Ross O'Brien 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 Ross O'Brien from Bonaventure Equity Produced by PodCONX
Ross O'Brien 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 Ross O'Brien from Bonaventure Equity
Bonaventure Equity
[00:00:00]Ross O'Brien: next crystal ball thing that I'm standing behind is that as we navigate out of this into next year, I think we will see a wave of very pro cannabis legislation
simply because the experiment's over. If you want to generate tax revenue and legalized marijuana, we're going to have to find new ways to subsidize the stimulus packages that have been put out. And I think we won't have the debate around, the soft issues.
It will literally be an economic decision. I think we'll see a lot of benefit from that on the legislative side. Today in raising cannabis capital, we are [00:01:00] continuing this year's cannabis investor series with another former guest Ross. O'Brien the founder of Bonaventure equity Ross. Welcome back to the show.
thanks, Dan. Good to talk to you again.
Dan Humiston: we had so much positive feedback after your last appearance.
people were just really impressed with your ecosystem that you designed to help finance entrepreneurship.
beyond just investing
you also engage, or you did engage through your deal-making summits
and you also informed through your.
book,
cannabis capital.
I want to say touch on everything, but with so much new stuff to talk about, I wanna encourage our listeners to go back and listen to, or re-listen to episode 200, wait to get caught up because just jump right into it today.
And Ross let's just start right off with your portfolio companies. COVID hit everything. How are your portfolio companies doing?
Ross O'Brien: Yeah. Great question, Dan, and thanks again having us back and, thanks a lot for reiterating, you know, what we're building, I believe strongly in the ecosystem that we're building with invest, engage, inform, and I'm glad that that's resonating. it's a [00:02:00] symptom of years of working with, entrepreneurs and investing in private companies and they require more than just capital.
And this is a time when that really gets put to the test. The world changed dramatically, obviously, and I hope all your listeners are healthy and in good spirits and everybody's doing well. but it's been challenging across the board for everyone. And the one thing that we knew we had to do. Right away was make some quick decisive decisions, both for our business, as well as the businesses that we've invested in.
And we really doubled and tripled down, in a lot of, instances where, we had zoom calls, one o'clock, two o'clock in the morning, my time.
And just hearing from the entrepreneurs saying, look, nobody has answers, but a lot of people aren't answering the phone and we showed up and we made sure that we were there available 24 seven. To be a sounding board, a thinking partner, and we didn't pretend to have all the answers, but having that kind of communication, and going beyond just numbers, it's not just a money conversation anymore.
It's a people conversation. It's a safety [00:03:00] conversation. It's a business continuity conversation. those are tough conversations to have, but the sooner we jumped into those discussions, the more effective, and I'm proud to say, that every company that we're involved with has navigated successfully, and turned corners successfully and, , are continuingto build some really great things.
the one followed obviously was. Our dealmaker summits. we just had to put that on hold for now. And, unfortunately, that required some tough conversations as well. I keep saying that we're conversation, but it's really about just having those discussions and, we just had to move quickly and we did things in his gentle way as possible for the human aspect.
And I think that's allowed us to really focus on. What our core competencies are. at the end of the day, Dan, I think across the board, this pandemic has been an accelerator for a lot of things, , I'm I use the example of,Sears, right. We all knew that Sears was going bankrupt and just went bankrupt faster.
Right. and we knew the world was moving towards telemedicine, but telemedicine just happened faster. and once people adapted to that, we had. So much success of [00:04:00] just stacking zoom calls and raising money. And, , put more capital to work. so once we made that transition, the company's benefited. And so did we.
Dan Humiston: I think it's encouraging not just the companies had to make adjustments due to COVID, but the investors and the, venture capitalists, you had tough choices to make, if you had to cancel the deal-making summit, that was probably not an easy decision.
Ross O'Brien: Really difficult. and suddenly we believed in and had a lot of passion for, and enjoy doing and got a lot of value from, but, was not a good business decision ,
and so once you accept the realities of it, then, okay, this is the new paradigm. That's the new constraints, the new box we have to operate in. how do we make that work?
Dan Humiston: Yeah, that makes a lot of sense. That makes a lot of sense. You have a background working with family offices and a lot ofour listeners, our investors, why is now the right time to invest in privately held cannabis companies?
Ross O'Brien: I'm glad you asked that question, Dan, , we are as bullish, if not more bullish than ever on the cannabis investment thesis. And if you remember back in October and through the end of the year, last year, we [00:05:00] were all talking about the public markets cratering and that was a big crisis.
and at the end of the day, very few companies succeed. So there is a certain bit of, okay, let's see who, are the most resilient, the most resourceful and the most committed entrepreneurs. They're the ones who are still around. And those are the entrepreneurs that we've put invested behind during period.
look at every investor has to pretend to have a crystal ball. . I, wasn't the only person to predict the public markets. It just happened sooner. Right. But I think the next crystal ball thing that I'm standing behind is that as we navigate out of this into next year, I think we will see a wave of very pro cannabis legislation
simply because the experiment's over. If you want to generate tax revenue and legalized marijuana, and we're going to have to find new ways to subsidize the stimulus packages that have been put out. And I think we won't have the debate around, , the soft issues.
It will literally be an economic decision. I think we'll see a lot of benefit from that on the legislative side.
Dan Humiston: Man, for your mouth to God's ear. I hope you're right with that one. That's for sure. The valuations on private [00:06:00] companies, we're hearing that they're flat right now. We're down, which seems like that would be a really good opportunity, especially what you just said about the projection in the future.
