Cannabis stocks, investment dollars and valuations are down which makes it challenging for companies to raise capital. Lewis Goldberg from KCSA Strategic Communication joins Dan Humiston to share the results of their recent Cannabis Investor Survey. The survey provides valuable insight for investors and companies planning to raise capital. Produced by PodCONX https://podconx.com/guests/lewis-goldberg
Cannabis stocks, investment dollars and valuations are down which makes it challenging for companies to raise capital. Lewis Goldberg from KCSA Strategic Communication joins Dan Humiston to share the results of their recent Cannabis Investor Survey. The survey provides valuable insight for investors and companies planning to raise capital.
https://podconx.com/guests/lewis-goldberg
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Lewis Goldberg: [00:01:39] That's a lot of money, especially for the retail sector, right? They're planning on holding these companies between 3 and even 10 years. You know, more than almost 60 percent of investors are looking at that kind of time horizon. So while the stocks are very volatile.
Lewis Goldberg: [00:01:54] Men have up until probably about January, early January this year, been on a preceding March down. You know, retail investors are not getting out from MJBulls Media.
Dan Humiston: [00:02:08] It's the Raising Cannabis Capital show.
Dan Humiston: [00:02:15] I'm Dan Humiston. And on today's show, the head of the largest Cannabis strategic communication firm shares the results of their recent Cannabis Investor Survey.
Dan Humiston: [00:02:33] Dena. Raising Cannabis Capital We are joined by Lewis Golberg from k.c.'s, a strategic communications and the host of the Green Rush podcast. Lewis, welcome to the show.
Lewis Goldberg: [00:02:44] Dan, thank you so much for having me. It's weird to be on the other side of the questions as opposed to asking them. Answering them.
Dan Humiston: [00:02:51] I bet it is. I bet it is. I was thinking about that when I was prepared for the show.
Dan Humiston: [00:02:55] I really, really appreciate you taking the time out today. K. CSA has been one of the United States most trusted strategic communication firms for well over 50 years in a little over five years ago. You started representing Cannabis companies and now k.c.'s Cannabis is the largest Cannabis communication firm in the country. Why do you think it's so important for Cannabis companies to be partnering with communication experts?
Lewis Goldberg: [00:03:22] Cannabis companies are just like any other company, whether they be a consumer packaged goods company, a pharmaceutical company, you name it. Cannabis has a role in almost the entire economic supply chain. So for companies that are looking to target a specific audience, deliver a call to action and influence whether it be investing or buying intent, they have to do it like a professional organization. And we always counsel our clients communicate like the company you aspire to be, not like the company you are. So if you're a medical Cannabis company, communicate like phizer, communicate like Merck. And that's why working with a company like us that works with financial services companies, that works with pharmaceutical and life sciences companies and technology companies is helpful because the same tools and techniques that we use for enterprise level clients we brought to the Cannabis space and it has been unbelievably successful and valuable for our clients and it's been really valuable for CSA as an organization.
Dan Humiston: [00:04:25] Yeah, I mean a disproportionate number of our guests you represent. I'm serious. As I was prepared for the show, I discovered that one of the many services that you provide is investor relations. I'm sure that's one of the reasons why so many people are raising money. Or are your customers.
Lewis Goldberg: [00:04:42] Well, we work with companies that are either pre public and looking to raise capital or are public and looking to communicate to the investor audience and on the investor relations side of the business. We do everything from non-deal road shows. We will take companies around to family offices, institutions and high net worth individuals to allow those companies to tell their story and potentially raise capital. You know, we work with the sell side analysts at the major investment banks. We'll also, most importantly, work with the management of these companies to teach them and to empower them to effectively tell their stories. Because these companies all have unique, interesting stories to tell. And sometimes these CEOs are so focused on running the business that they forget that they have a responsibility to be the chief sales officer.
Dan Humiston: [00:05:33] I think that's so important. unique stories in there so many times that they sort them, water them down. And I'm like, now tell your story.
