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Why 2025 will be interesting and perhaps painful for the cannabis industry, according to Seth Yakatan (2:00). Enormous looming debt for many companies (5:15). GTI the only company consistently delivering year-in, year-out (8:30). TerrAscend, Ascend and the 2nd tier of MSOs (12:00). Glass House seemingly winning its bet on scalability (19:15). Which private companies have some of the best assets in the industry (28:10). MSOS, MSOX and cannabis ETFs (35:25).
Transcript
Rena Sherbill: Seth Yakatan, cannabis whisperer, cannabis guru, one of our favorite people to talk to on the podcast. Thanks for coming back on.
Seth Yakatan: Thanks for having me. I'm so honored to be here. Thank you very much. Nice to talk to you.
RS: Yeah. It's great to talk to you. It's been too long. Last time you were on over a year ago talking about some of the advantages of being a private player, some of the players in California that you like. Can't say that we've seen a whole lot of positive news in the year plus that's come across our timeline since then. How are you thinking about the industry? Let's start with very broad strokes.
SY: I think '25 is going to be a very interesting year. It might end up being painful. I think that there was great hope with the Presidential Election on both sides.
It seems like the Republicans have won a fairly decisive and sweeping victory, and I'm not really sure that until the Trump administration fully manifests in the first or second quarter, that you're going to really have a understanding of what's going to happen and why it's going to happen or when it's going to happen.
And I think as a result of that, for me, it's got to be just business as usual for anybody in the industry without a huge expectation of significant change in the first two quarters, which probably means some rough sledding.
You do have this protracted rescheduling conversation, which is going to happen. And I think until that occurs and you get some result, it doesn't really matter.
I could see the Trump administration coming out and being very positive for cannabis. I could see this Trump administration coming out and being very negative to cannabis. I could see this Trump administration coming out and saying, what's cannabis? Because we got bigger problems to deal with. So, I just don't know.
My advice for people is, if you have a paddle, paddle harder. If you're tired, maybe it's time for you to think about throwing your paddle away. And if you are ready to paddle more, I've got paddles that I can give you.
RS: You were just at MJBizCon, one of the biggest industry events, if not the biggest industry event. Would you say that the sentiment that you heard and saw is similar to what you're describing now, a wait and see approach, in terms of how to take on the next year?
SY: I think so. You have glimmers and pockets that seem to be really functioning well and working that a lot of people, other than me, don't talk about.
So I think some of it is dependent upon what state you're in and where you fit in the ecosystem and the food chain in that state, or some of it has to do whether or not you're in the ancillary services business.
I think as an industry, we've all decided that this is going to continue to be an uphill battle, and we're in it. And you're either in it or you're tired of it. So I think the folks who have been in it for 6, 8, 10, 14 years have said, okay, well, I've been waiting, and the big moment hasn't come, so I'm going to either get out or double down, but I do think you're going to see, I do think you're going to see some interesting things this year at an MSO level and at a private level.
RS: In terms of M&A, in terms of major announcements?
SY: All of it. So, at the MSO level, I've talked about publicly, you have an enormous looming debt maturity wall where you have a couple billion dollars of debt, which is going to come due in the eight largest names between now and the middle of 2026. I think it's $2.4 billion of debt that's coming due.
And I've also said, I'm not sure that there's $2.4 billion of demand in the market for that debt coming due right now. So at the tier 1 top 10 publicly traded MSO level, I think you're going to have some consternation or some indigestion as all of that debt has to get refi-ed or amended and extended. I think you're going to have a tier of effort or activity there.
You saw recently that Ben Kovler took over a NASDAQ listed shellco in Agrify (AGFY), decided he was going to get in the hemp beverage industry in it, then did a $25 million non-brokered private placement around that asset and that thing has performed like a meme stock in the last month.
That company is worth more than some cannabis companies right now. And week or two later, Sammy Dorf announced that he was going to become Executive Chairman of a hemp company with beverage in it. I think you're going to see the hemp beverage mantra move forward as MSOs look to that as a mechanism to growth or a way to access capital that they can't otherwise access it.
