TONY GREER: Good afternoon everyone. This is Tony Greer from TG Macro with Real Vision. I am here talking to Todd Harrison, my good friend, founder of CB1 Capital, Chief Investment Officer there. Todd, how you doing today, man?
TODD HARRISON: I am doing pretty good, TG. How are you doing?
TONY GREER: I am great. It is exciting to talk to you now. I believe the last time we spoke was after a big cannabis downdraft. At least now, we can be a little bit more optimistic, can we?
TODD HARRISON: I think so. By our lanes, March was probably the cyclical low within the secular bull market, certainly COVID, with the need for tax revenues at the state level, and certainly the jobs that it is going to create coupled with the social justice initiatives we are seeing throughout the land, creates a bit of a perfect storm for the cannabis space. That was before the election.
TONY GREER: Let us talk about that for one second. Because I like to do a little bit of a setup. Was Trump bad for cannabis in your opinion? Let us just talk about his first admin not knowing where we are, but in your opinion, was he bad hiring Jeff Sessions and Barr and he may be a little harsh on the industry or not really?
TODD HARRISON: The government writ large, I do not know if it was Mr. Trump, as much as it was Mitch McConnell, who really put the death knell on the cannabis initiatives that are coming through Congress. He has been more of a thorn in the side of the industry than Trump has, but certainly as we sit here two days after the election, we talk about some of the variables that are in play right now, but I think no matter what happens, we are going to be okay for the sector. Certainly, US cannabis is setting itself apart from the crowd.
TONY GREER: Yes, honestly. Let us just get us caught up. We have come out of the election. I have read a lot about what has been expected going in and I read that Boris Jordan, the CEO of Curaleaf, was saying that a Trump presidency and a blue wave would be the best thing for cannabis. I am saying, okay, that sounds good. Maybe that seems probable. Let us see what happens now. Now that we have got the opposite looking like it is going to transpire with a Biden presidency, but no blue wave to speak of, are we in worse shape now, Todd, or are we still okay, would you say?
TODD HARRISON: We are okay. Listen, Bo Jo knows cannabis. Boris, he is a smart guy. I do not know if I agreed that having Trump in there with the blue Senate was the best case. I know what he was getting at, though. I think the concern among some industry operators was that if you saw a blue wave, you could swing the pendulum a little too far the other way, the social justice initiatives, and not that that is a bad thing but from a capital standpoint, and for the MSOs, certainly they want to keep things status quo for the time being.
I will tell you, the honest truth, I went into this thinking that a blue wave would have been the best case scenario. I was a bit despondent, if you want to know the truth, when it looked like McConnell was going to hold on. As I sat there, and as I synthesize the following 24 hours after the election, the words that kept repeating in my mind were blessing in disguise. It was really about the idea that a piecemeal legislative process, something like safe banking, which would allow access to the banking system for the sector, it is not such a bad thing for the sector, and that it will be more gradual, it will be more of a step function. It would allow these US operators to build more of a moat around their businesses before they got bomb rushed by whether it is big CPG companies or even some of the Canadians or such.
I think blessing in disguise is where I net it out. What is interesting, and I am not sure when this is going to air, Tony, but here we are, Thursday after the election, it is looking like a Biden presidency. It is looking like McConnell and the GOP is going to hold on to the Senate. It came out way today that if Georgia actually runs off those two seats, that could tilt the Congress blue and sure enough, here I am spending the last 24 hours post rationalizing that this is something that is going to work out. Then you have this potential concern and I think the other concern with the blue wave is that if you do schedule or reschedule this, the FDA could make life difficult for cannabis industry. The industry was very happy with what looked like a Biden presidency and a GOP Senate, but we do not know a hundred percent that that is what was going to come through.
TONY GREER: We are still battling some uncertainty. What is good is that we saw overwhelming approval at the ballot box for cannabis getting in New Jersey, Arizona, South Dakota, Montana. I am missing one because there were five. Mississippi. Thank you. It seems like the one true bipartisan issue that we have, I am encouraged that no matter what eventually-- talk to me about the domino effect. That is what everybody has been anticipating. We saw New Jersey approval was huge, maybe clear the path of the Northeast, do you think we still got momentum with that? Why is New York been the laggard? Those are my two big things that I always wonder about.
TODD HARRISON: We have been saying for some time that the Fast Money is focused on the election, the Smart Money is focused on the fundamentals, and the Big Money is focused on trying to get into the space. They are still, by and large, on the outside looking in, because of the Federal treatment of this, they cannot custody a lot of these assets. We are looking at growth at value multiples right now. You are looking at truly one of our holdings is trading at eight times next year's EBITDA. This is a growth industry, Terrascend, Curaleaf, Green Thumb, Columbia Care. These are companies, we have positions in these companies, 4Front, that are in our opinion, growth dressed in value for what we are about to see for a number of reasons.
