Yet Another Value Podcast - Discussing the Cannabis opportunity and Glass House Group with Aaron Edelheit

Episode Date: May 25, 2021

Aaron Edelheit, founder of Mindset Capital and author of The Hard Break, comes on to discuss his thesis for investing in cannabis in general and Glass House Group in particular. Key topics include why interstate legalization could come sooner than later, how Glass House's California locations are a huge asset, and why U.S. Cannabis stocks trade don't trade in the U.S.Aaron's Book, The Hard Break: https://amzn.to/34dKyYLAaron's article on Glass House: https://mindsetvalue.substack.com/p/the-most-valuable-greenhouse-in-americaAaron's article on interstate commerce: https://mindsetvalue.substack.com/p/are-interstate-commerce-restrictionsChapters0:00 Intro2:00 Disclaimer2:25 Why is investing in cannabis interesting now?11:00 Why is cannabis not a complete commodity once legalized?16:10 Why is California so great for growing cannabis?25:05 How retail can be a moat in cannabis29:40 Discussing the three way SPAC merger that will form Glass House38:30 When will cannabis go interstate?43:15 How to think about valuation of Glass House47:00 What's the difference between BRND in Canada and MRCQF on OTC?

I haven't heard that before. All right. Hello and welcome to the yet another value podcast. I'm your host and the founder of yet another value blog, Andrew Walker. And with me today, I am just super excited to have Aaron at all height on. Aaron is the founder of mindset capital and the author of The Hard Break. Aaron, how's it going? It's going great. Thank you so much for having me on. I love following your blog. It's an honor to be on your podcast. Hey, well, I'm super excited to have you. I know we're on different side of different sides. of Angie. I don't think you're short. I know we've got different. No, I'm not short. I'm just skeptical. I just wish they would do something different. That's all. I wish they would do something a little faster. But let me start this podcast the way I do every podcast. And that's by pitching you, my guess. I almost don't need to pitch you because people are going to listen to this podcast and they're going to quickly realize how much I respect you and how much I kind of hang on every word you write. But I'm going to try anyway. These are our first time talking in person, but I kind of feel like I know you. I listen to your podcast on Bill Brewster. I read your

substack all the time. Your book is currently the book on my nightstand. And look, I just really respect you. I really admire you as investor. And I was telling you before the podcast, one of the things I most admire about you is not your investing. It's actually, you're so open and willing to kind to be raw and vulnerable. You know, your podcast with Bill, I had to pause it a couple times because you said something that struck such a court. I had to like stop and process it. And I wanted to finish your book, which my wife thinks I've gone manic because it's a big proponent of the Sabbath. and I'm preparing to brick my phone on Saturdays and just spend time away from the computer. She thinks I've gone crazy.

But I'm really loving it. I just haven't quite finished it yet because, again, it would get so raw. Sometimes I have to set it aside. But I love it. I'm super excited to have you on. You're a great investor. I really respect you. Can't wait to talk about this.

Thank you so much. You embarrass me. But thank you. Well, and I'll have links to all that in the show notes. So anyone who's listening to this and wants to find Aaron, you'll be able to find that in the show notes. But let's turn to what we're going to talk about today. I'll just quick disclosure. We're going to talk about the cannabis industry in general and Glass House Group in specific.

Glass House Group is most cannabis stocks trade on kind of the backwaters of Canada. Glass House Group is a much smaller cap's back. Lots of risk associated with all these. So everyone should just remember, do your own diligence. Nothing on here is investing advice. Cannabis is illegal in a lot of states. So nothing on here is legal advice either. But that out the way, let's just start generally.

Aaron, what interests you so much about the cannabis industry? So what interests me so much is a number of kind of data points or aspects of cannabis. One, it's an enormous industry. It's a $100 billion industry. Now, most of it is illegal. But what's happening is the states are legalizing it. and canvas is being normalized at an incredibly fast rate, but there still is this federal illegal status. So you have this kind of weird environment where you have a very large

industry. You have a legal, I'll put it in air quotes, at least on a state basis where they're legalizing and the federal government kind of look at the other way. And that you have the legal side, it's like 20, I think it's like 20 billion, but the entire market's like 100 billion. And none of the stocks trade in the U.S. Because of the federal illegal status, they, as you mentioned, some of them trade on secondary. They don't even trade on the main exchanges in Canada. They trade the U.S. companies trade on the secondary or tertiary exchanges. And so you have much, much lower in liquidity. And it's my rough guess that you have about 99% of the investment industry is just has, are not involved. You know, just some anecdotes, you know, from talking to

