HighIQ Webinar Series: Mergers, Acquisitions, & Fast Tracking your way into the Global Cannabis Market

GrowerIQ joins forces with Hyde Advisory & Investments to advise on all things about Mergers, Acquisitions, & Fast Tracking your way into the Global Cannabis Market

The cannabis space can be tough to penetrate. It is becoming quite common for groups to work together when entering the industry in order to save time & risk, as well as fast-track their business.

We will be joining up with our allies at Hyde Advisory & Investments to discuss the state of the cannabis market today, the importance of partnerships in cannabis, & to answer all of your M&A/financing questions.

The event will take place on Thursday, April 27, 2023, at 2 pm EST for all those who would like to attend!

Join our very own Rob Perry, Vegar Samuelson, and David Hyde from Hyde Advisory & Investments, to get all of your questions answered.

Transcript:

Rob Perry  0:03  

Hello, everybody, good day, good afternoon or good evening or good morning depending on which part of the world you're you're logging in from. But I just wanted to, to welcome everybody back to another session of, of HighIQ. So for those of you who have attended before, you'll you'll understand kind of what the HighIQ webinar series is. It's an opportunity that we use here GrowerIQ to to reach out to customers and friends and contacts virus who are in the cannabis space, to talk about some relevant topics that are going in going on in the market concerns we're hearing about from, from customers and friends and partners of ours. And as a way to sort of just generally help help raise the IQ of the of the entire cannabis industry as well as we can. You know, today's today's webinar is tackling something that I you know, we hear a lot about, people are asking questions, you know, we see it in the news every day here, you know, companies are making these strategic moves. And it's hard to get a big broad picture of exactly what's going on. So the title is mergers and acquisitions and fast-tracking your way into the global cannabis market. And we've been joined today by five ICT advisory to members there. So we have Andrew and David. And of course our own. They got Samuelson is is joining us as well. So before I get on with the intros, I have to say, you know, given the title, the global cannabis market, I have to give a bit of a shout-out to all the participants that are joining from different parts of the world. We had a quick look at the where people are signing in from and bear with me, I'm just going to take a look at this to make sure I get it right. But we have viewers with us today from Argentina, Australia, Canada, Bulgaria, Colombia, Germany, Jersey, in the New Zealand, Malaysia, Portugal, through South Africa, Spain, Switzerland and Zimbabwe as well. So it's definitely a global audience to join us for, for global discussion today.

Rob Perry  2:51  

All right, jumping into two intros of the team we have here today. So firstly, I'll introduce Vanguard, who joins us from GrowerIQ. He's he's an account manager. I've been in the industry for five plus years working in cannabis digitization, electronic compliance, seed to sale. He's worked with some of the biggest names in the Canadian and international cannabis industry and to working with them for you know, dealing with operational issues, reporting compliance and generally helping them stay on side with with their regulators. Also with us today is is Andy. So Andy is a lawyer by profession, with 30 plus years of extensive corporate financial m&a and international business experience. For 15 years he was General Counsel to a multibillion dollar global hedge fund where he worked in capital markets around the globe. He spent two years in the Canadian cannabis industry as the Chief Operating Officer and General Counsel to a publicly traded licensed producer. Over the past six years, he's largely been in the global cannabis industry, where he's advised boards management, and corporate and business development teams on a whole range of aspects of corporate strategy, Ms m&a, asset acquisition, et cetera. And for the past three years, he's been with ICT advisory and investments, advising extensively on m&a in the global cannabis industry. Also with us today is David Hyde himself. You know, David, if you've you've never met him or run into him before. His background is he's the CEO of height advisory and investments, Inc, and the managing partner of cannabis global consultants started consulting in the cannabis sector in 2013, which is a long time ago for in cannabis years. That's, you know, that's a very long One time ago, and provided licensing advisory and startup services to about 80% of the Canada's licensing licensed producers. Free 2020. David sold a cannabis large cannabis consulting company that he had founded before moving on to this. And for the past five years, who's by us cannabis companies in 25 different jurisdictions, as well as different governments in key and emerging markets. And then set up by what is the world's preeminent cannabis m&a, firm, hide advisory, they now have up to 38 million in transactions close, they've got a large group 80 Plus cannabis businesses on their m&a roster. And they're here to really share some of what they've been seeing going on in the in the M&A market in cannabis and, and open up to to questions that you may have had at the end. So, David, Andy, I'm gonna kick things off here with with a question for you. You know, we're here now, how did we get here? Can you can you give us a bit of a background on the evolution of the global cannabis market? Where it is right now? You know, quick snapshot? Where did it come from? Where is it? What's it looking like? And that may give us some direction as to as to where it's going as well.

