VIDEO: CannaRoyalty CEO Marc Lustig on Large Investments in the Cannabis Sector

James West

CannaRoyalty Corp. (CNSX:CRZ) (OTCMKTS:CNNRF) (FRA:CY4) CEO Marc Lustig joins us again to talk about Constellation Brands’ recent purchase of 9.9 percent of Canopy Growth for CAD$245 million, and what that means for the cannabis industry.


James West:     Marc, thanks for joining us today.

Marc Lustig:     Thanks for having me, James.

James West:     Marc, I’d like to hear your opinion of how the Constellation Brands’ purchase of 10 percent of Canopy Growth for $240 million – what is that going to do for the marketplace in Canada generally? How does that affect a company like CannaRoyalty?

Marc Lustig:     Well, it’s a huge positive for the sector for sure when you see a multinational, global company focused on brands in the cannabis sector; it’s a huge validation of the cannabis industry. I think for a company like CannaRoyalty that has now 10 of our own, wholly owned brands, it really does speak to where the investor, I think, is looking next. In other words, there are lots of different companies that are producing cannabis, the ingredient, to final product; but who’s building the brands and the formulations that make up the products that investors, or in this case consumers, are going to want to have?

It goes back to a concept that I speak to investors quite a bit about, which is, do you know the farmer who grew the hops, or do you know the bottle of Corona or Heineken, whether you’re drinking that at a restaurant here or across the world, and it’s the same recipe, it’s the same formula, it’s the same bottle, it’s the same brand each and every time. And I think that’s the maturation that we’re going through now in the sector, which is, there will be lots of people producing cannabis, but who’s going to spin it and formulate it into something that’s of interest to the end consumer?

James West:     Right. Do you see the provincial strategy whereby the liquor control regime is going to be in charge of the marijuana control regime in most provinces by the looks of things – do you think that’s a plus or a minus for both growers and consumers?

Marc Lustig:     I mean, I think the consumer will end up getting access to products regardless of how the distribution goes. I personally would prefer to see private enterprise run dispensaries so that they can compete based on price and customer service, quality, varied variety of the different types of products. But that’s the decisions that the provinces individually are making. I think that there’ll be so much demand from the end consumer that it will find the product that it’s looking for, maybe online, maybe in other places. Maybe people at the borders of different provinces will go to wherever they’re most comfortable. So I think that demand will find the right supply, inevitably.

James West:     Sure. So has the Canopy/Constellation deal, in the context of provincial regulation of the recreational market, has that opened any specific opportunities for CannaRoyalty? Is there anything that you’re looking at, as a result of this transaction?

Marc Lustig:     Not yet, and even for Canopy or companies that may be speaking to other real investors like Constellation would be, it’s unclear yet how the whole system will roll out. It’s also unclear what the government will allow in terms of the branding and advertising as it relates to end products. So that part isn’t clear. I think what is clear from an investment like Constellation is that big industry, in this case a global branding company, but I think that in the future and very soon you’ll see tobacco or beverages, alcohol/spirits, maybe nutraceuticals, devices, all of these different industries – I think has opened up an opportunity, or maybe it’s the gate opening for those industries to start to make strategic investments into the sector.

James West:     Right. Okay. So in the context of the US, the fact that this is a US Fortune 500 Company, New York Stock Exchange-listed, a Fortune 500 company making such a sizeable investment in the Canadian marijuana space kind of puts the whole argument about the federal prohibition on marijuana in the United States on a bit of a back burner. If the business is allowed to thrive and become global on that scale despite the US federal prohibition, does that sort of indicate that the prohibition is irrelevant in the global marijuana revolution sense?

Marc Lustig:     I wouldn’t quite go so far as to say irrelevant, but it’s certainly a huge step. I could give you examples almost every day that are happening in the United States right now, which, to me, lessen the risk of this time that we’re in now where still cannabis is federally illegal, with an I, in the United States. However, constitutionally at the state level, the state has the right to make up its own laws, and as everybody is probably aware, there are now 37 different states in the United states that are legal in one form or another.

California, which is where CannaRoyalty has most of its assets, is becoming a rec market January 1st. so I find it really interesting watching the Canadian investor who’s been investing into the Canadian licensed producer model now for the last three years, all around the pending July 1st recreational market in Canada. And I compare it to California, which is a market that’s probably 10 to 15 times bigger than Canada, where we have most of our assets, and that’s where I get extremely excited about CannaRoyalty’s prospects.

The one hesitation would be, well, it’s in the United States. But to your point, I think investments like from Constellation are just proof that the US is getting there, regardless of federal policy. And that’s happening every day: there’s more strategic capital that’s coming in to the United States, the opportunity is multiples bigger than the Canadian opportunity, and that’s why we like the states so much.

James West:     Sure.

Marc Lustig:     It’s not without risk, but it’s worth it given the size of the prize.

James West:     Right. So it seems to me, and correct me if I’m wrong, but the issues surrounding the CSA and the TMX where there was going to be some questions surrounding Canadian-listed issuers who have assets in the US – is that now in the rear-view mirror, and it largely supported that concept by the fact that this Constellation deal has gone through without a hitch, and so quickly?

Marc Lustig:     Yeah, I hope it is. I think that people are comfortable now that there’s been some clarification. Certainly the OSC or the CSA, I should say, made its point clear, and that point was, we’ll be the ones to determine the merits of these companies and whether they should be listed. We’ll leave it with the individual exchanges in terms of what their own policies are, about which companies can have which assets in which jurisdictions. So that was extremely helpful, especially for a company like CannaRoyalty.

I think as it relates to the TSX or the CSC, they’re businesses in their own right, so that’s important to point out. Those are for-profit companies, versus the CSA, which is a government agency protecting investors. And so those individual exchanges will make determinations that I think are probably safest for investors, but also best for their business. As the US loosens up, made possible by things like Constellation Brands’ investment, or certainly that clarifies that companies there are getting more comfortable with things, maybe the TSX will loosen up and see it as an opportunity for businesses like CannaRoyalty.

James West:     Sure. Well, looks like it’s only going to get better. Marc, we’ll leave it there for now. Thanks very much for coming in today.

Marc Lustig:     Thanks for having me, James.

James West

James West

Editor and Publisher

I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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