money managers or portfolio managers at very large firms. I remember talking to one that the firm manages $80 billion. They have no cannabis investments. One of the portfolio managers reaches out me. And he basically tells me all the portfolio managers that the fund are investing all their personal money in cannabis, but they can't from a professional basis because their compliance department has said it's akin to money laundering. And it's just not worth the risk for some points of alpha to if any of that $80 billion get scared because, again, of the federal illegal status. So I'm very drawn to situations where, for whatever reason, people are not investing. There's some barrier to investment. Other people are not fishing kind of in that pond or in that

ocean. And cannabis is just like this super weird where you have a very large, fast-growing industry that you can invest in, but that none of the, you know, I would say almost competitive forces. There's just no competitive forces. And an additional kind of strangeness is you have Canadian cannabis companies that operate legally in Canada, and in Canada it is federally legal, that trade on the New York Stock Exchange and NASDAQ. Again, because it's legal in Canada, and they trade at absurd multiples, like valuations that don't make any sense, like right up there with what I would say is GameStop or any of the crazy kind of companies that we're all kind of shaking our head at. And so it's super strange to see

and even the ancillary ones, if you don't touch the plant, but you provide the picks and shovels. Like there's a company called Grow Generation. It's literally at one point was, you know, went up like, you know, five or seven times in a year. And so Scott's Miracle Grow is like ancillary, but doesn't touch the plant, so it's legal. And so you have all these signs, which what I love is, you know, you and I could point to all the signs of excess everywhere in a lot of places in the market. And then you look at U.S. cannabis companies and I'm invested in companies that are literally growing at 50 to 100 percent with either no debt or very little debt because they can't really get debt or they get it at very high interest rates. And they

trade it single digit forward multiples with like long runways. for growth. And so I've been fascinated by it. I think there's a stigma, you know, even if there's not a compliance reason, I think there's also a stigma reason. I think intuitively, you know, I've thought a lot about this. Even before I started writing about it last year, I was, I asked myself, do I really want to write about it? Do I want to, you know, I'm a generalist investor. I write about a lot of stuff and I invest in a lot of different stuff. But I was like, do I want to be, you know, the cannabis guy. Yeah.

Or, you know, and I'm like, I'm not the cannabis guy. I just go where the opportunities are. And so that's what really fascinates me is that, you know, there's this, there's very little money investing in it. You have this. And there's a bunch of aspects of it that are really interesting that we can dive into that, like, the legal market's now growing faster than the illegal market. The fact that the Alabama, very concerned.

state is passing medical marijuana bills, the fact that, you know, Illinois is seeing more in taxes from cannabis than alcohol. There's just a lot of really, really fascinating things. And I think, and I throw it a lot at you, the last thing I would say is why I'm so interested in it. It's not for the aspect of getting high, but for the health and wellness aspect. And when you do a deep dive research into cannabis, you find that there's a lot of misinformation, a lot of myths that are just not true. And one of the most fascinating thing, data points that I found, is they found that when they legalize medical marijuana, workers comp claims go down. You say, wait a minute. Why would workers' comp claims?

go down. And then what you realize is that people are self-medicating for a whole host of treatments and they're using very, very toxic or even worse, illegal things. They're alcohol, opioids, fentanyl, et cetera, just to get through the day, there are a lot of people in pain. There are a lot of people who have, you know, post-traumatic stress disorder or, you know, can't sleep at night. You know, I have struggled with insomnia in my life. And so that's what's really interesting is this is, I believe this is very much a health and wellness play. And it is replacing a lot of the more toxic things. You find pharmaceutical sales go down. You find alcohol sales go down. You find opioid usage goes down wherever marijuana or cannabis is legalized. If I could just jump in

on two things. One, I completely agree with you. You know, like I'm from the South and probably raised pretty conservatively. And like, you know, when I was 15 or 16, I was like, oh, marijuana. That's bad. Now that I've grown up and I've seen some of the date, I'm like, how is alcohol legal and marijuana? isn't legal. Like, alcohol is far more destructive than marijuana. So that's just my personal opinion. But the thing that, you know, I always dismiss these as I would think, you know, you mentioned U.S. publicly traded companies that operate in Canada. And I always dismiss these as like the Tilray or something that traded at insane multiples. But the thing you said that got me so interested in the cannabis space is you've got mania multiples all around, anything that

