Episode Summary
The haphazard state-level legalization of cannabis in the US has created a patchwork of vastly different regulations across states, from growing to retail licensing. How do we make sense of the opportunities that exist?
We spoke with Aaron Edelheit, an investor in both public and private companies in the space. Aaron gave us an overview of the absurdities at the federal level, including how cannabis ended up as a Schedule I drug, what states have been doing over time in terms of medical and recreational use legalization.
He also dives deep into the inefficiencies created in the market, in part because most institutional investors cannot participate. As one of the pioneers who turned the single-family house rentals into an institutional asset class, Aaron is reminded of how he was alone buying foreclosed houses literally on the steps of courthouses in the Southeast for years before “the big boys” showed up and prices skyrocketed.
We further talked about the challenges of the cultivation of consistent product at scale, and why a certain grower in California is well-positioned with a large bank of greenhouse capacity and perfect climate. Further, we look into the future: will it be a brand-dominated industry, or will it be a commodity? We also touched on Aaron’s book, where he meticulously researched the benefits of unplugging from it all for one day a week.
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Guest-at-a-Glance
💡 Name: Aaron Edelheit
💡 What he does: He’s the CEO of Mindset Capital.
💡 Company: Mindset Capital
💡 Noteworthy: Aaron is a crossover investor who is very heavily involved in the emerging cannabis space. Additionally, he is the published author of The Hard Break: The Case For The 24/6 Lifestyle.
💡 Where to find Aaron: LinkedIn | Twitter
Key Insights
⚡ Cannabis has medicinal value despite being classified as a Schedule I drug. Cannabis is a Schedule I controlled substance, meaning it has huge abuse potential and no accepted medicinal purpose. But is this really accurate? Aaron says, “How many people have overdosed from cannabis this year? Zero. How many people have overdosed from cannabis last year? Zero. So the medicinal value is we know that it helps cancer patients tolerate their drugs. It is clear pain relief. It helps people with anxiety, post-traumatic stress disorder. There is an approved FDA drug that is a synthetic form of cannabis that treats kids with epilepsy. So there are just so many, and now we’re finding that it could possibly work against COVID. We’re just starting to explore really how cannabis works and how it can work.”
⚡ There’s a conflict between federal and state law when it comes to cannabis legalization. More and more states are legalizing marijuana, but it is still illegal on the federal level. Aaron talks about this conflict. He says, “You have like 38 or 39 states that have basically, like, we’re just going to ignore the federal government, and we’re going to legalize it in our state for medical. And then you have a number of states who are like, we’re just going to make adult use. And what happened? The reason why more and more states are legalizing it is they legalize it, and then they’re like, everything gets a little bit better.”
⚡ The cannabis industry is a huge opportunity for investors. As an investor heavily involved in the cannabis space, Aaron thinks that it’s one of the most promising investments. He says, “This is just a small taste of how totally absurd what’s going on in cannabis is. And I love it. Basically, from an investor’s standpoint, there’s no competition. There’s 99% of the smartest people in the world are involved. And you have a hundred-billion-dollar industry that exists right now. About 70 billion is illicit, but it’s happening. You have 30 billion that’s state legal but federally illegal. And I think because of the medical applications, one day this is going to be 200 billion, but it’s almost all going to be legal.”
Episode Highlights
Growing Consistently Good Cannabis Is Not Easy
“One of the things that has been so fascinating is that when you talk to the people trying to do this, you realize how hard it is, and you see the companies that stumble; companies that have spent hundreds of millions of dollars and still cannot grow cannabis — where consumers are like, I’m not going to use that stuff. It’s just very inconsistent, or you’ll have it’s just not good, or that you’ll have it’s really good, but it costs a fortune.”
Supply Chain Inconsistency Is a Major Hurdle in the Cannabis Space
“When I think about as an investor, supply chain becomes really important because when this becomes legal, and you have Diageo, or you have British tobacco want to come in, they’re going to want a consistent supply chain, and they’re going to want the companies that can enable them to have consistent products and brands.”
The Importance of Branding for Cannabis Companies
“I think eventually you’re going to have brands. You don’t walk into a bar and say, ‘I want grain alcohol.’ You just don’t do that. Maybe if you just turn 21 or you’re getting your first drink, you’ll be like, ‘I’d like a beer.’ But people don’t do that. If they want just kind of an inexpensive but good quality beer, they’ll get a Budweiser; they want something more, they’re going to order more. It’s the same thing with wine. It’s the same thing with tobacco. Normally people don’t say, ‘I just want a cigarette.’ They might, but normally people have preferences, and eventually, this is going to be branded.”
