Pete Karabas 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 Pete Karabas from Key Investment Partners. Produced by PodCONX
Pete Karabas 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 Pete Karabas from Key Investment Partners.
RC CI3 Key
[00:00:00]Pete Karabas: Oh, I think now is really the best time to invest in cannabis, honestly. And when I talk to people all day, I always say we're in a really interesting point here in the industry. in my opinion, where we have this perfect storm, you have, growth expectations, and valuations have been really recalibrated.
you've had these, Darwinian type forces take a fact that knock on some of the weaker companies, in the same environment. you've had cannabis consumer sales increase, year over year, significantly today in raising cannabis capital, we are continuing this year's cannabis investor [00:01:00] series with another former guest Pete Carabas from key investment partners. Pete, welcome back to the show.
Hey, Dan, thanks really glad to be here again.
Dan Humiston: Yeah. you've been on to show a couple of times, andI'm going to invite our listeners to go back and listen to episodes one 54 and one 98, or more about Pete and ki. Because today I want to pick up where we left off. When you were here back in March, on that show, we were discussing a blog that you just written about how chaos breeds opportunity and your thesis essentially was that fortunes are made when there's blood in the streets.
Now we're six months later. Do you still believe that bold companies will come out of this crisis ahead?
Pete Karabas: Yeah. absolutely. Dan, I think that, what we've seen today is that, a lot of the initial panic, while it is behind us. and there still is some uncertainty in the future here that, companies have more or less, developed a game plan.
and when you really boil it down, [00:02:00] cannabis industry, since March, continues to grow, at a huge rate what we've seen, is that, yes, companies have had to make some cuts, it's still been in difficult, for some companies to raise capital.
Dan Humiston: , what cannabis sectors do you think were most helped by COVID in what sectors do you think were most hurt?
Pete Karabas: I think that, it's really company to company, but anything that, you saw outside of cannabis, in terms of sectors that did well or didn't do well, were the same ones inside of cannabis. And by that, No delivery sources, services have continued to be an emphasis. anything that helps brands connect to, customers, directly online through text messages, and has done well and seeing growth, any businesses that are really helping getting people into dispensaries are doing well.
I think some of the sectors, that burn up a lot of cash, quickly. I have continued to struggle, just for the sheer fact that it's hard to raise a lot of capital, even if, you can put it to good work in this [00:03:00] environment.
Dan Humiston: Yeah, I've heard that a lot, and we've also, for switching to more talking to like we're investors, we're hearing that valuations across the board are lower today than they were at the beginning of the year. , do you think now is the time to invest in cannabis or do you think the valuations will go even lower?
Pete Karabas: Oh, I think now is really the best time to invest in cannabis, honestly. And when I talk to people all day, I always say we're in a really interesting point here in the industry. in my opinion, where we have this perfect storm, you have, growth expectations, and valuations have been really recalibrated.
you've had these, Darwinian type forces take a fact that knock on some of the weaker companies, in the same environment. you've had cannabis consumer sales increase, year over year, significantly, and then at the very same time. and while we wish it was under different circumstances, you'd have.
States that need tax dollars and all of a sudden these tax dollars, generated by potentially legalizing cannabis become more attractive. [00:04:00] you got to believe that's going to push, legalization and policy reform, up the food chain in terms of, politicians priority lists.
Dan Humiston: Yeah. Yeah. Yeah. That's a really good point. I think that a lot of States will have no choice, because they're they're so deep in the hole right now, you know, one of the things that somebody else mentioned to me that I thought was really fascinating they said that a lot of cannabis companies are doing better today than they were.
at the beginning of the year, however, their valuations are about the same. So even though their sales are better, their profits are better. Everything is better. Their valuation is pretty much been flat. So that's a really good opportunity for investors.
Pete Karabas: Yeah, no, that's exactly right. I totally agree with that. the bottom line is, I think investors really, re-evaluated how they think about the cannabis industry. What's realistic in terms of growth expectations. they've put more of an emphasis on how do we get to profitability rather than how do we grow to be the biggest and baddest company out there.
on the same note, you've seen, [00:05:00] some interesting things happen, in certain sectors that, contradict that. So I would generally agree with that.