Curaleaf (OTCPK:CURLF) announced they were getting into that space in the middle of the summer, I think. So you're going to see that activity. I've talked often about 15 or 20, maybe 25 decently sized private MSOs or more than one state operator that are generating significant amounts of revenue and cash flow in what I call the mid-Atlantic to Northeast regions.
So, New Jersey, Massachusetts, Pennsylvania, Ohio, Illinois, Missouri, coming back out there through Delaware and back up. I probably missed a couple of states, but you probably have 12, 15 great operators there. You have 8 Missouri that are that are spitting cash flow.
All of those companies are in the mix of if not buying dispensaries or figuring out how to merge with one another, getting more capital and refinancing and building out their footprint. And I think you're going to see a lot of activity there.
So I think those are three indicators that I'm looking at of where there might be some public consternation and some private opportunity. So, those are three things I definitely have my radar up on.
RS: Who would you say of the public companies has the biggest bandwidth or most wherewithal to really execute strategically while others are really suffering?
In other words, who of the public companies can really make this next phase of growth work and who are probably going to fall by the wayside or be swallowed up or maybe lose their place in the tier level?
SY: Well, I look at it from a different perspective. I look at it in terms of who's delivered and who has a giant refi coming up. So, if I look at who's delivered, there's only one company who's consistently delivered year-in and year-out, and that's GTI (OTCQX:GTBIF).
I have been rather critical publicly of Mr. Kovler. He has turned me into a fan, almost begrudgingly because all he does is consistently deliver on growth, and he does what he says he is going to do.
I think for me, if I'm going to own one stock in the tier 1 or if I'm going to bet on the ascension of one company, it's got to be GTI. You have Cresco (OTCQX:CRLBF), Curaleaf, and Verano (OTCQX:VRNOF) that for me round out the next 3. I have publicly said, I like Verano a lot. I feel like, relative to the peer group, they're undervalued.
Both Curaleaf, Cresco, and Verano all have about a billion dollars of debt that's going to come due between now and Q1 of 2026. I think all of them are going to get through and be fine, but in that group, if I'm buying two stocks personally, and I am, I'm buying GTI and Verano.
When you start to look at the second tier there and you get into Ascend (OTCQX:AAWH), AYR (OTCQX:AYRWF), Jushi (OTCQX:JUSHF), TerrAscend (OTCQX:TSNDF), that second tier is where I think you're going to see issues.
You noticed we talked about 4Front (OTCQX:FFNTF) a year-and-a-half or 2 years ago when we spoke. They're not even cracking the top 30 for me anymore, so, I think they've definitely flamed out, but it's that second tier that I worry about.
Ascend has a decent sized refinance coming up. AYR has an enormous refinance coming up, and they lost Florida adult use, and they haven't named a CEO, and they have way too much debt on the balance sheet, and I could keep going.
Jushi is in the same place, and TerrAscend, I think refinanced. And I think the team there has been pretty aggressive. So, in that second tier of Ascend, AYR, Jushi, and TerrAscend, I'm looking at TerrAscend and Ascend as the two that are going to emerge from that cohort unscathed.
I think AYR is in an extremely precarious position, and I have publicly commented on that several times. And I think Jushi is in an additionally precarious position. I think when adult use did not pass, AYR got a for sale sign hung on its neck whether it knew it or not.
RS: What do you like about TerrAscend and Ascend of that tier group?
SY: TerrAscend's $0.5 billion in revenue. In Ascend, Frank Perullo was observationally looking at the company, decided to come back in and run it. And since he's run it and turned it around, I think it's done better.
And I think you have a group in there which is being led by an aggressive leader/founder from the front who is, kicking butt and taking names.
Same with TerrAscend. I think Jason is an incredibly astute investor, and Ziad, who's the CEO there, is laser focused on the numbers and the operational improvement there in their markets. And I think they're positioned to do pretty well.
I also think the relative amount of debt that those two have to refinance versus AYR and Jushi I just think if I look at the credit profile of AYR and Jushi, they're rougher.
And if you have a uniform team that's come in to drive strategy in two of those companies and you have a lawyer running the company, running a CEO search with two very competent people inside the company at AYR who haven't been named the CEO, and you have a collection of assets there that were put together to exit and don't really function well, and a ton of debt that just doesn't feel like a good combination for me.
