Transcript:

Seth Adler:
Chuck Smith returns. Welcome to Cannabis Economy. I'm your host, Seth Adler. Download episodes on caneconomy.com or if you currently get your podcasts. First a word from our supporter and then Chuck Smith.

Join us for Sensible 2020 a virtual event May 1st through the third. Students for Sensible Drug Policy, SSDP is the largest global youth led network dedicated to ending the war on drugs. At it's heart, SSDP is a grassroots organization led by the board of directors, primarily elected by and from the student and youth members. Each year, SSDP brings the community together for Sensible. Sensible 2020 May 1st through the third is a virtual event focusing on criminal justice, mass incarceration, global drug policy, harm reduction, health, intersecting social justice issues, lobbying and advocacy, psychedelics, skills building and cannabis. I have the honor of hosting this year's gathering. So please join me by registering at conference.ssdp.org. That's conference.ssdp.org.

All right, so it is Chuck Smith. Chuck man, greetings. An apocalyptic Aloha to you. How are you and yours? Not to make light of the situation.

Chuck Smith:
Yeah. Seth, it's great to see you too. A virtual hug. We're definitely social distancing, you're all the way in New York and I'm here in Denver.

Seth Adler:
Yeah, absolutely. A couple of things to simply unpack there. Number one cannabis industry, definitely an industry full of hugs. We'll see if that continues after we get out of this quarantine.

Number two, it does bring up I think our first recorded interview. I was in your office while you were in Alabama. So that's always something fun to remember. And let's remember where we were, I think, as far as the cannabis industry and the Colorado cannabis industry. Because right before coronavirus, right before COVID-19, retail investors were starting to say, "Well, wait a second. Hold on one second. What am I doing here?" And at that moment is when 1090 passed and Colorado companies were saying, "Hey look, if you don't know what to do with your money, the water's fine. Come on in."

So just bring us back to that moment right before, so we understand the context of any mergers or acquisitions that were happening at that moment and that'll help inform our conversation for right now.

Chuck Smith:
Sure. Well, I think the passage of house bill 1090 was a watershed moment for cannabis businesses in Colorado. With all deference to California, I think we have set the stage in Colorado for a legal industry for the historical experience of how to do it right. And in fact probably overly compliant, which to some extent can be a detriment to the companies, the belts and suspenders kind of thing. But that all began to change, or at least the appearance of the value that we had built when the public company ownership bill was passed. And so there we were looking at the opportunity to get rewarded for those eight to 10 years worth of investment that we'd made in building solid platforms for solid companies.

Seth Adler:
Yeah, however you want to define bootstrap, you guys were bootstrapping, right?

Chuck Smith:
Oh yeah. Well, I mean, look. Just like most, we started as a caregiver model and then into the medical regime and then obviously to adult use. Again, what I'm most proud of, as during that time you mentioned people were talking about, "Well Colorado is a mature market. Nobody really wants to invest in Colorado, it's been around for so long." Oh my gosh, we've been around so long? We've been around for eight years. 10 maybe if you really count caregiver and only four, five I guess now... Six. Geez, time flies, for adult use. But the fact of the matter is Colorado's revenue continues to go up on a year over year basis.

Seth Adler:
And you're talking about the state right there?

Chuck Smith:
Well that's right. The industry within the state, both top line revenue as well as tax revenue as well as job growth. So all of that, great. I want to continue to be a good mature market if I can continue to grow at 20% a year.

Seth Adler:
Yeah. Also I would like to bring up the bottom line. Because the Colorado businesses, you guys, are overly compliant as you said, which might not look great to the belt and suspenders community. However, what does look nice to anybody is a profit, a net profit. And you had to be profitable companies as bootstrap companies.

Chuck Smith:
Well yeah that's right. Obviously we suffer the same pain as everybody else. No real access to financing in terms of bank financing. Obviously private investment capital can come in until it dries up, which I know we'll talk about. And we have to be able to pay our taxes, which continue to be extremely high for everybody in the industry regardless of state that they live in.

Seth Adler:
Yeah. We still don't have... [inaudible 00:05:43] still there. It's amazing. You don't think about it because you're wondering where the groceries are going to come from. But well I don't think about it. You certainly do.

