Today's featured Cannabis Investor is Matt Nordgren The Cannabis Investor Series Sponsored by TWO12 is back for the Fourth year. This year, the Series will feature eighteen of the cannabis industry's top investors, reviewing the previous 12-months and sharing their 2022 investment strategies. On today's episode Dan Humiston is joined by Matt Nordgren from Arcadian Capital Management. Produced by PodConX TWO12 - https://www.two12.co/ MJBulls: Raising Cannabis Capital - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Matt Nordgren - https://podconx.com/guests/matthew-nordgren Arcadian Capital Management - https://www.arcadiancap.com/
Today's featured Cannabis Investor is Matt Nordgren
The Cannabis Investor Series Sponsored by TWO12 is back for the Fourth year. This year, the Series will feature eighteen of the cannabis industry's top investors, reviewing the previous 12-months and sharing their 2022 investment strategies. On today's episode Dan Humiston is joined by Matt Nordgren from Arcadian Capital Management.
TWO12 - https://www.two12.co/
MJBulls: Raising Cannabis Capital - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Matt Nordgren - https://podconx.com/guests/matthew-nordgren
Arcadian Capital Management - https://www.arcadiancap.com/
RC Arcadian
Dan Humiston: [00:00:00] today on MJ bulls, we are continuing this year is two 12 cannabis investor series with an old friend, Matt. Nordgren the founder and managing partner of Arcadian capital. Matt. Welcome back to the show.
Matt Nordgren: Thank you, Dan. Always good to be with you. What a year, it's been glad to be sitting back here and let's try to make sense of some of the.
Dan Humiston: Oh, my gosh. Yeah. It's been a crazy 12 months and I'm glad you're back. What would a cannabis investor series spew without you? This is our fourth annual and you've been here every year. One. From one of the previous times we spoke, that's always stuck in my mind. Was that you said when you first started, you reverse engineered the cannabis risk factors to figure out the least risky way to invest in the industry. Maybe you can elaborate a little bit more to get things started on that
Matt Nordgren: yeah, it's a core principle of ours at Arcadian is to think about particular assets in this space, different verticals, and think of them as [00:01:00] compared to. Businesses that do the same thing, not in cannabis. Because ultimately when institutionalization does happen, knowing how institutionals and major markets think they want to understand value and multiples associated with things like revenue and EBITDA, of course.
And so, when you say reverse engineer, we think about that as, Okay.
If you're a CRM business or something like that, or you're a packaging and bottling business we can go take our platforms and research and analysts and say, go find me every packaging company, every CRM company that has ever raised to be around.
And I want to know what their EBITDA multiples were, what their values were ultimately in their D their pre IPO. What were their exits? What were they acquired at? What is Salesforce pay for CRM so forth. And then what we want to be able to do is go into a conversation in this industry. We recognize that it's an [00:02:00] emerging space.
Based on market share and growth, you should apply a premium valuation in many cases to the normal, multiple, but we need to at least have founders that understand what they're doing and what the value would be for that business, if it was not in this space. And so if a CRM business, trades at a 12 multiple or something, we need to be able to say, okay, if you're the winner in CRM in Canada, What is your business based on a 10, multiple, a 12, multiple, a 14, multiple. We're not too concerned with a company worth 32 cents or 28 cents in a particular round. It's more important for us that ultimately the company achieves being valued at a dollar, right?
I What is 4 cents. If you get to the dollar that's, what's important. So we want founders to feel comfortable that they have enough value to create for themselves that there's enough left to build in the company that we're not going to crunch them at a growth round or an early [00:03:00] stage round, but ultimately we can't allow founders to not use fair comparables with how real markets and real institutionals think about their type of business.
Dan Humiston: Yeah, , because it's cannabis, you just can't let, just invest Willy nilly. You have to have some sort of benchmarks to work with. You've always said to me that. Cannabis and all the businesses in cannabis are sort of high risk, high reward businesses.
That's always been the foundation. Are you seeing that change or is that still the case today.
Matt Nordgren: Well, I think every year there's less risk, certainly. But if you went to JP Morgan, Private wealth, or you sat with CalPERS pension Dauman funds. Anybody that's a sizeable financial group is going to categorize this as a high risk high return. , it hasn't changed it because it's a little bit less risk now every year, but in our minds there are definitely riskier industries, but we also understand it very well.
