"Cannabis Funding in Flux: Strategies for Success in Today's Market" Raising capital in the cannabis industry is challenging, CEO Paul Weiss, of Paper Planes is back for Part 2 of his interview with Dan Humiston. In this episode he highlights the current dry spell in funding, emphasizing the importance of realistic expectations and responsible growth strategies. Weiss also shares insights into managing a diverse cap table and the benefits of maintaining tight control over capital, emphasizing the need for disciplined financial management in the cannabis space. Produced by PodConx
"Cannabis Funding in Flux: Strategies for Success in Today's Market"
Raising capital in the cannabis industry is challenging, CEO Paul Weiss, of Paper Planes is back for Part 2 of his interview with Dan Humiston. In this episode he highlights the current dry spell in funding, emphasizing the importance of realistic expectations and responsible growth strategies. Weiss also shares insights into managing a diverse cap table and the benefits of maintaining tight control over capital, emphasizing the need for disciplined financial management in the cannabis space.
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Paul Weiss - https://www.linkedin.com/in/paul-weiss-6013a41a9/
Paper Planes - https://vangst.com/companies/paper-planes-extracts
Recorded on Squadcast - https://squadcast.fm/
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Today in the MJ Bulls Raising Cannabis Capital, we are continuing our conversation with Paul Weiss, the CEO of Paper Planes. Paul, welcome back to the show.
Great to be back, Dan. Thank you. Thanks for having me.
Well, I appreciate you doing this. We had a lot of positive feedback last week when you were on the show and. We talked mostly about your company, but during that conversation, we learned that you actually have experience as an investor and as an entrepreneur, as a business owner in the cannabis space.
And we thought, what a perfect opportunity for us to pick your brain about what it's like to raise capital in the cannabis industry today. What right now, when maybe some strategies that we can, people can use to better. Increase their odds of actually landing some , some capital. So I thought that'd be a great place to start today's conversation.
We've been doing this show for about five years and we've seen these ebbs and flows where there's been periods of time where there was a lot of money available, a lot of funding, and then there's periods of time where the. It's just dried [00:01:00] up. I feel like we're in one of those periods right now. Maybe that's a good place to start Why are we here right now?
Is that in my mind or are we really in a dry place right now as far as funding goes?
Oh, it's definitely a dry place. Liquidity is extremely tight everywhere in the industry right now, and there's actually a lot of reasons for it. It's not just investor capital, but when you have a deeper understanding of sort of the train of events that lead up to being able to present somebody with an opportunity to invest, you realize that some of the dysfunctional problems in our industry really affect it.
For example we all know the difference between accrual accounting and cash accounting. So, on an accrual basis, we have a lot of sales out there and it looks great, but maybe our collections aren't quite as strong and our cash flows. So there becomes a disconnect between what you report as your sales and get everybody's enthusiasm up and actually your liquidity needs.
So it's pretty hard to send out a great glowing quarterly report that you're [00:02:00] looking great. But you're calling the same people for capital and making sure that you have a fundamental understanding of your collections. Your ARs is critical to being able to effectively raise capital. It's not an obvious point, but it's actually a critical point.
And that was less of an issue several years ago. Also there was. As I like to say, a less than perfect understanding of what this industry is and how companies can grow and how they should perform. And there was a sense that, you can get your 10x in 20 minutes because this thing is going to go to the moon and a lot of money was lost and not just, uninformed money.
Institutions that are in the market now, these larger private equity companies, they're now having asset sales from their failed companies that they put millions into that you scratch your head as a purchaser of what they're selling, you're like, why the hell would they have ever invested in that when I can't get [00:03:00] them to open my data room?
And the shift in psychology has been enormous. And all these factors together make raising capital now a very nuanced. Very high skilled thing to do. It's not like it was in the past where everybody wanted exposure. I
Yeah, it's there's a really good point. So I think your explanation of how things were in the past It makes it easier for people that are failing right now or not Having the success that they saw other companies had in the, like you said, people won't even go into your data room right now and they were the same investors in failed companies.