touches U.S. cannabis, except for the actual U.S. cannabis companies, because U.S. cannabis can't trade publicly traded, it has to trade really in backwater Canada stocks. You get like value multiples for things that if, you know, in the next 10 years they can come into the U.S., they're probably going to be a mania around them. And that's what really attracts me to them. So let me ask you a couple things just on the cannabis space. Look, I'm still doing work on this. So it's really helpful to talk to you. But so am I. That makes two of us. My first thing when I thought cannabis and people would pitch these. And I would always say, okay, cool, yeah, great. I don't disagree. Cannabis is going to be a huge market once it's legalized. But I always kind of thought, oh, you know,

it's just people smoking a weed. Why wouldn't this become a, why wouldn't this be a commodity or, you know, at some point you probably go the Marlblow where you start developing brands, but I can't pick the brands in this burgeoning market. Who's going to be able to pick that? So why isn't like every player right now kind of just doomed commodity and you're buying the old, hey, there's a thousand car companies in 1920s and three of them will be successful. But who knows what those three are when it comes to cannabis. You know, it's a great question. And so what I would the one of the key things that I saw, especially last year, that people I would see repeat. And it's really interesting how price kind of drives narrative and cannabis kind of really took a hit from the end of 2019 into,

or really mid-2019 into 2020. But the analog is. isn't that cannabis is like a weed. It's like, you know, like a weed that you pull up in your garden or it's that it's like corn. You know, corn doesn't have, you know, doesn't affect your brain or, you know, unless you take some of those elements and you make it alcohol. And so what's the difference between alcohol and corn, or like, potatoes and vodka? They're very different things, right? And so what I would say is that when you can alter your brain state in a modern regulatory standpoint, there's going to be regulation, there's going to be safety controls, There's going to be a lot of things that make sure that you're just not kind of operating, you know, without any cause.

And then you'll have different kinds of quality, et cetera. The other thing that I would say is that when you research how cannabis is grown, outside of just growing, you know, a couple of plants or just doing it for yourself, if you really want to grow it efficiently and at scale, it's a sensitive plant. It needs to grow in a very narrow boundary and it grows really fast. And if you want to like maintain the THC content and develop different strains, you know, sometimes you can turn it over in a year like four or five, possibly even like six times, right? Because it's a very fast growing. And then how do you do that at scale and efficiently? It requires water. How do you use CO2? Do you use sunlight? Do you not use sunlight? If you're growing it in areas where it gets very cold or very hot, well, then that doesn't work. So you have to really control the temperature.

So what does that mean? That means a lot of energy, right? And so the inputs become very important. What do you use for like pesticides? Because this isn't like corn that you just leave outside. You can't do that here. And so when you do the research, you say, well, why is all the illegal kind of cannabis? Why is it grown in California?

Like, why is that? Well, it turns out, why are all? most of the grapes grown here? Why are all avocados grown here? Why is most of the lettuce in the country grown here? Anything that requires lots of sunshine and a narrow band of temperature is generally grown in California because the same weather that people love, the plants love. More hardy agriculture can be grown anywhere. And it is seasonal. But with cannabis, you want to to grow it as you want to turn it as many times. And so what's happened is, is that you have cannabis being grown in states, but generally it's indoors. If it's outdoors, it's like

a seasonal kind of thing. And the outdoor cannabis generally turns out to be a much, much lower quality cannabis that's used for kind of as inputs into other kind of consumable. Yeah. Let me ask one question there. So that was when I read that from you and you made that analogy like why, you know, to me I thought of Napa Valley with wine and the grapes being grown in California and then glass house group, which we're going to talk about in a second once we move from general, they've got a major plant kind of in the same area. But why is it, you know, why is California so important to this story? Because I, when I think we, you know, I think in my head. My wife and I watched the gentleman, the Matthew McConaughey, Guy Ritchie movie last year where

he becomes a big pot dealer and he grows it in London. He's got a bunch of underground greenhouses that he's growing. And, you know, I'm not sure how scientifically accurate that is. But in my head, like, you know, it's weed. You put up a greenhouse and the greenhouse, you can temperature control it. You control it. So why is California so important? Because I would kind of think like, you know, Mexico, cheaper labor, lots of sunlight. You put a greenhouse there and you bring it into into the United States is where ultimately you want to go. So why do you feel so good about comedy? So can I ask a question first?