David Hyde  6:40  

Yeah, can show a couple of quick thoughts, first of all, and thank you for the intro. And it's a pleasure to be here and to be speaking to people from areas around the world. Welcome. And I'm looking forward to the next hour with everybody. When it comes to the, I guess the the evolution of the global cannabis sector, it's been really interesting, like, it always has and does have great promise. The the, the size of the market, the law of the market, the commercial prospects, as well as the good that the industry can do are always there. But it's been slower to roll out than many people hoped and expected. There are various reasons for that, of course, COVID does factor in in terms of supply chain impacts, and taking government's minds off of cannabis legalization, possibly into other areas. But I think when I think back on, you know, I was involved in the German tender back in 2018, with a few participants. I was in Malta multiple times. Before the first licenses were granted in 2020. Worked on early licenses in Spain, Portugal, Greece, Colombia, Lesotho, Jamaica, you know, many other countries. And I think, you know, one thing I've learned is that it takes a long time for governments to get their heads around how to draft and operationalize the medical cannabis regimes. You know, we've seen lots of examples of just it takes a long time, they want to get it right, they want to be cautious. They don't want to repeat the mistakes that some other countries have made. So although it's gradually improving, is still moves really, really slowly. I think another factor that I believe is at play here in terms of the industry rollout is in the early days back to when Canada's industry grew from 2013 to 2018, the medical sector, large public companies came into play. And those companies made a lot of capital on the public market. They made very bold moves and very bold predictions. We were told about, you know, funded capacity of you know, 1000s of tons of cannabis is grown and would be required of supply into the market this and that. And what we've seen when you wind forward to where we are today, is that a number of these facilities are no longer in play. The larger companies, in some cases have shuttered those facilities or sold them to local or different groups who are now going to try to commercialize them. So Well, I think what we've seen is a degree of overbuilding, over promising and under delivering, and in many cases the market has just not progressed quickly enough to allow the companies that are coming in to really charge you know, proper commercial costs. So I think last thing I mentioned and hand across to Andy for some thoughts is, you know, where the global cannabis industry is going. We're seeing some really encouraging science. I mean, certainly the Swiss medicinal cannabis sector as well as the adult rat trials, the German adult rat trials, which are a little disappointing to some, but again, it's a step in the right direction. And I think anyone who's serious about the global economy industry never expected a full adult legalization rolling out in Germany in the very near future. So we are seeing encouraging signs. We're seeing signs of countries adjusting the the the extent of ailments that medical cannabis can treat, which expands the number of patients. We're seeing countries that are changing the prescribing mechanisms that allow more medical professionals to be able to prescribe cannabis. So very slowly and gradually, we are seeing this uptick, this increase in potential for the global cannabis industry, but it's it's moving slowly. And and you can't outrace it, you have to be a little patient and really study it, I think to make the most of it. I'm Andy, I'll pass across to you for some thoughts.

Andy  10:46  

Thanks very much, David, and welcome, everyone. Thank you for joining us today. Just expanding on on what David has said and I agree entirely across that regulatory jurisdictional structure that that is ever evolving. Coming from my perspective, with a, a more finance specific capital kind of background, I divide the history of the global cannabis industry, kind of into three eras. There was the jet capital fueled era, which David described where it was acquisition boots and boots, and for sorry, bricks and mortar boots on the ground. In any prospective jurisdiction, one thought was going to take up the charge for medicinal or legal rec cannabis. That was followed by the capital deprived era, which incidentally, I think it has a has played a significant role in the development of cannabis within global jurisdictions. As David indicated, a lot of the money or the deep-pocketed Canadian and US Canadian LPs, US MSOs, were forced to divest of their assets that they had way overpaid for they were forced to walk out of jurisdictions, such as Australia and Germany and throughout Europe and South America and Africa. And as a result, it gave local national interests, an open space to start to develop and expand cultivation and distribution and lobbying their governments, again, on the regulatory jurisdictional front. As David mentioned, I think we're now in the I'll describe it as the gilded era, which I think is really a bit of an we're going to talk more about this later in the hour. But strategic, inbound, sophisticated investor, targeted business development. So you have, again, I think it's largely Canadian, LPs, US MSOs, Australian, regulated producers looking to expand their markets, because they have to, and they're looking for distribution, they're looking for expansion in those global markets. And a number of you from the locations around the world that were highlighted earlier, are all in play and provide expensive opportunities on your side. And I think just touching briefly on where it's going, it will be lightning fast moving, it will be trying to target those strategic jurisdictions that are advancing quickest. But at the end of the day, I think that the message that that I would have, for those of you in jurisdictions either looking for expansion or receiving, you know, incoming investment, etc, it still boils down to having a solid business plan that can survive the ups and downs of a highly regulated, often changing, challenging marketplace that we just don't know, at this stage, what the future will hold nationally or internationally.

Rob Perry  14:25  

So, no, that's pretty, pretty good background and, and, you know, in terms of lessons and takeaways for different jurisdictions, is there, you know, anything we can look at, you know, look at what's happened in, you know, Canada, the US different parts of Europe and say, you know, there's a right way or wrong way to approach it in, in other new jurisdictions.

