Where will the cannabis investment opportunities be in 2023 with Morgan Paxhia. 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 Morgan Paxhia from Poseidon Asset Management. Produced by PodConx MJBulls - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Morgan Paxhia - https://www.podconx.com/guests/morgan-paxhia Poseidon Asset Management - https://www.poseidonassetmanagement.com/
Where will the cannabis investment opportunities be in 2023 with Morgan Paxhia.
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 Morgan Paxhia from Poseidon Asset Management.
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Morgan Paxhia - https://www.podconx.com/guests/morgan-paxhia
Poseidon Asset Management - https://www.poseidonassetmanagement.com/
Recorded on Squadcast - https://squadcast.fm/
CI5 Poseidon
[00:00:00]
Dan Humiston: Today on MJ Bulls, we're kicking off the fifth year of the Cannabis Investor Spotlight Series with Morgan Pia from Poseidon Investment Management. Morgan, welcome back for another year.
Morgan Paxhia: Another year. Thank you for having me again,
Dan Humiston: Well, not only have we been doing this for five years, but you've been our first guest. We've kicked it off with Morgan, five years in a row. So, . now we've also had five years of saying this is the years that Bill's gonna win the Super Bowl.
So
Morgan Paxhia: Closer
Dan Humiston: Ah,
you can't get much closer. We can talk about more about that at the end. We have a lot to talk about today and I, you know, I was looking back over the last five years and I feel like every year we are dealing with some non-cannabis driver that's impacting our industry, and this year's no exception from inflation to interest rates to stock market.
What, impact do you think the economy is having on the growth our of our industry?
Morgan Paxhia: You know, it's the consumer is, has had to deal with a lot.[00:01:00] This inflation is, is real. It's been, quite brutal. early on in the pandemic everyone got a bunch of money, which was great. They felt good. And then, and then unfortunately, even with wages, growing inflation is just far surpassed it.
, and unfortunately it's hitting at home, literally. Right? I mean, you're talking about home, prices have gone up. Considerably, it, year over year the cost of owning a home is up like 90% or something when you think about mortgage rates and everything. So it's been tough.
but we're finally kind of getting a test of what will be like through a potentially recessionary time. I don't think the pandemic was uh, an accurate measurement because one, it was so short lived, and two, because know, people were. able to, access cannabis and, and know, a lot of people receive checks to, you know, be able to do such things as consume cannabis and, and participate in
these different things. But now this
different where
a shift in the household.
And so listening to like the second quarter earnings calls from a lot of the public companies, were noting, a shift in the consumer,[00:02:00]
behavior where were trading down in their basket sizes and maybe they were coming more frequently and buying less each time.
And, you know, things that you would, might see start to normalize as our industry matures.
so we are dealing with that. it's been tough because cannabis has been
Largely a deflationary industry where we've seen prices coming down almost every single state's. Just at what rate it's been coming down while other things have been going up.
So it's been hard on the companies, it does help the consumer a little bit that the prices have been coming down but it's still as tough when they, they have to make decisions about how they're going to, to spend. And, you know, the interesting thing for cannabis too, to remember is, when you're the consumer going to a retail, you're paying with cash.
You know, it's not like you're buying this at a credit card or something and there's no buy now pay later, or any of this kind of other stuff that's going on out there. these are cash purchases. So it's definitely a different thought process for a lot of consumers.
That
does have implications to, to how the illicit market has been performing.
sadly performing quite [00:03:00] strongly in, in certain states like California, certainly in New York. so it's just
definitely.
a yet another hurdle our industry has had to overcome. as we are still from, know, such early days of this space, know, it's just amazing when you think about over the last, know, eight, nine years of doing this, just the amount of hurdles, this
Dan Humiston: Yeah.
Morgan Paxhia: and to your point, it's every year is some new major. Hurdle we have to navigate through. and it's every year it feels daunting. the amazing thing about cannabis is we power on and, the smart teams, the dedicated teams, the, know, they just keep figuring it out. Finding ways to work with our customers and, and deliver products that they want.
And, you know, we do have, just a regulatory driven growth that is still a very strong tailwind for.
opening and, and new, new access opening within these states too, whether it's like social equity in, in, uh, Illinois finally starting to open up, or New Jersey opening up has been fantastic.[00:04:00]
it's been a mixture of what's been happening and being state by state, . You have to look at every single state differently and, and understand the dynamics of what's going on for the companies and the
Dan Humiston: you were one of the early prob, could have been one of the first cannabis venture capitalists firms, and so you have a lot of institutional knowledge about this industry as much as anybody. I noticed that , a lot of VCs, seem to.
Sitting on the sidelines and just supporting their portfolio companies and not as aggressive at, in new investments or which I, I, I am assuming is one of the reasons why the valuations have been going down are you seeing that evaluations going down within our industry?
Morgan Paxhia: time. Yeah,
the, stock market, the s and p, the Dow, Nasdaq, they're all down, uh, Russell 2000, everything's down. venture capital and traditional tech is down valuations. know, coming
as well.