Was it a good movie? Oh, I really enjoyed it. Would you recommend it? Yes, I would definitely recommend it. You know, it got good reviews, and I would say the reviews undersold the movie. It was just a lot of fun. Oh, okay, great. Great, right, right, right.

But so what I would say is, so you asked a lot there. So the first thing is that we can see what cannabis costs are to grow everywhere. where it is in California and or Oregon or Washington, you know, or other areas where it can be very conducive to growing. And the average multi-state operator, those are companies that are operating in the U.S. that have places in Michigan and Florida and Nevada and, you know, places get hot and cold, Illinois, their average cost of production. it costs them just the cost of goods sold, right? To actually create the plan is $7 to $800 a patent.

Now, Glasshouse, even before we'll get to there, is they're at $150 a pound. That is a pretty enormous difference in cost of goods sold. And it's primarily that, look, when it's illegal, or you have a captured market, you have regulatory barriers, like, it doesn't matter that it costs you five, six, seven times, even ten times what it is. Because, you know, even in life, I don't know what the cannabis rules are in the UK, but if it's illegal and you're growing it, it's a great business, right? You know, like, you know, one of the things that I say is like, you know,

In Massachusetts, cannabis goes for over $4,000 a pound because the regulatory infrastructure is so constrictive. And so do you really have to be that efficient? No, you can grow at $1,000, $2,000 a pound. You're still going to earn phenomenal margins. It's not the efficiency. It's the ability to kind of evade the law and not get arrested. But not just if you are operating according to Massachusetts law, you just got to operate.

You've got to build. There's a reason it's $4,000 a pound. There's a massive shortage in Massachusetts. Wait, do you see them. It's just a big article in the New York Times and how for New York and New Jersey, they just approved it. And if you look, there is going to be a dramatic shortfall in production. You're going to have crazy prices for legal cannabis. And so anybody who can get on that wholesale production and get those stores open, they're going to make crazy outsized.

returns for years, you know, if the restrictions around interstate commerce, because cannabis right now is not crossing state lines. That's also a very important point of this. To your point about Mexico or I've heard Colombia, et cetera, we don't even have cannabis crossing state lines. Like the idea that you're going to have, you know, if think about the trade protectionism and the swapping that goes on around agriculture, steel, everything, the idea that we are going to accept foreign cannabis into the U.S. When we can't even federally legalize it or it's not even crossing. That is, it just seems crazy to me.

I do not see that any time, anytime soon of any, I cannot imagine. the what the headlines would be if some bad shipment of Mexican cannabis came in and it just you know or Colombian it was laced with something or someone died like there I just cannot see that happen I mean maybe 20 years from now or someone but I just yeah that seems like a real stretch to me there's obviously I think anyone who thinks about the cannabis industry for five minutes is going to be able to recognize there's tons and tons of risks, right? Because you're investing and I think the payoff is this gets legalized. As you said, and we'll talk about this with Glasshouse, you can start shipping across state lines. You're going to have to pick winners and losers because

you can tell me if I'm wrong, we'll get there with Glass House group. If you've bought the Michigan guy who's growing for $1,000 per pound or whatever and you've got a California guy that you can go across state lines and they're growing for $100, well, that Michigan guy is going to be pretty damn screwed, pretty fast. But the one thing that worries me is like you legalize this for some reason and it's pretty cheap to ship and Mexico or someone can just really undercut and it turns out we were wrong that the growing is done kind of in California. They would have to legal a lot. They would have to say, I just cannot imagine our trade officials, the government saying we're going to allow foreign cannabis into the U.S. But I want to throw an additional thing to you that is very,

important you mentioned about brands you mentioned so one of the things that i really like and we'll get into glasshouse that graham ferrar the president says is that if you go to a bodega in brooklyn and you ask hey i want some cannabis and they go behind their secret drawer wherever they do they have that i didn't know that they had this yes and where does the weed come from in new york it comes from california if you look at where if you want to get in illegal good wheat. It's going to come from California. Why? Why? It's because that's where the really good stuff. I mean, I joked about it, but I don't know if you heard like Justin Bieber's new peaches song. Like the second line in the song, he's like, I get my peaches from Georgia and I get

