July 14, 2015 - Interview by Vin Maru from Invest In MJ with Leslie Bocskor from Electrum Partners.
IMJ: Hello Leslie, thank you for taking the time to speak with Invest In MJ.com. We are excited to learn more about Electrum Partners and your involvement in the emerging cannabis industry.
Your firm was established in early 2013 and since then you have been very active in the industry as one of the leaders seeking investment opportunities and putting capital to work. Can you provide us some background on the management at Electrum and what attracted you to the cannabis industry?
LB: I have a history of working in early stage disruptive trends and technologies, beginning with the internet and new media properties in the late nineties. Since then I have been involved in life science, cybersecurity and Internet gaming. Electrum was founded by myself and Gordon Katz to explore and incubate a number of opportunities in the legal cannabis industry: policy and licensing of cultivation, dispensaries, processors/manufacturers, distributors and laboratories, Media, Security, Corporate Finance and Investment Banking. We were drawn to the cannabis industry due to a few unique forces that are at play. 1) This is not a new industry; it is the migration of a black market industry into a regulated industry. 2) The social justice issues that are consequences of prohibition that is based on bad data. 3) The fact of my previous work as an investment banker during the birth of a new industry and how that created a context and road map for us to be able to follow here, capturing large valuation shifts in short periods of time.
IMJ: Electrum Partners brings with it energy and a strong foundation to be an industry leader in the cultivation of Cannabis in Nevada. Getting a license is a feat in itself, but you managed to secure many cultivation licenses in Nevada. Can you tell us what attracted you to Nevada and why you choose to focus all of your energy there?
LB: We were part of 16 different applications (actually more than that, 16 we provided a minimum of the strategies and brought many, if not all, of the team members together). 6 applications were for cultivation, 6 were for processing, and 4 were for dispensaries. The groups we advised won everything except 1 dispensary. We came to NV originally to do research on the casino industry, in anticipation of the development of an online casino industry. While doing research here over a two year period, my wife and I decided to move here. Once we were settled, I became aware of the fact that NV had an MMJ law on the books. I found out that it was insufficient, as though the legislators stopped half way through. That got me looking at the entire space, and while were conducting our research and analysis, the vote of 2012 that passed adult use cannabis in CO and WA. We decided then to take a deeper dive, and once the evolution of the NV law was obvious (the current medical marijuana law that passed in 2013) we decided to focus on the industry exclusively. I was asked to be the founding member of the Nevada Cannabis Industry Association, which is the first ever chapter of the National Cannabis Industry Association. As well, the research that we had conducted made it clear that in the not too distant future that Las Vegas would be the most vibrant market in the legal cannabis industry, providing opportunities that will not be available anywhere else.
IMJ: What services does Electrum offer and how/why do you feel the company is well positioned to electrify the emerging legal cannabis sector? Do you have any key advantages, products or services that will set your company apart from the competitors already operating in Nevada?
LB: Electrum has been a vehicle for me to share my experience and knowledge regarding the entrepreneurial experience, corporate finance, and investment banking issues. Since I was one of the first investment bankers to focus on the internet and new media back in the mid to late nineties, I have been able to view this form the vantage point of having previously participated in the birth of a world changing industry. We see some incredible deal flow, work with the best operators, are deeply engaged in influencing policy to establish business friendly and exemplary markets, and have had some real success at getting licenses.
IMJ: Do you see significant opportunities outside Nevada and does you company plan on expanding outside the state?
LB: We have discovered that being involved in the creation of the industry and market in a new jurisdiction presents unique opportunities. As such, we are doing what we can to help develop markets and the industry in new areas. Each one presents the opportunity to create a market, create winners in the market, and partner with those winners. We like that strategy. As well, as the industry grows we are having people approach us from all over the US, Canada and beyond, and evaluate each project on its merits.
IMJ: I think we both agree that there are great opportunities in the sector focusing on technology and the ancillary market. Is your company active in evaluating investment opportunities outside of cultivation and if so, what in particular are you looking for?