David Hyde 14:53  

Yeah, I think there's lots of lessons that can be learned have been learned. Certainly, these markets are different. You know, I think I think people would get a little bit tired of hearing about how Canada did it, or how it was done in the US or in the earlier markets, because sometimes it's not, you know, directly relevant. And Canada got a lot of things wrong, frankly, you know, I think the biggest thing Canada's got wrong in my mind is that they've really botched the medical cannabis area completely when it comes, whether it comes to taxing medical cannabis, or whether it comes to just the way that when the adult recreational program rolled out circa 2018. And beyond, really, the number of medical patients is flatlined, it hasn't really increased certainly is in the last couple of years. So really, the medical patients been left behind in Canada's program. So when Andy and I talk to global cannabis companies and executives and governments as well, you know, we often talk about what other jurisdictions did and put it in context and what they did wrong, and what we can learn from that. So, you know, the critical thing, I think, is that when you look at how the things that have rolled out, you know, some of the countries that they're kind of common sense and the comments at conferences, and that would have said, Hey, these guys are early movers, that's going to be great. I think about countries like Malta. And by the way, no singling out of countries is meant as anything critical. But I'm just giving a few examples to illustrate some key takeaways, you know, Malta was set up as being, you know, really going to be a key in terms of the gateway into the EU following in a similar vein to its pharma centric gateway from years gone by. And you know, Malta, certainly, you know, has had some challenges, the regulations that are rolled out slowly, you know, some of the things that, that the early cannabis companies thought they'd be able to do through licensing in Malta has not materialized. And actually, it's all very well, that maybe in a single jurisdiction, you believe you can navigate the regulations a little differently or advantageously, it doesn't mean that the other jurisdictions where you're going to export to are going to feel the same way. So it may well be that countries have got, you know, put themselves out or people that other people say, hey, go here, because you can kind of get a little bit ahead, doesn't really apply when you start what to want to export from those countries into other jurisdictions. So I think the other couple of lessons that I've taken away from the early kind of legislation and rollouts and things, it always takes ages for the government's to get their heads around it, you know, and there's two realities. There's what's written in the law. Okay, so you've got the legal prescription, you can do this, and that there's the European Pharmacopoeia, there's various supports that help us to understand what we can and can't do in these different jurisdictions. But, you know, it's it's very challenging to read the government's mind. And very often behind the laws, I think about Israel as a great example, where you know, it's not the laws aren't really the challenge in Israel, in Israel navigating importation of cannabis into that market, or export from another country. It's navigating the varying and changing requirements that are more policy driven, alright, or everyday driven from the from the health department or the Agriculture Department. So it's the it's really what I will end with in this section is really having that granular understanding not only of your jurisdiction, where you're setting up what you can do there and what the market is in the addressable market and what you can do in that jurisdiction, but you also need to go to the other end, where am I going to sell to provide to what countries am I going to rely on? And how does the legal prescriptions marry up from all these different areas? And I think that's a lesson that many people have learned the hard way. Andy?

Andy  19:03  

Yeah. Thanks, David. Lessons Learned. There, this, this, I think could be it'd be an hour plus long session ended up itself. And I agree with David's David's comments, particularly, just to expand on one item that he had raised, know your jurisdiction, know your regulations, speak to advisors in the jurisdiction are those that have knowledge of the regulatory matters. You're trying to build and develop a business that is going to be highly dependent. It's a highly regulated industry. And so no matter where you go, if it's just a national base, or it's expanding, you know, from another country into overseas, you need to know the ins and the outs of those jurisdictions. I do think there are some fundamental All lessons we can take from the you know, the last 15 years plus of, of medical legalization and then wreck in those few countries that have it. And there, there are big points. The good news is there's data. The bad news is there's data. So one of the data pieces we have is that whether you look in the United States where they've been cultivating and selling cannabis on a state by state basis for, you know, going back once a year is almost theirs. Or in Canada, where, you know, it was a medical market prior to 2018, and then Iraq market. In other places around the world, we know that at the end of the day, the price of cultivated flour has gone down, and it's gone down drastically. So if you're a cultivator and you have a business plan in a jurisdiction, that happens to be somewhat protected by a medical regulatory regime, that limits distribution through certain parties, know what the future could do to your business plan, if the price you're getting for your flower was cut in half, and cut in half, you know, her her cut dramatically. At the end of the day, it's lessons like that, that I think will build your or assist you in building your plan for moving forward in into the student manner. Another is, and we saw this frequently in Canada, we're seeing it around the globe in the pre 2018 era, you know, be very careful of every dollar that you have. Because overspending on capex is a very big problem, most of the publicly traded a lot of the privately traded entities now. They have huge legacy debt on their balance sheet, they've managed to get their business in order, but they can't continue to, to finance and and carry that debt. And unfortunately, they're in a situation where they have to look for for other alternatives. I think the last thing I'll leave you with is just quickly, from a value perspective, this is a bit of a segue, I think, into the next subject. But from a value perspective, the days of deep-pocketed investors coming in and spending or overspending multitudes on, you know what someone with a license in Germany, or South Africa, or Israel or Australia or Canada, what they think it's worth, or what a couple of retail stores are worth or a distribution channel that is significantly down. So if you're looking for inbound capital from another jurisdiction, you have to be realistic because the heydays of overpaying and valuations that didn't make sense are long in the past. And you have to understand, you know, what your future projections are and whether or not they're reasonable in the jurisdiction.