my weed from California. It's literally like, oh, yeah, that makes sense. You know, this number one song, he's telling everybody where it gets his lead. And so what I would say is that if you think about the longer term, I think consumers are going to trust U.S. companies, you know. Did people buy Mexican or Colombian cigarettes? Or do they, you know, they buy French wine. They buy Mexican tequila. we buy a lot of avocados are from California but a lot of them are from Mexico because you know the thing with um it cigarettes is a good point but the thing with like alcohol is it's

very heavy so it's difficult to ship but we still do buy foreign brands even though a lot of our stuff is domestic but you know I'm probably splitting hairs because if this is legalized all these guys are going to come to the U.S. and it is going to be complete euphoria and I think we're buying all these guys at like seven times earnings and we can debate all the earnings and stuff So they come to the U.S., it doesn't even matter, right? Like, these things are going to be screaming home runs. Yeah, no, for sure. But in the short run, I mean, the most interesting thing I'm trying to figure out is how does

the federal government either legalize or push down just allowing states, you know, can these stocks trade on the NASDAQ? I see the foreign kind of any kind of competition or whatever way, way down the road that really, in my own opinion and research is not one of the risks that I worry about. Let's wrap up on the cannabis industry and then go straight, talk more about glasses specific, because that's what I'm sure. Is there anything, I mean, like, there are papers. We can talk about 100 different angles, but are there any big angles that you think we should

have hit in the overall cannabis discussion? Yeah, well, the other thing to understand is it's not just the growing. The growing is one part of it. then you have kind of a distribution part, right? And then you have the dispensary itself. And I would encourage you to not lump all of it in the middle and say, oh, if there's legalization, well, then that means that all the companies that are in different dispensary, you know, that have different dispensaries, oh, they're in trouble.

I would highly encourage you to look and see, I want to say that the city of Boston has approved five, maybe six dispensaries for all of Boston. So I want you to think about the value and the volume that the dispensary, for example, that Air Wellness owns, and I believe is right next to the Apple store. Yep. You know, that is going to have tremendous value. You're going to have a lot of power as a retailer and be able to earn outsized returns because of that. Many towns and cities have very strict requirements on where cannabis can be sold, where it can be grown, et cetera. And a lot of the licenses are actually tied to the real estate. So you could have President Biden come out tomorrow and say, cannabis is legal.

But that doesn't mean that suddenly everyone can sell it everywhere. If you and I are in Virginia or in New Hampshire, where are we buying liquor? We're buying it at state-run liquor stores. And it's been like that for a while. There is going to be a strict regulatory regime around packaging, around safety, around testing. States are going to do everything in their power to exercise control. Cities and local municipalities are going to want to understand. They're going to want taxes. You may only have in some of these cities or towns one or two cannabis stores,

and that's it. So the dispensary side, and then how is the distribution going to work? You could have the states say, there's one company or two companies that get the right to be the distributors. Well, that's tremendous amount of power right there. And the last thing is, I happen to think, you know, this large, large illegal market, companies can make things cheaper. They can, they can operate on scale. They can be more professional. They be more form factors. Mitch Baruchowitz with Marita Capital, who I highly recommend that you follow and see what he's doing, he talks about why the legal market is now eating the illegal market. And it's because you get safety, choice, access, and quality. And it's like the illegal market can't compete with

that. And so you think about that this, you're going to have, you know, in any kind of legalized world, I think it lifts everyone in a sense, and that there's the reason why the U.S. cannabis companies are scrambling and trying to plant their flags down as quick as possible is not that they grow, they want to be the farmers. I think at the end, they probably could care less or just supplement what they have. But that they get their dispensary, they get the distribution, they get it in there because it'll probably be locked after that. You know, in Florida, you have to be vertically integrated.

If you open a dispensary, you have to grow the way you can't buy from anyone else. Do you think those cannabis companies really want to do that? No, they much rather have like Joyce and Pick. And if you're the one or two cannabis stores in a town, you know, do you really want to operate? And that's why I think this all leads into Glasshouse. But just to be sure, is like understand that the growing, the cultivation part is just one part of the story. We haven't even talked about brands, which will eventually develop. That's a perfect transition to Glasshouse.

I guess the one, like, it's great because Glasshouse is doing, I'll let you dive into it, but it's a SPAC and they're basically a merger of three different companies, right? There's glass house group, which they've got, they grow, but they're really trying to build brands. And they've got three different brands. And I think they're going to have a lot more in the future. But they're buying a big greenhouse. And this is what attracted me to it.

