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Debra Borchardt: Thank you everyone and as Jim mentioned, I've been covering this industry for, really, for about five or six years, so I've seen us go from, I hate to say it, some of the sketchy, dodgy pot stocks of five years ago when the market shot up and then it came back down, and now it's started to come back again, quite strong. Really, just a couple of years ago, we had about 300 publicly traded cannabis stocks. Within a short amount of time, we're up to almost 400 now. So, for investors, that been a really difficult thing to digest as to this onslaught of publicly traded cannabis companies. It's only going to continue because if you go out to California, which I was just out there yesterday for another conference, companies are raising money right, left, upside-down, one way, here-there, everybody's raising money and everybody has the plan to go public, do reverse takeovers, you name it.

So, you're going to continue to get this onslaught of cannabis companies. I've got a couple of gentleman on this panel that I'm going to toss this to because I know that they also have seen this consistent change within the industry in this expansion. I'd like for Bill Marcus to talk about this, because Bill is also familiar with helping companies raise money, and he sees them when they're private, he sees them when they're public. I think, Bill, you could explain or give us some color on this expansion and how you try to separate the good from the bad.

Bill Marcus: Thanks, Debra. I work at a boutique broker dealer with about 50 people, because the mainstream markets, because it's fractionalized, and still has an overhanging in the United States on a federal level, a lot of the big brokerage firms aren't in it yet, but we're an early moving firm. Young American Capital, and we also raise capital for a lot of these firms at a dinner series called Green Table. What we see, which is important, is what Jim said, this is a serious, already, a very serious business. I think Tom Lee said it earlier, that if you put a thousand dollars in the FANG index in 1996, you're up to 1.4 or five million 20-odd years later. The hard part is, these companies, as they come up before us, and I'd say we see about 30 companies a month that want to raise capital, how do you determine which ones are going to make it through?

We narrow that down to, I think we're raising capital right now for about nine companies, but we've looked at hundreds to get to that point. So, you have to be very careful. Some of the basics, what is the management like? Have they had a successful track record? The same questions you'll typically ask, but many of these companies haven't had experience in cannabis before, so you really have to dig deeply, see what their ramp is, what their need is for cash. A lot of the questions that we ask. We try and take a litmus test and find the winners while they're private, while they're smaller.

Then the good news here on this stage is we have some extremely talented professional firms, some of whom have already come through the pipeline, et cetera, but on the grassroots level, when they're private, that's the most dangerous, risky area. The good news here is everybody up here has been very well vetted, I know many of these people personally, and I'm happy to say that a testimony to Jim [Kramer] and the organization, this is a great group. It's dangerous turf, you do have to know what you're doing, but deals like the Constellation deal for four billion are helping move this business out of the dark. I totally agree with Jim that this is the year of the emergency of the industry.

Debra Borchardt: I'm going to now pitch it over to Tim Seymour and as Jim mentioned when he introduced him, he's with CNBC, but he's also on the board of a couple of cannabis companies. Tim, so you kind of see it from both sides of the fence, one of the things that I think has been really hard for people when they're evaluating companies is we can't really evaluate these companies the same as we evaluate a company in a more traditional industry. What are you specifically looking at when you're just trying to, again, now we've got all these companies, how do I quickly separate the good from the bad? What do you look for?

Tim Seymour: Thanks Debra. Part of this, for me, comes from an orientation as an investor, my background is I'm an emerging markets guy. So, I lived in Russia, I managed EM portfolios, I ran long-short hedge fund money in that space, and to me, we're in the same playbook on some level, this is a developing asset class, this is a new asset class. A lot of these companies are companies who are either trying to enter a mainstream or trying to execute on a global scale.

I think, first of all, corporate governance is critical, and understanding the dynamic of how management is aligned with investors, I think, is really the most important job you have right now as investors. I think you have to understand not only the underlying business model, what tends to happen right now in the cannabis world is that everybody's being treated almost like a top-down play. By the way, in terms of where I've seen the evolution of new asset classes, on some level, it's appropriate. If there's four phases of development, the phase one is kind of macro, top-down, legislative developments. Two, the strategics come in. I would argue that what we've seen over the last six weeks in terms of price action in the cannabis sector is really all about strategics. I don't think it's really that much been about the bottom-up story.

I need to truncate this answer, I will say, understanding the quality of the management team has always been the most important thing for me. In many cases, the strategic partner is a great thing. I would just say that, and in no way is this what's going on with Constellation and Canopy, but cash-rich without a plan is not necessarily a great dynamic. We've seen asset bubbles in many other times and places. We're still working through an asset bubble from Japan in the 1980s, where arguably nobody knew how to price assets. So, know how to price assets, and that's not very easy to do right now.

Debra Borchardt: Now that you've gotten a little bit of a broad approach to what we're talking about, I think really what you have to start to do is maybe decide which are you are most comfortable with, and within the cannabis industry we have a few different silos. Some people choose to go with the picks and shovels, the ancillary businesses. They're like, "I really want to be in cannabis, but I'm really still not comfortable with the plan, I'd rather be in maybe the software side, or someone that does packaging." Then you have other people are like, "You know what? I am totally good with the plant, I'm fine with it, I have no problem with that, and so I'm looking at the cultivators, the people that are producing."

I think I'd like to kick this over to Rishi, to kind of talk about a little bit of some of these silos, the way you see them, and also explain to everyone who you are and a little bit more color on your company.

Rishi Gautam: Sure. So, Mjardin, we built the manager and company from scratch about nine years ago. Our foreigners entered the space really to operate assets on behalf of the various license holders who really didn't have the expertise or the know-how to run a cannabis facility. Our thesis from nine years has been, do you want to hold the license or do you want to monetize the license through significant and proper experts to run the facility?

