VIDEO: CannaRoyalty CEO says 2018 is the Year Investors Start Putting Their Money into USA Pot Stocks
CannaRoyalty Corp. (CNSX:CRZ) (OTCMKTS:CNNRF) (FRA:CY4) is a leader in distribution, research and development in the cannabis sector. CEO Marc Lustig talks about how US Federal Regulation “Could be a good thing”, and confidently suggests that in 2018 – investors will start investing in USA-based Cannabis Stocks. With lower publicly-traded valuations, California could be the new Canada.
James West: Marc, thanks for joining me again.
Marc Lustig: Always good to be here.
James West: Marc, let’s continue our discussion about the condition of – the effect, rather, not the condition, but the effect of Jeff Sessions’ rescinding the Cole Memo. Do you think that there’s any risk, realistically, that there’s actually going to be an enhanced enforcement action or attitude on the part of Federal law enforcement? Or, is this much as is consistent with this administration, a superficial sort of ‘for optics only’ lambasting broad-based statement that doesn’t really have any bearing on reality?
Marc Lustig: It’s probably both. I would say it’s important to point out, there’s a part of me that would actually like to see the Federal government and the Drug Enforcement Agency have jurisdiction over cannabis legislation. It would be nice to have uniformity between state law and Federal law, and when you do talk about enforcement, I don’t think there’s anyone in the cannabis industry who wouldn’t see things like trafficking or cross-border issues or use by underage people, or those types of issues, being policed, or at least the freedom for the federal government’s agencies to have some jurisdiction over that.
So I really hope, in a way, as long as it doesn’t start to meddle with the constitutional laws that have been adopted in the states, that could be a positive in the bigger picture.
James West: Okay. So what is the exposure for CannaRoyalty in the United States broadly, and California specifically?
Marc Lustig: So we have assets today in Washington State, in Oregon, in Arizona, Nevada, Florida and Puerto Rico, as it relates to the US, but by far our biggest exposure is in California. We have eight different assets today in the state of California…
James West: And is that because you anticipate California being such a significant market?
Marc Lustig: Yeah, and I mean, when you look at the size of the California market, it eclipses any other market. If you want to put things in perspective, in 2017, the projected closing numbers for last year would be somewhere north of $3 billion USD in revenues from California, in a $5 billion USD total market.
James West: Wow.
Marc Lustig: As your viewers would probably appreciate, on January 1st, just a week ago, California turned into a recreational market. So for 2018, projections are that California will do 5 billion.
James West: You haven’t experienced any lessening in demand for your shares, as is evidenced by the excellent performance in CannaRoyalty shares. Do you think that the – you know, it’s just an expansion of the uncertainty in the US. Do you think that that drives more money into the Canadian market at the end of the day?
Marc Lustig: It certainly has. I think one of the things that will change in 2018 for the better for a company like CannaRoyalty will be the investors’ openness to starting to invest in the US. Prior to 2018, take 2015 through ’17, it’s really been almost uniformly focused on Canada, and that’s how you’ve got these valuations of some of the licensed producers, which is an extremely competitive landscape over a relatively small marketplace where they are.
Whereas now people are starting to look at where they’re going to get some performance from on owning some of these companies at the valuations that they’re in, and they’re starting to sort of look into the US for big market size, yes there’s the obvious Federal risk that doesn’t exist in Canada, but the valuation discrepancy is worth the risk. And I think that’s a trend that you’ll see play out in 2018, and certainly started to play out very well for CannaRoyalty.
James West: Canada’s made noises towards licensing another three times as many ACMPR growers as there are now; there’s now 82, that implies 246 if we did the math precisely. Does that do anything for the valuation of the sector as a whole, and by extension to that question, I want to know what is going to stop these crazy valuations from continuing to fly continuously higher?
Marc Lustig: You know, economics would suggest based on supply and demand of licenses themselves, that the value of a license should go lower as more are coming out. That hasn’t yet played out. I think it will over time, unless a company can prove that it has leadership in certain areas, whether it’s cost or variety of product or patients or some way to compete with the others. That’s why I think some of the leading LPs will continue to distance themselves from the rest of the pack, is that it may be too late for some of the new entrants into the market to catch up to the scale that some of the bigger companies have.
So you know, in terms of what’s going to change it…I’m not sure. Certainly this thing has grown to a point where it is pretty difficult in my opinion to justify the valuations of some of these companies as to how big they’ve gotten over this short a period. One of the things that could happen is, reality sets in in the form of July 1st or whenever the Canadian legislation is finally implemented for this recreational market, and people start to do the math on the projections versus the reality. A lot of execution is going to have to happen seamlessly, both on the government side of implementing this program, but also on the company side to be able to grow into the valuations that they’ve been afforded.
So it’s the time held sell on news kind of thing that could really start to, you know, if we get closer to July 1st and people start to say, geez, $2 billion, $3 billion, $5 billion for this company and I’m not seeing the results play out the way that people were hoping, that may the start of where people start to sell off.
James West: Sure. All right, we’re going to leave it there. I appreciate the insight as usual, Marc. Thanks for coming in.
Marc Lustig: My pleasure.
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