You posted. And it's like, I would say, you can tell me from wrong, the best greenhouse for growing cannabis in California. And they're also buying another company that's got all of these dispensaries. And when I looked at it, I was like, I don't really get like, you know, I was kind of thing in my head. I don't get why you would be the retailer, the brand, the distributor, and the grower. like it seems weird that you need to be very integrated. And full disclosure, I talk to Graham.

I'm really interested in this thing. And he walked me through a lot of the math you did where he was like, look, ultimately we'd probably like to be a brand company. But right now, you need to have all of this for control because nobody knows how this is going to play out. And you kind of need to have that optionality, make sure you have supply. And by the way, we're getting the cheapest and best supply out there. So we're doing it.

Anyway, that's just my thing. Why don't I flip it over to you? Glasshouse merging with brand. I think you have a big position in this. Why don't you talk about the SPAC merger, all the different things and what kind of the Yeah, so I am not a SPAC investor. I am incredibly skeptical about, I would say, almost every SPAC. I am too, but I am a SPAC investor.

No, no, but it doesn't. I'm not one of these people that think it's like absolutely terrible. I'm just generally skeptical. The difference is I think when it comes to cannabis, the SPACs are the perfect vehicle. and why? Well, one, you have a capital constrained industry. Right. And we're raising capital is difficult. You got to do it in like Canada and do all this stuff. And so capital is a problem. Banking is a problem. And so how do you put pieces together in a capital efficient format? And so having a pool of money where you can take a great management team and cultivation that have scaled. to like 500,000 square feet, like Glasshouse. And then you could say, hey, Glasshouse, we're going to now take this great cultivating team

that has proven themselves. And then we're going to give that, we're going to buy the largest greenhouse west of the Mississippi that is like state of the art that was made for growing 5% operating margin tomatoes. And we're going to eventually convert it to 30 to 40% EBITDAAM-Archin cannabis. And then we're going to layer on as well licenses so you could open dispensaries so that you would have distribution for this five and a half million square foot greenhouse. And to put that all together. I'll be honest, without the spec, it doesn't happen because you could give Glasshouse

the shares. You need to pay the private equity firm that is selling the greenhouse. And they bought, they got the greenhouse under contract the minute, or I don't know exactly when, but they were negotiating on it, it was only in November that Ventura County voted to approve the greenhouse. Yep. So if you own the greenhouse before November of last year, there is no cannabis. And so it gets approved to get it under contract. And who has $120 million lying around that wants to buy a tomato greenhouse that is going to require another 80, 85 million in CAP-X, and then have the management team that knows how to operate it.

I, you know, you're not, there's, there's just not that capital in the cannabis space. And so the way I look at it, and so the other advantage I am, I'm in Santa Barbara. And so I love being here and I feel very grateful that I could be here. But it is impossible. I this is where this is one of the few times that I feel like I truly understand an investment just because I know the realities it's impossible to build anything in Southern California. You know, people think of California as being this very progressive state unless it involves anything around land or housing. And it's very frustrating, you know, just as a side note,

I'm working on this homelessness project here in Santa Barbara. And it's, it's, it's, it, you know, and I've been working on it for, you know, like several years. And it's, you can't build anything. I used to be a previous investor in a, in an avocado company called Lehmanera. And it took them over 15 years to build one house in Ventura County. And all they were doing is swapping off avocado trees for desperately needed homes. It was almost impossible. I can tell you in Santa Barbara, because I know because I follow the news, that even in Santa Harbor, even in Carpentaria, where Glasshouse is, the community fights around the smell of cannabis, around being next to any houses. It's almost impossible. So when I

look at that greenhouse, yes, California is absolutely fantastic to grow here. It is the perfect place. And I see all these people like, oh, well, when cannabis gets approved, you know, greenhouse is everywhere. Everybody's going to be greenhouses everywhere. Well, one, your cost of construct, it's just going to go through the roof. You know, your cost of goods is going to be much, much higher because you're not in California. And if you are in California, how are you going to get approved? I'll see you in a decade. I literally will, if you're lucky, and if you get access to water. We're in a massive drought. So I don't see any community suddenly saying, oh, we're going to approve a new greenhouse. So if I look at the future of how I think eventually

cannabis is going to play out, you'll have it grown in areas where you'll have the lowest cost of goods, which will be California, probably Oregon and Washington. And you'll have supplemental like craft batch kind of, you'll have some production elsewhere. But the vast majority will be here. And so what I look is this is a unicorn. I firmly believe this is a unicorn. If you're bullish on the future of cannabis and you're bullish on the amount that needs to be grown, at least premium cannabis, where you can control the environment, then this is a unicorn placed with what I believe is phenomenal management. This is Graham Farrar's fourth company. He was one of the co, part of the co-founding team of Sonos. He was one of the co-founders

of Software.com. He started another software company and sold it. This is his fourth company. Why would it, why would it, why would it be any different? And the thing is, like, and this was so fascinating, it's why I wrote it out, is when it was announced, everyone here was kind of, or in my little investing circle here locally was super excited. And the market went ahead and said, huh? Like, what is this? Like, who are these people?