Rob Perry  23:09  

Then, no, thank you, Andy, that that last point, I think a lot of us have seen where there's a real gap between you know, what, what a buyers willing to value add, and then what a seller is willing to value add and that, and I guess we'll we'll get into that a little bit, a little bit more further in the hour. But to keep it moving, you touched on a couple other things. You know, one of them was debt. And I guess we want to talk a little bit about access to capital and how some of the challenges that have have existed there for cannabis firms accessing traditional capital pools. And yeah, what are your thoughts on how that has impacted the industry?

David Hyde  24:00  

Yeah, I mean, that's a great question. I mean, we've worked through this and lived through this through the eyes of our clients, both on the consulting side and looking on m&a globally. And, you know, it certainly has been the best of times and the worst of times, and we're into the difficult times, in some respects. Now, on the capital side, I think what is done, though, in my mind, it's actually in some senses that allows the cream to rise to the top to a degree. I think what it's done is it's made cannabis companies think smarter, you know, have to differentiate themselves a little more to attract the funding that is available or that they can find, you know, you think about you know, the you're competing against a lot of other companies in the early days, you might have been the only one in that country, uh, one of the first few and there was no law about the cannabis sector. And you could just kind of tell a story and the money you know, might materialize it wasn't really that you had to do Do a real deep granular p&l or an understanding of the future forecasting. Now, Andy and I review decks all the time. And it's amazing how often we find that when you look at the deck that's been put forward, that's going to attract this scarce capital out there. The projections are made on very, very rickety footing, you know, the cost structures don't make sense. We're looking at exceptionally high cost, you know, revenues based on unit prices that just, you know, three or four years ago may made sense, but that's not where things are now. So I think, you know, in my mind, what we've seen with the lack of access to capital, it's really driven, in my view, is driven investors to need to be a little more circumspect, to be a little more attentive to the story and what's behind the story and scratch under the surface and do a bit more due diligence. It's also led to what I think Andy and I would coin as the rise of the strategic investor, you know, and it's not so much that there's a lot of traditional funding mechanisms, kind of waiting for cannabis to knock on the door and African and money ready to give. But you know, there are strategic investment vehicles, these are other cannabis companies, in other jurisdictions, there could be companies in CPG, companies in an alcohol or in pharma, or in other industries, and tobacco, etc, that are seeing that cannabis may hold something for them. And if they can find the right investment vehicle, they can bring that that money to bear. So I think we've seen the rise of the strategic investor, a very one quick example as to Andy is, you know, us MSOs, for example, right? I mean, us MSOs, are really landlocked, they can't do import and export activity with the federal legal structures that they have to navigate. But a US MSO can partner directly with or purchase a European cannabis company or invest in one they could or an African company, anywhere in the world, Latin America or Australia, they can buy into a Canadian LP, and then now they can actually start to get their brands into market, the genetics they want to have in the future into market they can create for themselves, brand presents, revenues, etc. So when the US does legalize in the future, the tables already been set. So that's just one very small example of what we've coined as kind of this idea of strategic investment, which is what we see as a trend now. Thanks, David.

Andy  27:39  

Yeah, again, expanding David's thoughts there, the strategic investor, the sophisticated investor, are really the two parties that are that are at the table and will drive you know, the the international or the global cannabis market over the next 10 years. Those investors are at the table, we're seeing a little bit of an uptick in the sophisticated investor being the family office, the high net worth parties around the globe, that that now think there is an opportunity in cannabis. That it's smart, it's smart capital. And so as a result, you have to make sure as David said that your business model will withstand scrutiny, that it is not a house of cards, that your projections are not unrealistic or unreasonable. And all of that goes back to some of our earlier comments about knowing your jurisdiction, know your consumer, know your product, what you're bringing to market and, and execute on that structure. The more you know about the your business, your strategy, your consumer, the market that you're in, the more likely you are to be able to develop a profitable successful business if you do that. There will be good opportunities from the as David described them strategic investor, which is largely at this time, Canadian LPs are US MSOs Australian, the strong Australian regulated cultivators who are looking for additional markets, they have to at the end of the day, Canada being the largest legal rec market is a fairly small market and we were saturated with parties and participants. It's only natural now that that market and its product development has become more sophisticated. It needs to look overseas to other global markets, for distribution, for partnerships and for investment opportunities. It needs to understand how to get into those markets and and in those LPs and those MSOs will be strategically looking for companies across the globe in new niche markets who are doing business, right and there, and there, they have a legitimate and defined business strategy that's not, you know, kind of a gunshot approach or sprayed all over the map.

Rob Perry  30:32  

No, that that makes sense. And, you know, given, you know, these types of investors, you know, who, you know, really, really know what they're looking for. Are there any factors that are driving them? Or even people looking to be acquired or partner up with these groups? Are there any factors driving them driving the m&a activity these days between the different groups?