RS: And mentioning in tandem with GTI, what would you say that you like about Verano? What sticks out most about them on the bold side, and what may be wise to bring up on the concerning side for them?
SY: I speak to a lot of people. One of the people who I speak to often or, I'm allowed to speak to is a guy named Frank Colombo, who's the head analyst at Viridian, and he cautioned me on where they are at in terms of multiples, but when I look at Verano as a multiple of the future I think they're trading 15 as a multiple than that tier 1 peer group in terms of value perspective and on revenue and significantly lower on an EBITDA basis.
Frank has cautioned me that when you add back in some things that should be added back to EBITDA, it doesn't look as attractive. So I think if I just comp them relative to the top 4, I feel like they're a little bit cheaper than the other ones. I also really like their footprint, and I also know their management team really well, and I really like them.
So, I think Trulieve (OTCQX:TCNNF) has bet on Florida and lost. And if they don't get Pennsylvania, I don't know what their strategy is. I also have been pretty public that if I had a CEO - publicly stated that if I had a CEO who would spend $140 million on adult use and that failed, that I might want to consider alternatives to the CEO position.
I think Curaleaf is a really interesting collection of assets. It's trying to figure out who's running it. Once they figure out who's running it and what they have, they can underwrite a strategy.
But Verano seems to me from the top to be linear in what they're doing, pretty uniform in terms of 14 states. I think that their team, at the operational level, has a lot of credibility in the cannabis industry, and I just like that mix.
RS: In terms of 4Front and GTI, so GTI has done better than you anticipated. 4Front hasn't risen to the levels that you were anticipating. What would you say is the divergence there? What did 4Front maybe not do right or not get right or miss that you thought that they might get right? And what did GTI do so well that changed your opinion aside from the consistent performance?
SY: Well, let's talk about the consistent performance, because in cannabis that's an anomaly.
We had earnings, I don't know, a month ago. And if we talk about this top 10 or top 11, if I put Glass House (OTC:GLASF) in a peer group, you had 15 companies report or 17 companies report, and 3 of them came marginally close to their estimates, and 14 of them didn't even come close to anything that they projected for the street, right?
And the 3, GTI and Sundial (SNDL) nailed their numbers. Glass House came marginally close to the numbers, and everyone else was not even close to the numbers that they projected to the street.
So if I just look at the peer group, in my world, the street is going to reward consistent performance. And in cannabis, it seems like marginally consistent performance that is better than the peer group is a company that you should own.
And if I look at what Ben Kovler at GTI has done, he's done that for like, 12 quarters in a row. So it's like I'm going to set my watch to him hitting his numbers. And it's not sexy. It's like, 3%, 4% top line, but, boy, he nails it.
And when I look at what he did from a move perspective with the Agrify deal and the timing of the deal and then coming back later and announcing it's going to be a beverage company and then coming back later and announcing it was a non-brokered private placement and you have a stock that's now on NASDAQ that you could either put GTI into or if you look at the 1-month return on that, I think it was probably the 3rd best performing stock on NASDAQ in that period of time.
That guy is a lot smarter than me right now. So I think you have to condition yourself when you look at cannabis equities that you're not talking about (IBM) or Apple (AAPL) or Google (GOOG) (GOOGL) or Tesla (TSLA) or something else because these stocks don't perform like other stocks do and marginally or incrementally hitting numbers is a win, and that's a consistent, almost like dividend stock that you should buy.
4Front had way too much debt, and the debt ate the company. And, what I thought would have been an opportunity for them to leverage into a good position in California, was fraught with all the mistakes that I usually see, which is, too much infrastructure and not enough revenue and way too much debt.
And so, what I was hopeful would have been kind of an interesting outcome was flubbed a couple different ways like you've seen many other cannabis companies flub.
RS: No. I haven't seen any flubs. Not in this industry. No.
SY: No flubs. Not a flub.
RS: No flub industry.
What about Glass House? You're wearing their hat as we're speaking right now. How's that thesis working out, and what do you envision happening there?
SY: Seems like it's working out pretty well. It's one of the better performing stocks in the industry this year.
