Chi-Chien Hou is today's featured Cannabis Investor. The HempTown USA Cannabis Investor Series is back for the third year. This year, the Series is featuring eighteen of the cannabis industry's top investors who review the previous 12-months and share their 2021 investment strategies. On today's episode Dan Humiston is joined by Chi-Chien Hou from AFI Capital Partners Produced by PodCONX
Chi-Chien Hou is today's featured Cannabis Investor.
The HempTown USA Cannabis Investor Series is back for the third year. This year, the Series is featuring eighteen of the cannabis industry's top investors who review the previous 12-months and share their 2021 investment strategies. On today's episode Dan Humiston is joined by Chi-Chien Hou from AFI Capital Partners
RC CI3 AFI Chi Track and RC CI3 AFI DanTrack
[00:00:00]Chi-Chien Hou: It's not the only way. Certainly there are still some very successful individual investors. what we tend to do really well, is we partner with a lot of people, right? We have a lot of investors who put money with us, but also likes to still continue to look at direct investments. here's the reality.
The market is so inefficient. That you have to rely on everything out there, that's at your disposal to find deal flow. And that's where I'm always saying, Hey, look, if you've got something that brings to the table, I'm ready to hear it. today at raising cannabis capital, we are continuing this year's cannabis investor series with Ji ho the managing [00:01:00] director of a F I capital G. Welcome to the show. it's great to finally have you on the show before we begin, I want to give our listeners full disclosure. She's an investor in my daughter's company, but I'd be a fan, even if he wasn't, because I just liked the way he does business
RC CI3 AFI DanTrack: let's begin with your investment thesis. You started as a non plant touching fund, but you added a twist, which I just think is super cool. It's called a sidecar. Can you explain how that works?
Chi-Chien Hou: Absolutely. So when we approached cannabis investing, our initial inclination was, Hey, this is a great sector, but. Given how immature the sector is. frankly it becomes tough to make individual investments and that's how a lot of people got into the space, right? They had a friend who knew someone, and this is a great opportunity.
So let's do this, which is fine. Look, people invest for different reasons. People invest in different ways. There's an allocation for everything in your portfolio. Our view was that the opportunity than the market. Is to [00:02:00] create a financial product.
So a more traditional diversified pool of capital invested across multi companies in different sectors, different stages, different aspects, that utilize more traditional structure and diligence, right? So the idea is let's create a more traditional financial product, right? A fund that people could invest in.
this is not an ETF, but this is more akin to a private equity fund. So our view is to say, look, we want to find companies that can. Benefit from the growth of the legal cannabis business, the industry, but at the same time, our federally compliant and our capital efficient. So that was ancillary now at the same time, because we're scouring the country, in different stages, different, segments of the cannabis industry.
We see a few situations here and there that we really like is one off investments. And so for that, we've created a special purpose vehicle, for our investors that want to opt in. we have on one end, we have a committed capital. Pool with LPs in a traditional fund structure. and then what we do is we bring deals to them periodically and say, Hey, [00:03:00] is this interesting?
Is this interesting? Do you want to participate? And we've let them invest. Roughly 75% of our initial LPs did not want to invest in leaf touching ventures. yet I would say about two thirds of our LPs have invested in our leaf touching deals.
RC CI3 AFI DanTrack: Yeah. And like you said, if your LPs came in and weren't comfortable with that piece of the business, but as they were there, they get to see opportunitiesthat they normally wouldn't have looked at, but now that they're part of your fund, they can see that, let's just keep moving.
One of the things that, It's always struck me about you. Whenever we've had conversations is you always seem like you're one step ahead. I almost, I don't know whether it's experience or intuition, but you have a good business sense of how things will play out.
And do you think this COVID disruption has maybe made MNA activity more attractive?
Chi-Chien Hou: we are believers in, consolidation, right? for a long time in this space, you saw a lot of companies that frankly probably shouldn't have existed, but they did because it was exciting and no one told them otherwise. and so I [00:04:00] always said it this way, the acquirers don't look like acquires, right?