And so in [00:04:00] your last question, it was about how do you present this? And so that there's less. Then what they would normally perceive to convince major allocators to enter our space. And the way to do that in an emerging industry is to offer a Haggerston diversified approach. Typically in an emerging industry, you hear the old theory that 20% of your companies become 80% of your return.
And so in many ways it's hard to imagine that in the early nineties, for sure who was going to win the internet or tech run, it takes years with really, substantial groups with lots of positions working through a highly fragmented industry and putting things together so that it makes sense for an institutional.
So I think , that really is the way to reduce risk is to work in a portfolio. And so we try to offer that. And so to the other great funds in this space, but on top of that, by making sure you align in properly valued situations, you think about compliance factors you think about having [00:05:00] independent board.
Trying to even do things like structure capital so that it comes in and ways when you do around, we try to let founders feel comfortable with maybe up-sizing around, but saying, if you meet these metrics, you get to have the capital flow in versus giving it all to them. It wasn't.
We're trying to do as many things as we can. It doesn't take away from the business's ability to grow but ultimately reduces the risk so that the narrative for these major capital providers, which have largely not entered this space yet, ultimately become convinced to allow capital to flow here in a way that we can get real resources to these founders who deserve.
Dan Humiston: Yeah, that makes a lot of sense. . I have a theory , about Candace. I never really shared it with anybody, but , I thought I'd float it with you and see if it makes sense for you. It's , a team sport versus an individual sport.
And I think early on in cannabis, It was a really an individual sport. People just don't want to talk because they couldn't talk about what they were doing. So they kind of went it on their own. And I'm seeing [00:06:00] this transition right now where it's more of a team sport. There's a lot more people collaborating on ideas, including investors and, your pro football player.
You've been on a teams your whole life. Do you think this is the way it's going and more into a team sport?
Matt Nordgren: I do. It's a great theory, Dan, you talked to a lot of people and so it'd be hard to argue with you if you feel that way. We actually feel that way as well. And we always have for me brought up football, I was a backup quarterback, my whole career. I never started college or the NFL. And so you learn servant leadership and how to lead from the sideline.
It actually was great practice for being an investor because you're not on the field, , your founders, your operators are, and you're trying to help call and plays and get to the locker room and make sense of things, I think it was always in my energy and my spirit person. To learn how to serve as a partner.
And so that was good for us, but in general, that's how we came into the industry. And today it's now even more relevant because of the high fragmentation that [00:07:00] exists in an emerging industries that achieves, institutionalization. So what is happening? That's forcing that Dan, is that there isn't anybody in this industry, that's doing something that nobody else in the world has ever done.
Dan Humiston: Yeah,
Matt Nordgren: let's just be, I guess some of the MSOE, no one's ever built cannabis at this level, but there are plenty of big, large fortune 100 companies that do agriculture and manufacturing and brick and mortar, retail, and testing and district meet. It's just a different ingredient set. But ultimately if your data software, HR compliance, media packaging, You're not going to get bigger than the fortune 100 or five hundreds that offer those same lines of services to other industries.
And so as you get closer to being a big fish in many of our companies are over that 500 million valuation mark now, some over a billion. And so they're really becoming, unicorn status or whatever they call it. But regardless, there's trillion dollar companies [00:08:00] in this world now, right?
Like apple or something. You're not going to get there probably. And so as you get bigger and you become. To being thought of as a target for these big fortune 100, you realize that they do have an option to just say, well, I'm Salesforce, right? I'm Oracle. I pretty much can build technology. I know how to do CRM and inventory management at a very high level.
Could I possibly in six months build a platform this as good as anybody's in cannabis today? Well, it's hard to argue that they could probably do that. And so you have to think about the fact that we need to present a buy versus build mentality. And so as we get closer to this. These companies are realizing that, this isn't just how bigger great you are in cannabis.
Like you said, in the early days you were keeping everything close and he didn't want to tell anybody. He just wanted to be the best. Well, now you realize that you're never going to be the best in the world at CRM. It's just [00:09:00] not going to happen if all you're doing is cannabis. So the best thing you can do is continue to, fortify your position as a buy opportunity.
Either for the market or an acquisition by a a Salesforce as an example. And so you're starting to see these founders of these companies in this space, if they're number one or two or three or four in market share for whatever they do realizing the time is probably coming that you're going to have to sit at the table and be ready to cut a deal.
