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Cannabis expert Jesse Redmond shares why he's now at LEEF Brands (1:30). Excited about New York's evolution (8:15). How and why it got so bad in the industry (16:00). Are we early or are we wrong? (22:05) Who may survive and get to the finish line (28:35). Intoxicating hemp market (32:40).
Transcript
Rena Sherbill: Jesse Redmond, welcome back to Seeking Alpha. Always great to talk to you.
Jesse Redmond: Thank you, Rena. I appreciate you having me back.
RS: Yeah. Absolutely. Before we hit record, we were talking about how it's not necessarily fun and games out there in the markets as you're assessing investment opportunities. And, also, as I mentioned to you before we hit record, to me, you're sort of, for lack of a better term, the Big Mac index indicator for where we're at in the cannabis world.
You have a new job, and I think that speaks to where we're at and the need to find new ways to make the cannabis industry work. So you've been on before as an analyst. We had you on CEO Interviews, talking to many of the CEOs of cannabis companies. We both saw brighter days ahead that didn't necessarily come to pass.
So here we are almost in the middle of 2025, which also feels almost unfathomable that we're already in the middle of 2025. But share with us your new role in the cannabis industry and why you chose to make that move now.
JR: So my new role is head of investor relations and business development for a company called Leef Brands (OTCQB:LEEEF).
And I think the last couple of times we talked, I was head of the cannabis sector at Water Tower Research. Before that, I ran a cannabis investing consulting firm called Hire Calling. Before that, ran a dispensary, and long before that, ran a hedge fund. So that's been kind of a long story short of my career.
And I think me leaving Water Tower was pretty telling for what's going on in the sector, and I think you probably have seen, Rena, that I'm not the only analyst to have left, you know. Mike Regan is gone. Scott Fortune from Roth has has moved on. Owen Bennett, Owen with Jefferies, he's now at a coffee company, and we could go down the list and it'd be easier to name the cannabis analysts that are left rather than the cannabis analysts that have departed. So you've seen a pretty big exodus out of the sector. And I think one thing we wanna do in this conversation, Rina, is just be super honest about things.
And the reason that I left Water Tower Research and the reason that most other analysts have left is because of a fundamental underlying problem. There's not demand for the research because there's not money going into the stocks. And so the model at Water Tower Research was that we had an open architecture where companies could hire us to cover them.
So that works really well in a lot of small and micro cap sectors where there isn't enough coverage and companies that might not other otherwise have coverage by the Street can go to companies like Water Tower Research. And so they were just super supportive. They had high hopes for the sector just like I did. We worked really hard. We had some really good momentum.
And then when things slowed down at the federal reform level last year and then when things didn't pass with Florida, a lot of opportunities that hope to come to fruition late last year and into 2025. It's just seemed a lot less likely. Investor interest dipped a lot, so readership was down. And so I just felt the writing was on the wall for most cannabis analysts that there just wasn't enough demand to support the research.
And so I was fortunate to have an opportunity with Leef Brands. Leef was a stock that I covered for a year at Water Tower Research. So it was great because they got to know me, and I got to know the team. And simply put, Leef is one of, if not the largest extraction company in California, so focused on bulk extracts.
I think what's exciting about the business is a couple of things. One is that we are planting one of, if not, the largest cannabis farms in the world. That just got planted in the spring. We're doing 65 acres out of our 187 acre permit this year. So the opportunity to plant this big farm and drop our input costs and use our own material was a big factor in me going there.
And then the other one, which I'm sure you're following a bit, Rena, is New York, where that's one of the bright spots of our industry. That's a billion dollar market. Should do about 150B this year, and we're just in the final stages of acquiring a type one processing license to make extracts in New York.
So a couple of fundamental catalysts at the company and also a good rapport with the leadership team were the things that drew me over there.
RS: So maybe share with listeners. We've talked a lot of negative talk about New York in the past couple of years, justifiably so.
Talk to us about the bright spots that you see coming and what's turned there.
JR: I'd say it's more access. And so I think with most markets, the challenge we're facing is there's really three markets.
And I think this is a really important conversation, one Morgan and I have been having a lot of Higher Exchanges lately, is that historically, you had the black market. Sometimes I call it the traditional market because the black market sounds weird to me. But we had the black market, which is where everybody got their cannabis before the medical programs and the state legal adult use programs. And then you had the state legal programs, which could be medical.
If you add those with the adult use, there's about 40. If you look at just the adult use, there's about 24. And in New York, you had a really thriving black market, which really didn't look like the black market. You walked around the streets of Manhattan and every other bodega was selling cannabis. And at the same time, you had a slow rollout of the state legal stores, the proper adult use stores.
And so the dynamic there was that the illicit market was out in the open and thriving, and the state legal market was really just starting to up its store count, starting to, you'll have people like us from California come in to build that extraction, have some other cultivators come in to grow great flower in New York.
And, finally, we've hit a tipping point there where they're shutting down more of the illicit market, and the state legal stores grows, extractors are starting to step up and take that business. So it's really just a sign of healthy evolution of that market and more and more access.