And I think that's maybe leads us right to strategies. Like the strategies of the past are not effective today. So what kind of changes should companies be making or what kind of approaches should companies be making so that they're more successful in raising capital?
think you need to be very real about your expectations and what you're [00:04:00] selling the marketplace. This is a time where you can't expect people to buy something that even smells unrealistic. Nobody wants to see a hockey stick anymore. They do want to see responsible, symmetrical growth. Backed up by real customers or however you generate your revenue.
If you're not realistic, you're probably not going to get out of the first base. That's on the more structured institutional side. That being said, one of the great words that I've, or expressions I've heard recently is no one's making quote unquote disbursements these days, which is a nice way of saying that the large institutions are scared to write checks unless you're, one of the riskless top five names in the industry, which there is no riskless top five name, but there's a perception of that.
I would say that. If you're trying to do something that has a great need for capital and a long runway, you're probably in the wrong business right now. If you have [00:05:00] something that requires a few million dollars, maybe less, maybe a little more than that, your best road is the road that we've taken.
Which is individuals. It is very small institutions, but basically those that just want to get exposure to the space that aren't specialists building a large and diverse cap table. That's easy for me to say, but it is a very complex toolbox of skills that one has to bring to the table to be successful in our space now for the aforementioned problems structurally we have in the industry.
So, what we do here is we do our own subscription agreements after they're structured by our attorneys. We get them out. We do the docusigns. We make our own decks. We pitch it. I'm able to speak fluently about our financials. As CEO, while I'm not the cannabis partner, my partner Carter Latimer is, I have to know every bolt and every weld of this ship and I have to present it properly.
And I [00:06:00] have to do it in a very balanced way and, maybe, my experience in life, those city miles maybe have some benefit to me because I do understand what people don't want to hear as much as what they do want to hear. And that harder approach means that you're basically sourcing individuals, sourcing people, working your tail off, dealing with the inevitable pushbacks, rejections, delays, and all the rest.
And defining a much bigger part of your job, having your, hat and hand on bended knee as opposed to making big, interesting policy decisions with your company. That's where we are now.
Yeah , two things that really jumped out at me and just what you said. What the first one is the obvious one, but some people feel like they need to just overwhelm and awe the person looking at their deck with some crazy numbers. And that's the wrong thing to do.
And I am glad you pointed that out. But the other thing that I think is really interesting that that you. That you talked about is your cap table and how I think [00:07:00] a lot of people or misguided when they start the raising capital process in that they wanna find that one partner and then just be done with it.
And on paper that sounds great, but not only is it unlikely, but , , there are many disadvantages to that situation. Maybe you can just touch on a few.
Well, on paper, it sounds terrible to me. I mean, I have a hard enough time making sure the majority of the people that I report to are comfortable. Imagine if you have a jury of one and they disagree. Yeah, I do think having a. A large cap table has the challenges I mentioned earlier, which is building it.
But once you have that, if you can have the majority of your investors with smaller percentages that trust you, that, and if your trust is worthy, but if they trust you and they're passive it does mean you could run the company as you see fit. If you have two or [00:08:00] three big hitters on that cap table, not if, but when you stub your toe.
And you will stub your toe. Every quarter or two, something stupid happens beyond your control. You're not going to have a lot of trouble managing it if you have control of your cap table. So, the trade that we made is for control. It's not just because it was the only way to go in this market, which made that trade obvious, as opposed to more, less of a choice, more of a compelling thing, situation.
But, We feel that there's nobody that's gonna, call a special meeting and tell us that we have to start selling widgets and not cannabis. That's not coming our way, and that's a very big advantage to not having the one big funder, which is fraught with risk, in my view.