Let Your Mind Wander
“It’s not about how hard you work in an age when you have artificial intelligence and computers going to start doing more, and what’s going to distinguish you is creativity and innovation and new ideas. And so what you find is that there’s a part of your brain called the default mode network that when you just daydream, or you’re on a walk, you ever have the proverbial idea in the shower, that. Why is that happening is because when you stop being busy and engaging, your brain is processing and trying to find patterns and ideas in all the information it’s taken in. So by constantly fire hosing at your brain, you’re not giving it a chance to actually come up with the ideas and the creativity that’s going to actually distinguish and help you succeed.”
Top quotes:
[09:06] “Cannabis actually has medicinal value. It’s not to say that people can’t abuse it, just like we were talking about with Twitter or online. If you do anything in extreme, it’s not going to be good.”
[10:07] “What’s happened is it’s a federally illegal drug, which means no access to the federal banking system, no access to the investment markets. About 99% of institutional investors cannot participate.”
[16:55] “To grow cannabis at scale, cost-effectively, consistently, really good or great cannabis, what you find is it becomes incredibly hard actually.”
Full Transcript
[00:00:00] Aaron Edelheit: This is just a small taste of how totally absurd what’s going on in cannabis is, and I love it, I basically, from an investor’s standpoint, there’s no competition, there’s, like, 99% of the smartest people in the world are not involved, and you have a hundred-billion-dollar industry that exists right now.
[00:00:21] About 70 billion is, is like, illicit, right? But it’s happening, 30 billion that’s like, state legal, but federally illegal, and I think because of the medical applications, one day this is gonna be, like, 200 billion.
[00:00:45] Nick Mazing: Hello, and welcome. You’re listening to Signals by AlphaSense, and I’m your host, Nick Mazing. Today we have a very interesting guest, Aaron Edelheit, the CEO of Mindset Capital. Aaron is a classic renaissance man, probably the only person I know who has worn many hats throughout his career, started out as a value investor in the public market.
[00:01:05] So, then in 2009, started buying up individual houses, literally on the steps of local courthouses in the US Southeast, and he was one of the pioneers in making single-family rentals an institutional asset class. He purchased over 2,500 single-family homes, which he then sold to one of the reeds that are now operating in the space publicly.
[00:01:30] He then wrote a book, which is also interesting, we’ll, we’ll talk about it and the links will be in the show notes, called The Case for Hard Break, 24/6 versus 24/7. And it’s very meticulously research about the value of disconnecting, really, if you’re religious, you know, Sabbath or Shabbat, it’s a very, very deep concept, both physically and spiritually.
[00:01:52] Aaron is now a crossover investor, very heavily involved in the emerging cannabis space, and most of our conversation will focus on that. Aaron, welcome, and can you tell us a little bit more about you and about Mindset Capital?
[00:02:07] Aaron Edelheit: Well, thank you very much for having me, Nick. Um, so Mindset Capital is a private investment firm, we have, uh, we actually have three funds, I have a legacy real estate fund that I’m winding down, back from when I was buying homes, and I have a friends and family value investment partnership that primarily invests in small caps that no one’s ever heard of, and has an invest, has some proceeds invested in cannabis. And then, at the end of 2021, I launched a dedicated cannabis fund that’s focused on the cannabis industry.
[00:02:42] Nick Mazing: So, I, I wanna touch on your book briefly, and why did you write it? Do you still follow your own advice? I, like I said, I’m, I’m really bad at it, I’m a news junkie, I spend entirely too much time online, and I know it’s bad, I know it’s bad and I still do it, I refuse to disconnect.
