there was the war on drugs and that was the reason why it was classified that way. And so those are the benefits at the time. So I think like, you know, we live in the US which again, I laugh saying it today, but it, it's going to be government preferences depending on what they need at the time. So I don't think anything is sacred. I think if there's enough, if the population is supportive and there's enough momentum there, and that's one thing we're seeing. The reason why there is bipartisan or there's adoption from both political parties for cannabis, mostly speaking, is because the sentiment is just beyond their ability to stop it, I guess, or to if you govern against it at this point, then you will be unpopular. So they're really the factors that I think about at least.

Joel P. (64:22)

Got it. Thanks. Cool. Well, I know we're six minutes over time, so Jacqueline, thank you so much. Appreciate it. I know it's getting later in the evening, so thanks so much for your time. Really great speaking with you. We all learned a lot. So thanks for unpacking this really exciting and ever changing ecosystem with us and excited to see all the changes that happen. Hopefully New York will also open up and open up more opportunities. So thanks again and good luck and catch up soon.

Jacqueline Bennett (64:55)

Sounds good. Thanks Joel. Appreciate the opportunity.

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