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iAnthus is one of the more ambitious cannabis companies you may never have heard of.
The company has 28 stores in the U.S. and is beginning to roll out its Be. dispensary brand in New York, Arizona, Nevada and elsewhere. In 2016, it was the first U.S. cannabis company to go public in Canada. Now that pot stock valuations – including iAnthus’s – are trading near all-time lows, it’s a move some executives are likely second guessing.
In an exclusive interview with WeedWeek, iAnthus CEO Harley Ford, a former Goldman Sachs banker, discusses how iAnthus coined the term multi-state operator (MSO), the future of interstate trade and why he thinks investors undervalue pot stocks.
This interview has been edited for length and readability.
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WeedWeek: How's business?
Ford: Business is great. I've been coming to this conference for five, six years. They had it at the Rio. Everyone stayed at the Rio. The place wasn't sold out.
You had scenes that looked like the Cantina scene from Star Wars. I was the only guy wearing a suit coat. And people thought that I was covered in cash.
And you walk through here now and this [conference] is insane. You have massive booths like it’s something from a tech show. I think that's indicative of what the potential is.
Ford: We were supposed to launch that in September and then December and now January (2020) in Brooklyn. A couple things happened. We had an original store across from Barclays Center. And then a store right next door that was twice as big became available. So we took the lease and started building that out.
That delayed us a couple months. And then we've had a couple of [routine permitting issues] but we should have it done the end of January.
WW: Is it looking like New York will legalize REC this year?
Ford: Last year we thought we were going to get full REC. The horse trading didn't allow for that but it looks like it might happen this year. There's budget deficits that grow more supportive. I think the legislative body is going to take it up some time this spring.
WW: What do you think of Connecticut, New Jersey, New York and Pennsylvania talking about coordinating legalization?
Ford: I think it's the future. Ultimately you're going to have everything legal on a federal basis. I think it will be like alcohol. Counties may opt out and say we're going to be a dry county.
I think you're going to have cross border trade. You'll be able to ship products a lot more like a regular industry. The concept that you have to be vertically integrated in every single state you're in ultimately will go away. I think you'll probably see it in Washington, Oregon, California. You may see it in Colorado, New Mexico. You'll see it in a lot of different areas.
WW: Do you have the sense that they would allow interstate trade even in the absence of federal legalization?
Ford: I don't think the feds will step in and do anything. I mean it depends who your president is. I don't think Trump cares.
WW: I don't think so either.
Ford: I don't think anyone on the democratic side if they were president would care. Joe Biden is the only one I have some questions about.
if Connecticut and New York and New Jersey all wanted to ship cannabis around. I think it would be fine. I think it would be good for the industry too. You'd be able to centralize production, drive down costs, make it much more cost effective. I think it allows for more retail outlets. More entrepreneurs could get involved. Smaller mom and pop type entrepreneurs could [get involved].
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WW: How does interstate trade help with small mom and pop entrepreneurs?
Ford: You'll probably see production more centralized. You'll probably have more licenses from a retail perspective. More participation on a community level...I don't have a crystal ball but that's how other industries have developed so I would imagine that is how this will develop.
WW: You were the first American company to go public in Canada.
Ford: The first MSO, multiple state operator. We actually coined the term MSO. I was a media banker. That's what we used to call cable companies back in the 80s and 90s: MSOs.
WW: Interesting. Stocks aren't doing so well right now. What do you think that means?
Ford: I'm an efficient markets guy. We've got 60,000 shareholders: The sector's got hundreds of thousands of shareholders. The law of large numbers tells you that, with so many people voting ... they're probably getting it right. But there's asymmetric information. I think what the investment community is doing is pricing an inordinate amount of risk into the market.
At my company I have asymmetric information. I know how delighted our customers are. I know how productive our manufacturing is. I know that we've got money to do things. That's a little more opaque to an investor.
Individual companies are going to say, well, I've got access to money. I've got a great operating team. My customers are satisfied. I've got great product. So as a CEO I'm going to say “Wow, we are way undervalued,” which I think.
But do I think the market's wrong? No. I mean if you look at the volatility as well, then volatility on these stocks is crazy. They don't even really trade like stocks, they trade more like an option would. Which when you step back and think about it from an investment kind of perspective that's what all these companies are. They're an option. I'm selling cannabis so long as the strike price of delivering cannabis is reasonable.
WW: Less than risk, I would assume the market is reflecting that companies are losing money.
Ford: Well that's risk. They're saying "OK I get it. There's a $50, $60 billion cash market for cannabis. But they're a little unclear on whether operators can make that kind of money. [Operators need to show they can] compete against the black market with good gross margins and good expense control.
People look for little indicators -- "Do they have revenue? Do they have cash flow?" -- but until you actually do that quarter, after quarter, after quarter. I think the investment community is going to say "There's a lot of risk there."
That's why I say its asymmetric. From my perspective, I'm like “Yes we can do that. I've got a team that has done it in other industries. We're doing it right now and we were almost cash flow break even in the last quarter.” I think there are some companies already doing that. Some of our peers are generating cash.
The operators, myself included, look at it and say I think the risk is much less. But I'm in control. I have my hands on the steering wheel. The investors are in the passenger's seat. You hit black ice, the passenger is always more anxious than the guy with his hand on the steering wheel.
So, that's the disconnect. I think we're way undervalued. But the investors are like "I can't figure all this out." And then you've got to regulatory overlay on top of it. It just causes a lot of uncertainty a lot of volatility.
Our stock was up last year, 3x. This year its down 70%. That's the problem of having a high volatility. You get the benefits, you get the negatives.
Alex Halperin is the editor and publisher of WeedWeek.
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