[00:03:02] Aaron Edelheit: No, I don’t think it’s bad, this is the big thing is, like, it’s the extreme amount, so I’m addicted to Twitter, like a lot of people, and it’s really protecting yourself against your worst self. So, I’m a workaholic, and I am, I’m driven in ways that I don’t fully understand. And so, what I, what I, what I found is I had to do is I had, I, I fell back on my own
[00:03:30] kind of tradition and faith and being Jewish and, and basically, fell into the Sabbath. And now I’ve been following it for 16 or 17 years, and as I was talking to you before this interview, especially after this week, I cannot wait to turn off. And so, I turn off from Friday night to Saturday night,
[00:03:49] and it literally saves me, it, I find that I am, I get rest, like, really deep rest, I then have recovery, and then I’m excited to turn back on, and I’m kind of renewed, and I can run faster, I can go, uh, kind of farther knowing that every week I have a kind of a vacation and I don’t know how anyone stays online every waking hour to every single person you’ve ever met personally and professionally.
[00:04:21] That just seems insane to me. And so, what I did is I, uh, you know, and I talk a lot about this in my book, is that I just realized after a while it was a key to some of my success and sustaining, and you see a lot of people just flame out and burn out.
[00:04:36] And I saw a lot of people being like, “This is the, this, this is just the price you pay.” And I was like, “This can’t be right.” And so, I did a bunch of research, and I interviewed a bunch of successful people across different faiths, beliefs, atheists, not, and found that a bunch of people were practicing some form of this in some way, shape, or form.
[00:04:57] And so, I wrote a book, it has over 200 footnotes, I had to strip out a bunch of footnotes because I wanted it, you know, backed up by data, by science, by studies, and, and I actually think it’s the most important thing right now is to give yourself a break because the, the most fascinating thing I found in the book is, look, it’s not about how hard you work.
[00:05:20] In, in an age when you have artificial intelligence and computers gonna start doing more and more, what’s going to distinguish you is creativity in, and in, innovation, and kind of new ideas. And so, what you find is that there’s a part of your brain called the default mode network that when you just daydream or you’re on a walk, you ever have the proverbial idea in the shower?
[00:05:45] That what ha, why is that happening is because when you stop being busy and engaging your brain, your brain is processing and trying to find patterns and ideas in all the information it’s taken in. So, by constantly, you know, fire hosing at your brain, you’re not giving it a chance to actually come up with the ideas and the creativity that’s going to actually distinguish yourself and help you succeed.
[00:06:12] And so, that’s just, like, one thing, one part of the book, but one of the big takeaways that I did once I started saying, “Hey, this is working for me.” And I started doing research, so I spent three and a half years working on the book so that it wouldn’t suck. And so, uh, yeah, so I wrote a book, and it’s something that’s not a money maker, but is something deeply passionate to me because I see a lot of pain and stuff, unnecessary pain and suffering.
[00:06:39] Nick Mazing: Mm-hmm. We have the link in the show notes. I read the book when it came out, I, I found it fascinating, very meticulously research, I don’t follow the advice, again, but. All right, let, let’s, let’s change gears a little bit, uh, and let’s talk about cannabis now. So, the first question is around kind of the legal regulatory status in the United States, and in my mind, sports betting and cannabis,
[00:07:04] there were things that were going on anyway in society that kind of got legalized around the same time. And when I look at sports betting, that’s been going on schedule roughly state by state, but pretty much everybody knows the next stage to legalize and, and so on. And that hasn’t been the case with cannabis and, which has really affected access to capital banking, financial services in general. So, can you give us an overview of what’s going on with the legal status?
[00:07:33] Aaron Edelheit: So, it’s one of the things that I’m most fascinated by, uh, I’m fascinated by cannabis because you, what you have is you have a federal legal status. So, President, uh, Richard Nixon placed it on the Controlled Substances Act when he created the War on Drugs, which is really just a war on people, if you research into the history or view of
[00:07:55] any concerns about big government, this is, it’s the most horrifying thing of how this was created. And they placed cannabis as a schedule one, uh, drug on the Controlled Substances Act, and what’s amazing is you researched the history, it, Richard Nixon put together a commission of all super conservative people, and they did research on it,
[00:08:18] and then they came back and said, “Actually, it should just be decriminalized, but, you know, don’t encourage it.” And Richard Dixon was like, “Oh, that’s not good enough for me.” And then he placed it as a Schedule I drug, and what Schedule I is, is this drug has no medicinal value, is the worst thing in the world,
[00:08:38] and you now have this absurd, and I’m gonna use this word, and that’s, it’s just so fascinating of why it’s absurd, is you have cannabis as a Schedule I drug, and you have fentanyl as a Schedule II drug, which means that fentanyl is somehow better for you or less risky than cannabis, which is just so patently absurd.
