The Future of Cannabis With Emily Paxhia

"You can have a great idea, you can be in a great sub-sector of the industry, but if you’re not a great team, then you're going to struggle."

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The future of the cannabis industry will undoubtedly look very different than the present.

Which nations will legalize cannabis, which brands will become household names, what form factors of cannabis will become the most popular?

These are just some of the questions anyone thinking about the future of the cannabis industry must answer if they are to predict what the future version of the cannabis indsutry will look like.

For investors, these are the questions they need to have an answer to — such that they can succeed.

It’s for this reason we enjoy sitting down with investors in the cannabis industry as their occupation is to effectively predict what the future of cannabis will look like, and to place bets on this outlook.

For today’s edition of Four PM, we sat down with Emily Paxhia who is the Managing Director of Poseidon Asset Management — an early-stage cannabis investment firm to learn more about her outlook on the future of cannabis.

Emily Paxhia is the Managing Director of Poseidon Asset Management

What was the insight to create your own fund focused on cannabis?

Our parents passed away from cancer such that we had heard about cannabis as a palliative care option. 

This provided a frame of reference and it was really when I moved from New York to San Francisco in 2011 where I watched the grey market develop that I called my brother and we both felt like there was a funding gap in the cannabis industry, and the ability to actively manage investments so that other investors could get into cannabis.

Has it become easier, or more difficult to access capital in the time since you started?

It’s actually gotten worse, which is kind of shocking.

We've seen capital ebb and flow in the industry and right now, with the Biden administration and some of the signaling that has gone on — institutional capital has gotten actually more nervous about the sector. 

Even those that were starting to lean in, have had to sidestep cannabis a little bit, and then we had one of the very clear case where Credit Suisse said you can no longer even trade cannabis names using their platform.

What are some of the main learnings that you've taken from your time in the cannabis industry?

Even though the industry feels like it's moving incredibly fast, it pays to be very patient and diligent in your process. 

We have a very strict belief that being in the market is the best way to do diligence on companies and we continue to feel that way.

We had to take a bit of a step back on that in the time of COVID, but we are getting back into markets now.

This is a very tangible business, we're not doing things in the ether & it's not crypto — it's actually people building facilities, growing plants, and moving products. 

There's a lot of things that you can only pick up on if you are willing to go physically onsite and this is very important to us.

Lastly, corporate governance is something that's not to be overlooked.

It shouldn't be overlooked in any industry, and I think Silicon Valley has been a little fast and loose on it, but in cannabis in particular you have to be incredibly careful because we have a long way to go before everyone agrees that investing in cannabis companies is a great idea.

When you do receive deal flow, what does the due diligence process look like?

It starts with what the company does, and if it has a place in our portfolio. 

Do we think there's an opportunity space for either a technology or operator to step in and solve something that's not being solved, and the biggest and most important part about it is getting to know the team and understanding their approach to solving this problem.

The only investments we've really struggled with have all come down to when the team has a kind of a weak point in it and it's not been fixed. 

You can have a great idea, you can be in a great sub-sector of the industry, but if you’re not a great team, then you're going to struggle. 

Tailwinds can only get you so far and then you have to really rely on the talent and the acumen of the teams.

We have a very long diligence list that we run through from legal diligence, IP, entity taxes — especially if it's a plant-touching company.

Are there any particular trends that you're keeping a close eye on in the industry today?

Cannabis operators are getting clever as they adopt the best possible tech solutions across the various aspects of their business.

For a while, operators were looking for one tech platform that would fit every need.

They are now at a stage of maturity where they're finding the best point of sales system is not necessarily the best seed to sale tracking system on the backend is not necessarily the best ERP or data.

This means you don’t have to do everything, and it means you have to do your core competency better than anyone else.

I'm also very interested to see how the multi-state operators expand into the new markets.

From states like New Mexico to Texas — we are keeping a close eye on these undefined frontiers of cannabis, as well as how MSO’s can adapt to participate in more competitive markets like Colorado, Oregon, and California.

How are you thinking through the implications of federal cannabis legalization in the U.S?

We are really focused on decriminalization, as we feel it's really inappropriate that anybody should be serving time in prison for a non-violent drug offense related to cannabis.

This is the very first thing that really should happen.

The other thing that really has to happen is to resolve federal banking for cannabis companies, and we're not looking for crazy reform.

We just want the ability for banks to do their own underwriting process, to decide whether or not they want to bank cannabis companies, and the same thing is true for the capital markets.

When it comes to full federal legalization, I'm more of a bear on this than the people who say it’s “coming soon”.

Every state is a new program, and it takes one to two years to implement this program, so contemplating how long it will take from a federal standpoint before we have efficient interstate commerce — in my estimation, we have a few more years to wait.

We also shouldn't overlook the fact that cannabis has created jobs in economically depressed cities throughout the United States and if we were to go right to full interstate commerce, we're going to be taking those jobs away, or at least reducing them.

As somebody who thinks about getting buy-in on the industry and having it be a lasting space, I think job creation is one of the best ways we can do that.

What has you most excited about the future of the cannabis industry?

I'm very excited about what's happening in the Northeast with New York, Connecticut, Pennsylvania, all legalizing adult-use programs.

I grew up in Buffalo, New York, and have watched the medical program be pretty disappointing in New York with friends who have Parkinson's and Ms in the state who have struggled to get access to good cannabis.

I'm very excited to see the job creation throughout the state of New York with all of the cannabis they're going to have to grow and manufacture and distribute throughout that state — I think this market's going to be enormous.

When I think about what potential exists out of the five boroughs of New York, I can't get more excited.

I think we are going to see something tremendously interesting & diverse, with brands and companies creating new concepts that will be born out of that great city and the boroughs.

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