We see time and time again, if we provide enough access, typically, people go to the state legal stores over time, but we've seen historically sometimes it's hard to get people that access.
But I think that's the big driver in New York is more access to the state legal stores and more enforcement of the illegal stores.
RS: And then how do you see the competition playing out in New York?
JR: Well, it's great for us because there aren't a lot of quality concentrates, in New York. My friend Emily Paxhia often talks about competing in California cannabis is like trading for a marathon at altitude.
And I think that's very true, and so we're able to take a lot of the techniques, SOPs, and different things that we've done to make some of the best concentrates in California and bring those same procedures in New York to produce great concentrates there as well.
For us in New York, we have a lot of the same brand partners. So we sell bulk extracts to other brands. We don't do much brand things ourselves. So people like Kiva and Wyld are big clients of ours in California, and those are the same brands that are starting to dominate the New York market. So it's great for us in terms of getting an existing sales channel out there.
Once we start really cranking up our concentrated production, we think we'll have a pretty good group to sell to instantly. So that was one of the reasons that we've moved to New York. And I think you're seeing that more broadly.
We're starting to see not just the bigger MSOs, but some of the really popular brands getting established in New York, and I think that's gonna drive more consumer interest as well when they look and say, wow, that great stuff that was in California, maybe they've even been getting it illegally in New York from California. Now I have actual access to those products. So I think that's driving more adoption there too.
RS: And do you put a figure to those predictions or plans for expansion there? What is the number that you see out of New York, and how much do you feel that Leef is gonna be able to do there? And how long do you look out in terms of the timeline? Like, how many years out are you looking?
JR: So it's a good market for us because it's growing. I mentioned about a billion sales last year, about 1.5B this year, and the expectations are that we'll continue to scale into '26 and '27 as even more retail gets opened. So we think that market in general continues to be healthy and grow.
Margins are quite nice, which is a welcome change from California. A jar of live resin here that might sell for $15 or $20 for a gram sells for more like $60 or $70 out there. And so it's a lot healthier market from a margin perspective, and it's also a big concentrate market.
And I think this is an interesting conversation, Rena, which is, consumer preferences and how they're shifting. And, generally, you're seeing people move more away from flower and into products that use concentrates. That doesn't mean just dabs, but that could be edibles, that could be infused pre rolls. Vapes are maybe the fastest growing category.
So in New York, about 52 of products use concentrates in them, so that's another reason that we found it attractive. There's a bunch of setups for us that look like it's gonna be a great market for most operators, especially for us, producing concentrates. But what we did not wanna do is raise a bunch of money and spend building out some 20,000 square foot state of the art extraction facility. Right? We've seen that mistake too many times. So our approach was to take an asset light approach to it.
So we moved out some equipment that we were no longer using in California where we had updated our equipment with higher capacity stuff, but we kept the other things. So we moved those out to New York, so those are positioned and ready to be moved in. And then we're leasing about a 7,000 square foot facility out there to produce the extract.
So, again, no meaningful CapEx on the equipment, leasing a facility, built in brand partners for the sales, which we think just derisked it a bit.
Looking out longer term, just like in California, we have a state of the art extraction facility in Willits in Mendocino County. We have the farm, the 1,900 acre ranch, 87 acre cannabis permit in Santa Barbara County, and pairing the sun grown cultivation with the extraction just makes a ton of sense because it's so much lower input costs.
In California, we source material for 20 to $40 a pound for extraction. We can grow better material for about $10 a pound. So you can start to think about the math in terms of the reduction in input costs and how that starts to flow into margins and improve our business.
And that's where we eventually wanna get to New York is replicate that same model where we have our own farm there, where we have sun grown material, low cost to drive the extraction business, but it'll probably take us a year or two to start scaling into that and to build cultivation in New York.
RS: And can you talk a little bit about the margins in New York? Is that a factor of saturation? The market is less saturated when it comes to the legal side of things? Is that reflective of the margin conversation?
JR: Yeah. I think it is. In California, what happened is you had the green rush here, and a bunch of money flooded in, and you saw things get overbuilt pretty quickly where everyone thought California, huge state, huge cannabis community. Everyone started investing money, especially in cultivation out here, and we got to a lot of overcapacity.
Now we've seen a lot of those licenses not get renewed. We're starting to see more of an equilibrium, but it still is pretty tough in California.
And New York is just earlier in that process where there aren't as many participants. There is strong demand at the stores that exist. The number of stores are growing, and so that's what's leading it to be a healthy margin market.
But we've learned, right, Rena? I mean, how many times have we seen a healthy or even a not healthy margin, flat on high margin market? And we see over time price compression. And so we, as a business, are super realistic in our assumptions that we don't expect California to all of a sudden start to have a lot higher prices. We think they stay the same, maybe even trickle a little bit lower.
We think the equilibrium here isn't too far from where we are, so that's why we're trying to drop our input costs because we can't control the prices people pay for them.
In New York, I think we'll have that over time too where prices will come down. The question in these markets is how quickly does that happen, and how far do they drop. And so is it like a New Jersey where pounds used to be 4 or 5,000, and now they're still very healthy at 2,500 to 3,000, or do we do a Massachusetts, where you see things just drop, drop, and drop, and never come back?