[00:09:04] And also the biggest part is the idea and the biggest pushback, I hear what you’re saying about sports betting is sports betting has no medicinal value and I can make lots of arguments, and it’s really bad, and it’s much more addictive than cannabis, okay, and really bad for people’s lives. But cannabis actually has medicinal value,
[00:09:30] it’s not to say that people can’t abuse it, just like we were talking about with, like, Twitter or online, if you do anything in extreme, it’s not gonna be good. How many people have overdosed from cannabis this year? Zero. How many people have overdosed from cannabis last year? Zero. So, it’s like, but, but the medicinal value is, we know that it hel, like, it helps cancer patients tolerate their drugs, is clear pain relief,
[00:09:58] it helps people with anxiety, post-traumatic stress disorder, there is an approved FDA drug, that is a synthetic form of cannabis that treats kids with epilepsy. So, there are just so many, and now we’re finding that it’s like, could possibly, uh, work against COVID, like, there’s all the, you know, we’re just, we’re just starting to explore really
[00:10:22] how cannabis works and how it can work. And so, what’s happened is it’s a, a federally illegal drug, which means has no access to the federal banking system, no access to the investment markets, about 99% of institutional investors cannot participate, you know, problems custodying it, but then what you have is the states are like, “Hey, this is crazy, uh, we’re gonna allow it.”
[00:10:48] And so, what you’ve had is, people have been using cannabis for a very long time, I have pictures, in the early 20th century, Eli Lilly was selling a bottle liquid that would help people, the first ingredient is cannabis sativa oil, okay. So, it’s like, this has been used for thousands of years, okay, as medicine.
[00:11:11] So, anyway, the state started, first started with medical, then legal, now you have a situation where it’s something, like, and it keeps increasing. You have, like, 38 or 39 states that have basically, like, “We’re just gonna ignore the federal government and we’re gonna legalize it in our state for medical.”
[00:11:27] And then you have a number of states who are like, “We’re just gonna make adult use.” And what happened, the reason why more and more states are legalizing it is they legalize it and then they’re like, “Everything gets a little bit better,” and they’re like, “Wait a minute, we get to tax something.” And governments love taxing stuff that auto insurance premiums go down,
[00:11:49] they’re like, “Wait, why is that?” There’s less drunk driving, workers’ complaints go down, people get jobs, the police can actually focus on much more serious stuff than someone smoking cannabis. And it’s like, and so what’s happening is you’re having state after state after state legalize it and you, then it creates these absurd tensions that you have the federal government as federally, federal legal, but then it’s state legal.
[00:12:18] And so, now you have a bunch of companies, but then it can’t cross state lines ’cause the states are like, “Oh, we don’t wanna really mess with the federal government.” So, each state is like its own country, they have wildly different rules, you have some states, like the State of Florida, it’s forced vertical integration to open one cannabis dispensary,
[00:12:39] you cannot buy from anyone else. So, it means you have to have your own cultivation, your own manufacturing for products, and then be able to distribute it to your store or stores. So, one dispensary is, like, $20 or $25 million, it’s like, it’s nuts, and you have all of these situations, you have some states that are what are considered limited license,
[00:13:00] they keep the licenses very limited. And then you have other states where it’s kind of like a, a free for all, or unlimited, like California, Oregon, or Washington, and you have some absurd things where cannabis, you have companies competing in cannabis, selling cannabis on a per-pound basis of $200 to $300 a pound,
[00:13:20] or $400 or $500 a pound. And then you’ll have states like Illinois, where it’s a limited license, or it’s 2,500, or New Jersey, where it’s selling for 6,000 or 7,000. So, it, it just created all these weird distortions and tensions, and then the federal government, it causes all these weird things where then you get into the dysfunction of Congress where you have Democrats who are like, “Hey, we want all this fun stuff for our priorities with cannabis.”
[00:13:51] And then the Republicans are like, “I don’t want any of that stuff, and I’m not so sure about cannabis.” And so, you just have this, so nothing really gets done on the federal, the states keep legalizing it and moving forward, and the industry is weirdly growing. And then you still have this illicit sector as part of it that’s going on in the background that’s always existed.
[00:14:14] So, you have cannabis being sent from California to New York, whether it’s legal or not because guess what? This is America, people like making money. What happens when you can buy for $300 a pound, something that’s selling for $7,000 a pound in any of the 1,200 to 1,400 illicit cannabis stores that are open in New York City right now?