So let's talk about another thing that you certainly thought about, which was at the onset of a coronavirus, the saying now goes, we went from illegal to essential overnight. Of course, still federally illegal. So federally illegal yet essential in every state but one. We'll leave that guy alone. And by that I mean the governor because it's enough guff from folks in the industry. But I would imagine at once was surprising and not surprising all in the same moment.

Chuck Smith:
Yeah, it wasn't surprising to me at all. We have been on the wrong side of the coin every step of the way, from the access to normal and now abnormal services that the government could provide this industry. I'm not telling you or anybody that's watching this anything new, but this industry is responsible for 350,000 or more jobs. And what's interesting is, I know there have been layoffs in our industry, but the majority of our industry has continued to stay employed because we have been deemed essential, because are important to the fabric of these States. Both from a tax perspective and employment perspective and also servicing patients and consumers that really have come to depend on cannabis. So that should tell you something. It should tell you something about the resiliency of the industry, whether you're an investor looking for an ultimately safe place to put money, even in a volatile market and a volatile time.

So, I look at it that way. I look at it as a safe place for jobs and job growth because again, we're not going to see the same amount of unemployment I don't believe. Now having said that, we're struggling just like everybody else because our patients and consumers aren't working either. They don't have a lot of money. We have to try and figure out how to keep our employees working even without the ability to get the federal protection. Everybody else gets the paycheck protection program and we're not allowed to apply for it. Again, 350,000 people we're trying to keep employed here. Bigger than the coal industry in this country is our employment ranks, yet we don't benefit from any services of the federal government right now. Seems kind of bad.

Seth Adler:
Yeah, well it's ridiculous. And we have known this and that I'm sure is not surprising to you. It's awe inspiring in that it's, look at all we're doing yet still no love. But as far as that resiliency is concerned, I feel like it does make sense for us to talk about 2014 one more time. When you guys had to, as we said, be overly compliant. But on a weekly basis, on a daily basis, on an hourly basis, they kept changing the rules on you guys in those early days as far as adult use and you just kept on... That resiliency kept on coming through. We got to change this, we'll change that. Okay, we got to change that, we'll change this. Give us a sense of how that moment in at least some way resembles this moment, because reality was ever changing outside of your control.
Chuck Smith:
Well you're right, Seth. I mean, there's no playbook for this. There was no playbook for that in 2014. I have a short... I try and have a short memory on tough problems, because otherwise it would just drive you crazy. So I don't hold any grudges, because I think the regulators and legislators, they were all dealing with the same thing. This is a brand new blank sheet of paper. We got to figure it out.

Seth Adler:
Yeah. And we got to keep everybody safe in the community and that makes perfect sense.

Chuck Smith:
Correct. Look, there's fringe people on both sides that either love it too much or hated it too much. But most of us operate in a realm of reasonableness and try and make things work. And I think that's the same situation we're dealing with here with COVID. Unprecedented, no script for this. And main focus is trying to keep people safe, whether it's your employees or your consumers/patients. With that we saw a lot of changes. We saw the government come out, again, state governments, essential services, but how do we deal with it? Do we let people into dispensaries? Do we not let the people into dispensaries? Do we have curbside? Do we somehow have emergency rules for delivery? Even a company like ours, initially it didn't last long, but initially it infused products manufacturers weren't considered essential. It was kind of an overlook because clearly we got to make the product to get to the stores to sell to the people. So that was fixed pretty quickly.

But you just have to have thick skin and try and tough it out. But again, I think the problem that we face as always, we don't have the access to capital. Now, we don't have the access to the federal assistance programs. So for people that think that we're essential and we're making all this money, not really. We're essential, we're just trying to stay afloat and we're trying to pay the people without any support that others are getting. So not quite fair.

Seth Adler:
When you called us pot barons on CNBC, we were not pot barons.

Chuck Smith:
Pot idiots.

Seth Adler:
Go back in in the way back machine. All right, so that does bring up the merger that... A little bit of an announcement and just let know obviously this is of the utmost importance based on what you're saying. How are things going? What are we looking at? What needs to happen? All of those things.

Chuck Smith:
Sure. Yeah. Thanks for asking. We're very excited and proud to have announced the merger with BR Brands, the owner of Mary's Medicinals. I'd say there's not two more iconic brands in the industry than Dixie and Mary's. We compliment each other really well from a portfolio perspective and a reach to the market, a total addressable market per approach. So I'm excited about it and I can say... there's only so much I can say even though the stock isn't trading now because of the transaction, but just to kind of play it straight, we continue to work very hard with the other side to get the deal documents together. I feel very encouraged that we'll be able to do that. I think we'll be able to do that in relatively short order, but the attorneys continue to work on those things as they do, and they'll just tell me when I can sign. Not quite, but...

