October 29, 2018

VIDEO: iAnthus Capital Holdings Inc (CNSX:IAN) CEO on MPX Bioceutical Corp (CNSX:MPX) Deal

Midas Letter
Midas Letter
VIDEO: iAnthus Capital Holdings Inc (CNSX:IAN) CEO on MPX Bioceutical Corp (CNSX:MPX) Deal

iAnthus Capital Holdings Inc (CNSX:IAN) (OTCMKTS:ITHUF) (FRA:2IA) CEO Hadley Ford predicts the collective US cannabis market cap will be $1 trillion in 10 years. Ford explains that the current $50 billion industry market cap represents just 11 percent market penetration; however, an anticipated increase in usage should see cannabis reach the regular use levels that alcohol currently enjoys and push the cannabis market cap to the trillion dollar range. Ford anticipates 9 or 10 companies will dominate 80 percent of the US market and believes scale is integral to players in that space. The MPX Bioceutical Corp (CNSX:MPX) (OTCMKTS:MPXEF) (FRA:5CB) deal gives iAnthus that scale because the MPX portfolio adds strategic states to iAnthus’ holdings and access to cannabis retail locations targeting the “soccer mom” demographic. With this deal, iAnthus should have some of the most liquid stocks in the space, which should appeal to institutional investors that want to enter the cannabis sector.



James West:   Welcome back to Midas Letter Live. My guest in this segment, returning for, I don’t know, the 10th time, is Hadley Ford, CEO of iAnthus Capital Holdings, trading on the CSE under the symbol IAN. Hadley, welcome back.

Hadley Ford:  Thank you so much. Always a pleasure.

[stock_chart symbol=”IAN:CNX” align=”left” range=”1Y”]

James West:   Hadley, big news: you’re a consolidator in the space now, having just completed or announced a transformational combination with MPX.

Hadley Ford:  Yes.

James West:   And so tell me what, how that all came about, and what is the upside for iAnthus and MPX shareholders.

Hadley Ford:  Absolutely. In the US cannabis market, there’s three factors that are important for success. One is footprint; national scale is incredibly important. There’s probably going to be a trillion dollars of market cap ten years from now at the cash register in the United States. There’s a $50 billion market today; that’s penetration of 11 percent.

James West:   Whoa. Did you just say $1 trillion in market cap?

Hadley Ford:  With a T.

James West:   One trillion dollars!

Hadley Ford:  One trillion dollars. [laughter]

James West:   Whoa. That’s, I’d call that a bullish outlook.

Hadley Ford:  It’s a bullish outlook. So here’s how you get there: today there’s about $50 billion to $60 million of sales in the United States; that’s black market and white market, kind of 90 percent of that is black market. That represents an 11 percent penetration of regular users of cannabis; that’s defined as twice a month.

Obviously, most of those people are calling their dealer and meeting someone in a back alley, picking something up at a club. You know, there’s sort of middle to bell curve, the soccer mom, isn’t partaking cannabis because that’s not a channel she is going to be familiar with.

Over the next ten years, our supposition is that cannabis will look a lot more like alcohol, and we’ll see that penetration rate go from 11 percent upwards to where alcohol is today, defined as regular use, which is 55 percent.

James West:   I thought it was 100.

Hadley Ford:  That’s just you and me.

James West:   Okay. [laughter]

Hadley Ford:  You have a 4 or 5 x growth in the market. So that could get you from $50 billion to $200 billion. Now, cannabis operators own not just the cash register, but also the brand – so you’ve got much better vertical margins. Branded purveyors of alcohol trade at 5 to 6 times revenue. That’s a trillion dollars of market cap.

Now, if cannabis is like a regular way industry, 80/20 rule, the top guys are going to have 80 percent; everyone else is going to split up 20. Because of the restrictive license nature of the cannabis market in the United States, you’re not going to have many more than nine or ten national players. Just the way it’s going to be.

