Today's featured Cannabis Investor is Pete Karabas 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 Pete Karabas co-founder of Key Investment Partners. Produced by PodConX TWO12 - https://www.two12.co/ Raising Cannabis Capital - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Pete Karabas - https://podconx.com/guests/pete-karabas Key Investment Partners - https://keyinvestmentpartners.com/
Today's featured Cannabis Investor is Pete Karabas
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 Pete Karabas co-founder of Key Investment Partners.
TWO12 - https://www.two12.co/
Raising Cannabis Capital - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Pete Karabas - https://podconx.com/guests/pete-karabas
Key Investment Partners - https://keyinvestmentpartners.com/
RC Key
Dan Humiston: [00:00:00] Today on the MJ bulls podcast, we are continuing this year's cannabis investor series with another former guest Pete Carabas from key investment partners. Pete, welcome back to the show.
Pete Karabas: Hey Dan, how's it going? Great to be back on the show. Always a pleasure to join you on the M J bolts podcast.
Dan Humiston: Well, it's great to have you back. And you know what, it's funny. I look back the last time we spoke was exactly a year ago to the day. Which is really freaky considering how much things have changed over these last 12 months. It seems a lot longer, but you said something last year that it's, it's always stuck with me and that's that you were expecting like the bold companies that stayed aggressive during the pandemic to come out of the crisis ahead.
Did that happen?
Pete Karabas: Yeah, absolutely. In, in your, you are jogging my memory, if my memory serves me right, what we were doing. Yeah. What do you do when you run into a crisis like Corona and in particular in a emerging industry like cannabis [00:01:00] and I think what was important back then really did prove to be a winning strategy.
And, and that's really as, as a growing company in cannabis, focusing on your core operations reinvesting really in your core business and maybe some of the others. Things outside of your core businesses, other growth areas that you were looking at maybe cutting costs there and honing in , on what you do best and getting better at that and kind of keeping your head down.
I certainly think that has served at least a lot of our portfolio companies as well. And I'd say companies outside of the cannabis industry, right? When you look at the broader economy. And, and of course, when you bake in the tremendous growth that we saw from 2020 to 2021 within cannabis and the broader economy I think those who kept their head down and reinvested in their core business operations managed cash properly , they , have capitalized on the cannabis opportunity.
This year, we're going to be closer to the, call it , 27 billion. Last year, we were at 20 billion. And you can continue to see that growth, right. I think in the coming [00:02:00] years. So, even though we've been in the midst of a pandemic, cannabis has been, just been doing fantastic. Okay.
Dan Humiston: Yeah, that's it's great. I was expecting that answer because a lot of the companies that we've interviewed, made major leaps last year. And. One thing that we did see last year was a lot of valuations took a hit in a lot of companies peeled back a little bit as far as their fundraising objectives, do you see valuations going back up?
Pete Karabas: Yeah.
I I'd say that right. When the pandemic hit, there was obviously this moment more than a moment at several months. And, some would argue even in years of uncertainty ahead. But in terms of valuations I think people were a bit panicked, especially those raising capital who, or who were about to raise capital or who had capital needs in the future.
And may have as a means to bring that capital in brought down valuations are offered more attractive terms to investors on the same note, Today, I think we're still very much in, in a world, in the cannabis [00:03:00] space where valuations are high. One thing that we're always trying to do as an investment manager is obviously find fantastic companies at reasonable valuations and great entry points.
I think that it's challenging. , but they're certainly out there. And I think, in an industry like cannabis, some people will always overpay. You have a lot of growth in the future that you're discounting back. You see some huge headlines since we spoke last, you've, we've mapped, you have the sea Dutchies of the world.
And I think that when you look at some of those valuations today, say, Hey, wow, those are huge. Who would ever pay that? And then down the line you look back and say, wow, that wasn't such a bad price after all. I mean, you look at even some of the big tech companies way back in the day, and you could argue those were overvalued, but generally lucky.
We're very value oriented investors. Try to stay very disciplined , on the valuation and entry, multiple sides. So.
Dan Humiston: Well, I think you made a good point that there are opportunities out there, but because this industry changes so [00:04:00] quickly that unless you're in it on a day-to-day basis, it's hard to identify where the opportunities are, where the next trend is going to be. What sectors in the industry are you looking at?
Right.
Pete Karabas: Yeah.
no, it's, it's a great question. And some, we talk about on a very regular basis as up to this point, he has been much more focused on the ancillary sector within cannabis. I, I would also just call that, the infrastructure of cannabis or pick and shovel play.
So call it your technology POS systems, compliance, logistics, distribution, things like that. And so in terms of sectors, we're looking at at the moment there's a lot of interesting stuff out there. And I think on the ancillary side in particular, you really have to dig deep to find the best stuff today.