[00:14:38] And so, I, this is just a small taste of how totally absurd what’s going on in cannabis is, and I love it, I basically, from an investor’s standpoint, there’s no competition, there’s, like, 99% of the smartest people in the world are not involved, and you have a hundred-billion-dollar industry that exists right now.
[00:15:03] About 70 billion is, is like, illicit, right? But it’s happening, you have 30 billion that’s, like, state legal, but federally illegal. And I think because of the medical applications, one day this is gonna be, like, 200 billion, but it’s almost all gonna be legal. And so, that is why I’m involved, that’s why I launched a fund,
[00:15:24] I think this is the messiest spring training if you want to think about baseball, the game hasn’t even started, the season hasn’t started, you’re figuring out what your roster is, there’s weird stuff and weird scores. And so, this is why I’m involved, and I, I look around like I was on the courthouse steps in Atlanta in 2011,
[00:15:49] being like, where is everybody? How am I the only person here? And I can tell you is that in the summer of 2012, I got my wish, all right, my question was answered. When Colony and Blackstone showed up, and the prices of homes went up 50% to a 100% in one day.
[00:16:10] Nick Mazing: So, that’s, that’s fascinating. And now, when, when we’re discussing the, the podcast, you said that there is one very, very big misconception about cannabis, what is it?
[00:16:25] Aaron Edelheit: So, this is the thing that it really surprised me once I’ve, and I’ve spent, you know, uh, you know, three or four years studying and diving in the industry, is there is this belief that cannabis is, like, one of the nicknames is weed, you can literally grow it anywhere, and it’s super easy to grow.
[00:16:44] And that’s true if you wanted to grow in very small amounts, like you wanted to grow at home, you can, great, but what, when you, when you really dive into it, to grow cannabis at scale, cost-effectively, consistently, really good or great cannabis, what you find is it becomes in, it’s incredibly hard, actually, that cannabis is a very, very sensitive plant and that some people actually think it’s close to impossible to grow at large scale consistently.
[00:17:24] And so, if you think about the end state where you want, you know, brands, people, you know, buy a product, any product, you don’t really want, so that when you open a Lay’s potato chips, or you break open a Coca-Cola for it to taste, or for it to react differently to you every time, like, surprise, you know? And so, so, one of the things that, that, that has been so fascinating to me,
[00:17:57] it’s that when you talk to the people trying to do this, you realize how hard it is, and you see the companies that stumble, companies that have spent hundreds of millions of dollars and still cannot grow cannabis, where consumers are like, “I’m not, I’m not gonna use that stuff, you know, it’s just very inconsistent,” or you’ll have, “It’s just not good,”
[00:18:22] or that you’ll have, “It’s really good, but it costs a fortune.” And so, what you’ll find is there’s a lot of really good craft growers but not many excellent, scaled cultivators. And so, whenever I find a problem like this, and you find that it’s, like, very difficult, and that’s why I’m like hyper-focused on the companies that are actually, are actually succeeding at this, and are actually overcoming this really big hurdle.
[00:18:55] And so, when I think about as an investor, supply chain becomes really important because if you, when this becomes legal, and you have, you know, Diageo or you have British Tobacco wanna come, man, they’re gonna want a consistent supply chain, and they’re gonna want the companies that can enable them to have a consistent products and brands.
[00:19:21] And so, the most interesting thing is there’s this misconception you can grow it anywhere in, in, in, it’s a commodity, and yes it is to an extent, everything’s a commodity, but it’s exceptionally difficult. And, uh, what’s, what I believe is that version one is there’s gonna be a lot of value accrued to the people that succeed at this because you can’t run a brand if you have 50 to a 100 suppliers, and it’s very inconsistent, uh, quality and cost, and you can’t rely on it.
[00:19:57] Nick Mazing: Yeah, that’s certainly when you, when you read about, let’s say, the Heinz supply chain, they actually have very specific tomatoes if you want to be a supplier for, for their ketchup, and nothing else actually works for them, so.
[00:20:07] Aaron Edelheit: That, yeah, that, that’s exactly, and there, there’s actually companies, I, I won’t, I won’t name them, but there, there are companies out there that have tried an asset-light strategy with a brand, and they’re just really struggling, and they have the strictest standards. And so, what you find is that the supply chain is very, very immature in cannabis, and it’s not cost-effective, and you have a lot of companies struggling trying to figure that out.
