Using institutional investment strategies to identify solid cannabis investments The Cannabis Investor Series sponsored by PodConx is back for the Fifth year. This year, the Series will again feature the cannabis industry's top investors, reviewing how the current macroeconomic cycle is affecting the cannabis industry, what to expect in 2023 and sharing investment opportunities and strategies. In today's episode, Dan Humiston is joined by Pete Karabas co-founder of Key Investment Partners. Produced by PodConx MJBulls - 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/ Recorded on Squadcast - https://squadcast.fm/
Using institutional investment strategies to identify solid cannabis investments
The Cannabis Investor Series sponsored by PodConx is back for the Fifth year. This year, the Series will again feature the cannabis industry's top investors, reviewing how the current macroeconomic cycle is affecting the cannabis industry, what to expect in 2023 and sharing investment opportunities and strategies. In today's episode, Dan Humiston is joined by Pete Karabas co-founder of Key Investment Partners.
MJBulls - 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/
Recorded on Squadcast - https://squadcast.fm/
Dan Humiston: [00:00:00] MJ Bulls. We are continuing the fifth annual Cannabis Investor series. Sponsored by Pod connects to cannabis industry's exclusive network of cannabis podcasts that allows companies to advertise. Go to pod connects.com to connect to more on today's show, we're joined by another former guest, Pete Caris from Key Investment Partners.
Pete, welcome back to the show.
Pete Karabas: Hey Dan. Great to be back again. I think, uh, we were just saying a second ago. I can't believe this is the fifth one now.
Dan Humiston: you're in an exclusive club. You're in an
Pete Karabas: There you go.
Dan Humiston: Well, I, and I always look forward to having you on the show because you tend to have a big picture perspective, which we so desperately need today. you know, Key
Key is known for taking a more institutional approach to investing in cannabis, which is code for your cautious, however, all the public bad news, you seem to be really optimistic. [00:01:00] Why do you believe that is a stable investment?
Pete Karabas: Dan, that's a great question. and I, you know, I'll touch on our, our optimism first. Obviously you have a lot of stuff going on, on a macroeconomic basis. You know, anyone who watches any news, you see anything from the war in Ukraine, inflation. See, um, the public markets, right?
You have these, these massive rate hikes from Powell and the Fed. You've seen the stock market drop 20% or so at the start of the year. know, a lot of things that are, I'd say, frightening to investors. , when we look at the cannabis industry, it certainly is affected right, by all these different parts of, the macro economy, but on the other hand, right, it also has characteristics of a, a vice like industry or even a healthcare, right?
You know, it where people continue to buy cannabis regardless of what's going on. States are continuing to legalize, And, we're continuing to see more jobs. We're seeing our portfolio companies grow. [00:02:00] We're seeing, the stigma around cannabis. Fall away and, uh, you know, most of all, You have a situation today in cannabis.
I'd say on both, certainly the public markets, but definitely on the private markets as well. you have very, limited access to capital still today. in addition to that, you have probably the most, attractive valuations and, and terms you can get as an investor, in the market.
And this is even more so than. Called the last two, three years, So, it's an exceptional opportunity for investors. a lot of cannabis companies, almost all of 'em, in one way, shape or form, need money. And the industry is, it's more mature than it's ever been. So, you know, we look at this type of situation and we say, what better time to, to make investments and gain exposure, Two years from now, it's gonna look entirely different and we think it's gonna look much better.
Dan Humiston: Yeah, my, my daughter always says there's, this industry is never gonna be smaller than it is today,
Pete Karabas: Yeah, right, exactly.
Dan Humiston: You know, you mentioned all the [00:03:00] doom and gloom and this, the, and if you watch the news, you, you, you can't help but be little bit pessimistic, Do you think the weather this pending better than other industries?
Pete Karabas: Yeah. Yeah. It's a great question. You know, one, we, we do talk about a lot. I, and the an, the short answer is yes. I, I do. and I think it's, it's for a variety of factors, right? I think the biggest thing here is. . regardless of what the feds do, states are going to continue to legalize cannabis, both medical and recreational programs.
and somewhat argue, you know, it comes, becomes even more attractive, right as you get more critical mass, right? All of a sudden, if, if you're a governor in a state, you're surrounded by states that all have legal programs. So are you gonna enforce trying to. know, that cannabis from crossing state lines, where are you gonna, know, collect tax revenues off of it?
I also think, cannabis right? Has, has certain characteristics, as a voice industry, as some call it, as a, you know, of course the medical side of it, which is, is still,[00:04:00] discovered and I think will be a longer. Play in cannabis, but it has a lot of characteristics, of industries, that do, farewell in recessions.