They're not buttoned up. They're not put together. And the targets don't think they're targets. You have something like COVID, which, on one hand bumps you up in terms of retail, but then at the same time, it depresses the central outcomes and raises the risks. All this makes it even harder for you to see, because there's always an asterisk there.
Oh, if this, the next six months were better, or if this were solved, then this would all be better. those are big gifts. And.
RC CI3 AFI DanTrack: That's life.
Chi-Chien Hou: Yeah. And but cannabis, has the swings are much greater in cannabis than in any other industry that I've ever been in. And but at the same time, it's hard to tell people that, say the volatility you can't expect any of these curve balls, all you know is that there will be curve balls.
RC CI3 AFI DanTrack: I'm going to jump in here because speaking of swings, one thing that's happened. I don't know if it happened overnight, but it's definitely happened is that individual investors. finding success with even one-off deals is just getting less and less likely. And, we have a lot of individual investor listeners who, got beat up with publicly [00:05:00] traded companies and, they're thinking, where do we go now?
Talk to them about transitioning and, what are some of the other advantages to working with your company?
Chi-Chien Hou: Okay, I will start this off by saying I am a horrible individual investor. So when it comes to managing my personal stock portfolio, no one should ask me for advice. If I say I'm buying this, you should sell. I'm buying stocks and timing. That's not what I do. what I am really good at is understanding the market, understanding the opportunities in the market, and then structuring a deal that both mitigates the risks that we've identified as well as takes advantage of the opportunities that we see.
Look, it's, this is what I do full time. this is what I do for a living. we're always trying to make sure we see something, continue to dig. And if there's a question, we go try to answer it. No again. I only know how to look at it my way. if you're an individual investor, you have to start thinking about how you fit into the broader market. It's more institutional capital comes in as the opportunities change the success of the definition of success changes. You have to adapt [00:06:00] now. I think the benefit of going with a professional manager is well, That's one way of adapting.
It's not the only way. Certainly there are still some very successful individual investors. what we tend to do really well, is we partner with a lot of people, right? We have a lot of investors who put money with us, but also likes to still continue to look at direct investments. here's the reality.
The market is so inefficient. That you have to rely on everything out there, that's at your disposal to find deal flow. And that's where I'm always saying, Hey, look, if you've got something that brings to the table, I'm ready to hear it.
RC CI3 AFI DanTrack: Yeah. and you mentioned working with your LPs and the LPs being a source of information, but you also have your portfolio companies and you also have the other firms that you work with. you co-invest on a lot of deals, so you have this constant flow of information.
That's that. an individual investor just doesn't have access to that information. , You don't even have to be smarter than they are. [00:07:00] you're just right in the middle of all the information. So that just gives you a huge advantage. I'm going to have your links to your website in the show notes and on the MTA bulls.com.
So if people want to follow up and continue this conversation with you, which, because we just scratched the surface of it today, we have a lot more to talk about, but I think our listeners know enough about aFI capital that they can, make an educated decision.
And if they want to follow up with you, there's just click on the link and go from there. She I'm going to have you back on again so we can continue this conversation.
Chi-Chien Hou: anytime. And no, this was a pleasure and happy to chat with you. And frankly, look, if anyone has, interest in chatting or, we talk a lot and I think professional conversations for a living. So feel free to drop us a line at our site. I do want to clarify.
I joke that I AFI it's slightly ambiguous and unclear, and there are several different AFS out there. There's, we are AFI capital partners. and our website will not talk about cannabis specifically because I do want to be able to get a mortgage. So when I move, but, anyone should feel free to drop a line.
we do [00:08:00] a good job of you getting back to people.
RC CI3 AFI DanTrack: That'sgood to know. Good luck with that mortgage flock to you.
Chi-Chien Hou: All right. Have a good one. Thank you.