We're hopeful it's more of a New Jersey, but given that we cut our teeth in the California market, we're able to compete if prices do, not if, when prices do drop.
So hard to say exactly what that trajectory looks like, but, yeah, I think all cannabis investors need to be really cognizant of the fact that there is this pattern where you have these new markets turn on, Maryland, Ohio, New Jersey, and New York, etcetera, that at first are very profitable.
You could argue there's some regulatory arbitrage there. There's some high margins to capture, and it's great. Participate in that, but just know that that's not gonna last. And I think part of the problem in the broader MSO landscape is that you're seeing price compression in markets as they mature.
Again, we expect that, but, typically, that's offset by new markets coming online. For example, if Florida had flipped, we would have seen a lot more top line revenue. We would have seen really healthy margins for a while. Same thing in Pennsylvania. That's getting to be, I wouldn't call it a miserable medical market, but not an awesome medical market.
And if we flip to adult use, again, we would see a bump in margins. We would see a bump in sales. Minnesota, you know, same idea, especially for the GTIs (OTCQX:GTBIF) and the Vireos (OTCQX:VREOF) of the world.
But what we're having at '25 is Florida didn't happen, and how disappointing was that? Pennsylvania didn't happen yet. I still think that does over a reasonable time frame, but no guarantee that happens in '25. In Minnesota, it looks like that's getting kicked to the spring of '26. So what we're left with are the 24 adult new states that we have, and we're just seeing those margins generally compress.
That's why I think when you look at the general MSO landscape, what I refer to as the 2025 problem is that we have no new growth from new states coming online. We have a lack, kind of a political stalemate, and that's leading to, for the big operators out there, expectations of mid single digit revenue growth. And I think that's one of the big things that's causing the lack of investor interest.
Certainly, being stalled politically is a huge factor, but the other thing institutions and really all investors were looking for, but the conversations I was having with institutions last summer when we felt pretty good about things were that we're gonna have Florida come online, we're gonna have Pennsylvania come online. That's gonna be the state led growth story part. That's what's gonna drive the revenue expansion, and then we're gonna have the political progress to get rid of 280e, increase adoption, get more research, and that stalled too.
So now if you're a new investor, looking at the space, you say, wow. I see a ton of political uncertainty, and I don't see the revenue growth. I think I'm just gonna sit tight for a while, and I think that's where we are today is there's no new participants because it doesn't look broadly too compelling.
I think certain parts are compelling, but it doesn't look broadly too compelling. And then on the political front, people are looking at it and saying, I don't know when we're gonna see rescheduling.
I don't know when we're gonna see SAFE banking. So it's just led to people not putting in new money and exiting investors. I mean, how many people do you know, Rena, that have left the industry or that were active investors?
There are big funds out there that I won't name that aren't active anymore, and people have just kind of tapped out and said I can't take it anymore, which I think is something a lot of us can understand.
RS: Absolutely. And I was I was gonna add to that the debt issue that's coming for so many. It just seems, I don't blame any investor for getting out even though this is the cannabis investing podcast.
I think over the years, we've seen a lot to dissuade us from our bullishness and more and more every year, like you mentioned, Florida and Pennsylvania.
What would you ascribe the fallout in the industry to if you had a pie and you could delineate 10% is because of political regulations not passing, 9% is - how would you split it up, the cause and effect of what's happening right now?
JR: I think it's a great question. So I think I would just say broad strokes. Maybe 50% of it is the lack of political progress.
At Water Tower Research, I had an analyst friend that covered electric vehicles and renewable energy, and he was talking about all the rebates and the great incentives that they get. And he'd be very frustrated when they they didn't get this incentive or they didn't get this rebate in the industry to give it even more money. And I would always kinda laugh with him and say, hey, Sean. You know, we would love a world with just a level playing field. You know, we're not looking for anything special. We're just not looking to pay double the effective tax rate.
We're looking for basic banking privileges. We'd love to trade on real exchanges. And so I think that lack of political progress has really made it difficult, for access, for new investors to get in. Custody's a problem. Brokerage remains a problem. If people were interested, it's hard to access it.
And then just the unclarity about are we gonna have 280e in the future is something that's very difficult to assess. Most companies have stopped paying it, and we think we're gonna get there, but we don't know if and when rescheduling is gonna happen. So I'd say the biggest one is probably 50%. I blame the political stuff.
I would say another jeez, this is tough, I would say another, let's call it 20% lack of growth from the new states and I used to always talk about this being a state led growth story. And I think over the long term, we do get there, but having back to back, two or three years in a row of single digit growth isn't helpful.
I think another one to talk about is the intoxicating hemp space, and I think that eats up another another pretty good chunk that some of the growth that we would have expected has gone to the intoxicating hemp market.
I think I said on a different podcast that hemp is living the cannabis dream right now. No 280e tax, interstate commerce, ability to advertise online, direct to consumers consumer sales.