Again, the focus is on the fundamentals. Smart Money is focusing on the fundamentals. The federal side opens up some potential regulatory arbitrage, whether that is safe banking, or the state's act, but it is really about getting capital markets open for the cannabis industry. They have done incredibly well. Listen, there is a baker's dozen of US operators right now, about half of them have really gotten to the place where they have invested in the scale necessary for the next growth cycle. They are cashflow positive. That is despite all of the artificial impediments that have been placed in their way throughout the last few years.
The notion of an even playing field is something that would bode incredibly well for the cannabis space. Again, US cannabis, we think no matter what happens at the federal level, this is a nascent secular bull market that is about to really reshape the economy and really the markets as both industry.
TONY GREER: That is what I want to ask you about, are we still in that generational opportunity phase, where we are getting a chance to invest in front of some of the big plain vanilla guys here, Todd? Do you still think we are early enough? None of that is going to happen until we are legalized on a federal level before the mutual funds can start piling in. This is your chance. What is amazing, even though we have got some really big, large magnitude rallies on the screens in the last few days, when you call up some of the charts, you are still looking at, there is plenty of time. They are still at these basing levels, and they have barely gotten off.
Where should we be looking like I know, we keep talking about the MSOs. That MSOS ETF is something that you [?] to light and have been following really closely. It looks like the big names in that ETF are largely innovative industries, growth generation names that have doubled and maybe even quintupled this year. Tell me about that flow. What is going on with names like IIPR and GRWG going preserved? Tell me what story is.
TODD HARRISON: I still do not think I answered the last question, but MSOS is an ETF, we advise them, it is the only ETF that is listed on the New York Stock Exchange that has MSO holdings, that is multi-state operators. Their biggest holdings are surely if Green Thumb, Cresco, Trulieve, Terrascend, Columbia Care, the names that you want to be in, so we advise them on the research, we advise them on some of the media stuff and on philanthropy stuff, but certainly that is where you want to be if you are going to be in the cannabis space, and we saw Canada have a huge run.
The greater fool theory that people just really think that those Canadian tickers actually have US exposure, and they do not. Whether it is a greater fool theory that that is just liquid and they are going to migrate to the liquidity or if it is some weird third derivative Jedi Mind shit that they are looking at a Biden presidency and saying, okay, maybe the second or third derivative is going to open up the space for the Canadian guys, or maybe it is just a big, short squeeze. All that remains to be seen, but for and with our money, we are treating Canada as trades with one exception, Village Farms. As you know, we love Village Farms.
We think it is mispriced. That stock is just is a gift, if I can say that, and we have a big position, but that is really it in Canada in terms of core holdings. We want to stay with the haves. If you look at the cannabis industry is the haves and have nots right now until such time that the legislative process opens up banking and removes 28E, which is this onerous tax issue and some of these other artificial impediments that have been placed in the way the cannabis industry. Once that happens, you are going to see the space rerate.
Now you would ask about the flow. You said, there is no elephants out there. Actually that is not entirely true. In this summer, we saw Putnam, which is a pretty big elephant in the fund space, take a pretty sizable position in 4front, which is a position of ours, we advise 4front, but it has nothing to do with us. This is Putnam taking a big state in the US cannabinoids, the first that I have seen, and then we started to look around at the [?]. We saw Wasatch, which is a big Utah mutual fund starting to accumulate positions in Cresco and Green Thumb and some others, and we know they are circling. They are not in yet because we saw the Trulieve deal earlier-- it was a couple months ago. That was widely expected to bring in some blue chip accounts, the Wellingtons and the BlackRocks of the world. The word was that those guys were largely absent, but they are not absent because they do not like the space. They are absent because they are waiting or a regulatory change so that they can start to invest in the space and not worry about crossing any federal mandate. That is all changing.
To your question, yes, we are at the top of the second, 1.0, Canadian cultivation, the least sexy part of the story. 2.0 is using cannabis as an ingredient. As input costs come in, it is margin accretive, and that is going to be across a number of different end products and use cases. Then 3.0, obviously, that is the wellness, the medicine, the biotech pathway. As research opens up, they are going to find that this is an efficacious agility across a number of indications, which will give a nice little brand shadow halo effect for the 2.0 story, but all of that is in front of us.
Right now, it is an exciting time. You asked about GrowGen, you asked about IIPR. Those are proxies. They are great businesses right now. GrowGen, we have a position, but that is the Home Depot of cannabis. It is a non-plant touching ancillary that institutional investors can proxy the cannabis space. Where do you want to go? The meat and potatoes of the MSOs.
