Cannex Capital Holdings Inc (CNSX:CNNX) CEO on Gotham Green Partners’ $32M USD Strategic Investment

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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.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Cannex Capital Holdings Inc (CNSX:CNNX) (OTCMKTS:CNXXF) CEO Anthony Dutton has nothing but praise for Gotham Green Partners, LLC after Gotham’s $32 million USD investment in Cannex. Gotham is a leader in the cannabis investment space and previously financed industry successes like Cronos Group Inc (TSE:CRON) (NASDAQ:CRON) (FRA:7CI). Dutton explains that Cannex has always focused on being a multi-state operator and this strategic investment will allow the company to focus on production, expansion, and branding. Dutton was recently in Las Vegas for MJBizCon and reveals that approximately 80 percent of the companies in attendance were focused on derivatives and ancillary products. Cannex intends to play in the edible product space and is investigating a number of CBD opportunities.

Transcript:

James West:   Welcome back. My guest this segment is Anthony Dutton, CEO of Cannex Capital Holdings, trading on the CSE under the symbol CNNX. Anthony, welcome back.

Anthony Dutton:    Always a pleasure to be here, James. How are you?

James West:   I am doing well, thank you. I see your stock has got a little bit of fire underneath it lately; what’s happening?

Anthony Dutton:    Well, I’m sure you saw our news release from yesterday, it’s something we’ve been working on for a while. We’re extremely happy about having Gotham, obviously, as a strategic investor, and I think that has got the market’s imagination, and they know exactly what these guys have done before, and we’re hoping to repeat it.

James West:   Sure. And what have they done before?

Anthony Dutton:    Well, as you probably know, they’ve done an amazing job at iAnthus. They’re also a pretty significant force behind Cronos, and just generally speaking, they’ve got, you know, an excellent name in the cannabis sector as probably the smartest, you know, investors in this sector. We’ve been so impressed with their process, so impressed with them as a group and as individuals, and it’s a real pleasure. You know, I don’t want to get to superlative here, but an honour to be working with these guys; they’re a fantastic group.

James West:   Awesome. Well, so now what are you going to do with all that money? You got 32 million in the bank from them; what were the terms of the financing?

Anthony Dutton:    So it was a convertible with a conversion price at $1.10. No pre-pay for the first year, and then, you know, some warrants, at 150, 200, and 300 percent of what’s called the reservation price, which was $0.88.

James West:   Okay, interesting. And so, do you have your eye on any opportunities currently that you might devote some of that capital to?

Anthony Dutton:    Absolutely. So we’ve always maintained right from the get-go, and this was our objective even before we were even public, was to become a multi-state operator, and the MSO nomenclature has only really been popularized in the last couple of months, but we were always focused on being a multi-state operator. We were always focused on the processing, manufacturing, brand value add side of things. We have a number of things we are looking at, and obviously Gotham bring a phenomenal pipeline of deal opportunity to the table as well. So, you know, that will be, you know, I think a marriage of both capital markets expertise and a marriage of, you know, a very, very strong relationship and a very strong network of possible opportunity.

James West:   Sure. So being focused on the US, are you sensing that the US is approaching a level of maturity in its cannabis build-out at this point, or would you say it’s still very early days?

Anthony Dutton:    Well, the US is kind of a curious character, if you will. I mean, Canada is further ahead, obviously, on the regulatory side and the capital markets side, and the US is still a Schedule 1 drug, which impacts its ability to be managed, if you will, from a Federal perspective.

But operationally, you know, we see things in the US which are significantly further advanced than anything in Canada, and I think a good case in point is our operations in Washington. You know, we have got a phenomenal foundation there; we’ve got very strong protocols, SOPs that can be plugged into any jurisdiction, any state, any country anywhere, and you know, I think one of the things that Leo and his team in Washington have had to their advantage is they’ve just been at it for quite some time, and that’s allowed them to really, you know, generate some expertise.

We’re seeing the same thing in Nevada, same thing in Arizona. I know you’ve done a recent tour through California; you probably saw some of that yourself.

James West:   Right.

Anthony Dutton:    So you know, overall, we see some very exciting, what I call operationally focused businesses in the US.

James West:   Wow, fantastic.

Anthony Dutton:    And ultimately, one of the things that I’m sure you – I mean, I hear you talking about it with some of your other guests, you know, 2018 was what I call kind of a year of almost bubble valuations; not a lot of substance to some of the companies that we all know, and we’re already seeing the pendulum swing the other way. And I believe that 2019, and I think that Gotham would agree with this, 2019 is going to be a year where the investors, both institutional and retail, you know, start to look at the operating fundamentals of the sector and obviously of individual businesses. Because ultimately, you know, you have to be able to survive as a business; you have to be able to profitable, support yourself, and, you know, ultimately that’s going to be how the good companies are going to be measured.

James West:   Sure. So right now we’re talking, is it 17 states are legal medically?

Anthony Dutton:    No, I think it’s 29 or 30. It’s hard to keep track. I know Illinois and Michigan just came on recently, and the next one, I believe, is New Jersey. So you know, ultimately it’s going to be all 50 I believe.