So I think the intoxicating hemp market has eaten up a good chunk. I forgot what percentage we're on right now. But I think we also do need to ascribe the last bit, which I'll call 15% to operator error. I mean, the investors had inaccurate expectations about the space, so did companies. And I think a lot of companies raised money.
Ayr (OTCQX:AYRWF) is a good example. Raised a lot of money through equity and debt to expand into new markets, and now they're stuck with Florida not flipping, Pennsylvania not flipping, Ohio not being as good as people expected. And, I think if people hadn't been as aggressive with the growth plans and taken on so much debt, we'd be in better shape too.
So we can't completely just blame it on exogenous factors, but I'd say the biggest ones certainly are the lack of political progress, the lack of new states, the new one being the intoxicating hemp market, and then some unforced - I don't even know if they're unforced errors, but inaccurate expectations which led to bad actions by operators in terms of getting too levered because they were investing for growth, and that growth hasn't happened yet.
RS: Possibly, this has no meaning as a question because we're past the point and who really cares. But in the name of learning things and educating ourselves and understanding how industries move and grow and start and evolve and don't evolve, would you put the unforced error label because of hubris or because of naivete or a combination of both? Or what what are your thoughts there?
JR: I think you'd have to say a little bit of both. And in some cases, we all a lot of us had similar thoughts. Most of us that are in the space now expected things to go better. Like, Rena, you have a cannabis podcast. I bet if you thought it was gonna get this miserable, you probably wouldn't have started a cannabis podcast. Same thing for me. I left a career in finance to get into cannabis, and, I didn't expect it to be this hard.
And so I think a lot of the operators had similar mindsets. And, I mean, in some cases, we're made promises, and we've learned that political promises don't mean a lot. But there are a lot of promises made, promises that were not kept.
And so I think last year, maybe two years ago, I started talking about companies as being reform dependent or reform independent. And the reform dependent names were, like, your AYRs and your Cannabists (OTCQX:CBSTF) and those are the ones with higher levered balance sheets.
But those same companies, if things had gone differently, if we would have gotten these new states to flip, if we would have had 280e removal, if we would have gotten SAFE banking, those companies might be the leaders right now. Those are the ones that were predicted to have the most growth.
But when things didn't happen the way that they're planned, those are the same ones that ended up upside down. And it's largely what we used to call that two tier two category. Your AYRs, your Cannabists, your Jushis (OTCQX:JUSHF), TerrAscend's (OTCQX:TSNDF) creeping up on the tier one level. You know, MariMed (OTCQX:MRMD) might fall in that basket. I think I'm forgetting one more name that can fall in that basket. Ascend (OTCQX:AAWH) I think, is a good one too. They've been doing a little bit better recently, but have certainly been suffering a lot.
And so I think those players generally had more leverage. And if it had turned out differently, that leverage would have been a benefit. But because we had the slower growth and the lack of political progress, instead, they have what could be attractive footprints, which could drive a good income statement. But at the same time, the balance sheet is so compromised from dilution and from debt that you just wonder if that's a hole they can dig out of right now.
RS: Notwithstanding Leef, where would you put your money if you were an analyst? You mentioned before these pockets of light that are still present in the industry. Where do you see those pockets of light?
JR: So I think that the question to address a bit is, are we early, or are we wrong? Have you thought about that that?
RS: I would say I've thought about it a lot. Yeah. We had Julian Lin on a couple months ago, and to me, that was the most sobering conversation of many, many sobering conversations I've had around the industry. He shut down his cannabis growth investor service on Seeking Alpha, and he shared a lot of the reasons why his thesis has changed.
And I don't have a lot to say against it, you know, frankly.
JR: Yeah. And I don't think those things are mutually exclusive. Right? Being early could also be wrong because there's so much opportunity cost in being early.
I was looking the other day for a project I was doing. If you invested $100,000 on 02/10/2021, which is the peak of (MSOS) in MSOS, you'd have about $5,000 left. If you had put that money in Bitcoin, you'd have about $200,000.
If you put it in (SPY) or (QQQ), you'd have about $135,000. So, again, in one instance, you have $5,000 left, and the others you have $135,000 to $200,000. And that's just a massive difference. I mean, the amount of compounding it would take to make that up is just insane.
And so there is a big opportunity cost. There's a big loss just by not being in cash versus going into something like MSOS, but there's also even a bigger opportunity cost if you indexed it to SPY or QQQ.
If you're really clever and you went into Bitcoin, then you'd have closer to 200,000. And so I don't think it's either one or the other. I think we've been maybe early, and that equates to being wrong. I think eventually, we get to the destination. I think we get to federal legalization or 50 or high forties in terms of adult use states. I think we do get the uplisting. I think 280e does go away. I think the reasons that we're here eventually do play out, but it's very clear it's not gonna play out over the time frame that I expected, you expected, or that most out there expected.
So that leaves you with a question about what do you do in the meantime? Like, I think if we had this conversation, I don't know when, if it's two years, three years from now, we will have a really great time. Valuations got super low. Eventually, we do get the political progress. Eventually, new money does come in, and we're gonna have a pretty great period, but it's hard to predict when that's going to happen.
