Matt Hawkins 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 Matt Hawkins from Entourage Effect Capital. Produced by PodCONX
Matt Hawkins 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 Matt Hawkins from Entourage Effect Capital.
RC CI3 Entourage dan Track and RC CI3 Entourage Matt Track
[00:00:00]Matt Hawkins: this was one of the things that still to this day, since I got into this in 14, that still boggles my mind is the size and scope and magnitude the illicit market. No one had any idea how big this thing was.
There's no way to measure, but the way to measure it now just, by saying, wait a minute. With the amount of users that we seem to have out there. How come it's only a, $3 billion market in California when we're projecting to be an $8 billion mortgage. guess what? There's 5 billion that's unconverted yet.
, it's just crazy. And raising cannabis capital. We are continuing this year's [00:01:00] cannabis investor spotlight series with another former guest Matt Hawkins, managing partner at entourage effect capital Matt. Welcome back to the show.
Thanks, Dan. Good to be here, buddy.
Dan Humiston: Yeah, it's good to have you back. And for those of you that didn't hear Matt, when he was on the show, I'll back in June, you may want to check out episode two 21 because we have a bunch of things to cover today.
And we won't have time to go over a lot of the stuff that we talked about then, but to quickly bring everybody up to speed. Matt Hawkins was one of the first big cannabis investors to take a chance on cannabis. And that has really paid off entourage effect. Capital is invested in, I think last time you said Matt, like 65 companies, including most of the.
big well-known cannabis companies, I'd like to pick up where we left off last time and that's with COVID nineteens impact on cannabis. And when we last spoke, you were super upbeat and felt the industry was really going to benefit from the crisis [00:02:00] fast forward, about four months.
Are you still as optimistic?
Matt Hawkins: Without a doubt. I think you can just look at the public company earnings, , and that's trickled all the way down to private companies. every single company in our portfolio, that's private and that's 90% of them have been positively affected by the pandemic as awful as that sounds.
But it's just the benefit of being in our industry right now.
Dan Humiston: that's really encouraging. , I know that some companies, are seeing lower valuations. , I know it's tough for people to reset their valuations. That's a tough pill to swallow. are you seeing some lower valuations or better deals?
today than at the beginning of the year?
Matt Hawkins: Yeah, I think a better way to say that as we're seeing better deals. your rights evaluations have not, lifted dramatically at least on the private side, but all of the deals we're seeing have, the nature of the businesses themselves have improved dramatically.
And so you've got companies that are coming in with [00:03:00] similar valuations as they had in December or January, February. And all of a sudden the positive impact of COVID has increased their top line and increase their bottom line yet their valuation the same. So the financial metrics are even better than they were previously.
And yeah, we think there's much better deals out there now than there were recovered.
Dan Humiston: Man. that's an interesting, perspective is that they're stronger companies with the same valuation is essentially what you're saying.
Matt Hawkins: Yeah. That's that's not going to last forever, but for now, that's what we're saying.
Dan Humiston: Man. That's great. Another prediction that you made last time was that you felt that there was going to be a wave of talented entrepreneurs that were going to migrate into cannabis. Can you explain whyyou think that's going to happen?
Matt Hawkins: I think now that, the industry's performance during the pandemic is starting to get , more public knowledge per se, and I think because of that, you will see a talent flowing in for a couple of reasons, one just the attractiveness to the space, but also. We're at [00:04:00] a point now where a lot of the companies that have been brought to a certain point by their founders, the smart founders are the ones that realize that they can't take it to the next level without help.
And I think that is another Avenue where in talent operators that have diverse backgrounds and have been operating in multiple different industries in their careers will come in and the instrument benefit
Dan Humiston: Yeah, I think you're right. especially a lot of entrepreneurs that were displaced during COVID that are saying, where's my next deal. where's my next opportunity going to be I don't see a better opportunity then cannabis right now.