Right now seems like the time to make these investments.
Ross O'Brien: No question. And that's why I said we're doubling and tripling down in the sense that, the valuation expectations by entrepreneurs are coming back down to earth. I think they were artificially inflated because of these premature IPOs and just, the green rush, which I.
vehemently disagree with the Klondike mentality of rushing into things. we looked at over 400 companies and waited, over a year before we made our first investment. And during that time a lot happened a lot change, but this is patient capital, and we're also seeing a lot of the investors that were.
Perhaps inexperienced investors coming into this space that hadn't been in venture before having built companies before they're not around either. So I think what we're finding is there's a, resetting of the professionals and. valuation is always negotiated. entrepreneurs and investors are always at opposing ends until you consummate a transaction.
[00:07:00] And in private companies, there's no explicit market they're negotiated. and I think now we're having different negotiations. It doesn't necessarily mean That entrepreneurs are getting beat up over the valuations. They're just more realistic andthe alignment with private companies and other sectors.
And it really shouldn't be that different. There's gotta be a structure that's mutually beneficial to both parties that it's just so much easier to have those conversations. Now I'm deeply concerned for the entrepreneurs because there are fewer, fewer sources of capital. So I'm hoping that there will be.
No more private investors and hopefully more funds will commit to the space. but that,disconnection in the market will, always keep, pressure on the entrepreneur to be realistic about valuation.
Dan Humiston: Yeah, I think it'sa hard pill to swallow for a lot of entrepreneurs. Who saw really high valuations is early as a year ago to now say, Whoa, why are my evaluations so much lower today? It's a hard pill to swallow, but like you said, it's probably a little bit more realistic the valuations today than they were, even going back a year.
Ross O'Brien: So we don't [00:08:00] invest in public markets, but we watch it. Right. It's a barometer. and , we could no longer correlate. the value of the company to the stock price, right? We couldn't correlate good operations, profitability, we just couldn't see the fundamentals that, equated to the investor, exuberance around some of these companies.
Now, the silver lining in this is that. The experiment's over investors in particular retail investors, the smaller private investors that invest in public securities, they believe that cannabis is going to be part of our communities for the longterm. And I think that shift will have longterm benefit.
where the near term pain is, is I think. People, believe their own If I can say that on your podcast and
All of a sudden, I, you know, just because I have a business plan and it's a big growing market, I think I'm, a unicorn. and Dan, for me personally, we are not interested , in unicorns.
I don't think that's a sensible approach for investors. And I don't think it's a sensible strategy for an entrepreneur. What we're looking for. Great companies [00:09:00] that, are quietly going to get to a hundred, 200, 300 million in revenue. And we're happy to do that all day long.
And those entrepreneurs tend to be more realistic about what the key value drivers are. Right. I mean, I'm pretty simple about valuation. Do you have profits? Yes. No. , out of those profits growing? Yes. No. Do you have revenues? Yes. No. Are those revenues growing? Do you have a team in place? Do you have intellectual property?
Do you have some unfair advantage where customers are, , pulled to your company and pull demand as opposed to push demand? I mean, those things get pretty simple and if it's a star business, that's in a large market that can grab large market share, we don't need to go chasing, , fantasy, dream IPO's.
It can be a very, very successful business with the right partners in place.
Dan Humiston: One last question that I had for you follow up from last year, , you said that this isn't an industry. I love this and , I hate to leave without you giving and an opportunity to tell what people, why this is not an industry.
Ross O'Brien: so thanks, Dan. And that's [00:10:00] something that, we developed and became a concept that matured in the process of writing the book, , cannabis capital, the first book on venture capital for cannabis on entrepreneur press. I'm pleased to say that since it came out in January and soon, very, very well .
So that's exciting.but one of the things we looked at was,there's a real challenge I find in cannabis when we. Pigeonhole this as an industry, because you put a wedge between investors and operators and legacy advocacy versus, new entrepreneurs in the space. And you put that wedge in place simply by, it gives an easy out for everyone to say, Oh, you don't understand this it's cannabis.
It's an industry. or for investors that come from other sectors and say, Oh, that's the cannabis industry. They don't understand business. And we just wanted to take that off the table. Cause you're, if you're having that conversation as an investor and entrepreneur, you're not having the right conversation.
And so we looked at it and said, wait a minute, this isn't an industry. This is an economy. So we coined and defined the cannabis economy. as a global trend, it's not a phase. It's not a fad, it's a trend it's global and it's macro. And then within that, you have [00:11:00] sub sectors and sub industries that are developing some new, some legacy.
And I always challenge everybody. We talked to Dan and when we have this concept and so name any industry, Any industry, no one has been able to name one that will not be otherwise impacted by the legalization of cannabis. is Yeah. so it occurred to us. This is an economy and this is global.
And then the pieces within that are developing, have nuance to it. and it informed our investment thesis.
Dan Humiston: I love that. I love that. I think that's great because like you said, it rolls into the world of HAMP. It rolls into Madison, it rules into. Every single thing. You're right. And if people want to learn more about Bonaventure equity or talk to Ross directly, I have the links to their company in the show notes.
So you can just continue this conversation offline with Ross, always great to catch up with you. Thanks for being on the show today.
Ross O'Brien: Yeah, Dan, thanks for doing what you're doing. I love your programs and you're just bringing really great conversations into the light and it's important. So we're huge supporters of what you're doing and always happy to talk with you. And, like you said, if anybody does [00:12:00] want to reach out directly, my email's on the website, so you know how to find me and I'm happy to have the conversation.