I'll touch on a couple one. We've been looking at a few different specialty finance companies. I think that's a super interesting sector. You have. Several of these companies now doing, equipment leasing [00:05:00] sale leasebacks and providing working capital just these small, more niche companies that are providing capital to the cannabis space where.
Cannabis companies couldn't get this type of capital or if they could, it was very difficult and really a pain for them to, to do that. And of course was very costly. So I think looking at some of these companies in the specialty finance space is, is very intriguing for us at this point in time.
One other sector we've been looking at very heavily is the lighting space and lighting technology fits, fits really well in our thesis. I'd say and today, it's, It's funny. You you can walk into these huge cannabis grows and even by some of the biggest MSOE and, at first take, you might walk in and say wow, you, you might picture it being a little more sophisticated if you will.
And so we think there's a big opportunity in the lighting space and I'd moreover caught the greenhouse technology space, where you have, [00:06:00] let's say a situation where, you know, as a grower, you can fine tune all. The the entire environment within a greenhouse, from the lighting, the spectrum of the lighting to the humidity, to really in some sense mimic what would be a perfect climate for a certain type of strain of cannabis to grow in.
So we think there's a ton of opportunity in spaces like that. And it, to that point, we're always looking for. What are, when we think about cannabis in where to invest, where is another. A growing sector intersect with cannabis, right? And so, on one side, we see controlled environment, agriculture and hydroponics, and this whole industry growing, even if cannabis didn't exist, that industry is growing rapidly.
And so when you intersect that with cannabis, which is a huge greenhouse crop in a high value crop it's really becomes interesting from an investment standpoint.
Dan Humiston: It's funny. You say that I've heard that from a couple different peaks [00:07:00] about the companies that are intersection of two different industries are two different growth industries. And that seems to be. Yeah. A trend in investing right now is to try to find those opportunities because they're not very many of them, but that is, it is interesting , that you're looking at that one thing that I know is important when it comes to raising money is to make sure that you reach out to investors that are a good match.
Now, you mentioned that you're. Primarily focused on the ancillary, the picks and shovels type of businesses for somebody that's interested in, maybe raising capital. Let's just say in two, in 20, 22 at this point right now, is there anything that they should be doing to get on your radar?
Pete Karabas: Yeah.
I think first off I'd say we are always retesting our investment thesis. For the last two and a half, three years, we've been focused on the ancillary side. However, , we have started really investigating the branded product side as of recent and some of these, I think single state operators have become [00:08:00] very interesting to us.
So in terms of, What companies can do to, get on the radar of cannabis venture capital. I think really just continuing to perform, showing strong sales showing how they're different, I think is a huge thing. I know it sounds obvious, but there are so many cannabis companies doing the same thing there, whether it's POS systems, whether it's seed to sale software, whether it's simply branded products even to.
Two years ago, like affects based branding, sleep or energized, as opposed to like the name of a strain. That was a huge thing. Now you kind of see that everywhere. So really, I I'd say, what are you doing different. And how does it lead to profitability? Or how you solving a problem in the cannabis industry and in our opinion
does that problem still exists? Post legalization? So you want to be careful you're not solving a problem. That's not going to exist once it's legal at the top. Obviously not a a good thing.
Dan Humiston: Those are some really good points. Yeah. I, [00:09:00] you wouldn't want to be in a position where if, as soon as it gets legalized, they don't need your services anymore. That probably , not the right place to be
Pete Karabas: exactly right. A lot of businesses like that too, out there for sure.
Dan Humiston: well for investors that are considering investing in cannabis. What are some advantages of working with key?
Pete Karabas: I think , for investors interested in the cannabis space we of course talk about this all the time with investors, we're very focused with really putting together a diverse portfolio in several different sectors of.
That we consider to be the infrastructure of the cannabis space. So if you're an investor who wants , to not go invest in a one branded product that you hope is the Marlboro or the Coca Cola or the bud light of cannabis one day. But rather, you want to find a, a portfolio of assets that grows as the cannabis industry grows and provides the tools To the branded products and to the [00:10:00] MSO is that they need , to grow great cannabis businesses.
That's really what we're focused on in QI. So, so far I think it's, it's gotten excellent reception. I think a lot of people are familiar with that strategy, the old, the Levi Strauss strategy, sell the jeans to the miners, running up the mountain with the pics. , and I think it's been great so far.
So, if you're interested in that you can definitely reach out to us on our website or I'm sure my, my contact info will be on the podcast.
Dan Humiston: Yeah, we'll definitely have your contact info and key's contact info in the show notes. So if, yeah. There's cannabis companies looking for growth funding or investors, looking for a company to manage their cannabis investment. Just click on the show notes and we're go to pod connects.com to learn more about the key investment partners.
Pete, it's always fun. Catching up. Thanks for being on the show today.
Pete Karabas: thanks a lot, then it was a pleasure to join in. Appreciate you inviting me back on.