LB: We are very active in all aspects of the industry. We were the first to divide the industry into 7 subsectors: Recreational, Medical, Pharmaceutical, Nutraceutical and supplements, Industrial Hemp, Ancillary (products and services, B2B and B2C), and veterinary. We look at all of it. We also believe that the legal cannabis industry is driving innovation. This innovation can be seen in technology for managing data, in technology for cultivation, transportation, security, financial services and more. We find the innovation that is taking place here to be fascinating and are excited by what we see.
IMJ: There are many private companies looking to raise capital to bring their products and services to market. What do you look for when evaluating a company looking to raise capital?
LB: We look at team first. I would rather bet on an “A” team with a “D’ project than a “B” team with an “A” project. Secondly, what is the value proposition? Does it have the potential at its core to be a billion dollar business? Third, what are the barriers to entry? Is it protectable? Is there a real lead of some sort that no one else can get, at least for a little while? Fourth, who is the competition and what does the overall specific market that it will be in look like? Fifth, what are the comparables? How much money will it take to succeed over what period of time? What is a reasonable return? What is the exit strategy?
IMJ: List the three most important criteria a company must meet before you proceed in funding them and why are they important?
LB: First, a team that has succeeded before, ideally, that has been able to take on investor money and provide a return of capital and profit. We like to see a well thought out plan that touches on the various points I mention above: team, opportunity, market, competition, defensibility, comparables, and exit strategy.
IMJ: The legal cannabis industry is just starting to bud and investors may have a hard time choosing investment options from the sea of green start-up companies. While most investors may not have access to these private deals, there are quite a few publicly traded companies they can look at. In the last year the valuations of these companies flourished and then died off. However, now may be the right time for investors to look at the companies who are moving forwards with their business plans.
With a background in investment banking, what are some of the key criteria you would suggest investors to look at when evaluating publicly traded companies, what should they avoid?
LB: First, an investor needs to determine their own investment parameters. Generally speaking, investing in any company that is traded on the QB, QX, or Pink Sheets will involve some extensive due diligence, if you are making a serious investment. Be prepared to read filings, review a website, and talk to people involved with the company (customers or vendors) if you can. Read the research out there that Alan Brochstein and others have prepared. I personally think it is best to avoid the sub penny stocks, and some of the ones that trade in the low pennies. Even though the company may have something there, the costs associated with the spread between the bid and ask can often make a bad trade.
IMJ: Your company likes investments in the cultivator. When it comes to the cultivators, every grower has high hopes and pipe dreams but many will fail over the coming years. What do you feel are the most important metrics to look at when evaluating a licensed cultivator and why are they important?
LB: We like experience in professional agriculture and a track record of previous success that is referenceable.
IMJ: As an emerging market, the opportunities for investors, entrepreneurs and businesses seem to be endless. What are some of the opportunity in the ancillary market that excite you, is there a particular vertical segment of this market that you have your sights on?
LB: In the ancillary market we like tech, financial services, and intellectual property.
IMJ: The legal cannabis industry is still fairly new and still has some challenges, what worries you the most about the industry overall and how can these obstacles be overcome?
LB: The biggest challenge is working with policy makers to establish exemplary, well regulated markets. The industry needs to come together behind organizations like the NCIA, form new organizations, and regulate itself. We need to establish consistency of product integrity, purity, potency and standards about marketing, packaging, and advertising. My worry is that we do not get in front of these issues, and that the states and local jurisdictions will think it is their responsibility to broaden and deepen regulation beyond what is good for everyone.
IMJ: How can investors participate alongside your company, can they invest directly with your firm or the companies you are invested in?
LB: Either are possible and we can be contacted through our website, and we are always happy to meet new participants in what is a new type of industry.
IMJ: Thank you for taking the time to speak with us, we look forward to following up with you and your company later this year.
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