The other statistic, which is almost kind of more interesting, is that 85 percent of the American population live in state where there is some form of cannabis regulation, whether it be medical or recreational.

James West:   So which states excite you more than others?

Anthony Dutton:    Well, we obviously like California because it’s so big, but we’re also very cautious in California. I believe that California is going to be a company-maker; for many companies, it’s also got the potential to be a company-breaker, because if you kind of go down a rabbit hole or pick the wrong strategy or allocate capital and too much capital too quickly, you could find that, you know, to be problematic.

So we like California a lot, but we’re, you know, proceeding with caution, as it were.

We also like Nevada, we like Arizona a great deal. You know, Florida is another state that’s got a lot of appeal to us; some of the asset values there are pretty significant. And then the northeast: you know, Massachusetts, New York, these are always going to be popular states simply because of the population base.

James West:   Right. So what about the remaining 20 some-odd states? Is there any indication that they are going to jump on the medical bandwagon, and maybe the rec, too?

Anthony Dutton:    Yeah, I think it’s just inevitable. I mean, ultimately, it’s always, you know, in any business, cannabis is no different: you know, follow the money, follow the jobs. You know, we saw in New York, for example, where the governor of the state, you know, kind of accelerated their legalization initiatives because he realized he was going to be losing, you know, tax dollars as people went across state lines to buy something in dispensaries in Massachusetts, for example.

So you know, I think it’s really going to be nationwide sooner than we think.

James West:   Okay, and what’s the revenue picture looking like for Cannex this year?

Anthony Dutton:    It’s looking pretty strong. So if you look at our operating business, the one that we own the assets of through our holding company, you know, that could be sort of in the mid-thirties US dollars of revenue that flows through to Cannex through a holding company structure. So our revenues should be, you know, in the region of sort of 10 to 12 million from Washington alone, and you know, obviously, as we plug in additional states, you know, the revenue profile could improve significantly from there.

James West:        Right. Great. So tell me: In Washington, what’s the most popular product that you supply?

Anthony Dutton:    Well, we certainly sell a lot of the Marmas, which are jelly – I think you might even have seen them or at least had some. We sell a lot of those; we launched a new line of mints which have been doing very, very well. Vapes, both disposable and otherwise, do extremely well.

We do see a swing towards what we call derivative products, and that’s no different in Washington than everywhere else. As new demographics come into the market, new consumers, you’re going to see, I think, more products on the derivative side going off the shelves than you are going to see straight flower.

Flower will always have an appeal, obviously, but for people who don’t smoke currently, it’s unlikely if they’re going to become a new consumer, they’re going to start smoking something. So you know, vapes, edibles, chocolates, that sort of thing, is very, very popular.

You know, it was interesting: I was at the MJBiz Conference in Las Vegas this week, and you walk around the floor, and you know, virtually everything was about the derivatives market, whether it be THC or CBD. You know, people are selling equipment, they’re selling packaging, they’re selling product, they’re selling, you know, all kinds of things, and I would say 80 percent of it is focused on the derivatives market.

James West:   Interesting. Okay, so now what are you hearing about Federal de-prohibition in the United States? Is that making any progress?

Anthony Dutton:    You know, it depends on who you ask. We hear a lot of discussion about it; I mean, I do not have a beeline into any Federal, you know, bureau or any federal discussion, so I’m not, you know, I just have my opinion. You know, I think Trump, in many ways, as much as, you know, he’s a pretty controversial figure, he’s actually, you know, a very powerful force in favour of Federal de-schedulization or Federal legalization because he’s a big believer in States’ rights. In the midterms, you know, he lost Pete Sessions, who was quite a bit obstacle to any kind of Federal initiatives, and then obviously Jeff Sessions – no relation to Pete Sessions – has stepped down as AG.

So I think that, you know, with the overwhelming, and I say overwhelming, it’s 65 percent of the American population, you know, support legal cannabis in one way, shape or form – you know, all of those data points bodes very, very well for, you know, I think, it being re-scheduled and federally legalized in some way, shape or form. You know, maybe not in this administration, but certainly in the next.

James West:   Awesome. And what about the States Act and the Farm Bill that we’re hearing so much about? How’s that going to impact Cannex?

Anthony Dutton:    Well, at this point, it won’t have a great deal of impact, because that’s primarily around CBD, but at the same time, you know, Cannex is, like most companies, you know realizing that CBD is a huge opportunity, and we’re looking at a number of opportunities in this area as well. So obviously if that passes, t hat’s only going to accelerate, you know, our interests and everybody’s interests.

So for the time being, not an immediate impact, but you know, longer term, as a part of our larger, more expansive strategy, absolutely will have an impact.

James West:   Wow, that’s great, Anthony. Well, sounds like you’re doing really well with your investing partner there. Let’s leave it there – we’ll catch up with you soon and come out for a visit. Thanks very much for joining me today.

Anthony Dutton:    I will be there probably next week, so hopefully to talk about then. So we’ll see you hopefully mid-week.

James West:   That’s great, I’ll look forward to it.

Anthony Dutton:    Thank you.

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.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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