We built the management company from scratch, we've grown and sold over 100,000 kilos of finished product in a variety of jurisdictions, all in the legal cannabis space. We see it from an operator's lens. There's a bit difference for us between an asset owner and an asset manager. With the asset manager and the expertise of knowing the facilities, whether it's cultivation, extraction, or retail, provides much more value to the license than having ownership and really trying to figure it out of how am I actually going to make money in each of these markets, how am I going to understand the different regs in each market, staffing, training et cetera.

So, we built an engine. An engine that powers many, many different facilities, over 36 facilities across the US and Canada, and it is a picks and shovels approach, but now we have capital and we're investing capital into certain markets that are very hot right now and are growing very fast, Las Vegas, Boston, et cetera, that can give us more of an operating engine to follow.

Debra Borchardt: You know, we're hearing a lot about multi-state operators, too, right now and you've probably been seeing a lot of them going public lately, and again, you're just hearing a lot of chatter about, "I'm a multi-state, I'm in this many states, I'm in that many states." The one thing, to me, that's been kind of hard to discern quickly is, do you have a majority ownership in that state, do you have like two percent in a facility and now you say, "Oh yeah, I'm a multi-state."

I'd like to kick it over to Ben and Green Thumb. I've seen them speak before and it's a really great story. Explain to people a little bit about Green Thumb and what that means to you, to be a multi-state.

Ben Kovler: Great. Thanks Debra. Thanks Jim. Thanks everybody for being here, we're excited to tell the story and continue to educate the space on cannabis because it is a legitimate space, we are helping a lot of people, and it is a real business, and we're employing tons of people in places that really need it.

Green Thumb Industries, I'm the chairman and founder, I started the business in 2014, and we are a branded, consumer packaged goods business in cannabis. We also have a high growth retail chain called Rise Dispensaries. We are operating only in the US, so we're not an international company, we're not operating in Canada, or Germany, or anywhere else. We are taking advantage of the US pent up demand as this becomes as legal branded product across the country. In order to get significant market share in various of these markets, you have to understand the regulatory structure and just like they were talking about in the prior panel, we operate as friends and allies with the regulators, helping them craft careful rules in order to keep this controlled, taxed, and regulated.

Currently, our portfolio is in eight states, these are all tightly regulated states, it's about 100 million Americans, it's one of the biggest portfolios in the US, and we're excited about that. At the core of the business, we believe that brands distributed at scale is how to win. That this is a consumer brand and that these brands are going to create a promise and an experience, mood management, sleep, pain relief, whatever you feel, but a consistent branded experience, and that's what we're making and distributing out to all these Americans across the country.

Debra Borchardt: Well, brand is a great thing to bring up because there has been a lot of talk on the investment side in cannabis about when you talk to some people, they're all about cultivation, you talk to other people, they're all about investing in brands, they feel like brands will ultimately win the day, they'll point to when you go buy a soda, you're buying a Coke or a Pepsi, when you go buy bread, you're buying Pepperidge Farm or Wonder. They're just so focused on the brand and a lot of people feel that ultimately, that's where this market's going to go.

I think, Jeff, with Tinley, this is a good segue to talk a little bit ... Now we've obviously talked a lot about beverages with the previous panel, but your company is very invested in the idea of branding.

Jeffrey Maser: We are. I'm Jeff Maser, I'm the founder and CEO of the Tinley Beverage Company, we are a cannabis infused beverage company in California. We are focused entirely on beverages, we're not operating in cultivation, or edibles, or any of the other categories that are out there. Yeah, when it comes to beverages, brand really is key. It's what consumers look for. When they build the trust in that brand, that's ultimately what wins the day for beverages.

We're operating in California not only because that's where so much of our team lives, but also because it's really not only the largest cannabis market in the world, but it's also the largest beverage market in North America. Very much, if you look at traditional beverage companies, whether it be beverage alcohol or health drinks or conventional drinks, so many of the startups will start in California. That's for a bunch of great reasons, it's a large population, 35 to 40 million people, plus over 200 million tourists, it's hot year-round, which actually makes a big difference, a lot of dispensaries do report some seasonality in cannabis drinks, so being in a geography where it's hot all the time really makes a difference.

It's a bit of a influence state, as well. If you really want to build a brand, California's a great way to do it and then that can influence populations around the rest of the world, really. When we ultimately expand outside of California, I think that, that brand will resonate quite well. Our products, I guess like you've heard in the previous session, are liquor-inspired, cannabis infused drinks. They're no alcohol, but infused with cannabis. They're made by a tequila maker in Los Angeles that makes some of the national brand tequilas. What they've basically done is they've taken the same flowers, and ethers, and extracts from one of the national brand tequilas, created it for us with no alcohol, we've infused it with nice, ultra-clear cannabis distillant, and produced a cannabis margarita, basically. That product is on shelves, it's available throughout the state in dispensaries now. We've just produced a Moscow Mule, which is probably the number two cocktail right now in Los Angeles, so that's hopefully going to hit shelves pretty soon, it's going through testing right now.

That's very much the Tinley brands. So, speaking to brands, we're not here to create colas or beers or teas, or anything like that. I'm sure we can co-pack for them, but really the Tinley brand is very much about giving people the opportunity enjoy the beverage alcohol products that they've come to enjoy in bars, and at parties, and at home, and allow them experience really an authentic recreation of those products, but get a cannabis experience rather than an alcohol experience. Everything from taste to packaging, flavor, sort of theme, as well as dosage, as well. We try to match the dose of each of our products to the dose of their beverage alcohol counterparts.

Debra Borchardt: I've also got next to me Joseph Dowling from CV Sciences. Do you find that people come to you and ask you, "How is your company different from all these other companies?" How do you answer that? How do you say, "This is what CV Sciences is and this is how we're different?"