Everything's [00:05:00] being reset lower with rates, interest rates going meaningfully higher. that does have applications to venture and what those IRS look like. or probably another way to think about it is the opportunity cost of capital. you know, all those dynamics are changing and so it, it does change dynamic with We have been in a capital constrained environment, really going back several years now. this has had implications, starting from the biggest companies to a lesser degree, but certainly as you get down, to the private companies and to the earlier stage companies, and to the funds, it's been very hard to raise capital for venture capital funds in cannabis. Sadly and painfully it is a thing. there was probably too much money that came in a couple years ago and funded too many things. as a result, we just had, know, dislocation of capital and, and now we're going through that painful clearing process. But the money that is coming in is, is and, For the opportunities.
know, a positive of it because you think of [00:06:00] the deals that are getting done are probably going to have very attractive valuations, good return profiles, and that will lead to further capital flows down the road. you regardless of all that, that just takes a lot of time.
we still are dealing with. dynamic where there are just barriers to capital coming in. as Poseidon has grown over these years, we're having more and more institutional conversations and they want to invest.
won't because they, we need safe banking to pass and we can't get it done.
We can't seem to get done. that makes good sense, good policy sense in this country. and it's at the detriment of, of
come. So, you know when that does switch though, I may
it's gonna go like a rocket ship and it's gonna be crazy, but we just don't know when.
You know, I, I, I, you know, people have asked what, what my thoughts are on safe banking passing in 2022 and. I've been at a 0% probability for a
right now I can say it's not a 0%, but it's [00:07:00] pretty close to 0%, just given the dynamics in, in DC and I'm here in DC right now. And, and you know, it's amazing how much our industry solves around this issue of not having this primitive kind of banking legislation to pass. regardless of
and everything,
Our
it, but that doesn't change the way institutional capital looks at it. So we're creating our own solutions. We're forging ahead because that's what cannabis has always done, is we find a way to move forward. but we're just doing it with even less capital.
And one other anecdote just real quick was I was having a, a dinner with a good friend last night we were just comparing notes. he's done some work in the industry, but he is done a lot of work, with traditional SAS venture and. Talking about
and profitability and, you know, he, he's involved with companies that are doing 10, 20, 30 million arr, still not casual, flow These are traditional sa and I'm like, Are you okay with that? And I said, Well, of course, because they're building, they're, you know, they're investing. These are, [00:08:00] these are product development, like it's good growth. And I'm like, our industry does not even come
luxury. Like if you are not casual positive by like four or 5 million in a. Forget it. And I'm like, Could you imagine how much more our industry could build? thoughtfully. It doesn't mean like I, I'm, I'm meaning like torch capital, but that could go to, know, good productive growth. it's just not available to us. So it's just amazing how, we do continue to move forward with
Dan Humiston: Well, you're a perfect example of moving forward and you know, trying different things. And you know, last year when we spoke you were just in the process of launching your own etf, and maybe you can give us a quick update as to where we are with that.
Morgan Paxhia: Yeah. Thank you for bringing that up. Yeah. Psdn is the ticker, Poseidon kind of the thought process
behind that. we launched with advisor shares, did that last We thought that was going to be a, good time after the market had come down meaningfully. Little did we know it was going to come down massively more than that but [00:09:00] we're out there.
We're very happy we did it. Our theory is it's a, a global So we can be, you know, we can invest in any kind of company around the world. We can have global allocation, but it's totally managed. So we're not tied to any passive. Benchmark. so it's really just trying to use our approach to how we would, how we do invest, in our first fund, which is a hedge fund, how we do it in a, in a public vehicle.
So much so that pretty much just use our ETF for our public for any kind of new activity in, in that first fund, uh, because it's so efficient. the other thing that's really unique about it was we have this dynamic tool. Where we can go from being unlevered to just being like market, or we can go up to one and a half times leverage, we think that is a really unique tool that is just not, You don't see that in the ETF world generally, and certainly not in cannabis.
So it is a very nice differentiator.
been a tough space. I've just been talking about how, constrained the capital
so
our, current
viewpoint is just trying
quality, the largest companies, that have the best, potential to[00:10:00]
tight capital market.
it
has a heavy
but we have been adding in some Additional internationally as well,
story at this point.
and so we're not, naive to that wanna be making
it.
So we think it's a great compliment to the preside and platform.
gives us
work with investors. finally have product that anyone can buy. An individual the way through an institution where for the longest time we were, you know, very confined, to only working with wealthy people by the definition of,
Dan Humiston: Mm-hmm.
Morgan Paxhia: we're very excited about where it's heading. We like the positioning that we've built out, I think there's a lot of room, a lot of capacity to really run this thing up to many times the size it is today. and generate great returns. our industry got beat up so badly into all the way into the end of second quarter, off the lows know, the ETF performed very well.
and I think that was a, a great. Moment to
positive
measurement of, know, what is [00:11:00] capable, when it's just not down every single day. as it should not be. I mean, we've gone through this massive reset from evaluation perspective, from a earnings outlook perspective. And the
these, everything's still so new and uh, but they're learning
Dan Humiston: Well, what's nice for investors is that they give a chance to work with you on a smaller scale and get comfortable with your style and your, and your approach to the markets. and when Safe Banking finally passes, they'll be able flick the Switch and already be, have already have a relationship with you.
And we're gonna have Morgan and Side's info in the show notes. So if you wanna learn more about the their et. , just click the links in the show notes and um, and I'm sure Morgan or somebody from his team will be happy if you have any questions to answer 'em. And Morgan, another year, this is the year that the bills are going to Super Bowl, For sure.
so we are, next year when we talk, we can be looking at our Super Bowl rings. But I, I thank you for doing this. I always enjoy having you on the show.
Morgan Paxhia: [00:12:00] Thank you for having