David Hyde  30:59  

Yeah, I really feel that still, it's, and we've touched on it throughout this session. So far, it's the the scarcity of capital or the challenge of, of business growth capital, that really is driving a lot of a lot of the trends in the global cannabis sector for m&a. Certainly, and it's driving it on both sides, you know, I think it's, it's, you know, the, it's really a, an investor's, or a buyers market to a certain degree. But what we've seen, the companies that are attracting capital are really in, in two pools, you know, there's one of the pools is the companies that are already formed, that are delivering and that are doing solid revenues, and solid, solid net profits. I mean, that's what it all comes down to is the bottom line. And I think that there is more of a bottom line drive when it comes to cannabis companies that have been operating for a few years, they either need to be have a clear line to profitability or be getting into that area or be over that line and starting to show that they have a viable business. I think that is certainly, you know, a key factor for the, for the mature companies, for the startup companies, you're going to pick a lane. And I think so often, when when Andy and I look at look at DAX, and look at companies that are trying to come into the market. You know, we've learned over the years that that this strategy of trying to do at all trying to be the the propagate to the cultivator, you know, the process, the packager and the brand house and the manufacturer and the formulator, and kind of doing all those extracts, and etc, etc. You know, it's virtually impossible to be good at all those things that have focused harnessed business. So, you know, I think that's recognized now more and more in the global markets. And I think, where some of the opportunities lie, in my view, is for companies that really find the white space, really understand, as the global cannabis sector in the supply chain continues to unfold. You know, we come across novelty quite frequently. Well, you know, we weren't aware that companies were importing into this country because of a way they can navigate CBD or low THC regulations. You know, we're seeing some real novel things around, you know, GMP products, you know, beyond Of course, you know, flower products that are moving around, under GMP post harvesting kind of a paradigm. But we're seeing now a drive towards what are those, those products, there's derivative products, that it's hard to find EU GMP locations that can reliably produce those products. So it's bringing those things together, the knowledge may reside over here, and the actual production may reside over here, you don't have to have it all. But having one of those things and being able to build a business around that, and really justify that you are where that smart money that smart investment can be attracted to. I think that's really what I believe is driving this now. You can't have that one size fits all story. You need to know who your consumer is, where your market is, what you're selling for, who you're selling, to, how, who your competition is going to be, and backup the numbers that you have. And I think these are some factors that are really going to drive the successful m&a transactions where you find you know, one in one equals three when you tack on an m&a and it expands the growth of a company or when you have you know, a really a hollow one where you just don't really have any traction because you're just not stacking up in the marketplace.

Andy  34:48  

Oh, very good. Good. Points. David. I'll just expand on them. On the bit on a bit. I think that the this question puts itself into two two categories. One is the inbound capital or investment, if you will, and what is the outbound opportunity? Inbound, as we mentioned previously, parties are looking for profitable businesses in the cannabis sector to get into or to expand their existing business. And, yes, you have to know your consumer, you have to know your market one step further. And this may come as a surprise. Oftentimes, when we are reviewing companies and looking at m&a transactions, or someone that wants to divest, that's the outbound side, maybe looking for liquidity event, they've been in business for, you know, a number of years and have been beaten up by the regulatory or jurisdictional changes. Those folks in the European market with novel foods will know what I'm talking about, you know, different designations of that nature. But you really need to understand, are you what are your cogs for producing that product? Oftentimes, we come across LPs and others in the space that when you ask them and you try and drill down, how much does it cost you to produce, you know, that vape pen or that gummy? Whatever the product is, they can't give you a real answer. And unfortunately, this isn't rocket science. But if you don't know how much it's costing you to produce it, you have no idea if you're making money on every unit that you sell, that sounds very obvious, but it's those simple pieces that you know, will will attract attention from an inbound investor. On the outbound side, I think, again, you have two categories of prospective outbound parties. One is the established running operational cannabis business in whatever lane or sector it happens to be. Maybe looking for a bit of a liquidity event, some shareholders want to take money off the table. And, and, and or maybe looking for expansion capital, those I think, again, businesses that are successful and running that business, you know, close to breakeven, or breakeven or a history of, you know, increasing, adjusted EBIT, those will be good targets for the inbound capital that's looking for investment and expansion opportunities. For those of you that maybe earlier in the startup phase, and you attract you, you know, have early access to a license or access to a relationship or distribution, it's going to be more challenging, because that's where the sophisticated slash strategic investor learned some pretty hard lessons from history. And is it willing to take risk, in many circles at that, at that level, I think the key takeaway here and just going back to the title of the presentation today, which is fast-tracking, or the subtitle, fast-tracking your way into the global market, cannot emphasize enough, don't try and reinvent the wheel, you know, make use of the expertise that's out there you have it yourselves in your own jurisdiction, perhaps with your own r&d, sometimes your own intellectual property or your own, you know, formulations, there is a ton of it out there well, as well around the globe, where people have developed brands, and they're looking for a place to expand them, they've developed innovative products, you don't necessarily need to reinvent that and spend years or months, you know, trying to get stability, stability for a new edible product. More often than not, it's been done in in one or more of the other jurisdictions. So I would encourage you to look at things like licensing opportunities, distribution opportunities, inbounding intellectual property, or even structure expertise, inbounding, you know, regulatory jurisdictional expertise. And that way, I think you're much more likely to be able to move quickly and take advantage of the markets in your own jurisdictions and look out elsewhere as some of the other jurisdictions become more regulated and open up to, to all of us.