Joseph Dowling: Thanks Debra. My name is Joe Dowling, I'm the chief executive officer of CV Science and yes, we are quite different because we are not on the THC side of this business, we are focused on the other most prevalent part of the plant, cannabidiol CBD. Because of the current legal framework here in the United States, when thinking about THC versus cannabidiol or CBD, we are allowed to distribute and sell our products in all 50 states under a ninth circuit court case, as well as under the 2014 Farm Bill. We, in fact, as a company, are sold in 50 states and about 2,000 stores, and I'm mindful of what all the other panelists have said, I'm also mindful of what was said in the previous panel about scale, and we have achieved that already and we also have first-mover advantage, having done that as a company with any significant size in this space.

I agree with many of the other comments, brands will matter significantly. Trust in those brands, trust that there will be quality in the products that consumers are eventually going to be purchasing, really matters, because there are a lot of black market converts that are attempting to get into the space. I think they'll be washed out fairly quickly because I think if you aren't of a certain size, it's going to be very, very clear, for example, in our space, I think it was Consumer Labs went out and purchased about 84 different CBD products, 26 of them had no CBD at all, most of them didn't meet label claims. I know we've heard a lot about transparency in terms of dosing and concentration on the label, and that's going to be a big deal, I think, for consumers going forward. I think it was discussed on the last panel, ABV and concentration of THC and CBD as part of the product, and the branding, and the messing to consumers, all of that's important. We have already been doing that for several years and have been out there educating.

I read a quote recently that the policy is way ahead of the science, way ahead of the science here, and we're going to have to catch that up because we've got a legal framework here in the US that's kind of a patchwork quilt. We have Canada that is, in a couple of days, as we've all discussed, but we've got a lot of science to do to catch up to answer some of the pressing questions that all of us have, "What does this do? Why does it do it?" You heard it on the last panel, you'll hear it here again, and, "How much should I take and how should I take it?" We have a lot of work to do, but that's going to be by quality companies that have established brands, backed by science, and continuing to invest in that science.

Debra Borchardt: I think he brings up a good point. I think that we, as consumers, are about to get just flooded with everything having a claim that it's got CBD in it, and it's just going to get nuts. You're going to have CBD soap, CBD bath bombs, CBD drinks, and it's going to be in every store on every counter, and I think it's going to get really difficult to know who has a quality CBD product because you don't necessarily know where these companies are getting their CBD.

I'm just going to open it up to the panel to, if I'm just a consumer and I'm just walking into the store, how am I going to know-

PART 1 OF 3 ENDS [00:19:04]

Debra Borchardt: If I'm just a consumer and I'm just walking the store, how am I going to know where this company got their CBD from? Anyway ...

Ben Kovler: Yeah. We are licensed producers. Everything we make is tested by a state sanctioned lab. All the cannabis we grow, whether it's CBD cannabis or THC cannabis, is tested and labeled and like it's proof. When you get a can of beer, it shows the proof, ours shows the percentage. All that is tested and it's all seed-to-sale tracked 100% so if one of the batches had a problem or something, we could track to every consumer that's bought it. It's bar coded and scanned.

Now, we are not in the mass market channel, so it's a little bit different. We're in the state regulated cannabis channel, but we believe very strongly, we lead the regulations talking about dosage control, childproof packaging, tamper resistant. We think that that helps the industry. It's not about jamming as much THC in here and slamming it out and making it look like gummy bears and candy for kids. It's about legitimizing the packaging, the labeling, and the brand and offering an honest experience to the consumers.

You mess that up, you screw up your brand for life. You never get a second chance to make a first impression and that's what our brands are based on. GT has a house of brands, similar to Diageo or Constellation or Proctor and Gamble or Frito Lay, where we have many different brands that appeal to different consumers and different use cases, but everything's labeled and tested constantly. That's a fundamental.

Debra Borchardt: Do you think that's where we're going to end up going is that there's going to be some kind of seal or something on packaging?

Ben Kovler: Yes. There has to be.

Debra Borchardt: Like some kind of standardization thing?

Rishi Gautam: Well, from an operator's perspective, the greatest brand equity is the consistency of the product. It's tough to do any siloed state regulated markets and there's a ton of testing, but the testing varies from state to state. Nevada has much more stringent testing than others. The consistency of the cultivation of the product is the starting value of a brand equity because it has to be consistent.

And then you get into extraction and how you're extracting it. Are you extracting the same way from state to state? We have to standardize the operations of state regulated markets and that's where we excel.

Debra Borchardt: I think that's really one of the things that some of these companies really struggle with is the constant, constant changing landscape for them. In California they just had new rules come out on July 1st that the packaging had to change because they needed more testing and some companies just said, "I'm out," and just left. The packaging is like, it looks like this on it now. There's so much, you're reading all this stuff.

How is it, as a company, to constantly have to pivot when, say, Washington state just came out and said they may say no more edibles and no more this and that?

Jeffrey Maser: Yeah, the packaging rules in California are pretty tough to comply with. You need childproof packaging, and even more difficult is that if it's a multi-serve drink like some of our upcoming hard liquor concepts are, it not only has to be childproof but it has to be resealable childproof and those kind of caps are very hard to find from stock caps for example, so they have to be custom made in a lot of cases.

You're not allowed to have transparent bottles, which consumers really like in drinks because it looks advertising. You're stuck with dealing with these opaque bottles which are also very, very hard to source and expensive to make. And yeah, it's got to be covered with all these government warnings and so forth. The testing can be very difficult because not a lot of the labs in California are necessarily set up for drinks that well because as of now at least, it's a pretty small category. But you do need to have the exact quantity and it has to be a certain variance tolerance that you have to stay within.