I think it is just going to continue to give guidance to the street. And if, it's going to miss its guidance, it's going to tell you it's going to miss its guidance. If it's going to make its guidance, it's going to continue to make its guidance. And they're in the process of turning on another greenhouse, and I think that that is going to be another interesting story to watch for the balance of the year.
What they're doing at scale is pretty compelling. And I think, the consensus estimate for revenue for 2024 is $198 million and the consensus estimate for 2025 is a little bit less than that given wholesale pricing, but that's been a really decent equity to own. And most, if not all of the investors that have been with me that I put into that company have made a lot of money.
And the one thing that I think you can be consistent about there is that they are going to stick to a very uniform strategy, which is California and investing in their best asset, which is that world-class greenhouse and the second largest contiguous greenhouse facility in North America and currently the largest cannabis greenhouse on the planet.
I was there yesterday. They are my biggest client, and they are humming. And I don't expect that to hum to dim.
RS: Would you say they are owning the mid-level market in California?
SY: I want to be careful about what I say just in terms of not disclosing any material nonpublic information. I think, a couple of things is pretty clear, is that they seem to be very, very, very, very, very, very, very, very, very good at growing a lot of biomass and selling it. Seems like, the retail operations there have performed a lot better than the peer group.
ATB came out with some really interesting research and has been publishing that retail same-store sales for this 11 peer group that we've talked about is down quarter-over-quarter Q3 last year to Q3 this year about 13.2%, but Glass House is up 4%.
I think a lot of that has to do with several of the products that we sell and market. Our Allswell product is, I think it's the number one selling flower brand in the State of California now. So, a lot of that has to do with the fact that we're able to produce product and bag it for less than anyone else can. I think that's certainly helping the strategy.
RS: I got to say as somebody that's been spending time in California, for those that are outside California, understanding what Allswell, I think, has done to the market is crazy high, highly significant in terms of breaking it wide open and proving their scalability in that part of the market. It's quite impressive to watch as an observer, I think.
SY: Thank you. And just put a pin in that, we, at retail to the consumer out the door with tax, we have a $9.99 8ths kind of ubiquitously across the board. That's as good of a quality as you're going to get in a $15 or a $20 8ths.
And I think that product has driven a lot of the success of what we've seen on the CPG side and has underscored the business. They're my client. Very good management team, very grown up management team there and very serious about winning.
And I think there's three things that I feel about that equity that people don't talk about, which is that they've gone and done something which the industry uniformly thought was not doable, including me.
When they went to market with the plan of we're going to turn on this greenhouse, I was like, that's not a good idea, and that's dumb, and you can't do it, and we don't need that much capacity.
So number 1, they've gone and done something, which the entire market thought that no one was going to be able to do, which is to create the world's largest greenhouse at scale and produce product in a very cost effective basis. So, they've done something that the market did not think was achievable, and I think they're being rewarded for that. That's number 1.
Number 2, as an organization, much like Kovler has, they've gotten pretty good at managing the expectation of the street in terms of guidance. And I think in cannabis, if you tell the street publicly that you're going to do something and you marginally achieve it and you don't celebrate that and you do it 2x or 3x, you're going to get rewarded for that on the equity buy side.
And I also think, and this is completely my own anecdotal bias, I believe that Glass House has an embedded premium in its equity because of its California stance. There's no one else that's in that market, and I do believe there's a psychology in the market that says, California is still a $3.5 billion market, it's 10% of aggregate cannabis sales.
If you can win California, you can win anywhere. And when you look at 1 and 2 and you add 3 to it, I think there's a following in that stock that other stocks may or may not have because of the laser focus in California and the commitment to California.
RS: In terms of a country that we don't talk as much about anymore, and that's Canada, any thoughts to share there?
Do you have any excitement over some of their top performers, like High Tide (HITI) and Organigram (OGI)? I know there's some excitement around, like, performance and some announcements that have been made. Any points of light or is that something that you're paying attention to at all or excited about in any way?
SY: I don't look at Canada that much, quite honestly. I think, Organigram just did this deal, which I think is a nice deal for them, and I think it shored up a position there. Raj Grover at High Tide, I'm a big fan of. I think he's doing a really good job in blocking and tackling.