[00:20:35] Nick Mazing: So, the legal situation is a mess, I think we got that point across the, operationally, it’s more challenging than many people think, and you, obviously, have been an investor in, for a few years. Where are you seeing opportunities in the space now?
[00:20:52] Aaron Edelheit: So, one of my favorite investments is a company called Glass House, and this is another thing you need to understand when, when I mentioned this, these companies are very small and, but they’re small because, if you touch the plant in the US, remember it’s federally illegal. So, Glass House is publicly traded, right?
[00:21:10] But Glass House trades these companies that are in the US that touch the plant, trade on secondary or tertiary exchanges in Canada or over the counter. They’re very illiquid, I don’t mind illiquidity, I was buying foreclosed homes when you couldn’t sell them, I haven’t been a long-term investor in micro-cap and small-cap.
[00:21:34] This is where I like to fish. And so, this company trades over-the-counter trades on the Canadian Neo Exchange, which, uh, I don’t know if many people know of, but what Glass House has is they have a unicorn of a greenhouse in what I believe is God’s gift to the environment in Ventura County, California.
[00:21:57] So, I live in Santa Barbara, California, and the weather here is amazing, it’s like, the average temperature is 69, 70 degrees, it’s sunny 320 days of the year, never freezes, never really gets hot. And so, they’re about 45 minutes south where they, the weather actually might be a little better, it’s might, like, 70, 71, and they have a five and a half million square foot state-of-the-art greenhouse
[00:22:25] that was built for tomatoes, 5% margin tomatoes that they have been converting into cannabis, and it’s approved. And this facility, due to the rules in Ventura County, has been grandfathered in. So, there’s no other greenhouses that you can build, plus it’s the People’s Republic of California, good luck building anything.
[00:22:48] And so, you have this kind of unicorn of a facility, and what I like to say is there’s no inflation on the stunt. And so, their costs to produce off is just simply exceptional right now, their last quarter, they announced it’s $127 a pound for this greenhouse, and I believe it’s gonna go below a hundred,
[00:23:09] I believe that gi, this gives them a durable cost advantage, not only in California, but in the US when the US eventually opens for interstate commerce and that they’re, that, you know, they’re competing right now, selling their cannabis, they’re excited that cannabis is a $275 a pound right now because it was $200, right?
[00:23:33] And yet, you know, you have it selling for thousands of dollars a pound elsewhere. And so, you can kind of see they, they’re only at 20% capacity utilization, and they’re gonna keep turning on these greenhouses, converting them from tomatoes. And I just think it’s the most, you know, I’ve done a lot of deep dive into, uh, the facility, into the management, into what they’re doing,
[00:23:59] and there’s very specific things, like they’re very tall, it’s a very tall greenhouse, you can control the environment, they have a robot that cleans the roof every day, and you just think about sunlight and plants, 1% more sunlight is more yield, it’s, it’s a stronger plant, um, they have like boiler capacity.
[00:24:17] I mean, I could bore you to death, they have natural jet, gas cogen, they have water, which is a big issue in California, solar, and CO2 flows in one direction, and what it basically does is what you’re doing is most of cannabis has grown indoors, again, remember how I told you how sensitive it, imagine another, another agriculture product that’s primarily grown indoors,
[00:24:41] it’s grown indoors ’cause you have to tightly control, um, the environment. And so, Glass House can do this because the weather is so good and because the greenhouse. And so, they can basically almost grow at outdoors, at outdoor costs, uh, but approach kind of, like, in the long-term and the indoor quality, and the price differential is just incredible.
[00:25:05] And again, it’s all about, remember when I talked about the supply chain? Consistent quality, so they’re, this is the largest greenhouse in the world to prove for cannabis, and they can eventually produce 1.5 million pounds of cannabis. And so, I believe eventually when it’s legalized, eventually when you get interstate commerce, uh, that’s, this is another thing is I believe it’s unconstitutional that the states have, I could dive into that, is that the state, states don’t regulate commerce, only Congress does.