It is tricky. I've seen dispensaries in California that were quite literally wiped clean on July 1st. I think it was us and two other products that were left in one store that we're in. That's not just drinks, that's all categories, so it can be very difficult. I heard something like 75% of the products out there couldn't stay operating after July 1st. It is very difficult and the other problem, particularly with drinks, is that there is a long lead time for ordering parts, especially if there's customization, if the bottling line has to be reconfigured. We actually are expecting the rules to change for packaging again in January and so we've already got to begin making those preparations.

It's a challenge. If you don't pass your test, you actually can't remediate. You actually just have to destroy so that can be a challenge for some of the downstream products like edibles and beverages.

Debra Borchardt: You brought up a really interesting point about destroying product because Aphria just reported their earnings this week and they had to destroy 13,000 plants. They said they destroyed them because of a labor issue and we were all in California at the New West Conference and we were all scratching our heads going, "What?" We felt like there was something more behind that, but I don't know.

Bill, is that a difficult thing for maybe these smaller companies, as they're coming up, dealing with these kind of regulations, and/or having an issue where they have to destroy inventory because of the regulations that they've got to meet?

Bill Marcus: Well, just to pick up on the two opportunities, in this conversation you're hearing about some ancillary businesses, which are great opportunities. The packaging industry for example, which is completely legal everywhere and everybody needs it and the testing, which is off the charts taking interest, right? So you look at the different segments and the categories in terms of delivery systems, vape, flower, etc, is also a whole spectrum of opportunities within the ancillary business, touching the plant, not touching the plant. The legal businesses, insurance in this industry.

These are all emerging opportunities. Some of them are listed opportunities and I'm sure Jim is aware of some of these. Kush Bottling is one that comes to mind, okay? So as this conversation unfolds, these are all different, really good opportunities for investment because of the huge need that Ben just described and everyone is describing here from tamper proof, from a FINRA type organization actually emerging so everyone has safety in terms of the investment opportunities.

To your question, yes, it's a big problem. One of the drill down points we have, and again, we work with a lot of companies that are coming through the chain that is still private, is when they are raising money in their business plan, what is it going to be applied for and what are their contingency plans, not whether they're going public and what the exits are, but what do you do when a rainy day shows up, and they do show up. It's usually something like that that takes eight or nine out of ten operators out of business.

So, at the earliest stage it is a problem and even as some of the mature companies, it's a matter of how much strength they have, how good their management team is. Your point, okay? You've really got to get to know these companies. Even when they're public, you can access a lot of information and you've got to get to know them when they're private even that much more.

Debra Borchardt: One of the things that we've kind of touched on a little bit here is the variety of ways that you can consume cannabis or CBD products. I feel like we've definitely heard that the trend of flower sales dropping down. It's still a huge percentage of market share for sales, but it's either paused or started to decline while all these other categories have started to move higher. How do you guys try to take that information about consumer trends and then apply it to your industries or your businesses?

Ben Kovler: Well, for us, for GTI, it's been great because we have 14 open stores doing thousands of transactions every day at the front lines. We run the business consumer first. What does the consumer want? Let's be consumer-led, people first, all the way through the organization. We're seeing the transactions effectively. If this is Prohibition 2.0, we own the bars, so that can tell us what kind of booze to make. Literally, people walk in and say, "Well, rum and Coke tastes really good together," and then we go home and create Captain Morgan.

That is literally what our business is and we are maniacal about the data. You're in an industry that basically, four or five years ago, totally illegal and there's no data so we have as good a frontline data, real-time, first-mover research in order to see what is happening. So we're watching trends like delivery, like beverage, like CBD, like low dose, like discreet forms, like inhalables, to see what's happening and drive our decision making on the brand building.

And just to your last question about how to figure out the regulatory, when you invest, if that's what you're considering, you have to understand the business that you're investing in, where they generate revenue, because that's the risk, right? If the business gets shut down. So which state they are in, how the licenses work. Investing in Washington and California is totally different from New York, Florida, Illinois, Pennsylvania, and Massachusetts. So, I'd just take that in.

Joseph Dowling: I think we're going to see a lot of creativity in the next 10 years on formulation development, form factor development, delivery route, because if you just look at the options today, we have a whole bunch of different oral form factors, but I think anybody that knows anything about science will say in terms of bioavailability, that's probably the least effective and so we're going to start to see other different delivery routes and different form factors developed.

Whether it's a dermal type product that's a little bit better in terms of the bioavailability. You're probably going to see sublingual or buckle delivery. You're going to certainly see, I think, pulmonary, a bunch of it. That would be through the lungs. That's very, very quick to the brain. We're going to see a lot of creative form factors, a lot of creative formulation, and that's going to be eventually backed up by science and we're going to have a much better understanding about how does that actually get into the system, how much of it gets to the intended site.

But that's going to take a little bit of time. As I mentioned earlier, the policy's ahead of the science and that's part of the science that we're going to have to understand better as we go forward.

Jeffrey Maser: I would just jump in. I'll put it in an investor lane again. As I spoke earlier, my sense is that people are investing in the sector right now and in fact on some level, when you've invested in the big Canadian LPs, you've been investing in big, integrated companies. Charlotte's Web, most people know is a novel by E.B. White, but it's also a company that IPO'd in September, is now a billion and a half, it's one of the biggest cannabis players in the world. You could argue they are in the CBD, but the nutraceutical/wellness vertical and that is arguably a total addressable market that no one really knows.

As we've talked about throughout the day, it's hard to really understand where, when you look at the verticals that are shaping up in the cannabis world and probably crudely they are something along the lines of recreational, nutraceutical, wellness, OTC pain, and biopharmacal. So as investors, that's where I think you should start to be figuring out who's in what vertical, what are the margins inherent in that vertical, where are they located.