And what is it buying some big greenhouse? And no one got it. And it's been fun to watch as people have done more research dug in to see the potential of it. And to me, it's more of a directional bet. It is, I think I understand how things are going and I'm not, I'm not sure of the timing. I just know it's going to happen. And so an investment in Glasshouse is not that they're going to beat earnings or that

my forecast is going to be, you know, perfect or that the timing and the rollout of the greenhouse. It's that when this starts moving, it is going to have enormous option. The optionality embedded in Glasshouse is enormous. And I think it's mispriced. I want to, so you have a, I would keep you on here for two hours to talk about this, but I know you have a hard stop coming off. So that's just going to have to be an excuse to have you on again. You did a great article on, is the interstate commerce act illegal when

comes to regulated marijuana. I might have said that wrong, but I will link to that in the show notes. I think the bottom line. I have another interview. I actually am going to post. I don't know if it'll be today or tomorrow. So there is a Vanderbilt law profile. I'm sorry to interrupt. Go ahead. So right now the states have said there is no, you can't import or export cannabis. And the reason they've said is that it's federally illegal and we don't, because it's federally illegal, we don't want it to cross. And so there's a Vanderbilt law professor, Robert Mikos, I think I pronounce that correct, and he wrote a white paper basically saying, hey, interstate commerce restrictions on cannabis are illegal, not illegal, they're unconstitutional.

And when I interviewed here, I wrote about it, the white paper, and then I just had the opportunity to interview them. And what's really interesting is that it turns out that, especially in the last 80 years of court rulings, that I thought there was a chicken or egg problem going on in cannabis and that you needed the federal government to say it's legal or it's not, you know, it's legal and then interstate can go on. But it turns out that the minute that the state said, hey, we can cannabis is legal in California. They actually created intra-state commerce. Yep.

Okay. 80 years of rulings basically say, no, Congress is the only entity that's allowed to create either new intrastate or interstate commerce. So the states have already gone forward and they've used this excuse that it's federally illegal, but there's no distinction between intrastate and interstate, which is fascinating. that still doesn't mean it's easy because if I'm like Glasshouse, for example, you'd have to sue California to export, Lord knows how long that would take, and then you'd have to sue New York or New Jersey, and then it would just be forever.

But it turns out the more interesting nuance is that I also thought that the federal government had to legalize cannabis for there to be interstate commerce. No, it actually turns out that if the federal government does anything, any version of any law, now not the safe banking act, which just relates to banking, but if any of the acts that they're looking at, more, states, et cetera, any kind of descheduling or pushing down to the states, the federal government simply says, hey, the states decide from now on, we are not going to federally prosecute. but we're not going to condone it. We're just stepping back. Interstate commerce is gone. It's literally gone. So now I believe that it's actually coming much, much sooner

because the only reason the states have restricted interstate commerce and there are these barriers is from federal prosecution. So if there's any removal of federal prosecution, interstate barriers go down and I in that scenario you want you just think about like why is why is cannabis being grown in Michigan yeah you know why is a glass house the best the best growing the best it's it's going to be cheap to transfer it doesn't want sustainable sungrown Santa Barbara or northern California cannabis that's like premium for the lowest cost. Who wouldn't want that?

We, super fascinating. Again, everyone can, we're running up on a hard stop and I've got so many questions, but I'm going to link to everything in the show notes. Everyone can find it there. Let me ask one longer question, one shorter question before I let you go for the hard stop. The first is, you know, just thinking about value. I know you think this is a unicorn. And I don't disagree. I think these are fantastic assets. You started talking about the management team. Maybe we'll just do a second episode and talk about Graham. But, you know, the one thing that I've struggled with is this company, it's going to be valued at about $700 million enterprise value, if this deal goes through, when this still goes through in early

gym. You know, last year, they didn't earn anything, right? So you are really betting on the common. The greenhouse is coming online. They're going to be able to grow a lot. They've got a lot of retail locations that are just opening up. But, you know, you could have valued this at $300,000, $700,000, $7 billion. I couldn't really tell.