I'm not as in-tune to that market, as I maybe should be. There's a company that's listed there that I think probably has one of the smartest guys in the industry running it in Sundial, which is another one of these stocks that a lot of people don't talk about that I buy, because I think Zach George could be, maybe one of the smartest five people that I've ever met.
RS: Because of his strategy or just in general as a human being?
SY: Just in general and with what he's doing and the amount of cash that he's amassing and the way he's buying things and his balance sheet. He's a beast that nobody's talking about. And that's a position that I just keep buying more and more and more of personally. I also, tend to think, I keep hearing about the 2 or 3 biggest things up there that can't seem to do anything.
Canada seems to be a fairly static market that is mature or maturing and will continue to drive single digit revenue growth. So, for me, there's not a lot of action there, and I just don't really pay that much attention to it, to be candid.
RS: And a similar case for internationally in general?
SY: I wouldn't say that. I went on the Board of an Australian company this year, which is the largest seller and producer of cannabis there called Cannatrek. It's about a $90-ish million annual revenue company in Australia. So, I've been looking and have been looking at that market for a while.
There's a lot of discussion about Japan these days, so I've been looking at Japan. Europe is very challenging for me. I've seen a couple things in Spain and Portugal and Switzerland and Germany, and I just can't really get my hands around what's actually happening there.
I've definitely looked at Australia because of my involvement with the company there.
RS: And what are your thoughts these days on the private companies? How are you thinking about that for those investors, retail focused or otherwise that may be interested in the private side of things? How are you articulating your thoughts over there?
SY: Look, I think that's where some of the best assets are right now, is on the private side. I've talked a lot about it on my LinkedIn. You have four companies that are deep into the lower half of the 9 digits in revenue in Wyld, Kiva, Rove, Airo, and Jeeter. And they're all in 16 to 26 states and profitable and growing and looking to make moves.
And, you have a second tier group, that I talk about a lot of Timeless and Grön Edibles that are in 6, 8, 9 states and are crushing it, and you have a lower smaller tier of branded groups like a LEVEL Protabs and like a Miss Grass that are also moving into 6, 8 states now and crushing it. So, on that side, on the branded side, I think you're seeing a lot of action, and a lot of activity in a lot of companies that are really moving.
I've talked about this mid-tier MSO world. So, you have 8 companies in Missouri, including the guys at BeLeaf and Greenlight, and ILLICIT and Standard and Show-Me Organics, and I want to get them all, and Good Day Farm. And there's two that I'm missing, and I'll think of them in a minute, but you've got a cohort there that's really good and making money and looking to do things.
You've got Nova Farms in the Northeast that's crushing it. You got C3 and Ankur and his team out of Michigan who could be one of the most dangerous people in cannabis because they're just so smart, their model is so good, and they don't want anyone to know about it, and they just keep chopping wood over there.
And, you got my man, the OG, Eric Carr out of Michigan who's quietly moving in to New Jersey, and just got a ground game who's an 11 on a 12 point on a 9 point scale. Like, he's an animal. So, you got you got these private companies that are all – at the high-end, you have Stiiizy and Good Day Farm, like way out here, but you've got this cohort of privates that are somewhere between directionally 15 and in that whole cascade 15 and 300 million in revenue that are all just clipping.
And for me, that's where I spend the most of my time just because that's where I think the best operators are, and that's where I think your exit is going to come, and that's where I think you're going to see a ton of M&A. And those are the companies that I think are raising money, and those are the relationships that I'm building and looking to build and have built over the past couple of years.
From an investor perspective, I do think that there's two ways to get in there publicly. Chicago Atlantic (REFI) has a REIT that's publicly traded that I think has some exposure into some of those names. I'm pretty sure that AFC Gamma (AFCG) has the same.
So there is a way to get into some of those through a trading account at some level, but I think, for me, some of the better stories that are going to come out of cannabis as we get into the future are these private companies and a couple of others that I haven't talked about like a JARS and a Shango and a Greenlight. And I could just keep going down that list. There's a lot of them.
RS: Do you envision the M&A that happens as private companies snowballing into a bigger private company and then maybe turning public or do you feel like the private companies will mostly be bought up by the public companies?