So, nine or ten national players are going to be jockeying to divide up $800 billion of market cap. Scale matters; it matters today. It’s a land grab. You need to be really good and M&A. remember, we’ve grown that way. We acquired New York, we acquired Florida, we bought out our minority partner in Mass, we acquired Vermont, we acquired Colorado. This is just another acquisition. It’s our best and biggest acquisition, but that’s what our heritage is.

And interestingly, the MPX team is the same way. I think they’ve done six or seven acquisitions over the last 24 months, as well. So now you’ve combined an M&A deal machine, and we will be a national player. We have two super regional footprints right now in the East Coast and West Coast. We will be in every state that sells cannabis, and we think that’s where you have to be if you want to be part of that 80 percent, $800 billion opportunity.

James West:   Fascinating. Okay, so what does MPX have that you wanted?

Hadley Ford:  Well, there’s a couple of things. There’s a strategic piece, which are obviously the states that they’re in: Arizona, Nevada, Maryland, they’re in Massachusetts as well, as we are, and California. So we get the geographical footprint, but they also have pioneered the concept of this retail concept of a very inviting and open store, sort of middle of the bell curve; a place where your mom, my mom, might go to buy cannabis.

And then also pioneered the concept of a brand that’s different than the store name, right? So they’ve got the MPX brand, and they sell that in their own stores, and they also carry other brands in their store, and then they sell MPX in another 40 or 50 stores in Arizona. So Beth Stavola, who, you know, created this whole concept in Arizona, you know, four or five years ago, is a key piece of the deal for us. We think that part of our senior leadership team can help bring us to find that one store name, that one brand name; driving that forward is going to be very key.

I think there’s another piece, which is a little bit strange because it doesn’t really get talked about that much, but in cannabis, growers and extractors and product formulation experts, prior to being legal, they didn’t talk, because if you talked, you went to jail. So you know, every state that we’re in, we’ve got sort of different growers and processes; the opportunities to take best practices, standardize that, and take operational excellence across our entire network of operations, is really unprecedented. And the senior team that we have, has a lot of experience in doing that. So that’s another advantage to it.

And then the last piece is a little more esoteric, but I think there’s a big driver to it, is the capital markets component of it. Both of our stocks were structured to be public companies; there’s not very much overhang. There’s a lot of public flow. We actually trade individually, you know, quite well; together, we should be one of the most liquid stocks in the US. There’s a percentage of our combined market cap will probably be a leader. That means that when institutional investors decide, How do I want to play the US market? They’re going to look for a stock that’s very liquid, they can get in and out of, they can build a position on a number of days trading that exists. That’s going to be iAnthus.

That will have a lot of benefits for us. As more people invest, you get more liquidity, you get lower volatility, lower cost of capital, you have a tighter bid ask, and then potential partners will look and say, Wow, I’m happy to take your stock because I can get in and out of it. Thank you for all this stock from my operations; I’d like to buy a house, pay for my kids’ education, I know I can sell.

So there’s a lot of opportunities. Lower cost of capital, better liquidity – that piece gets driven. We saw this happen in Canada. I’m a reformed banker; I don’t invent stuff, I just deal stuff.

James West:   Right. [laughter]

Hadley Ford:  Canopy had this same strategy. Tweed was an $80 million company; Bedrocan was $40 million. Tweed bought Bedrocan, it traded up to 200 at a $2.10 stock price. We know where it is today – north of $30 billion of market cap and a stock north of $60. The leadership they had in the capital markets was what helped drive that. They became the most liquid company. When investors said, Oh, I want to play in this Canadian market, they bought Canopy as the proxy for the market, because it was easy to get in and out of, and it was liquid, and that drove them to great heights. They could use their stock as a capital weapon, as an acquisition weapon; iAnthus is going to do the exact same thing.

James West:   Interesting. Touching on Canopy, they announced an acquisition in Colorado of Ebbu, which is hemp and THC, essentially negating Bruce Linton’s representations over time that they would only go into jurisdictions that were Federally legal.

Hadley Ford:  Oh, he’s going to be in the US.

James West:   Well, he is now!