So I think both you and I think this is the future. There's a big wave behind him. It's a great management team. But it's a SPAC, and SPACs have weird incentives. So how do you look at this and say, $700 million is way too cheap? So I think you make a great point. And I've heard arguments to say this is an expensive deal compared to what you can get in cannabis. Part of what I'm trying to, what I'm personally trying to do is take long-term investments.

There's so much uncertainty. I'm not an expert. I can tell you what I think is going to happen. I'm wrong a lot. Okay. the only way I know how to navigate as an investor is I want to bet on great management teams with what I believe are great assets with low downside. And what do I mean by low downside? Glasshouse will have no debt. Not only that, they'll own all the real estate outright.

That means they could leverage down the road or whatever. I'd also say as that they were profitable going into the fourth quarter on a runway. Now, it's small. It's like 30 million of EBITDA. But this is not a company that's burning money. They are, Glasshouse by itself is a profitable entity. They own the dispensary store, the land. They're going to own the greenhouse. They own the farms. There's real estate value just from them operating in Santa Barbara. The prices are absurdier. And so I don't believe my investment is going to get impaired. Their full in cost, of goods sold are what other people's lease cost, just their lease costs. So they have a cost competitive advantage. And so when I layer in the fact that they basically unlevered balance

cash with great management, where the future of cannabis will be grown here and you cannot replace it, that what I'm trying to do is make a bet three or four years from now. And that's where I've been successful before, is being not worrying, this next year or whatever, is the direction. Cannabis is being normalized faster than it's being legalized. It's going to be legalized. I'm now convinced after reviewing the constitutional aspects, the interstate barriers will fall sooner than people expect, well, then it's going to be grown in California. And how does the lowest cost producer not benefit?

Now, then the question is, you have a range of outcomes, right? I also happen to think that if I'm Philip Morris, if I'm Anna as or Bush, I'm any company, and I want to make a long-term bet on cannabis. I'm going to look for supply. This is a very immature supply chain industry. This is the point is that in a very immature supply chain industry, you want to bet on quality supply chain assets. And so if I'm one of them and they're going to make 10, 20-year bets,

I don't know how Glasshouse isn't their first call. All right. Last question, because again, you have the hard stop. And I'm just going to use that to get you back on the podcast as soon as I would love to be on. This has been great. Look, this trades in the Canadian backwater under BRND dot whatever Canadian backwater. I'm sure everyone can find it. There's also a pink sheet stock. M-R-C-P-F, over-the-counter. Do you, can you tell us which one you own? I believe they're functional. I bought in Canada. Yeah. But either one. You just need to be careful. with the OTC, I see occasionally you'll see people put in market orders and the market makers will take advantage of you. So just be careful. And also, no, this is very, very important as all of these is my bet is not what's going to happen next quarter or even when the next year. I'm happy. My first investment in cannabis, Air Wellness, I recommended it 15, went to 19,

and then went to four, okay? Now, I feel better. It's 27, but just know that these things can be very volatile, that they can move around a lot. After the transactions announced, the stock could fall, to me, that's not what my investment's about. And this is brand, which is the SPAC that's taking Glasshouse Public. This is Mercer Park 2, and correct me if I'm wrong, Air Wellness was Mercer Park 1, and that's been a home run now. That's right.

And that's part of it is I like investing with people. The older I get, companies are made of people. And you want to bet on the best people. And that's part of, I know Graham and I know this isn't going to, this isn't going to fail because of Graham. It'll be something else. But it makes life easier when you can invest with great people. You know who else has great people? Angie, which is backed by IAC.

but I really you know you just have to help them solve the supply problem we're working on but look Aaron I mean I have great respect for you I'm only kicking you off because I know you have a hard stop but I love to having you on I want to remind everyone that cannabis is risky brand as a small caps back nothing on here was investing vice everyone should be extremely careful but I think this is a fantastic investment I fantastic investment to talk about I've really enjoyed having you on I'm looking forward to keeping the conversation so much I'd love to do this again We will because this was way too soon. We had to kick you off way too soon for your stop, but really appreciate him.

We'll chat soon. Okay. Thanks so much, Andrew.