You think about alcohol, for example. you can look at alcohol, and CPG products throughout, recessions. And, what do you find when you look at the data? You see that, people generally. Are gonna just go down the shelf, , when they pick which products they're gonna buy. and by that of course, I mean, know, maybe they're buying the, the $15, $20 bottle of wine when they typically in good times buy a $30 bottle of wine, but they don't stop buying wine if they're a wine drinker.
So cannabis exhibits some of those characteristics as well. And it's the, the addressable market, right? It just keeps growing two. Four states, it seems each year, regardless of what's going on at the federal level,
Dan Humiston: yeah Yeah. Speaking of the positive vibes coming outta dc,, I know it's been a really, really tricky year for cannabis [00:05:00] companies that are raising money, and maybe energy coming outta might change things. You feel like this might start the capital flowing back into the.
Pete Karabas: Yeah. You know, I, it, it was incredibly positive, for all the listeners who aren't familiar, you know, we had Biden. Essentially, uh, pardon in, 6,500 people of, of, cannabis related offenses, . And I think just as importantly, right, it's really a recognition of cannabis, and cannabis legalization is very legitimate and it shows that Washington is, looking at it, taking it seriously and taking action on it.
And then lastly, I'd say if you really read through any of the press releases or, or a biden's state, the key thing in there, I think that most people are in cannabis are very excited about is, he's asking the Attorney General and, Department of Health and Human Services, to go review, cannabis, their classification as a Schedule one [00:06:00] substance, which I think most people would agree today is, just, very, incorrect.
I'll just leave it at that.
Dan Humiston: for sure. mentioned evaluations are down across the board but it's making it one of the best times to invest. What sectors do you think are the most undervalued right now?
Pete Karabas: Oh, you know, there's just a plethora of opportunities today, to be honest. know, I'd say anything that you were looking at a year ago, certainly today, you're, you can get a, a second look at it, whether it's a sector or a specific company, at, at just a, a much. More attractive valuation and much better terms as an investor if you have the capital.
when you talk about specific sectors at Key, you know, we've really widened our funnel this year to, to look at a number of different things. If you remember, probably in our first couple, podcasts, you know, we were much. More focus on the ancillary non plant touching side of things. I think one thing we've done recently is [00:07:00] really started to get smart on some of the individual states where we might want exposure and more on the, the single state operators or small private multi-state operator operators and one or two states.
and we've just seen time and time again. Now, if you can time it up right and time up your investment. you know, you can find yourself in a great situation if if you're in a state right, with, favorable regulatory dynamics. limited license is a good place to start. and, you get in on the ground floor certainly before rec, they have a rec program, right?
So it's like Ohio. It's like Florida, Pennsylvania, even. you could find, find some really great deals that way. So we've been looking a lot at. and we've been looking at really a, a number of different things. I'd say equally in terms of sector, right? We've been just looking at different ways to invest, whether that be via secondary investments.
You know, you have founders that maybe wanna take some shares off the table. They've been in cannabis for seven, eight [00:08:00] years and, uh, created something with a lot of value, but it's on paper. So we looked at stuff like that. Look at interesting ways. On the debt side you know, not straight term debt investments, but, , equity, like upside with debt, like downside on the investment, side.
Dan Humiston: Now, our listeners who are accredited investors and considering getting into the cannabis industry, what are some of the advantages of working with your team?
Pete Karabas: at Key we're really, really, really focused on what I'd call just providing institutional investment management services. And some people just. Oh, it sounds like a bunch of buzz words. What does that actually mean? really what we set out to do back in 2018, and we're still very focused on, is creating a, a diversified vehicle, with exposure to the cannabis industry.
that, uh, thinks a lot about downside, That, focuses on, on companies. Yes. With significant upside, but I always say the upside in the cannabis [00:09:00] industry isn't hard to understand. you just gotta make sure you're, you're not losing money. And so, uh, providing investors, the opportunity to get into deals that really, they, they wouldn't be able to get in otherwise, is, is our main objective.
And then turning around and helping the companies we invest in actively, raise capital form business plans, make partnerships grow, and, and really help 'em in any way we possibly can.
Dan Humiston: Well, we'll have all of Pete's and keys information in the show notes, so if you want to continue this conversation with, with Pete Offline. Either about investing in your company or partnering up with him to invest in the cannabis I'm sure somebody from Pete or somebody from his team will be happy to speak with you, Pete.
Always good to catch up. let's maybe not wait another year,
Pete Karabas: Yeah,
Dan Humiston: forward to speaking to you again. Thanks for being on the
Pete Karabas: absolutely. Dan. Thanks for having me. It's always a pleasure.