So the question is, what do you do in the meantime? One option is certainly to do nothing and say, okay. I'm just gonna wait until I see some confirmation things are changing. And at that point, I'll get back in. You could get back in with the tier one MSOs, some of the higher growth names, or you could be more conservative, invest in some of the better cash flowing names.
So if you're gonna sit out on the sidelines, I think that's totally fine. Look for a political catalyst. Look for a new state turning on that you think is going to be meaningful and start to put your money back in then.
If you're gonna continue investing in cannabis, I would do one of two things. One is I would look at those more reform independent names.
So I think we could probably all agree GTI (OTCQX:GTBIF) in terms of the big names is the class of the sector in terms of its balance sheet, which has proven to be just absolutely critical, even in in a position to be doing a share buyback now. And in terms of their footprint, they continue to have one of the better ones amongst the tier one MSOs. You can invest in a name like GTI, which I would call as more reform independent operating from a position of strength.
You could find a smaller name, you know, like our friend, Sammy Jay, at, you know, C21 Investments (OTCQX:CXXIF). That's a name that was focusing on cleaning up its balance sheet the past couple of years, less focused on growth, made it less sexy from a top line perspective.
But now they're able to take on, expect to start to expand now during this period of weakness and bolt on some growth. So some smaller names likeC21 might be a more conservative, so to speak, name, although conservative and cannabis don't make a whole lot of sense together.
So I think that's the reform independent idea saying I'm gonna go into cannabis, but I wanna be with the survivors even if in some cases, maybe not those specifically, that means lower growth and a little bit more boring type names.
I think the third thing to do is to say, okay. The industry is suffering, but you can't paint everything with one brush. And, certainly, there are instances of survivors where the baby is getting thrown out with the bath bathwater, and I would look at a name like Glass House (OTC:GLASF).
I would look at a name like Grown Rogue (OTCPK:GRUSF), and I would put Leef in the same category of having fundamental catalysts where the businesses are going to be improving even in this tough environment.
With Glass House, that largely comes from turning on new greenhouses. They have a 5,500,000 square foot facility. Don't quote me on this, but I think they're at around, using 3,000,000 or so of that right now, and they have greenhouses that have peppers or tomatoes or cucumbers in them, and they're slowly converting those last couple greenhouses to cannabis, and that provides a great growth opportunity as they turn on more capacity.
They're also considering the potential to use one of those green greenhouses for hemp or what we call farm bill compliant flower, the old THCA flower, and that would be another new market for them to tap in. So Glass House has some good optionality and a pretty clean balance sheet.
Grown Rogue, similar story. Core business in two tough markets in Oregon, which showed some cracks this last quarter, and in Michigan, which has been a tough market that but they've proven to have good cost controls and have been doing well in those hard markets, and now they're expanding to New Jersey and then Illinois with this much healthier pricing.
So kind of like us going into New York, where you're taking a playbook generated in a really tough market and bringing that to a healthy market. And also, Grown Rogue has a pretty clean pretty clean balance sheet.
So I think that those are two examples of companies with real growth growth prospects, even if the industry in general is growing at somewhere in the mid to low single digits. Those are businesses that might be growing 15%, 20%, 30% or more.
So I guess I spoke about three ways. One is I think it's totally fine to stay in cash. Two is I think you can invest in the more reform independent companies, less levered, better balance sheets. And I think the third is to find growth opportunities even in this environment. And I'll throw out a fourth, and I'm not an expert there, so I'm not gonna weigh in too much.
But we are also seeing a revival in, in interest in some of the Canadian names that have been really beaten up. We had Mitchell Osak on our podcast, last week, and he was talking about this this a bit. Names like, Rubicon Organics (OTCQX:ROMJF), you know, (SNDL), Organigram (OGI), especially the ones that are exporting flower internationally, I think those names are starting to pick up a little bit as cannabis is a little bit ahead of the US cycle, may have seen some of the pain we're going through, and may be ahead of us in coming out of that.
So that would be maybe a fourth one on the Canadian side. But given I'm not super up to speed on that market since my analyst days stopped, I won't give too many comments on that.
RS: And what would you say in terms of the future of the industry? As you mentioned, in terms of the timeline, who knows? It's anyone's best guess. Are you of the opinion that Leef, that Glass House, that the companies that you're still bullish on, that they get to that finish line, that there's a Leef company standing when we're federally legal, that they're able to reap the benefits of that arrival?
JR: Yeah. I think there definitely will be a basket. I do think that we would be one of them. And just to be really honest, I think if we weren't taking the measures that we are right now, we probably wouldn't be.
Just to give you some color on how California's evolved, when the guys got into the extraction business in California, you know, with Leef almost a decade ago, you had leaders of distillate that were selling for $15, 16, $17, $18,000. That same liter of distillate today is about $1,000 or $1,500.
And so you can see from a margin perspective, your opportunity just shrinks a bunch as the cost of the product comes down so much. And so in California, we were chugging along, competing, absolutely doing our best, but we were doing so with about $30M in revenue and about gross margins in the thirties.