Rob Perry  39:33  

That's, that's really interesting, Andy, and, you know, it would be good if we can we can head back to that a little later on. Maybe get into a bit more detail at the end and q&a, but there's definitely some good guidance there. We're getting a lot of questions, both on here and you know, I'm getting some others so we'll keep it moving along. We'll get to those questions. At the end. We'll pivot a little bit for the moment before we come back to this discussion to something somewhat related, and that's, you know, the grower IQ platform and how that operates in, you know, in a global environment, and you know, considering m&a. So one of the things Vegar is going to look at and touch on is, you know, what have we seen with some of our customers with reporting and regulation, as they're starting to add facilities, you know, and expansion to their businesses and their operations? How do you deal with that? On a day-to-day regulatory and reporting basis. So, you know, I know we are tight for time, and we have a lot of q&a, we want to get to because this is a hot topic. So I'll pass it over to Vegar for a quick run-through and then we'll come back and get to those questions.

Vegar Samuelsen  41:02  

Great. Thank you so much, Rob. And thank you so much, Andy, and David, wonderful information. It's always so nice to hear what our partners are up to and then learn a little bit more about your side of the business. Great stuff. I'll take a minute now just to share my screen so we can open up the application, take a quick look and keep our demo today, relevant and on topic. So I should do it. Let me know if you can see my screen. Alright. It's perfect Bangor, thanks for big thanks so much. So yeah, on this landing page, here, you're gonna notice, you know, we have the GrowerIQ logo. And now we have a few different languages that we have the option to select, you know, English, Spanish, French, Portuguese, Dutch, I mean, depending on, you know, how you'd like your software configured, we can definitely accommodate those languages, it's just a nice thing to know, you know, people, all different jurisdictions, you know, whatever, it makes it easier. So, I mean, for my sake, today, we'll be selecting English. And we'll dive in.

Vegar Samuelsen  42:08  

Rob's giving me permission to hijack his login today. So hopefully, that's all good. Now, another thing we'll see, when we log in here, it's the switch organizations page. You know, if you're just a single facility, might just have one organization, but you do have the option here, if you had a secondary site, or multiple sites, you know, if I was a, you know, a controller, I could log in here and access any of those facilities within the application. So a nice way to kind of keep a holistic view on the operations. For today's demo, we'll use our demo environment. Right. So I guess, you know, oftentimes, mergers, acquisitions and expansions when they take place that can bring along a change in personnel. Aside from submitting those amendments to your regulatory body, you'll also want to ensure the right people are using the software in regards to designate their roles and responsibilities. Fortunately, it's very easy to create a new user and GrowerIQ that has their access permissions associated to the role that they've been assigned. So why don't we go in here and just take a look at that we'll jump into the administration page. We can go to User Roles. We see a few stock roles here. I'm logged in as an administrator today. And I have pretty much all the permissions that would allow me to perform all the all the functions in GrowerIQ. But maybe we want to create something a little bit more restrictive. So why don't I add a new role for a junior rotec. And for this one, let's just say we can do cultivation, and we'll have them have some access to sop training. I'll say that new roles. So there's our role, and we have the permissions. Now we can add a new user because maybe we have some new staff coming on board, in our case, the junior grow tech. So we'll head on over to our users, we can also just click on the Administration tab and see that here. So we'll add a new user. We'll say Julian, Julian Lodge is coming on board. He's trading in his guitar for a period of trimming shares. So we'll just say now to Tesla comm. And then we'll assign him that junior growth check role. And we'll just say, you know, or tech, and we'll enable the user. So once we set him up with the name, the role and the email that you hit Create, and that user will receive an email directly to their account and then they can do a password reset and have their very own login. And as they use the application, they will only have the functionality that was kind of assigned in that role. And of course, we could always update the status if they were to, you know, leave the facility. If we need to adjust their profile and change the roles, we can do that too. I'll head back home here. So another topic, I guess, today we're looking at, you know, accommodating our clients as they experience growth. You know, sometimes a facility has outgrown their current space, and they're now able to lease or personal purchase additional building space. Or other times, it can be acquiring additional space to expand into new markets, such as a cultivator that is now looking to move into processing, once the further licenses are applied for and granted. And just to quickly go back on the users. But one of the nice things about GrowerIQ as well is, you know, we don't charge you based on users. So some people might be you know, worried, like, Oh, we've increased our user counts is our fee going to go up, you don't have to worry about that you have unlimited users. So it's just a nice peace of mind to have with our software. But let's go on and check out our cultivation and processing. So here's kind of a lay of the land and our facility, we see we've got some grow rooms here, mother room propagation room, bedroom, and a couple of flower rooms that are shaded in red, because we have an overdue activity according to the batch plan. But in our scenario, let's say we've acquired a new space on the second floor of our building. So let's go ahead and set that up. So I'll jump over to the administration. Again, I'll go to the rooms icon, I can hit the plus sign here, I could say this will be growroom. 