SY: I think it's going to be a little bit of both. I think most of the private companies are private because they don't want the paper of the 11 companies that we've talked about. And to the extent that they wanted to take less cash on paper, that cohort of 11 would gladly buy the cohort of 50 that we've talked about. I think that cohort of 50 is waiting for a better cash exit and has the wherewithal to be able to say, I don't need your paper or your money, and I'll wait for inflection or CPG or BevAlc or tobacco to come in, and I'll just continue to print cash.
So, I have publicly said that I do think there's a white whale that the industry has talked about for a long time in that, in those 4 or 5 very large privates, Kiva, Wyld, Airo, Rove, Jeeter, are all at the point where they need to do something in order to continue to grow at the same level that they've grown, because, like, if I just look at Jeeter and Wyld as an example, you're in a ton of states with effectively the same SKU set and you own the distribution rails. In Wyld’s case, they own the trucks as well. So, would you not put a second SKU set on top of that that you could then grow 30% to 40% top line as opposed to 6% to 8% or 10% top line?
So, I do think you're going to see that cohort of 5 privates start to take some shots and try and buy some things this year. I also think that someone in the Midwest in that North Atlantic Midwest cohort that I talked about, 12 or 15 names that I dropped, a lot of those guys are trading stores and trading assets. I do think you're eventually going to see somebody put one or two of those things together somehow, and create a super private. There's two or three super privates out there right now in Stiiizy, JARS and Good Day Farm, and I think there's the basis of others.
I think you could see some privates multistate operator or private multistate operator M&A this year. I also think if you get any form of federal relief, I think all of that cohort of this mid-Atlantic group is just a perfect private equity platform roll-up opportunity and you might see some action into that.
And you might see some action into some of those things going public because they purport to that level of capital at this point. Meaning that if you have a $100 million or a $130 million revenue company that's doing 15 or 20 in earnings, like, that could be a public company on NASDAQ so.
RS: And how do you think about ETFs for yourself and then for your average retail investor? What are your thoughts about the ETFs?
SY: I think that they have been a way for people to get involved into the sector. I don't think there's a lot of them that for lack of a better description, are great. I buy (MSOS). That seems to be the one that, for my money, maybe has the best basket.
MSOS also has a leveraged ETF, called (MSOX) that I buy a little bit of. I think if I look at them as a peer group, they're all down anywhere between 10% to 50% on the year. And I think depending upon what the balance of their holdings are, and it's been a while since I've looked at the actual holdings of MSOS, if you're long the sector, and that thing closed at $3.5 yesterday, I think if you ever get federal legalization that's a $10 to $15 stock.
So if you are long cannabis, I think I keep buying MSOS and it's just how I look at it.
RS: As we wind things down, is there anything at this point that would make you get out of cannabis or you're in it at this point? Is there anything that pushes you out?
SY: When was the last time we did an interview, Rena? 2023?
RS: Yeah.
SY: 2022?
RS: 2023.
SY: In May of 2022, U.S. Bank called me, and they said, hey, Seth, you have four companies, and they all have deposit accounts in the bank, and you have all of your personal accounts in the bank, and we want you to leave. And I said, why? And they said, we can't tell you. And I said, oh. It wasn't because I was doing biotech.
So I'm all-in. I'm not going anywhere. I have used that as a catalyst to lean into the industry from an education and a knowledge standpoint with my LinkedIn feed, and I am not going anywhere, anytime soon.
You have a collection of businesses that we're going to call an industry that's projected to grow to 40 billion-ish in revenue by the end of 2030, or more depending upon who you believe, and I believe it's a matter of time until you see some seams break.
I think you're going to see some seams break in beverage in the next 12 months. And, I'm not going anywhere at all, ever. I'm 54. I just turned 54 2-weeks ago today. I'm doing this until I'm 60, and I'm espousing the same message. And if I'm wrong, the day that I'm 60 and a day, you can tell me that I'm wrong.
20 years from now, they might go back and say, listen to what this guy said, because he knew what he was talking about or he was an idiot, and I just don't really care. But I'm convinced of the opportunity in the sector, despite all of the issues, despite all of the problems, despite all of the vagaries, because ultimately, I think cannabis is just going to be consumed and thought of institutionally as another CPG, and I am waiting for that moment.