Oh I completely agree with you. I think , people feel because they're, it's easier for me just to raise with one person than it was before with multiple, but the downside of that is, as you just pointed out is the other thing that having multiple people on your cap table [00:09:00] is I think people are afraid of because they realize it's going to involve a lot of work, but I don't think they appreciate It doesn't really matter once you get into the fundraising.
We'll give an idea how much of your time is spent fundraising
About 50 percent more than I want. So, how much is spent on fundraising? A lot. There are points in time where we look at our liquidity over the next, let's say, 30 days, and we do this as a routine. We're always looking at our liquidity on a day to day basis. And then you can see, an air pocket coming.
And then suddenly you have to say, okay, we're going to be X amount of dollars short. How are we going to fill this? And there's sometimes you can think about short term debt, which Is a big problem in our industry and something you need to avoid and then you say, Okay, I have to go to my cap table or find some new friends and I have to, Either build on the previous round or open up a new round and get something done in a hurry.
I've only got three and a half weeks. I've got [00:10:00] payrolls coming and I've got orders that I have to, I have to buy inputs for production and all the rest of the stuff. And that process goes from, Oh, I'm flush now. I don't have to think about it. To all I'm doing for the next two weeks is not sleeping and working towards this.
And then the stress of it, I think, is more actually more insidious because As they say in these processes, sometimes the best call is no call. So someone said they're going to get back to you on Wednesday, and it's Wednesday morning. Do I call? Do I not call? So you're stressing even though you're not physically working.
It's a very hard job to do. It's a specialized job, and it requires a lot of poise. So I can go on and on about how difficult the process is. It's not a matter of... time in terms of, what am I doing every second of the day? It's a matter of how much concentration am I putting to it? How much stress am I committing?
And you have an opportunity advantage that you have a strong partner who can run the company while you're Mind is someplace [00:11:00] else and that's and in so many CEOs don't have that advantage And so their business sometimes takes a hit during this period of time There's one one last thing that I felt was really interesting when we spoke last time and I think It's A great advice that, and that is you talk about keeping it really at the razor's edge, like, like even if there is opportunity to get, to have extra, like you would sometimes feel your, at least this is what you told me and maybe you can expand on this is there advantages to having it kind of tight and not being overly flush with investment capital.
Well, the first thing you need to do is to be able to explain to your shareholders why you've diluted them. And if you've, if you're not paying out distributions, and you've diluted them an extra 6%, and you're sitting with a million two in cash, not deployed, you're setting yourself up for a very difficult conversation.
And If you can [00:12:00] run it as tight as possible without large cash reserves, you don't have pressures to do things with your capital that aren't productive and you also protect the dilution component, which is as much financial as it is political. So there's a lot of reasons to stay tight. The other is that, quite frankly, the inherent discipline of being able to tell your production team, Hey, I don't have the money, I can't do it.
I mean, it just, it sounds like a cop out, but it's the truth, because Believe me, the wishlist of things will never stop because , these people are amazing professionals. They know what they need. And it's always, if I had this, I could really do that. And we're not at the point where we should be doing that.
But if I have tons of money in the bank, which believe me is a problem, I wouldn't run away from, but I had a choice. I think I'd rather be tighter or at least keep that amount of money secret.
Yeah. Just don't tell him you have it.
Exactly.
Well, Paul, this has been really helpful, and I appreciate you taking the time , to [00:13:00] do a second interview with us, to share these thoughts, and , I'm sure our listeners will find , everything that we talked about really helpful.
I'll have all of Paul's information and Paper Plane's information in the show notes. So, if you're an investor and you want to circle back with Paul and talk some more about some opportunities with his company, or if maybe another business person that wants to talk to him about some opportunities that you have I'm sure Paul or somebody from his team would be happy to talk to him.
Paul. We're going to keep doing this. I I feel like there's lots of other topics that we can take a deeper dive on, which would be fun to do. And I'm sure everybody would enjoy doing that. So if you're up for it definitely have you back and thanks again for doing this.
Dan, it's always a privilege to be on your show. Thanks so much.