Vegar Samuelsen  46:47  

Level two a will assign it a zone out of description or second floor. So once I've done that, now, I can head over to the cultivation processing. And we should see that right there growroom, level two A. What we'll do here, we'll kind of look at, you know, maybe moving some of our existing inventories into this grow room to make, you know, make the best use of our space. So I was looking at our bedroom here, I have a bunch of batches. I can scroll through here and see this list, you know, I got some blueberry Kush, and I've got some blood oranges that I want to work on. I could also just jump over to my batches view, which will give me a nice list view of all my inventories. I could filter by room. So I could say, hey, what's in my bedroom. It'll show me everything here. I could say, you know, maybe I want to drill down a little bit more and say, you know, what's my blood orange, like, what do I have. And there's my 50 plants, two different patches, 25 plants each, and they're in the bedroom, and they're the vegetation stage. Now we'll jump into one of these. Here, we get our, you know, batch information, we have our batch named blood orange, it's the fourth batch that we've made. It's, you know, April of 2023. That's our naming convention, in this case, 25 plants, the variety blood orange, of course, we have a pictogram on the right, which shows our current stage according to our batch plan. Of course, we have our Grow functionality here. And you know, one of the nice things and GrowerIQ, you know, as you do activities, they all get logged into the activity log, but they also get logged into the master Batch Records. So also known as an MBPR, masterbatch, on record, which is great to provide someone in an audit case or you know, just for supplementing your documentation. Basically, every activity that's done gets time-stamped and credentialed. So we can see that we've updated the stage, there's the date the activity was completed. And we can see that this one was done by maintenance demo, which was my earlier login. So you know, in this case, if we wanted to move this to the new Grow Room on level two, we could do so we've got a really simple way to do that. But move rooms, so we can click the Move rooms button. And now we should be able to find Grow Room level two, eight here and do that manually. So yeah, pretty easy move. It's now reflecting that new location up above here. We could also jump back to, you know, our overview. And we'll see now that we have that blood orange batch landing right there. But, you know, sometimes we're not just moving one batch. And to do this in a facility maybe where you have a room with multiple batches or inventories that need to be moved. You know, we really wanted to find a faster way to do so. And some of this feedback came from clients that we work with, they said, You know what, like, I'm spending a lot of time moving these things are performing activities, but I want to hit every single batch in X room so that we took that feedback and work closely with our customers. And yeah, that's going to just show the showcase this little feature right You're cold rooms, so I can go to this rooms function. And now I can select a room. So let's say it was our bedroom. Now it will show me every batch down below, or inventory or all our inventories that were in the bedroom. And I want to, well, I don't want to move everything, I kind of want to just my blueberry Kush, and my blood orange. So maybe I will select this demo to actually select that one and take that one out there. Don't want the Bluefin Tuna. And let's see here 123. Now, these four has already moved the other one. So now I can go to View activities. I'll be presented with a confirmation. So these are the batches that I'm going to be doing something to. And now I can apply an activity that's common amongst all these batches. So for today's example, we'll keep it really simple, kind of scratch the surface, we could go move rooms. And I could now take all of these batches, move them to grow room level to a hit submit. And it kind of takes care of that just really quickly. And the nice thing is to it's in each of the master batch playing records, you'll see that activity log that has been moved. So a really nice automation and to kind of speed things along a lot of great use cases for this. Sometimes people are suddenly changing like a fertigation or, or custom activity, uploading a document, you can kind of hit all those batches. You know, in one go. So yeah, just trying to help improve productivity along the way with some of our developments. Yeah, so we'll just jump back. All right. Thanks so much, guys. And yeah, just quickly recap, we looked at the language options upon login, we looked at switch organizations features if you know we had multiple sites, we created a new user with a special permission, we created some new rooms for expansion. We looked at the batch record, moving individual batches and then using the automation and if anyone wants to learn more, and have a deeper dive, feel free to reach out to rob and team and we'll be happy to make the time to show you guys so thanks so much overcame Rob. Awesome.

Rob Perry  52:09  

Thank you Vegar. Yeah, no, that was that was great. You know, super easy. Add rooms, if you're expanding at facilities, if you're expanding shuffle product, between rooms or between facilities. It's makes it nice and easy to track. We have a bunch of questions to get through and not a lot of time to get through them. So we'll we'll jump in. Gentlemen all ask one of the first questions. I see there a couple of dispensary questions on here. I you know, we'll reach out probably offline, maybe to address some of the dispensary ones and focus a little more on the bigger production side of m&a Unless any David wants to jump in later on. But first question coming out here and Andrews comment about valuations today being different from in the past. What what are the determining factors that are driving this diminished valuation?

Rob Perry  53:13  

For David or or Andy or both? What what are you seeing that that's causing that reduced valuation?

Andy 53:21  

Sure, thank you for the question. I again, I think it's driven by smart, sophisticated strategic investors and a lack of capital proven track record if the if the business is in a very early startup phase, and it doesn't have a history of financial, you know, a proven track record in its operations. The valuations are significantly contracted. If there is a proven track record of financial progress and revenues and bottom line. It's the multipliers have come down simply because the challenges in the cannabis market that no longer render it a get rich quick investment market that we saw in years past 2015 through 2018 19. Ish.