Dan Humiston: Yeah, I thought that was a really interesting comment. And plus thisis a great time for investors right now. BGS, if the valuations are flat, but. Businesses stronger. what more could you ask for that's good. I thought I read someplace that something recently happened with key?
Pete Karabas: That's exactly right. we recently closed on two deals, actually one, front range bio-sciences, which is one of the market leaders in the ag bio-science, space for a Hampton cannabis. the second one, being spring big, which is a customer loyalty and CRM platform, helping, dispensary's and branded products both connect better with the consumer
Dan Humiston: I just think that the general feeling is that it's going to be. Eventually legal nationwide. And I think that just makes investors feel a lot more confident to make investments in cannabis right now. [00:06:00] And, you for uncredited investors that are considering taking advantage of these opportunities in cannabis, what are some of the advantages of working with key?
Pete Karabas: we really pride ourselves on our, due diligence process. we, are very focused on long-term partnerships, with any cannabis companies, that were, investing behind. cannabis is long-term, industry, I say all the time.
we're, one of the funds out here that I'd say is very focused on, building out this industry long-term with very quality partners, quality companies, and, the industry, collectively as a whole, Oh,
Dan Humiston: Yeah, and I know from companies that they get investments from, firms like yours, it's nice to know that you're there for their next rounds. I know that it's one of the things that I think you're, you referred to earlier is that you're in this for the long play.
So that means that there's going to be. Second and third investments into some of these companies. Is that sort of along with the strategy?
Pete Karabas: Yeah, absolutely. Absolutely. we are, slightly later stage investors. but, we do realize, and of [00:07:00] course you always want to be ready to, double down on your winners. and a lot of the companies even. at the point we're investing at are close to profitability and, the facts are, down the road, these companies will need more capital, even in a positive sense.
not because they're burning it too quickly, but more opportunities out there. And there's going to be a lot of M and a, and you want to be ready for that. And can you continue to deploy, capital, in the companies that have been most successful in your portfolio?
Dan Humiston: . you mentioned M and a and I'm going to link back to something you said earlier, we're just this Darwinian convergence on the industry. Lot of companies that probably are just hanging on, they're really struggling now or maybe gone out.do you think that's going to prompt more M and a activity?
Pete Karabas: Yeah, absolutely. I think it'll be, a huge opportunity, for some companies and also investors. I think you're going to see, of course, continued consolidation. now, we've been. in a post Corona virus, and, now there's [00:08:00] a new landscape if you will.
and I think you're going to see, some of the larger, more well capitalized companies, have opportunities to buy companies that may be struggling a bit. and that could be a good thing,
Dan Humiston: yeah, because I think maybe the valuations were in some cases were a little high and it made it really difficult for M and a activity to get off the ground. but now thatmay have changed.
Pete Karabas: It really interesting. dynamic , You have even great companies that have, just fundraised at the wrong period in time. and by that, their timing just could have been off it's. It's nothing to do with the company. a few, had a company that was planning to go out and raise capital in March
, But it didn't go exactly to plan, or it got elongated or whatnot. So it's, a lot of quality cannabis companies out there. A lot of companies, continuing to raise capital and it's a challenging cat markets environment. but, those that stick to their business fundamentals and remain, I think focused on profitability are really going to, go the distance.
I think 20, 21 in 20. 22, we'll [00:09:00] look back on this 0.1 day and say, that was really a start of a real acceleration of the whole industry.
Dan Humiston: Yeah, . I hear that across the board. Everyone I talked to is just this is something we had to go through, but it really puts us in a great position to launch the future. I have. Pizza and key investment links in the show notes. So if anybody wants to follow up Pete afterwards and talk offline about what we just talked about or investing or if you're raising capital he's the right guy to talk to go to the show notes or go to MJ, bulls.com.
Pete, always good to catch up with you. Thanks again for being on the show.
Pete Karabas: Absolutely Dan, thanks a lot for having me as always.