RS: He is a believer, not a trace of doubt in his mind. In the words of The Monkees. Are you a believer in the diversification into the hemp side of things?
SY: Can I tell you why I'm such a believer in the first instance?
RS: Please do.
SY: Here's why I'm such a believer. And it's because from 1994 to 2001, I invested in a bunch of companies that were in 14 different industries that all just bought one another for media telecom. And from 2001 until about 2014, I sold a bunch of assets that were either smaller pieces to bigger companies or biotech companies to pharmaceutical companies because they needed growth.
The M&A cycle for me is something that I think is status quo in the growth of larger commercial businesses. And when I look at cannabis and I look at it versus alcohol or tobacco or coffee or pharmaceuticals, alcohol has as much, if not more spend per consumer per year than all of those other verticals. And it has an annual retail spend of about $30 billion and has only penetrated about 11%.
So if I look at cannabis as a CPG across those categories, your consumers are spending as much if not more than all those categories. And cannabis is only penetrated at about 11% of North American users when all of those other categories are penetrated in the 50%, 60% of users.
If I'm looking at this from a category perspective and I'm in alcohol or CPG or tobacco or pharma, I look at the cannabis wallet and I say, well, my customer is a cannabis customer, and I'm just losing that share of wallet to that customer. So, intrinsically, I think that those companies have to look at cannabis. Okay?
If I then buttress it with this argument, alcohol is a $167 billion industry that's growing at a 3% CAGR. Tobacco is a $100 billion industry that's growing at a 1% CAGR. Your typical tobacco or alcohol companies are trading at an average of about 5x to 7x revenue. Okay.
Cannabis is a $30 billion industry that's growing at a 12% CAGR. So, it's growing 4x faster than alcohol, but it's 90% smaller and it's growing 12x faster than tobacco and it's 70% smaller. And my stocks are trading at between 1 to 3 point top line versus 5x to 7x top line. The market does not like inefficiency.
All I'm looking at is market inefficiency relative to cannabis and alcohol and tobacco. And when I see how much my industry is growing versus those two industries, and I see how much my industry is taking of those industries consumer share of wallet.
And when I look at my industry is trading at like a 3 to 4 turn discount over those other industries, for me, what that says is, if I'm alcohol and tobacco, I'm looking to cannabis as my arbitrage opportunity because I can buy consumer share of wallet for an industry that's growing way faster than I'm at, and they're trading at discounts. Clear enough?
RS: Clear enough. So when we add hemp derived products to that conversation, it becomes even more convincing to you.
SY: You got it. The hemp derived conversation is very interesting. And I will tell you very loudly that I think in 2025 and 2026, I talk about seams. And seams are places where broader non-traditional cannabis investors and strategics are going to start to enter the industry.
And I think you've seen two seams appear from MSOs in the Agrify deal and the announcement of Sammy Dorf as Chairman of a hemp company and Boris and Curaleaf getting into hemp beverage. And I think the amount of capital that has flown into hemp or regulated beverage in cannabis in the last four quarters is more money that I've seen flow into almost any other private vertical in the space.
And I think you're waiting for some level of either Farm Bill compliance, read on seeing where that industry grows, or the first company to get to $50 million and then a $100 million in revenue as very clearly being the inflection point for people to start to come in and buy. And I think hemp beverage might be the entrance into cannabis that we have all been waiting for by the strategics.
RS: Any final points to leave with listeners? Anything of note that we left out of the conversation or where they can find you, etcetera, etcetera?
SY: I have a tiny LinkedIn presence, so you can check me out there.
RS: He's being humble.
SY: I post every day on LinkedIn and seem to have a nice community that I have built there. So, if you are part of that community, I appreciate the support. You could find me there. I'm going to drop a speaking circuit announcement thing here in January. I'm going to try and prognosticate what I'm going to do for the next couple of months.
I will definitely be at Hall of Flowers in Ventura, California in March, and I would suggest that everyone get to that meeting, but, no, just always appreciate the ability to talk to you and your listeners.
Appreciate Seeking Alpha for the opportunity for me to have a voice and a platform, and thank you for the continued support and friendship. But just look me up on LinkedIn or go to my website, Katan Associates, or my personal website, sethyak, and send me a DM and or an email, and I'll usually follow-up.
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