Rob Perry  54:20  

So that's just the general general grinding us and challenges of the cannabis market and they've reduced some of that. Yep. And then the valuation piece too. I know we've we've spoken before that new license jurisdictions, valuations tend to be tend to be quite high, you know, maybe driven a little bit on euphoria of you know, what that that market can handle? Is it just, you know, experienced cannabis investors, you know, they they anticipate that these you know, they're not going to get that price per gram. They Eric, you know, the market won't be as robust, as, you know, say the business case is that people are looking at or they're aware of sort of rocks, hidden rocks under the surface a little bit that the, the new license holder might might not be aware of themselves.

Andy  55:20  

Yeah, I'll jump in on the on that one rather quickly. It's all of the above it, which are which really go back to the lessons learned, you know, and what did I invest in, in a lot of cases, even on the strategic investor side, those investors have lost money in cannabis. And therefore, they're much more finely tuned to the challenges you identified a number of them, and the route to market for products, as well as that ever-changing regulatory environment. So it's a cautious investor that isn't willing to, to pay up front, a significant multiplier, he raises a good point, though, Robin just quickly, which is some of the structures of these global m&a transactions for the seller party divesting, what have you receiving the inbound capital, you can, you can capture some of the value you think you have, by having earnout structures Following the acquisition or the investment. So if you're as good as you say, you're going to be, and 12 months from now, your revenues have doubled. There's maybe a hurdle multiplier that's based on performance over the next 12 months or 24 months. And that's an interesting piece to add to, if you get bogged down on, on arriving at evaluation, certainty, in your immediate discussions. Excellent.

Rob Perry  56:56  

And, you know, on that case about performance, you know, I've also heard of a couple of different structures that are out there as well, you know, one you have, you know, structure where the existing management team stays in place, you know, they work in the facility, they, you know, develop the product, develop the sales, and then, you know, I've heard also have other agreements, where a whole new management team will come in, in place, they'll, you know, work with, with the existing, you know, facility, you know, bring some of that expertise in, like, like you were talking about a little a little bit earlier. Do you have a preference for either of those models? Or have you seen one being, you know, more, more common than the other, more appetite for one or the other? Yeah,

David Hyde  57:43  

I think I think there's no one size fits all there. Right. I mean, obviously, if we have a startup company, and the brand isn't tied to the expertise, or the credibility of the founders, and you know, they really haven't handled it very well, they have, you know, they can pass across the business that can be resurrected and grown by a new group, we sometimes see that typically, there is some continuity. I mean, normally, there's enough there's been in the business currently, particularly in operating business, where it just makes sense to maintain certain handpicks members of the leadership team are maybe they're doing an amazing job, but have no operating capital, they just haven't been able to, to kind of continue the capital raising. And so you know, they may be a good team and the right group coming in may want to keep keep them. So I think it really depends on on each case, but I tend to say that the least is some of the team that founded or that were involved would remain in the business for continuity.

Rob Perry  58:44  

Excellent, excellent. Um, there's another question here as well. On David's point about strategic investors, does David thing or no such investors factor a target company's ESG performance into their evaluation of the target? So yeah, is is ESG one of the factors that that drives price in this industry? 

David Hyde  59:11  

It's a really good question, right, like environment, social governance. And it's, it's a very big thing in many industries, and I believe it is a differentiator in certain segments of the medical cannabis industry. Is that something that drives valuation? And they may disagree with me, I don't think it particularly is on its face. I do believe that there are other kind of bottom line items that will probably drive that valuation more but in the work we do on on m&a, we really find this kind of a primary set of considerations that are bottom-line needs, like the business must meet the following and there's several things depending upon that the appetite of the investor or buyer, then we find out that there are differentiators or sweeteners as I call them. So yes, we have we met these bottom-line prescriptions, but we are the greenest company. And we we actually have very sustainable and we have a very good ethos around that. So he's a significant differentiating factor. So So that's just an example. There are many other things that you might have that would set you apart from the competition, but it's not something that would necessarily drive the valuation, it might allow you to get a higher number or not give as much in that negotiation. I'm not sure, Andy, if, if we're aligned there, or sometimes we don't always agree. So we'll be interesting.

Andy  1:00:39  

No, I would actually, I would actually say that. Surprisingly, the global cannabis industry has escaped the ESG. impact they have so far not had to meet ESG specifications qualifications. I agree with David generally, there's a it can be a differentiator, all things remaining equal otherwise, but so far, cannabis has managed to stay out away from the ESG. Net, if you will. And I would go as far as say, that has very little impact on valuations and the m&a that we are seeing these days.

Rob Perry  1:01:30  

Excellent. Thank you. All hopefully, there's still room for ESG to grow in the in the industry, despite despite the lack of contribution to to valuation. Um, gentlemen, you know, I see we're running out on time here. And I just wanted to thank you very much for your participation. Everyone, I know there are more questions that people have. So please feel free to reach out to any of us directly at height advisory or GrowerIQ and we can, you know, get you in touch. You know, we're always happy to start up a conversation. You know, I know David and Andy are as well. So if you if you do have interest questions, that really don't hesitate to reach out, and we look forward to seeing you again on the next HighIQ webinar.

Rob Perry  1:02:28  

Bye for now. Thanks, everyone.

Andy  1:02:32  

Thanks very much.