There's a company called Trulieve who just IPO'd a month ago or so as well. They're a Pure Florida play, it trades on the Canadian, but it's been given an enormous multiple. The irony here is, it's right now a Pure Florida play, but because they're number one in the state that everybody thinks is going to be the next California, they're actually given a multiple, and I would argue actually the stocks are very expensive, relative to very expensive stocks because their numbers were very good in the second quarter. But they are a pure play when people want to find the next thing.

That's my investor's lean on this. There's different ways to be looking at the way companies are dealing with their packaging or how they're handling the regulatory environment. I think understanding where they operate, what sector they operate in, and what the inherent margins are in that sector is very different than just making a top-down play.

Debra Borchardt: You brought up a really good point. We hear a lot about medical versus adult use. People in the cannabis industry hate the word recreational, they much prefer the word adult use. We have heard that when adult use is legalized in certain states that then the medical sales drop. That has been proven out. We've seen the numbers. It happened in Colorado and it happened in Washington and Oregon.

But then I've heard from other data providers who have said about six months in to that you start to see the medical sales coming back. I wanted to bring that to the table because I think that people feel like they have to choose between investing in a medical company versus an adult use company. How do you see that playing out?

Rishi Gautam: Well, it's an interesting dynamic. For us, it's not one market, it's 50 markets with the states and each state has varying degrees of what they consider medical. And then you have Canada which is what we would really call pure medical because you have actual doctors, actual conditions, actual scripts being delivered. So the states have varying degrees, certain medical conditions, etc. Colorado is a great example where you have a shift from medical to recreational and then you'll have a shift back where there's an increase in patients.

There has to be a standardization of what you would consider medical. It hasn't happened yet. It's very fragmented across the board of what is medical but it's still the same plant and if you walk in to a store that has medical and recreational, you have some of the same exact product, just one is for medical patients and the other is for recreational, the same exact product. So there has to be a standardization and then you could officially bifurcate what is actual medical products for medical patients packaged appropriately, prescribed appropriately, and then what's recreational. It's still a blurred line right now.

Ben Kovler: Let's make this real simple, right? There's an epidemic going around the United States killing tens of thousands of people in opioids. Cannabis is an alternative that doesn't kill you. Okay? So is that medical? Is it adult use? Is it nutraceutical bonus? I'm not sure, but it's not death and we have lines at the door every day from well-educated, upper middle-class, over 55, who want an alternative. So we are producing product and making a consumer brand and whether it's a medical product, the FDA is way behind, we're not sure, but we're offering people a better alternative, a better night's sleep, less pain, that's not killing people across the country.

At our store in Nevada a thousand people come in every day, stand in the same line, buy the same product, and if you have a card you don't pay the tax, the medical. But if it's an adult use and your choice to have it, you pay a 20% state tax and nobody complains about the price, the use of the product. So, you've got to think about the opioid epidemic, which last year killed 50,000 people, almost more than the illegal drugs, more than heroin almost, for the first time. Our product, adult use, medical, we're not sure, but it's saving lives. It's offering an alternative and the demand is off the charts.

Debra Borchardt: Well, your product is really kind of wellness oriented.

Joseph Dowling: Yeah. We're completely different. I want to go back to the regulatory environment a little bit because every comment that we're hearing deals and touches with a regulatory compliance at some point and because we have the federal versus state legal distinction now, adhering to and complying with today as best as all of us can, FDA labeling requirements, marketing requirements, etc., is going to be key.

Just on the CBD side, a threshold issue for anybody that thinks that they can get in to this space, especially getting on the shelves of a larger retailer, will be this. Pick a name, I won't use a name because we're going after all of them, that said, "Okay, we're in. We're going to put your product on 500 store shelves." Here's what happens in the next week. Their staff, their QAQC staff comes out to see whether or not we're GMP, good manufacturing practices, not just in our facility but in every facility that we do work with. Do we have SOPs, do we have a quality management system, on and on and on and on. So that one threshold, if you can't meet that standard of operation, you will not be able to scale, you will not be in 50 states.

It's a little bit different on the THC side, but I think the principles are eventually going to be the same that if we don't, as an industry, take the regulatory process very, very seriously whether it's testing and standardized testing, and it could be that if a FINRA approach where we have an SRO at some point, where we come up with standardized analytical chemistry that everybody adheres to and the test is common throughout the entire industry and if you belong to this organization you get the stamp on your bottle. That's a type of regulatory compliance that we have to impose on ourself until it's imposed on us and that needs to happen today in a big, big way.

Debra Borchardt: I'd like to jump into retail right now because I think that we haven't really pushed in to that area yet. We have some companies like MedVend who are like, "It's all about the retail." That's how they feel. They are all in on retail and I have to admit, brick and mortar has really hit the home run here with cannabis because all our other things that we're purchasing, we're purchasing online through Amazon and this is one of the few products where you've got to go into a facility, go into a door, and actually make a physical purchase.

I feel like it's really starting to bring back the brick and mortar store. It's giving jobs. It's also kind of bringing back some neighborhoods where we've been building these dispensaries. So I'd like for you guys to talk a little bit about retail and also let's jump into, can you make money at the retail level in this or does it just become a gross margin story like any other retail?

Tim Seymour: I own a bar in downtown Manhattan. It's one of my other jobs.

Debra Borchardt: He's like a Jamaican. You've got like 10 jobs.