And if you're not going to cut a deal with Salesforce, they're not going to sit on the sideline for forever and not do CRM. For a 30, 40, $50 billion industry, they're going to offer a product to that industry with, or without you. And so you're seeing the teamwork because they're feeling the pressure of fortifying, their positions, gaining market, share, getting contracts, bolting on, more API integration and more widgets and trying to be bigger and [00:10:00] better, and a prettier prom date.
You know, When the dance comes than they were before.
Dan Humiston: my theory. So I know it makes a lot of sense, but you just really solidified , my belief on that one is that, whether I'm an investor and I try to do it on my own and it's not happening anymore, you need to work with a team like the people at Arcadian, or if I'm a cannabis company and I want to get to that next level, I need the expertise of guys like you to can say, Hey.
Let me introduce you to this group. They're interested in possibly buying. I wouldn't even know who those people were, but you have that network. And that's what I talk about the team. I love the idea of you being the backup quarterback. You're being a little bit humble there, but it is great that you have that training that you can enjoy somebody else's success.
I think that's awesome.
Matt Nordgren: Well, you want your founders to feel like they're the star. You don't want to take that away from them. It is about them. It's about their company. They're on the field. Cameras are on them. The crowd's watching them. How can we, get them in the [00:11:00] best position to punch it in the end zone or something rather than just football analogies.
It oftentimes when you talk about teamwork, we're seeing this at the investor level to the funds, all the great funds, we're very close. And we talk about everything happening in the industry, all the companies, all the deals, all the movements, the politics, because we realized that there's strength in numbers on a cap table too. If we're in a deal with five or six or seven of the other top funds that gives a lot of confidence to everybody in this. Then if we need to make calls at least one of us, or if all of us together get on the horn, it's going to be very difficult for a cannabis company to not take it seriously.
If some of the best funds are there because likely, we have over 50 companies. Now, some funds have 70, some have 25. Amongst the top funds have positions in every major company in this industry, and we've been able to build respect and a reputation with them. So by having great funds on your cap table that are all friendly and working together, when situations arise, the [00:12:00] likelihood that we can make an impact for the business is much greater.
If the investor funds are working together, along with the fact that the companies and founders are all working together.
Dan Humiston: before I let you go, give me a couple advantages of being part of the Arcadian team.
Matt Nordgren: Well, I think we built a reputation. That's one of our greatest strengths. We think about this as it's not what the world does to you, but what you do to the world. And this industry is that it's taking the earth building consumer products for it. That's both healthy for people in the environment and then can recycle and get that cycle going again.
And so we really take that seriously here. And I think our peers in the industry would say we're maybe one of the more well-liked firms, because We really value what we're doing here in spirit, not just financial. So I think that's a big differentiator for us. I think a lot of people would agree that we've operated that way.
The other thing is that our firm is really focused on non plant touching. And [00:13:00] you and I talked about this just before the show, we are going to have a plant touching fund pretty soon. That'll really be focused on the B-to-C aspect. Our differentiator because a lot of the funds out there are great, but I think our main one is that through our several funds and 50 companies, we've done only non plant touching.
We've done SPVs for plant touching, but as a manager, that really is our specialty area of focus. And I think of all the top five or 10 funds, however you want to rate them. We may be one of the only ones that has not invested in a plant touching deal through our funds ever. I don't know for the only one, but we're certainly one of the few for that.
And by the way, those that have invested in plant I've done really well. It's not like this is based on IRR or exits. The differentiators that, that has been where we wanted to focus our efforts largely based on the fact that our capital providers prefer
reducing risk in that way. But I think it's the way we operate and the type of strategy we have that differentiates us a [00:14:00] little bit.
Dan Humiston: Well, I think it's important that you've niched yourself and knit, like you said, you're , the company to go to, if. You're looking for a non plant touching. You want a little bit less risk and you know, I'll have all the links to our Katie and capital in the show notes. And so if you're a company that's looking for growth funding or you're somebody that's looking to maybe join the team, click the links.
I'm sure somebody from Matt's team will be happy to talk to you. Matt always find a catch up. Let's not wait a year. This time. Let's have you back on the show soon. Thanks for doing this.
Matt Nordgren: Man, Dan, thank you for creating the space that you do because to me it's feels like a safe space. I think others in this industry would agree. It's a judgment free zone, which wouldn't the world be a perfect place if no one judged anybody for anything they ever did. And we allowed people to judge themselves and your higher power to judge you.
But I think this is a place where you create that environment and it's been a joy to be a part of and see you thrive and thankful for your platform and look forward to the next [00:15:00] time.