TONY GREER: You mentioned the valuations level like Trulieve trading eight times EBITDA, you pointed out and I want to point out this chart, you posted on Twitter in a great pre-Election Day thread that you put out that showed that MSOs have valuation bottom third of all industries, but the highest revenue growth rate of any industry. That was the most bombarded visual that I have seen. I feel like everybody that is trafficking in cannabis should certainly be looking at that because we are talking about an outlier industry with what we feel is outlier potential trading at an absurdly cheap level.
What is going to happen with that tide? Are we just going to see the classic multiple expansion as everybody rushes into this space? I may have asked this, but duplicitously, is it okay to just own the MSOS ETF, or do you think we should pick away and diversify and own some of the growers and some of the distributors and some of the medical space plays like GWPH? Talk to me about how you think about all of that that I just put together? I am sorry, that is a loaded question, but you can handle it.
TODD HARRISON: Listen, I have been doing this a long time, Tony. The only right answer to that question is that everybody has a unique time horizon and risk profile, and you have to make decisions that are consistent with what is best for your particular needs, with that asterisk under the way. I will say MSOS is a great proxy for the space for those who want to get some quick exposure to the space and certainly it is because it has that MSO baseline structure. That chart that you were referencing, I cannot take credit for that. That was Matt McGinley over at Needham that put that chart together, which I hope you could weave into this interview because it is the single greatest graphic that I have seen in this space that really illuminates the opportunity.
What we have been talking about for a long time and that you have this situation where you have this incredible growth priced at value and this has been the situation and certainly, we could talk about the value traps, we could talk about iAnthus, we could talk about MedMen, they were all cheap at one point, but they were cheap for a reason. It is not about finding the cheapest multiple, it is about finding the best in breed, execution, the best management, the best footprint, and the best operators at those cheap multiples, and at the risk of talking of my book, we listed them already. It is those big four.
Pull up these charts, I hope, when this finally post to Real Vision, you will pull up a chart of Curaleaf and you will see what that looks like, you will pull up a chart of Green Thumb, and that blue sky breakout, or the inverted head and shoulders in Trulieve, or Cresco, which is about to break out. These things are going to run into earnings. Then you take a look, all else being equal, but I do not see a scenario where this trade gets unwound. These horses are not going back in the barn, and certainly if the election did anything, it illuminated the will of the people. Again, the sweet. It is not just that all five states' sweat. It is how they sweat.
These were mercy rule tallies. Even Mississippi, past medical, Mississippi, I talked about the historical magnitude there, South Dakota passed with a recreational adult use and medical. You talk a little bit about what this looks like in the Senate. We have all these new senators coming in who have constituents who are either working in the cannabis industry or getting their medicine from the cannabis industry. They are talking that there is 280,000 cannabis jobs right now in the country, none of which is in the BLS, mind you, and they are talking about their being upwards of a million in a couple years from now with this thesis through so unpacking two questions ago, I still remember about why New Jersey and what the domino effect portends.
If you are watching Tom Wolfe and John Fetterman, who I love, in Pennsylvania, they are all about cannabis. They are looking at in New Jersey, and they are looking at the border, and looking at that borders on New Jersey. New York, Cuomo came out today and he said that the time is right. The time was right two years ago, but two years ago, you do not have a neighboring state that was coming online. They do not want to lose that tax revenue. They do not want to lose those jobs. We think New Jersey is going to domino Pennsylvania, New York, Connecticut, Rhode Island next year, and then you got Maryland, you got Virginia coming behind them in 2022.
The importance of that is that the total addressable market continues to increase. The consumers globally, globally, nationally, the consumer is there. You do not have to go out and teach people about what this product is and why they use it. Right now, you have one in three people in this country now live in a state that they can consume cannabis. In the eastern seaboard, if they open up New York, and Pennsylvania, you are talking about 80% of the US population is going to be in a cannabis friendly state. 80%, which is almost as high as the approval ratings for medical, which is 96%. This is happening, and it is happening at the state level, no matter what happens at the federal level, but we think the arbitrage is the federal level is going to start to kick in as well.
TONY GREER: I just want to touch on the timing. The timing of US trade now is much different as you say, Todd, with the in the cannabis 2.0 trade. The 1.0 trade was a crowded retail trade that was being discussed mostly in Canada because of the Canadian listings. Then by the time it got brought to the US and got popular, to me, it was already a trade that you knew was happening. It was on the board, you had people that were telling you about their favorite names in the space. You are like, okay, I am definitely late to this. Then we had that really nice washout. We had everybody basically throw in the towel at the end of last year.
TODD HARRISON: I do not know if the washout was nice, for those of us who still have scar tissue to show for that washout. That was 92%. Not us, but I am saying the space lost 92% from January 2018 to March 2020. There was nothing nice about