And we need to bump those up to be more competitive. So in our case, our answer to that is that we're gonna plant this really large cannabis farm. So we have our own material at a lower cost, which will help boost margins, and we're moving into New York as our other big catalyst.
So those are our levers to get through this. I think with Glass House, with the new greenhouse, with Grown Rogue entering those new markets, those are ways to be survivors. I think growth is one way to get through it. If you're not in growth mode, then you better be in clean balance sheet mode so you don't get drowned by interest expense.
And you better have great cost controls, so you don't get drowned by too high of SG&A. So I think those are a couple of ways of being survivors. And so I would guess that those three names that I mentioned ultimately will be survivors.
We probably will be surprised like we have been, and, one or two we think will make it doesn't make it. And probably a couple that we don't think will get bailed out could get bailed out. But we're also at a point where we're starting to see those casualties. We saw it with State House in California. We saw it with Gold Flora (OTCPK:GRAM), which has entered into receivership now.
You know, 4Front (OTCQX:FFNTF) looks like it's headed, I don't know if they're formally in that direction, but if not, they'll eventually get there. I'm blanking on the Colorado and New Mexico oh, Schwazze (OTC:SHWZ). That's not what I would have expected talking with Justin Dye back in the day and his focus on being more conservative and focusing on margins, and New Mexico looked like a decent opportunity for them. So that one was a bit of a surprise.
There's probably five or 10 more names that we're not saying right now. Some of them being those dicier tier twos where it's not entirely clear how it's going to work out. And so I think it's cool and important to talk about the opportunities on survivors, but it's also important to be realistic and say that in some of these companies, they're continuing to move forward. They're continuing to trade. We can't forget about the capital structure. And so in some cases, you may see the common trading, but the common is dead.
And so in the case of 4Front, that common has been dead for a while because there's just too much debt ahead of it. And so if it goes into liquidation mode, everybody else is getting paid, the last in terms of getting paid is the equity holder, and that's my fear in some of these tier two names is that the equity continues to trade even if it's down 95%, 99% in some cases, and that gives the investor hope, especially when it bounces up 20% in a day. They start to feel better, but they don't realize there's $500,000,000 in debt ahead of you.
And so I think we may have some companies already going to receivership that are clearly not going to survive, but there's another basket which is teetering on that. Maybe not teetering on full blown receivership at this point because they continued churning along for a while because they have decent cash balances. Probably hard to raise money in this environment.
But if you're an investor in those, I just wouldn't get too confident just because the stock perks up because people sometimes don't actually understand the capital structure and how much money is ahead of you. Where if it doesn't work out, you're probably gonna end up with zero.
RS: And what's your sense with the hemp side of things? There's rumors, talks of whisperings of of more regulation coming and how it should have been more regulated to begin with. What are you seeing from that side, and how much attention are you paying, or are you concerned about, there?
JR: So paying a lot of attention both in terms of risks and opportunities. So in terms of opportunities, you know, we have this 1,900 acre ranch, 187 acre cannabis permits.
We also have 180 acre hemp permit. And so we're not currently planting hemp there, but we're evaluating our options in terms of doing something there next year. So definitely tuned in in terms of what the opportunities could be.
But when you look at those opportunities, it's kind of hard to move forward. I think Glass House has felt this too in terms of evaluating what to do with this new greenhouse they're turning on, where they're looking at this and saying, okay, we could grow California cannabis here, or we could grow this THCA Farm Bill compliant flower. And there's a lot of opportunities, higher prices, more access, etc, right now on that Farm Bill THCA compliant flower.
But at the same time, we're starting to see more talk of bans. Big states like New York or Texas and Florida, for example, having, measures where we could see some bands, and that would really, I think clamp down on that THC flower.
I think that's probably the most at risk part and also the weird, synthetic stuff. Your delta 8s, your HHCs, and those minor cannabinoids that have gotten to be more popular. So I suspect that part is probably at most risk to get closed.
And then if we look and say what's most likely to survive, it sure does look like it's these hemp beverages, which I think is an interesting conversation, and the low dose gummies seem like the other one. Maybe not as likely as the beverages, but I think the low dose gummies probably survive.
And the THCA stuff, the minor cannabinoids more likely to get excluded, and maybe the smokeable form factors in general, you know, more likely you get excluded.
So we say, okay. Well, what does excluded mean? It means excluded at the state level when these state bans happen. And, also, if and when - not if, but when we do see this farm bill revision, what is there a carve out for? Does it go to total THC? Are beverages still allowed? Are low dose gummies allowed?
So it's a weird one because as long as it persists, it's a problem for us, which is difficult for the state legal operators because that's eating a lot of their growth and eating into their existing sales. But at the same time, it's blurry enough where you're not quite sure if you wanna pull the trigger on it. And so, whether it's earnings calls or on higher exchanges, we'll often ask CEOs what their plans for hemp, and everybody's evaluating something.
Curaleaf (OTCPK:CURLF) did an interesting move. I don't know if you saw Rena with opening that hemp store in Florida where they also have medical state legal stores. Other people that we talked to are interested in launching a beverage. We saw that with Trulieve (OTCQX:TCNNF) with the Onward beverage.