[00:25:36] And because even though Congress has walked away from their responsibility, doesn’t mean the states can. Um, and so, uh, you know, you have this opportunity where eventually you’re gonna get interstate commerce, and instead of selling for $300 a pound, you just fill in the math, and it becomes a math exercise, 1.5 million pounds times X price minus
[00:26:00] eventually it’s gonna get a hundred dollars or lower, and then it’s like, oh, there’s only 80 million shares, and it’s like, okay. And so, I think it’s like one of this, one of these mo, the most amazing things where I have real estate value, it’s all surrounded by prime agriculture land. So, I can value the real estate, I can value all their assets, and I can say, “Oh, my downside is this.” And I literally think the upside could be like 50x.
[00:26:29] Nick Mazing: Very, very.
[00:26:29] Aaron Edelheit: I just don’t know, the, the, the big thing is I just don’t know when it’s gonna happen, and it may take a while, but you know what? I’ll wait 10 years.
[00:26:37] Nick Mazing: Yeah. Very, very interesting. I, I think there is some, some of these, uh, marquee assets like Chevron’s Refinery in, I’m forgetting where it is, it just completely cannot be replicated with the regulations that exist now.
[00:26:49] So, final question and touching back on, on, on something you mentioned, and I don’t know what to think about it when you, when you look at the category, just purely as, and I was a consumer banker for a long time, being an investor in CPG for a while, I don’t know whether the future of the business is going to be a CPG-type business with good margins,
[00:27:13] recognizable brands, with really where the profitable goes to the brand owners who, you know, you’ve already discussed the need for consistent suppliers and things like that, or it’s going to be a commodity business where the money really goes to the whoever sells, speaks, and shovel. So, what do you think about kind of the long-term outcome in terms of, on the product level?
[00:27:36] Aaron Edelheit: I think eventually you’re gonna have brands, you don’t walk into a bar and say, I want grain alcohol, you just don’t do that. you know, maybe if you just turn 21 or you’re getting your first drink, you’ll be like, “I’d like a beer.” Ah, but people don’t do that, if they want, you know, just kind of an inexpensive but good quality beer, they’ll get a Budweiser, they want something more, they’re gonna order more,
[00:28:01] it’s the same thing with wine, it’s the same thing with tobacco, you know, normally people don’t say, I just want a cigarette, you know, it’s like, they might, but normally people have preferences, and eventually this is gonna be branded. And, but, you know, you’ll have, but this is also important,
[00:28:18] this is why I’m so focused on California, even though it’s a really, the, the state, like, many of the cannabis markets are struggling, but when people think of cannabis, they think California. So, this is gonna come from here, you know, you’re gonna have micro, you know, other stuff, but you’re gonna want, you’d much rather want, you know, um, you know, sun-grown cannabis as opposed to “I’m getting ’em from Minnesota,” you know, or, or something like that.
[00:28:44] So, but what I would say is eventually it’s gonna be brands, and you’ll have product companies, technology companies that are supporting the industry, you know, if I’m right and this is a $100, $200 billion industry, you’re gonna have a lot of picks and shovels plays that’ll probably get involved, um, as well.
[00:29:03] And I know a lot of companies are trying to do that on the data and technology side, payment processing, et cetera. But I think that what you first have to solve for is the supply chain and the cost and efficiency, that’s the most interesting part, uh, of the problem. The brands, there are br, there already are brands in cannabis,
[00:29:28] you can look at different categories and see very clear brands, but they change a lot, they change a lot more than you would think. And I go back to my analogy that this is the messy spring training. And so, the other problem is because you can’t cross state lines, you have to duplicate your operations in multiple states or license, and then you may not have the same quality.
[00:29:53] And so, it, it, it’s hard to develop a national brand, and then also entering these limited licensed states, there’s only so many dispensaries. So, there, there’s still a lot of problems to the transmission and, and then you can’t market, right? So, it’s like, there’s a lot of problems in developing a consistent, profitable brand right now, but eventually, it will be, I believe it’ll be, it’ll be branded.
[00:30:21] Nick Mazing: Aaron, thank you for joining us.
[00:30:24] Aaron Edelheit: My pleasure. Thank you so much.
[00:30:26] Nick Mazing: Today, we spoke with Aaron Edelheit, CEO of Mindset Capital, a major investor in the US cannabis industry, who gave us a great overview of what is actually going on in the space. My name is Nick Mazing, this is Signals by AlphaSense. You can subscribe to us on all the major platforms. Thank you for listening.