Tim Seymour: Well, dad had me working hard as a kid so I learned a few different things. But-

PART 2 OF 3 ENDS [00:38:04]

Tim Seymour: That had me working hard as a kid, so I learned a few different things. Ultimately, I think bars and coffee shops are going to be the retail outlets. I actually am of the view that while the regulatory environment is what it is, it's certainly ... the walk-in reality is the walk-in reality, but why will this product be no different than every other product? My view is that the leap frogging that's going on in the sector is what makes it so fascinating and so yes, the experiential part of a dispensary is critical. I think being very asset heavy right now, just as an investor, it's something that I think is a risk. Because, I think ultimately these guys have invested massively in brick and mortar at a time when there's a limit to how effective that will be. But, again, I own a bar, so I kind of see, again, substitution, disruption and all that, but I figure those institutions are also going to adjust to be able to serve that same clientele and it's going to be more about an experiential dynamic.

Debra Borchardt: Let's talk about Finley. You were here. You're in the dispensary.

Jeffrey Maser: I've heard some staff in California saying that more than half of sales right now are still from the home delivery market, so I guess there's still this culture of having a guy show up at your house and paying him cash for your cannabis, basically. So, I think any brand does need to have a good at-home delivery strategy. But, when it comes to beverage, beverage is all about merchandising. That's a grab and go sort of thing. That's an impulse purchase and the problem with the way the dispensaries have to be set up in California is that really it's just the bud tenders that can touch the products. So, you literally have to go and you have to get in line, all the products are behind this glass jewelry case basically, and then the bud tender goes and picks it up for you.

So, it's really the total opposite of grab and go and impulse purchase. So, that is one of the challenges that the beverage category will have. MedMen certainly does a better job than most, because you can actually walk right up to the fridge and pull a drink out. Crazy concept, but then there's a bud tender standing right nearby, keeping an eye. But, that's the exception. The vast majority of the stores literally need to reposition. As the beverage category grows, I think that the stores will start to make that investment. But, it's a bit of a chicken and egg cycle. We need to show more and more selection of beverages and greater sales from the beverage category overall for them to make that investment in the merchandising.

Debra Borchardt: What about with GTI's dispensaries?

Ben Kovler: So, we're running a retail chain across the country. We have 14 open today.

Debra Borchardt: And you've got Ross.

Ben Kovler: Yeah, with licenses for up to 60. Like I said, brands, distributed scale is the way to win. We started that way and all of a sudden we were in the dispensary business, seeing how attractive the economics were. From business standpoint, they're very attractive. You can build them cheaply and the sales are off the charts and the same store sales are through the roof. It would be the darling of any Wall Street retail growth story that everybody's thirsty for.

But, what's happening at the core? We're offering a people first retail experience where we're treating people well. We're actually treating them really well. We're listening to them. We're offering an environment where you can ask questions, but they don't have to look over their shoulder. Everybody's nervous about cannabis, especially if you're 55 and over. They're coming in, and we're offering an environment. We think of it like Starbucks, or more like Cheer's, where everybody knows your name and they're glad you came, and that's the feedback we've gotten.

People are coming in and they're hanging out and they want to be there. They like this social experience to talk about this brand new concept in the light. Because, the dealer has no idea what's going on and we call them patient care specialists in medical markets. We're helping people understand how to feel better and an in adult use markets, we're serving the clientele just like any other retail experience.

So, understanding where the value's going to go, how delivery is going to work, what public consumption is going to look like. That's been our advantage as a business to evolve. We don't know what we don't know, so we want to be really flexible and really moveable, but what happens to America, what's the American public consumption of cannabis going to look like? What are you going to do? Public consumption of alcohol, you party. You lose your judgment, you play in a bar, you watch sports, you do things, and you sometimes do stupid things like drive off the road or do other things. What's going to happen when you use cannabis? What kind of environment should we enable? What kind of intellectual curiosity may come out of this?

I don't think you're going to see a lot of losing of your judgment. So, I think you may see some progressive things start to happen. We're starting to play with things like a puff and paint. What does that look like? An art experience. Look what's happening at nighttime clubs and social scenes and what's happening to those trends. What can we offer? People are curious. People want to understand this, so we think the retail business is incredibly exciting. There is monstrous protected oligopolistic nature to this. That means nobody else can come near us. We have the only store in downtown Cleveland. We're opening in Soho. We have in Chicago and Boston, Miami, and all these other places and governments are nervous, so they're protected.

So, it's not like a gas station, where somebody's going to open up across the street. There's rules that say 1000 feet, half a mile, maximum of two or three. So, we think these are protected licenses and we work with the regulators and we're interested to see how this industry evolves from a consumer experience at the retail location.

Bill Marcus: I'll add to what Ben said, who I'll give a plug, they are extremely good at picking locations, but there's also a maturation of these markets, or an evolution, that's occurring. So, in California, where we were last week, Deb and I, I didn't have time to go visit a dispensary, but I could have called any number of three or four delivery services. So, if I'm a pedigreed consumer, I know what I want, I don't necessarily want that experience. I don't need the bud tender. So, that is a whole scale developing in terms of clients and consumers. So, I could easily pick up a phone, have it delivered right to me. That's an entire new business. That's another area to look at. But it gets back to, as everyone has said here, and Ben has a couple times said, it's scalability and brand.

You establish a great drink brand, you don't need the brick and mortar. They're all gonna come. The consumer's going to come looking for his brand. Similarly, as some of these other states develop and delivery services develop, that's just going to add more users. They're all going to be looking for that one thing. What's the brand that I like? What gives me the experience that I like? What is the safe experience that I like? And so forth. It's very exciting. All these are opportunities.

Debra Borchardt: I think scalability is a real issue, because I find that I'll try a product and I'll think, "Wow, this is an amazing product." Like Mr. Moxey's Mints in Seattle, they make these Altoids type mints that are only like, I think, 2 mg a piece. Very, very low dose. It's a microdose, which is what a lot of people have talked about today, about microdosing. It's super small amount and if you consume it, you feel like you've had a glass of wine. You don't even feel high at all. You just feel a little relaxed and a little less anxious, but yet, you can't find it anywhere unless they're in Seattle and they'll say, "Oh, well we're coming to Northern California."