And importantly I guess, or as importantly I should say, we are working together on integration issues. Really trying to find a way, even pre the merger happening to bring the teams together and look at providing value for the combined company or even the individual companies until we merge. Again, I'd say that our guidance of having something done in the month of April and then ultimately having a full, I would hope, shareholder support and regulatory support sometime early Q3. I think we're right on track for that. Even with COVID.

Seth Adler:
Okay. It brings up the thought, okay if you're doing this, what sounds like really a very nice fit merger here in the throws of COVID-19, what took so long? Why couldn't we figure this out or find this before now? What was the old landscape and how has this partnership come to be based on the fact that we... there were easier times to do this, no?

Chuck Smith:
Yeah, look, I would not be sitting here talking to you if I had the benefit of looking in my rear view mirror all the time with perfect knowledge. The reality is that, just look at the landscape of cannabis today. It is so drastically different than it was a year ago. And a year goes by in a blink of the eye. People don't really realize that because it feels like personally a year's a long time, but it really isn't when you're trying to build a company. You have employees, you have management, you have plans and you're executing on those plans. And frankly it takes 90 days just to put a plan together and then you've got another 90 to 120 days that you're starting to execute the plan to see the results. If anything bad happens in that five, six, seven month period, now you've got to course correct. And before you know it, a year's over.

So it isn't just as simple as, why didn't you guys do this a year ago? And I know you're just poking me a little bit because I didn't dress up for your show today.

Seth Adler:
Absolutely. That's exactly right.

Chuck Smith:
This is the positive benefit of COVID.

Seth Adler:
We can wear what we want, dammit.

Chuck Smith:
That's exactly right. But look, the reality is that we've known each other for years, these two companies. The principals have known each other, we've always had a respect for each other. The timing just wasn't right. And we both had our own plans. We were both doing things that we thought were to the benefit of our investors. In their case, being a private company. And for my case, always focused on what can I do for the shareholders even at a tough time. And so now fast forward, the timing was right. And here we are even in the face of this unprecedented challenge and we're going to make this deal happen. I feel excited that we're going to come out of COVID, we're going to come out of, I hope, a swooning stock market with a really good story. A feel good story and one that is going... we're going to show very quickly we can execute on, which I'm super excited about.

Seth Adler:
And what we're seeing is that... well at least in the circles I run in, or Zoom in for the time being, what we're seeing is so much more of a focus on each person's health and wellness. And of course that's cannabis land, health and wellness. So we've got bright days ahead of us. We just have to keep our eyes set on the horizon, which is what you have done to date. And so thanks for getting punched in the face so many times, Chuck, I guess.

Chuck Smith:
That's why I look like this.

Seth Adler:
Yeah, exactly. He literally was a dead ringer for Brad Pitt right before this whole...

Chuck Smith:
I was a lot taller too.

Seth Adler:
That's it, exactly. He was 6'5, it was amazing.

Chuck Smith:
Yeah, full head of hair. Crazy.

Seth Adler:
All right, so we'll check back with you. You know that the final question is always the same on the soundtrack of your life, one track, one song that's got to be on there. What would you give us today? I'll throw out there, of course, I probably have done this before. I'll throw out Deacon Blues, from Steely Dan because they call Alabama the Crimson Tide.

Chuck Smith:
The Crimson Tide, that's right.

Seth Adler:
Yeah, [crosstalk 00:17:40] Blues.

Chuck Smith:
I'm going to let you have that one today and then I'll be promised to be more prepared for the next time you asked me that great question.

Seth Adler:
Yeah, exactly. Just sit back, put your feet up, let the lawyers tell you what to sign in the meantime, right?

Chuck Smith:
Press hard, yes. Three copies.

Seth Adler:
All right my friend. I'll talk to you soon. Stay safe. Wash your hands.

Chuck Smith:
Hey, you stay safe as well, Seth. Take care.

Seth Adler:
And there you have Chuck Smith. Very much appreciate his time. Very much appreciate your time. Stay tuned.

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