And so it's really kind of the worst of both worlds for the state legal operators because they're getting their lunch eaten by people willing to take the risk right now in the intoxicating hemp market. But at the same time, the regulations are dynamic enough, changing enough, blurry enough, risky enough, where until we see more more clarity, it's hard to jump into that market with both feet. So I think it's a super important thing.
And I think, ultimately, the dream is to end up with one plant, one set of rules. And the hemp regulations just look so much more common sense right now than the cannabis regulations. So, it'd be great if we could lean more in that direction as opposed to pulling them more in ours in the more restrictive direction.
But as long as you have such different sets of rules, it's really tough for the ones in the state legal market. I think we can agree we want age gating. I have kids. They're 15 and 17. I don't want them being able to get things from from stores. I consume cannabis. I've worked in the industry for most of their lives, but I want them to wait as long as possible to figure out if cannabis makes sense for them. So I want age gating. I want testing.
If I or anyone else would be consuming products, it'd be great to know what the levels cannabinoids, terpenes are, but also things like pesticides and the riskier things that can come with consumption, especially if you're inhaling things. We want that. And so those criteria, the safety measures exist in the state legal market. So it's like, okay. Let's take the best of that, but do it with more open access and less punitive financial structure.
So let's be able to have D2C sales. Let's be able to have interstate commerce. Let's be able to have advertising online. So if we could if we could keep the good parts about the age gating and the testing, and then use some of the open architecture of the intoxicating hemp space, I think putting those things together would be the best because the problem with so much detoxicating hemp space.
I saw Trent Woloveck from Jushi posted a video of this on x the other day, where I think it was in Virginia. He walked into a store, bought some product. He wasn't ID'd, came out of the store, used his phone to look at the COA, and the COA for the product he received, which I believe was flower pre rolls, linked to something like an edible where it wasn't even the same product.
And I think that's kind of the norm for that market. So the market with the most access that's most available online and through this network of smoke shops has the worst system for consumers because they aren't testing the products. They're largely using fake COAs. Some do test and have accurate COAs, but a lot of it's fake COA or no COA and no age gating.
So I'd like to put those two systems together where you have the testing and the age gating, but do so with the more, open architecture and, you know, removing the things like two eighty e that have made this business almost almost impossible.
So the hemp thing, yeah, I think that's one of the most fascinating parts. And I think, like a lot of things in the industry, it presents challenges. But I think if we look three, five years from now, it'll present some opportunities as well. Just a matter of getting enough clarity on what we're gonna end up with to figure out how to and when to move forward on those opportunities.
RS: In terms of the pie question that I asked about the reasons behind the, decimation, let's say, of the cannabis industry, what would you put it for the political reasons why we're not getting regulations or why it's so confusing, so chaotic when it comes to regulations? As you mentioned, so many empty promises. What would you say are the reasons behind that?
JR: I think there's a lot of downside on a political level, in terms of the donor level specifically in helping cannabis. And so if you look at some of the biggest donor groups to political campaigns, it's big pharma, it's tobacco, it's alcohol. Those are all three areas which are losing growth to cannabis.
And so I think if you're somebody who's a politician first and foremost, they're wired to get reelected. That's what keeps them going because I wanna get reelected. And so if there's a risk of doing something helpful to cannabis, that'll piss off pharma, tobacco, or, alcohol, then I think they're less inclined to help us.
And I think the pattern we've seen is we'll pander to the public in a general election or, coming into elections and say, okay, we know cannabis is a super popular issue, especially medical cannabis. So why don't we talk about that? Because those people will then say, okay. Cool. They look like they're on board with cannabis. But then we actually won't do something. We'll just talk about it a lot, which will keep the donors happy. And then we get the midterms. We get to the next election. Let's rinse and repeat. Let's talk about it again to to sway the voters because that's what matters.
But then we get actually into the four year term, and we're gonna pander more towards the donors. So I think it's a back and forth between those two constituencies. And I think as people, cannabis consumers, people that generally, believe not just that we wanna consume it. I believe more cannabis makes the world a better place. I think it's a valuable medicine for people that need it. I think it's a less harmful recreational substance, and I think that's great as well.
And so it's really frustrating to people like us. We're like, you don't get it, man. But to the rest of the world, when you get out of our circle, do you ever find that? Like, you get into a different dinner conversation or you're doing a different podcast, and you realize, I care so much about cannabis. And in my little world, this seems like the most important thing every day.
When you get outside of that, sometimes people don't care as much as we think. So I think sometimes we get deep at our own echo chambers, and we forget that not everyone is so passionate about making this change as we are. That all said, I think the reason I still can believe long term is because we know what the people want.
And I think over time that we do get there, the amount of people that support adult use, the amount of people that support medical, the way we're starting to see more and more real testing results in terms of it helping with cancer, Parkinson's, epilepsy.
The reason I'm here is because I got interested in cannabis because it helped my dad with this chronic pain problem. He went from taking hundreds and hundreds of milligrams of OxyContin a day to zero, and he did that by using cannabis, by using CBD, CBG tinctures, vaporizing flower.
