January 8, 2019

Canopy Rivers Inc (CVE:RIV) VP Discusses Headset Inc Investment

Midas Letter
Midas Letter
Canopy Rivers Inc (CVE:RIV) VP Discusses Headset Inc Investment

Canopy Rivers Inc (CVE:RIV) VP Business Development Narbe Alexandrian shares details of the company’s recent investment in Headset Inc. Headset is a real-time data and analytics service and is the only company tracking trends in the cannabis space. Alexandrian is enthusiastic about the deal because Canopy Rivers anticipates data will be just as integral to the cannabis space as it has been in other industries. Alexandrian indicates that the company’s investment thesis hasn’t changed; furthermore, Canopy Rivers is still a life-cycle investor with the ability to invest between $500,000 and $40 million in emerging cannabis and ancillary companies. Canopy Rivers realizes technology is a horizontal layer underpinning the entire industry and its investment in Headset illustrates this forward-thinking approach to understand consumer trends in the cannabis space.


James West:   Hey, welcome back, and my guest right now is Narbe Alexandrian. He’s the Vice-President of Business Development. Narbe, welcome.

Narbe Alexandrian: Pleasure to be here.

[stock_chart symbol=”RIV:TSV” align=”left” range=”5D”]

James West:   Yeah. Tell me about your role at Canopy Rivers.

Narbe Alexandrian: So my role in Canopy Rivers is to lead the investment team. So we look for minority investments all across the world, within the cannabis value chain. So our whole process is understanding where the best-in-breed companies across that value chain and to synthetically create a vertically integrated cannabis company with the best companies you can find across different sectors such as technology, consumers, cosmetics, brands, cultivation, you name it.

James West:   Yeah, you bet. So today, you guys put out a press release announcing you made an investment in, was it, Headset?

Narbe Alexandrian: Headset, yeah.

James West:   And that was really intriguing to me because it’s not a cannabis product producer per se, but rather it’s focused on the information of cannabis. And so what was it about that transaction – maybe we could use that as a bit of an example as to the process by which you guys make a decision to make an investment.

Narbe Alexandrian: Absolutely. If you take a look at the traditional technology industry, data is everything. Data moves company. Google is worth what it is because of the data; Facebook is worth what it is because of the data. Same set of data is going to be very applicable to the cannabis industry.

Right now, a lot of the CPG companies – let’s backtrack: CPG companies that are traditional around Proctor & Gamble –

James West:   Consumer packaged goods, you’re talking.

Narbe Alexandrian: Exactly. When they create a product, they do about two years of R&D testing. They look at not what formulation they’re going to put in the product, but what marketing is going to look like, what the brand is going to be, what the logo is going to be, what colours they’re going to use, what demographic they’re going to go after…this is all based on a data set that they grab from the likes of Neilsen or IRI Research.

That same aspect has to be applicable to the cannabis industry down the road as brands start to froth up and take more of the mind share for the consumer. So what are the brands going to use in terms of finding that data? Well, Headset is the only and the first real-time intelligence retail intelligence profile out there that grabs data from POS systems and gives a set of data to the POS systems, gives a set a data to the brands, and gives a set of data to the broad industry of what’s actually moving, what market share different brands have, how things are being priced, and what trends are being seen in the market today.

James West:   So do the recipients of that data pay Headset for creating that data for them?

Narbe Alexandrian: No. So retailers actually get what we call Headset Retailer, and Headset Retailer is a system for them to track inventory, to track vendors and to track bud tenders, and how the bud tenders are selling. In exchange for getting that platform for free, they give away their POS system for free.

So Headset is integrated in to 20 different POS systems providers right now, so that automatically pulls the data very easily and provides it to the brands as well as the broader industry.

James West:   So would they be plugged into, for example, the Ontario Cannabis Store online?

Narbe Alexandrian: Yep.

James West:   Interesting.

Narbe Alexandrian: So they have an integration with Shopify.

James West:   And so how will Canopy Rives monetize that investment over time?

Narbe Alexandrian: We think data is going to be huge in the industry. We think that whoever captures that data and holds that data is going to have authority in understanding what trends are going to exist in the market today, what products customers need, what customers are going after in real time. So we think that gives us a lot of insight of what’s going to happen in the industry, which can guide us into our decision-making of what brands to look after, what verticals to focus in on, as well as tons of other things you can do with the data down the road as the platform becomes bigger and more states start to subscribe to it, as well.