Lewis Goldberg: [00:05:42] Yeah, but it goes beyond telling your story. Cannabis up until prive March or April of twenty nineteen was a story stock play. Right. I've got this money feet of canopy under growth. I've got these many licenses, I've got this, this and this. But I haven't yet delivered. Retail investors which make up the majority of the Cannabis investor audience tend to be herd animals. They follow a stock up and if it hits a peak, it starts to sell off. Well, heck, I have to get out of that stock as quickly as possible to limit my loss and that can depress the stock. And that is in part what has happened over the last 12 months or so. Yeah, but it's not only about telling your story now. No, investors are looking for performance because he's Cannabis companies have since they went public, many of them said we're going to have X revenue. Of course, there are asterisks. I'm getting to that extra revenue. Those asterisks matter now because those asterisks tend to be focused on the regulatory risk associated with this industry because it is still federally illegal and because it is regulated at a state by state level. You can see real challenges develop and you missed your numbers. Investors are going to punish you for that.
Dan Humiston: [00:06:54] For sure. For sure. In November, you did a survey on Cannabis investors. And it's super important for the industry that we understand what's going on, especially when things tightened up last year. Explain to us what you learned in that survey.
Lewis Goldberg: [00:07:10] We've done the survey twice and we're going to be doing it a third time, probably in March, where we pull upwards of 19000 retail and small institutional investors. And we took a couple of really interesting conclusions out of the survey. The first is that individual investors are still. Bullish on the market. While they haven't seen the same level of profitability that they did earlier. And clearly, you know, that's what happens when you see stocks drop 60, 70 percent over the course of six, seven months. You still see these guys holding large numbers of companies. You know, the average Cannabis investor has between 25 and $100000 invested in the market. That's a lot of money, especially for the retail sector, right? Yeah, they're planning on holding these companies for the most part between three and even 10 years. You know, more than almost 60 percent of investors are looking at that kind of time horizon. So while the stocks are very volatile and have up until probably about early January this year, been on a preceding March down, retail investors are not getting out. They are still, for the most part, holding. And when we first did this poll, about 70 percent of retail investors had pulled money from other investments to put it in Cannabis over the last six months. We saw almost 43 percent of investors were still transferring money from other industries and putting it into Cannabis. So there is still this strong belief in the story of Cannabis, right? Some of these companies are going to be Amazon or Google. Some of them are going to be Pets.com. If I was investing my money in this space individually, I would try and look at it like my own personal hedge fund and spread out risk amongst a bunch of different companies, some that are plant touching, some that are ancillary services, some that are domestic, some that are international and hope to hit couple of companies that are a hundred time return and realize that some of these companies are going to go away.
Dan Humiston: [00:09:11] I'll take a short break to let you listen to a quick preview of our next episode.
Rezwan Khan: [00:09:17] One hundred million dollar facility, a check. We're going to bring in Russian botanist. And we're gonna bring in the best tomato farmers. Check, check. OK, we've got this guy. He's from Colorado. Says he's a master grower. OK. Check. OK. We got our lights checked. We've got new leaves. They spend a ton of time and energy and money on government affairs, on obtaining licenses, on attorneys and every aspect of their business. And then when it comes to genetics and they just force you from whoever and they trust whatever person told them their master, quote unquote,.
Dan Humiston: [00:09:44] tune in on Sunday to hear Rizwan Khan from DNA genetics.
Dan Humiston: [00:09:49] And now let's get back to the show.
Dan Humiston: [00:09:53] What do you think some of the reasons for the downturn?
Lewis Goldberg: [00:09:57] I think there were a handful of reasons. The first is that regulatory risk that I mentioned. This is a state by state play. And right now, there are 33 states that have some form of legal Cannabis market. The other thing is, I think people start to realize how much money it costs to participate. If you think about it, there are 33 states and each state has its own set of regulations. So you really have to think of it as if there are 33 different countries that you have to do business because you can't ship Cannabis across state lines. So if you have a vertically integrated license in Massachusetts, you have to set up agro processing plant and dispensaries in Massachusetts. And if you have a license in New York State, you can't ship Cannabis from Massachusetts to New York. So you have to set up another grow processing and set of retail locations in New York state. These are really expensive. You have dozens of licenses. You're looking at hundreds of millions of dollars worth of capital. There's not hundreds of millions of dollars of capital that's available right now. Investors realize that this is really expensive. This regulatory risk and cost is significantly depressing. And then like I described, there is this herd mentality amongst investors. They chase the stocks up. Now they're chasing them down. Yeah. And people are waiting for good news to happen.