Matt Hawkins: I'm of course various bias, but I'm right there with you. I tell investors too. look, there is no better time to be investing in cannabis and I challenge investors to find. Other growth sectors that have the opportunity within three to five years to have a huge valuation bump, like we are likely to see in the events of quasi or full legalization.
the other silver lining and the [00:05:00] COVID, hand-tight for the industry is that it's. Exacerbated the need for governments to create new revenue streams, both at the municipal state and federal government leveland as a result.
even I think on the right side of the aisle in Washington, people are saying to themselves, wait a minute, I keep hearing about this industry. That's already there. let's face it. This is a conversion of a market and not a creation of one. So why not help this industry gets to the point to where we can convert this to a taxed and regulated, industry that makes sense for everybody, as opposed to just letting it sit there.
and quite frankly,promote crime and promote, illicit dealings. And that's the other thing about, the pandemic is that. We have seen data that not only suggested it verifies that the illicit market's been tamped now. , we're seeing new customers and all of our retailers and retailers that are wholesalers sell to, and then we've seen
those customers come back. these aren't first-time users, these are people that have decided I'm tired of, Putting my health [00:06:00] on the line to go walk down to the street corner and buy it from some guy without a mask and not knowing where that came from.
we expect that to continue to just with a whole new renewed focus on health and safety and wellness, and that's where the industry is going to benefit and benefit big time because you're talking probably 15, 20, 25% of the illicit market's been converted thus far.I'm probably being aggressive. It could be as low as 10 or 15, , this was one of the things that still to this day, since I got into this in 14, that still boggles my mind is the size and scope and magnitude the illicit market. No one had any idea how big this thing was.
There's no way to measure, but the way to measure it now just, by saying, wait a minute. With the amount of users that we seem to have out there. How come it's only a, $3 billion market in California when we're projecting to be an $8 billion mortgage. guess what? There's 5 billion that's unconverted yet.
, it's just crazy.
Dan Humiston: essentially [00:07:00] what you're saying is that minimum, 85% have not been converted yet. If we've only got 15% of the market,
Matt Hawkins: let's be hyper aggressive and say it's only 30% of the industries, but mean that just shows you again, how much opportunity exists in the minute. This thing becomes. Federally illegal or at least clause illegal. And we start getting, the taxi regulation in line, which even California, people are realizing this, the cities that didn't have it initially are now clamoring for it.
Newsome has shown a willingness to restructure is, the egregious tax platform there. So there's a lot of positive effects that were happening pre COVID. And now certainly, during company.
Dan Humiston: I always get excited when I hear people talk about the opportunity and a lot of our listeners.
had a bad experience investing in publicly traded companies. AndI think everybody's interested in getting back in, what are some of the advantages of investing with entourage effect capital
Matt Hawkins: at our core we're private company, industrial, my [00:08:00] whole team comes from private equity background. So either from investing in private companies or operating private Some of us had some public company experience, but it's really not what we do. Most of the holdings we have that are public have become public during the time that we invested privately or companies that have been sold
and we've had three companies, so to cure leaf and, and canopy needs since I'm on, now that we're out raising fund three, there's opportunities there. I gotta be careful that I can't really promote. All the sec stuff they tell me, but yeah, we're active and we're getting a lot of great, interest in and we're, should be having a closing soon and we're going to be raising, a fair amount of money to exploit the market.
Dan Humiston: this is an exciting time and I just, in case anybody's wants to continue this conversation with Matt, the link to entourage effect capital is in the show notes. And it's also@mjbulls.com. we have a limited time here, but I'm sure Matt would be happy to talk to you more about the opportunities that are here today and are only getting better.
Matt Hawkins: Yeah. I find that the [00:09:00] best way to connect with interested folks is to just reach out it,lot easier than doing over a podcast.cause you're right. I love sticking to the macro things and then chatting with you about that.
And then we can get into all the micro details with our chaplain.
Dan Humiston: maybe the next time I have you on the show, we'll get a little bit more of the micro things, again, thank youfor everything that you do for the industry and appreciate you being back on the show.
Matt Hawkins: you bet I will do it anytime.