But I find that the most frustrating thing is I travel around a lot. I talk to a lot of the brands and such and I find that to be the most frustrating thing, is when I do find a brand I like, then I can't find it everywhere or it's just really hard to find it. How do the brands tackle that? You put so much effort into getting the customer, but then it feels like that last 20 yards is hard to accomplish.

Rishi Gautam: If you're gonna cross state lines, you're going to go into Canada, you have to have a brand that can port. So, the process of getting ... what is that brand? What is the real value of that brand? If it's the IP of the trademark, that's one thing. Is there a proprietary formula or anything to power the underlying product. It has to be able to port across these state lines and if it's not a mass market product and if it's in the regulated environment, it has to port.

So, we have been able to power brands in multiple states because these particular brands have been able to take whatever they created in Seattle or Denver or LA and bring it into other states and potentially Canada as well. So, the portability is key, and you gotta power it with the right engine. You can't really take a snapshot of a single state operator or a single state brand and think that they're going to have the same success in other states because they have a huge mountain to climb.

Debra Borchardt: Okay. We kind of talked a little bit about retail, and I wanted to jump back into that because, do you guys feel that we're going to get to a point of on-site consumption, and do you think that if we do get to on-site consumption that it's going to be at the dispensary or do we think we'll gravitate to like what Tim was thinking, that it will kind of shift away from the dispensary and go the bar or restaurant or whatever? Coffee shop?

Jeffrey Maser: We're certainly hoping that on premise becomes big because it's natural to sit at a bar and drink. I think cannabis Moscow Mule or Margarita or any other sort of drink basically. A lot of the dispensaries in San Francisco right now do have lounges attached to them. That's really the only place, sort of the Bay area. There's a few others as well. In Los Angeles, it's pretty rare still, although there's a lot that are sort of trying to start up.

I've heard that a lot of the bars in downtown Las Vegas are being snapped up by companies that intend to turn them into cannabis bars once that green zone is finalized. So, I think on-premise is going to be huge. I think the advantage of the edibles and certainly the drinks is that you can offer a smoke free environment to these places. Right now, pretty much all of them are sort of predominantly smoking lounges basically. So, if you look at the stats for beverage alcohol, it's typically roughly divided equal between on-premise and at home consumption.

So, not having on-premise channels basically cuts the market in half. So, we're very much hoping. In the meantime, it is an at-home, and that still is hopefully going to be a huge market for beverages, but the advantage for the at-home consumptions is if you're not smoking, you can do it ... there could be kids upstairs, you could be doing it downstairs, you're not smelling up the house. You could even have it at the dinner table because it looks exactly the same as having a glass of wine or a beer at the table.

Debra Borchardt: We're starting to wind down on time. I'd like for each one of you to ... we'll go down the line and I want you to tell everybody what your main focus is right now. Because, I'm sure it's different for every one of you, but what is your main focus right now?

Joseph Dowling: Scale, branding, just what we've talked about. We are not invested in heavy capex parts of the supply chain. We think the 2018 farm bill passing, we believe it will happen this year. It's going to be a watershed for our industry, the CBD side of the business. I think it could open up the food, drug and mass market for our industry without the challenges that you're hearing on the THC side of the business. We're currently in 2000 stores. That could be a multiple of I won't say, but it could be huge because of the 2018 farm bill.

Rishi Gautam: Our focus is merging the borders. We've certainly mastered the art of bringing product to market in highly regulated states and Canada and now we're trying to come up with a much more scalable fashion of power brands and power distribution within each state, but in a scalable form. We have data points from Hawaii to Halifax of what people are consuming, what strains work, what strains don't work. Now we're going to start to merge the borders to show scalability, which really, no one has seen that yet.

Ben Kovler: So, I'll echo scale. We are a public company, two and a half billion dollar market cap, one of the largest or largest in the US. But, we don't think this has started yet. We think it's the early innings and so we, like Wayne Gretzky, skate to where the puck is going to be. How do we put the pieces in place to be a 10 billion dollar company or a 20 billion dollar company? Is that crazy? Well, it's a 70 billion dollar consumer packaged goods industry, and most CPG's trade at two, three, five times revenue. Let's call it one times revenue, that's 70 billion. Current total mark up is five billion. We got 10 X or more to go. So, I've gotta put the pieces in place to strategically be ready for the tidal wave, because if you're in a canoe, you're gonna tip over.

So, we're building a barge. We're intracting talent that's unprecedented. I can't believe the kind of resumes from the companies, the most blue chip, public companies we want talent in. So, we're building that and we're accessing capital. This is a 70 billion dollar industry, and nobody has 1%. There is no industry that's that big without any real scale or players, and so we're figuring out how to put those pieces in place in an MNA environment that is incredibly ripe and open in order to have the dominant position and be a leader in the space.

Bill Marcus: So, we're a FINRA regulated, broker dealer and our concentration is to find these companies before they're public and guide our accredited investors to good opportunities. But, beside that, I'll point out to this being the year, as Jim thinks, the breakout year of this entire industry. The most popular, and the first ETF in the business was Horizon's marijuana life sciences index. If you invested in that at the beginning of this year, there was a swoon down 36% near the low in August, until the landmark canopy deal in consolation. So, since then, we've rallied right back up to the January levels. Some stocks though, since August, like yours is up 146%. So, there's good reason to look at individual companies here. But the point is, on Thursday, I think it was Congressman GOP Robach who came out and made a little blip that the Trump administration is going to be looking post-midterms at potentially country wide regulations that would be enacted sometime in the first quarter.