Hadley Ford:  I mean, who is he kidding? The guy has technology, he’s got capital, he’s got beverage companies…the US is the largest market for cannabis, the largest market for alcohol; he’s going to be there. You know, his new partners in Constellation want to be there, he wants to be there, he’s just got to work through the technical stuff. So, you know, he’s playing the politics: Oh, I’m against the US, I won’t do anything, but he’s gonna be there. End of the day, he’s a businessman.

James West:   So, does the fact that Canopy is in the US worry you at all?

Hadley Ford:  Bring ‘em on! Bring ‘em on!

James West:   No threat there. Very cool. Okay, so what does the combined sort of footprint look like now?

Hadley Ford:  Yeah, 10 states. I mean, East Coast, let me see if I can remember them all, now. So we’ve got Vermont, Massachusetts and New York, Maryland, Florida, we’ve got now through MPX applications pending in New Jersey.

On the West Coast, we’ve got, or the kind of southwest and the West Coast, we’ve got New Mexico, Colorado, Arizona, Nevada, California. So two, super-regional footprints. We can build from that, and any state we see where you’ve got legal cannabis, you know, you can assume that we’ve got a piece of paper with their name on it.

James West:   Wow. So I get the sense that you’re sort of planning to head towards unicorn billion-dollar-plus market cap status.

Hadley Ford:  Yeah, the pro forma now is $1.7 billion CDN.

James West:   Oh wow, really? Okay.

Hadley Ford:  So, it’s like two horns.

James West:   Right, two horns! [laughter] Boy, you’re going to grow a third one?

Hadley Ford:  Damn straight, damn straight.

James West:   Fantastic. So if I was to be a betting man, which I just happen to be…

Hadley Ford:  Which you are.

James West:   Yes. I would say that it really doesn’t matter whether the US ever goes Federally de-prohibited cannabis, because the states are going to get there of their own accord, regardless.

Hadley Ford:  Absolutely, yep.

James West:   And it’s just a matter of time till the inherent contradiction in the government trying to enforce a law that denies the medical virtues of its own FDA approval of drugs like Epilepitrol [sic], or Epi – how do you -? [Epidiolex]

Hadley Ford:  Easy for you to say.

James West:   Yeah, right. You know what I’m talking about.

Hadley Ford:  Don’t even get me going. I’ve only had one cup of coffee.

James West:   [laughter] Anyways, so it doesn’t – I get the sense increasingly, it really doesn’t matter. But nonetheless, there was a full page ad in the Wall Street Journal the day before yesterday.

Hadley Ford:  Oh, yeah, from Derek?

James West:   Oh, so you know Derek?

Hadley Ford:  Yes, I do.

James West:   Well, we’re hoping to have him on for a chat about that.

Hadley Ford:  He’s always fun.

James West:   But is that – like, so it seems to some people, it still really matters. And how is it that you’re not really fussed about it, but he’s putting full page ads in the Wall Street Journal?

Hadley Ford:  Well, you have to ask him when he comes on. I don’t – it doesn’t really concern me too much. You know, I don’t think it’s on the Federal radar screen to roll this back. The United States has a long, proud history of states’ rights, and I think, you know, it’s going to keep going forward that way. And you know, I always said, joke another day: the medical programs started when Jeff Sessions would say ‘Marijuana is a gateway drug’. I’ll tell you what it’s a gateway for: the states get a little taste of that tax dollar from the medical side, and bang: then they want full rec. that’s what’s happened in New York. They’re saying, that full rec stuff that we’re never going to talk about? It’s a foregone conclusion.

James West:   Well, certainly I know of lots of legislators who could benefit from the consumption of cannabis.

Hadley Ford:  [laughter]

James West:   All right, well, that’s great, Hadley. We’re going to leave it there for now; we’ll come back to you in due course when you’ve grown your third horn, and we’ll keep on talking.

Hadley Ford:  Fantastic. [laughter]

James West:   Thanks for joining me today.

Hadley Ford:  Always a pleasure. Thank you.


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