James West:   So when did Canopy first become aware of Headset, and what was the sort of mark of events that happened before you said hey, you know what? Let’s make an investment.

Narbe Alexandrian: We’ve been tracking the retail business intelligence space for quite some time. Right now we see, we did a lot of research in talking to consumer packaged good companies, snack and beverage companies, and finding what is it that drives their understanding of the industry. And through a lot of those conversations had said kept coming, customer aren’t just, the brands aren’t just bud tenders and retailers, and but they’re non-cannabis-companies, as well.

So these snack, beverage consumer products goods companies, they’re actually customers that said they’ve looked at the data, and while they haven’t done any investments in the space or had any headlines, they’re passively monitoring what’s happening within each of those geographies.

James West:   So does this represent a shift in the interest of Canopy as an investment enterprise away from products and consumer packaged goods into what is the next evolution of the cannabis industry, data and monitoring and that kind of thing?

Narbe Alexandrian: I think our investment thesis stays the same. We’re looking at everything across the entire value chain, so cultivation we still take a look at, brands we still take a look at, of course, and we think brands are going to be huge in the next spate of cannabis. But as time goes on, and as mass-market takes hold and there’s going to be three or four large players within the cannabis space worldwide, we think that the technology is going to be horizontal layer underpinning a lot of these different pieces of the value chain.

And technology is broad; I don’t just mean software or hardware, I mean genetics, plant sciences, life sciences, a lot of the technology that exists within their as well can be applicable to cultivation as well.

James West:   So what is the typical investment sizes that Canopy Rivers considers? What’s the sweet spot?

Narbe Alexandrian: Yeah, we’re unique in that we’re life cycle investors, so we can write cheques anywhere between $500,000 to $40 million in one shot. And what makes us really unique is that there’s no stage that really scares us. So we can go in at a very early stage, at a seed stage, write a small cheque and take a large percentage, or we can go all the way to the very end right before the company goes public, and put a cheque in without the closer exit.

James West:   When you make the decision to invest, do you have an exit strategy in mind, or is it more of an open-ended, we’ll make an investment now, see how it goes, consider the exit, some point in the future, it’s not part of that initial consideration?

Narbe Alexandrian: We always have to think about an exit. We do make investments, and we always want to find out what’s out there, because sometimes these company don’t really require an exit; maybe they go cash flow positive really soon, and we have cash flows, and we have a number of assets that provide us with that. There’s other companies that we have in our portfolio that are well suited for an M&A by a large player once legalization takes place in the US. There’s other portfolio companies out there that are very ripe for going public through an RTO or IPO down the road as well.

So for our portfolio, when we manage it, we look at all those different areas. We spread the risk across each of those three segments, in order to create a balanced portfolio for our shareholders.

James West:   So would you say that the portfolio is tactically opportunistic as well as strategically long0term focused?

Narbe Alexandrian: Absolutely, and we look at different ways to tackle those and to break those down, whether it be international markets we’re looking at or nascent industries that cannabis just hasn’t gotten into, but is going to follow that path because every one of its peers in terms of industries have done that same thing.

James West:   Sure. So then, without revealing any secrets, can you give us some indication of emerging opportunities that people might not be thinking of, yet?

Narbe Alexandrian: I wouldn’t say that there’s nobody thinking about it, because there’s a lot of smart people within the industry, but we believe there’s a lot of segments outside of just cultivation, and I think plant sciences is probably my favourite one. Just understanding how the plant grows and what the genetics are like and what the technologies are added on top of that.

In addition to that, I think brands are going to be huge, as well. There’s a lot of huge brands being developed and we can see that’s the Headset date as well, and we can apply that to a bunch of different geographies. As the US can’t do that, as a Canadian, we can.

James West:   What is it that makes a great brand relative that one that’s not so great?

Narbe Alexandrian: There’s a few things; one is, absolutely, distribution. Getting your product out in as many people as you can, in as many stores as you can. Secondly it’s just customer service. It’s understanding the customer in and out. It’s talking to them, listening to them, following them on social media call it, but just really getting a deep understanding of what the customer wants and reacting to it, and being flexible enough to skew the product line. Maybe it’s a colour, maybe it’s a logo, as the customers’ taste changes, and they want something else.

James West:   Very interesting. Narbe, that’s great – we’re going to leave it there for now, and happy to have you back and get more secrets from the Canopy Rivers business machine.

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