And so I've seen it firsthand. When I had the dispensary, we had thousands of patients. I saw it change lives firsthand, and so I know that it works. Like, I know it's not BS. Before I got into the dispensary thing, I was on the investing side. I heard about the medical stuff, and I'd be like, oh, man. I don't know. That sounds weird. I don't know if it actually helps with that stuff or if this is just people that are looking for an excuse to get high.
And then once I got into the industry and once I really did the research, but more importantly, once I saw it firsthand and I saw how many people's lives had improved, and I saw some people's lives who it had hurt, but it was so skewed towards the improving lives, and you saw people's medical problems get better.
And sometimes, Rena, we would have a patient for six months or a year. Their problem would get better, and they'd move on just like any other medication, and that's fantastic too. So I know it works. I know it's a better recreational substance. I know it has real medical value. The results show how popular it is, and so that's why I don't feel like we're wrong. I just feel like the time frame it's going to take to get there is gonna be longer than we would have hoped.
But I think because we continue to have these successful rollouts in new states like, one of the things I love about about adult adult use programs is that kids start using less where there's more adult use programs because there's less weed on the streets and more of it's in the stores.
And so I love hearing all of those things. And we generally see fewer overdoses, and we're learning about can cannabis being an exit, not a gateway drug, but an exit drug. Like, do you know people, Rena, that have been able to use cannabis to get off of other drugs?
RS: Not only do I know that, but you were saying before, like, sometimes it's hard to get out of our own echo chamber and so many people don't care about it. I would say - look, I'm certainly aware of the pharma conversation and everybody and their mother and grandmother is on some kind of pharma, it seems, and people are always gonna be interested in that.
But I would say, also, what I'm seeing is alcohol addiction or high alcohol use is not good for us. Even in small use, like, they used to say a glass of wine. It's coming out more and more, the evidence is coming out more and more how bad alcohol is for us.
I know so many people who never would have touched anything related to cannabis, who are now who honestly, I'm seeing a lot of - maybe it's the age we are - but I'm seeing a lot of people that consume alcohol really come to a reckoning moment and understanding that it's not good for them. And using cannabis in various forms, in various levels, if it's CBD or THC, but using cannabis to help them either socially, medicinally.
So I see it, I feel like more and we also discussed psychedelics on this podcast. I see the conversation around cannabis and psychedelics to be more informed, more educated, more aware, more understanding.
I think we're left with this dichotomy of the investment picture and the plant itself and how much it can do for humanity and how much we can make money off of those investments. And it's a hard thing to navigate, but I hope, like you still have the vestiges of good reasons why you're in the industry. I hope that we're still helping people make more informed and more educated decisions around investing, even though it's definitely a hard, volatile time, maybe in general in investing, but certainly on the cannabis side of things.
So, yeah, I appreciate you being part of this conversation. I appreciate you always coming on and being so astute and insightful and honest really about what's going on. So thank you, Jesse. And we met through cannabis, so I'm appreciative of how we started and where we're still at.
Anything to share with our listeners about where to find you or anything else that you feel like has been left out of this conversation?
JR: No. That's funny you brought that up. You've been a great friend through this. I'm really glad we met this way too. For people that don't know, I met Rena initially because she was looking for someone to cohost a a show called CEO Interviews on Seeking Alpha. And gosh, what was that? Five years ago? My goodness. Yeah. Rena trusted me when I had never done a podcast before, and, we did a bunch of episodes of that show. I did only over 50 of them, and that's what kind of kicked off my interest in podcasting. So
RS: Look at him now.
JR: Look look at me now. So, yeah, there's been a ton of great relationships, and I appreciate you trusting me to do that and all the growth that you helped me find there, get better at being a podcaster.
I say not to be humble, but a matter of fact that when I was getting into cannabis, I would listen to your show every week, and I'd go back and listen to old episodes. And saying to myself, gosh, it'd be really cool if I got to a point where Rena wanted to have me on her show. And so sincerely it's flattering to have these conversations with you.
In term in terms of where to find me, I'm still pretty active on social media, on LinkedIn and on x. Both of those are my name, Jesse Redmond.
If you wanna learn about our company, you can go to leefbrands.com. There's an investor relations section, and you can click around the site. And you can also follow us at leef brands on social media.
One of the things I love about my job is having this new farm. It's just about an hour away from me in Santa Barbara. So I was out there a couple of weeks ago capturing and sharing a bunch of content. Wanna go out about every month or so as we get closer to harvest and keep taking pictures and videos so people can can can see the work that we're doing there. So tune into those socials, at Leef Brands, and follow me at Jesse Redmond to see that kind of content.
And last, you inspired me, Rena, to actually start a podcast. And so a while back, I started a spaces, with my friend, Morgan Paxhia called Higher Exchanges. We've now moved that on to video, still called Higher Exchanges. It streams live on x and LinkedIn, usually Thursday afternoons at 1PM Pacific, but it's available on YouTube and at all podcast platforms.
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