So, there will be, as always, there'll be fits and starts. There'll be drawbacks, just like the setback, a little bit of correction last week in the general market. But, this has been an industry that has had terrific upside, consistent growth and value and I agree, this is early inning still. This is a perfect time, and the right atmosphere, to take a hard look at what's going on and invest over time consistently.

Jeffrey Maser: So, our focus at Tinley is continuing to build our brand, increase the number of stores that we're in, driving sales through consumer marketing and so forth. That's really a big piece of it, but an even bigger part of the Tinley story is really going after the opportunity to build the picks and shovels of the beverage category in the world's largest cannabis and beverage market, which is California.

So, we are building a large scale bottling facility. Scale, as you mentioned, is important in any cannabis category, but particularly for beverage where scale is important in non-cannabis categories as well. So, we're building that out. It's gonna no doubt dramatically reduce our production costs when we move to that larger facility. It will also give us the chance to offer our facility out to third party brands. So, if there are mainstream consumer package goods companies that do want to create cannabis beverages, in a large market like California, we could not only manufacture them, but we also have the R&D lab where we could formulate, infuse the science that we use to accelerate the onset of our beverages. Then, there's also a distribution facility as well that we're building out, which is critical to beverage because it's important.

Again, the merchandising is important, so the ability to have your own trucks show up at a dispensary, have the guy get out and not only load the drinks, but actually go into the shelf and position them properly and make sure the fridge stickers are on and everything like that. That's really the key to success, I think, which you certainly see with the major beverage companies like Coke and Pepsi, is that full DSD model. So, that's really what we're trying to do. We're trying to offer investors not only access to a diverse kind of portfolio of Tinley branded products, but also exposure to potentially an endless number of third party brands that we want to build for.

Tim Seymour: Some extraordinary businesses are built by the gentleman on this panel. My focus is on the market side of this and it's really clear this industry's going to split. In other words, [inaudible] is not Diagio and as far as I'm concerned, you're going to see real clear delineation in the market. But right now, there's an extraordinary amount of IPO activity and deals coming to market and it's a scary time. It's never been a tougher time to invest in this market. It could be the scariest time, although every time feels like that time. But, even if you think about what's happened in the last couple months, some of the biggest companies outside of canopy, but Aurora, Kronos, Foria, these stocks are actually down from their peak in January. So, if you mistime this, you've lost a lot of money. So, my point is to the investors, be diversified. Understand what you're investing in and valuations do matter.

We actually do need ETS in this industry and again, this is one of those quirky dynamics of the regulatory environment. Trust me, I've already checked. I mean, I'm looking into this. But, the custody banks are not making it easy on companies to be able to do this. It's crazy, and yet canopy can be listed on the Nicie and Kronos and Tilray. Again, look at what's happened in Tilray stock. This is not something to villainize these guys. They should be applauded, but there's 93 million shares, but 21 million really trade, and not even really that and the only reason that stock is where it is, is because of capital market's dynamics. So, that's my focus. I know a lot of people are investing, either for the first time or starting to look at it, and I just caution it's a very difficult time, but it is the end of prohibition. It is leap frogging every single sub component of the sectors in this industry are alive and well.

Debra Borchardt: Well, thank you. We are out of time. I want to thank our panel, everybody here.

Cannabis becomes legal in Canada starting today and that is generating a lot of interest from investors. So, what can we expect when trading gets underway?

Real Money's Stephen Guilfoyle writes, "Many of you may recall that the state of California legalized the recreational use of cannabis back on January 1st this year. All of the cannabis stocks rallied into that event much as they have into tomorrow. I feel it more than likely that the industry experiences something similar in the wake of what happens in Canada tomorrow. That something similar was a selloff that lasted. Many of these names did not recover their January levels for another six to eight months. For those of you who have already enjoyed a nice run, I might take a little something off, and protect those profit" Read his full story here: O Canada: Recreational Cannabis Use Becomes Legal Wednesday.

Overwhelmed by the onslaught of companies crowding into this space? You're in luck. TheStreet's founder and Action Alerts Portfolio Manager, Jim Cramer, held a special Bootcamp How to Invest Like a Pro in New York

Jim's fireside chat took place in front of a standing room only crowd. If you missed it, no worries. Watch it here: Canopy Growth CEO: Here's What the Future of Cannabis Looks Like for Investors.

And that wasn't the only conversation around marijuana stocks. Debra Borchardt, TheStreet Contributor and Co-Founder, CEO and Editor-inChief of Green Market report had a lively panel: How to Play the Fast-Emerging Cannabis Industry.

Topics included:

  • The Good and the Bad. Bill Marcus said "You have to be very careful. Some of the basics, what is the management like? Have they had a successful track record? The same questions you'll typically ask, but many of these companies haven't had experience in cannabis before, so you really have to dig deeply, see what their ramp is, what their need is for cash." He added, "We try and take a litmus test and find the winners while they're private, while they're smaller.."
  • The Cannabis Brand. Jeffrey Maser, CEO, Tinley Beverage Co.,Inc. says "..when it comes to beverages, brand really is key. It's what consumers look for. When they build the trust in that brand, that's ultimately what wins the day for beverages."
  • Medical vs. Recreational. Rishi Gautam, Chief executive Officer, GrowForce says, "It's an interesting dynamic. For us, it's not one market, it's 50 markets with the states and each state has varying degrees of what they consider medical. And then you have Canada which is what we would really call pure medical..." He added, "and then Colorado is a great example where you have a shift from medical to recreational and then you'll have a shift back where there's an increase in patients.

So, what can we expect from the stock market following the legalization of marijuana in Canada? Be sure to check out Cramer Live from the floor of the NYSE everyday at 10 a.m. Follow us on Facebook for notifications on Jim's Live show.