Dan Humiston: [00:11:20] There are very few institutional investors in this space right now. And they had X is a nice backstop. Many retail investors are moving around. At least you have that sort of backstop and you don't have it. And Cannabis. So when they move, you notice it. You feel it.
Lewis Goldberg: [00:11:33] You look at a company like terr. I think they have something like 90000 retail investors. That's a lot of people. I would bet you that Google doesn't have ninety thousand retail investors.
Dan Humiston: [00:11:46] I always feel like that's one of the big contributors to this, because most people don't appreciate the fact that we just don't have the traditional institutional investors in this industry. The other thing that I always felt was that at the end of 2018, if you think back then, the stock market wasn't wasn't doing great.
Dan Humiston: [00:12:03] The good old days, but the stock market was struggling. 2013 was a bad year for the stock market in a lot of people were like, well, where I go, where do I go with my money? 2019 was a really good year for the stock market. Sometimes there's some other factors involved that aren't Cannabis related at all. That may have impacted this.
Lewis Goldberg: [00:12:21] Oh, totally. I mean, if you can make 20 percent on Tesla or Google, which are brand names low. Risk. Why wouldn't you take them out of medicine, man?
Dan Humiston: [00:12:31] Exactly. Yeah, I agree. I agree. It is so like 2018. You know, things aren't great. So you're like, well, let's try something risky. And in 2019 comes around. Things are great. Why take a chance on those guys? I agree with you. I think there are a number of factors in play in it.
Lewis Goldberg: [00:12:46] I'm fine in banking, right? These guys can't raise debt at reasonable rates. You don't see bonds being issued. You're seeing convertible debt. They're borrowing at high rates and the borrowing can convert to equity, which is dilutive. So if I am a retail shareholder and I see a company raise 30, 50, 100 million dollars on a convertible note, I realize the value of my stock has just gone down. Now, our data says that most of these people who understand what's going on are going to stay and that the people who are real investors who have, you know, twenty five thousand dollars in this company, $50000 in that company, they're not getting out there, are staying in. It's just the guys who have 500 bucks and they see these companies go down 5 percent. They immediately calling the IRS, the internal investor relations officer, saying, what the hell is going on? It's hard for retail investors to understand the macro trends and the macro trends for it for this industry are fantastic. More people today bought legal Cannabis than did yesterday, and that is going to happen again tomorrow.
Dan Humiston: [00:13:50] And the next was unforeseeable. Yeah. Every day you said you do, you're gonna do the survey twice a year.
Dan Humiston: [00:13:56] Whenever the next one come out, we're going to probably field it in March and crunch the data in April. So either late April or May.
Dan Humiston: [00:14:03] Let's plan to have you back on when you do that, because I'm optimistic that there's gonna be great news on the next one.
Lewis Goldberg: [00:14:10] I don't think so. I think that our fall one, the one that we do in November is where we'll see much better news. I still think that we are in for some tough sledding until July or August. You know, when the companies report that they are close to their June 30th numbers and we see the impact that Illinois has, that Michigan has, that Massachusetts will start to ramp up and have a positive impact that Maine will have that. Oklahoma will have. You're going to see a lot of good news, but not for the second half of the year. It's going to be tough for the first half of the year.
Lewis Goldberg: [00:14:43] I mean, you know, you talk to these people every days. We've been speaking with Lewis Goldberg from k.c.'s, a strategic communications. And you can find out all of his information and all of their information in the show, notes around MJBulls.com. And don't forget to check out the Green Rush podcast and Apple or Spotify or wherever you get your podcast from.
Dan Humiston: [00:15:02] Lewis, thanks for being on the show today.
Lewis Goldberg: [00:15:04] Truly my pleasure. Thank you for having me.
Dan Humiston: [00:15:08] Today's show was made possible by the generous support of our sponsors, like all 36. The country's premiere blockchain payment processing platform that's providing dispensaries and its customers with a safe and secure payment option other than cash. To learn more, go to all 36 dot com. Today's podcast was produced by MJ Bulls Media, the industry's premier Cannabis podcast network with original music, produced in part by Jamie Humiston.
[00:15:35] I'm Dan Humiston and you've been listening to the Raising Cannabis Capital podcast.
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