CannaRoyalty is a fully integrated, active investor and operator in the legal cannabis sector. Our focus is building and supporting a diversified portfolio of growth-ready assets in high-value segments of the cannabis sector, including research, consumer brands, devices and intellectual property. Our management team combines a hands-on understanding of the cannabis industry with seasoned financial know-how, assembling a platform of holdings via royalty agreements, equity interests, secured convertible debt, licensing agreements and its own branded portfolio.
Mr. Lustig holds MSc and MBA degrees from McGill University. He began his professional career in the pharmaceutical industry at Merck & Co. In 2000, he started his capital markets career in institutional equity research in the Life Sciences sector at Orion Securities. For the next 14 years, Mr. Lustig worked as a senior producer at GMP Securities L.P. and as Head of Capital Markets at Dundee Capital Markets before becoming Principal at KES 7 Capital. Mr. Lustig founded Cannabis Royalties & Holdings Corp. in early 2015.
Cautionary Note on Forward-Looking Statements
Certain statements contained in this interview may be “forward-looking statements” within the meaning of the Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. They are generally identified by words such as “believes,” “may,” “expects,” “anticipates,” “should” and similar expressions. Readers should not place undue reliance on such forward-looking statements, which are based upon the Company’s beliefs and assumptions. The Company’s actual results could differ materially due to risk factors and other items described in more detail in the “Risk Factors” section of the Company’s Annual Reports and MD&A filed with the United States Securities and Exchange Commission and applicable Canadian securities regulators (copies of which may be obtained at www.sedar.com or www.sec.gov ). Subsequent events and developments may cause these forward-looking statements to change. The Company specifically disclaims any obligation or intention to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Thank you Marc, for taking time to participate in this Q&A.
MR: There’s a myriad of cannabis stocks for investors to choose from, many of which are focused solely on growing and selling cannabis. How is CannaRoyalty’s business model different, and why have you chosen this model?
ML: I don’t care what anyone says, growing cannabis is an agricultural commodity. And while everyone claims to have a “proprietary process” and be the “greatest grower” its still a commodity which means lowest cost per unit at a good standard wins. This is not a game CannaRoyalty is interested in playing. Our model is to build assets which enhance the value of the cultivated product whether its through extraction processes for oil derivatives or through development of formulations and brands or investment into the next cannabis based therapy for medical treatment. So instead of an investor buying into a one-dimensional grower (licensed producer) we are giving investors a broadly diverse platform of assets to invest in which they would probably never have got the opportunity to invest in themselves.
MR: While it’s early in the Company’s history, are there “wins” that validate CannaRoyalty’s business model?
ML: Lets put it this way: Im not aware of any of our assets which haven’t already either created value for shareholders or are not on the cusp of generating revenue growth and synergistic effects with other assets in our portfolio. From early ownership in assets like Anandia (leading Canandian cannabis analytics and genetics), WagnerDimas (pre-rolled joint manufacturing IP), Bodhi Research (medical research into cannabis treatments for concussion), Resolve Digital (medical device innovator of what I think is a revolutionary vaporizer) to all of our other investments and royalties across Canada, the US and Puerto Rico I feel great about how things are starting to come together. I could go on for a long time on my view of our wins that validate our model but my guess is we’re still only scratching the service when I consider our pipeline of opportunities.
MR: What attributes or characteristics do you look for in cannabis-related companies that make you say yes, this is a company we want to make a strategic investment in?
ML: Character, business acumen and cannabis passion in the partner or management team of an investee company combined with strategic assets which when “plugged in” to the CannaRoyalty model or into CR Brands leads to appreciable and sustainable value for shareholders.
MR: In April, the Canadian government announced legislation to legalize marijuana for recreational use by June 1 of next yearwhich, (if passed), will greatly expand demand in Canada. Meanwhile, the U.S. has a patchwork of differing state and local laws for medical and recreational use, and there is zero support atthe federal level for recreational legalization. Given where the two countries are right now in the legalization pathway, why are the majority of CannaRoyalty’s assets are based in the United States and not Canada?
ML: Firstly, as mentioned earlier in our interview, we seeing growing cannabis as an agricultural commodity. The over-concentration of fully-valued cultivation assets compared to exceptional value opportunities in the US in more advanced, dynamic makes this equation much more attractive from our perspective. Some will be quick to point out the obvious difference in federal legislation between Canada and the US – with cannabis still a Schedule 1 narcotic in the US. However we believe that because of how careful we are about structuring our deals strictly and categorically in compliance with legal US markets we minimize this federal vs state risk. And all of this at a time in the cycle that the public support – because of the general benefits of cannabis compared to alcohol, tobacco and marginal pharmaceutical products or because of the job growth and the economic impact of this sector – continues to grow beyond the point of recision.
Secondly and a bit surprisingly I don’t think people comprehend how strong our asset base is in Canada. Our significant ownership in Anandia, Resolve Digital, Bodhi Research together with our strategic royalty relationship with Aphria one of the leading Canadian licensed producers make for a remarkable suite of assets in Canada. Whats more is we expect to grow the Canadian asset base going forward as asset values become more realistic for us to acquire or invest – all at a time that the Canadian recreational market opens up.
MR: One of the most crucial elements of success for any company is the strength of the management team. How would you describe the team you’ve assembled at CannaRoyalty and is the team complete, or do you anticipate expanding it to meet current or future needs?
ML: I’m very lucky. We are building a dynamic company in a high growth exciting sector which has attracted top tier talent and created a very cool culture where people are proud of what were doing and are obsessed with achieving our goals. Today we are 26 direct employees of CannaRoyalty across management, legal, finance, marketing/social media, sales and operations. Is the team complete? Not even close. The way were growing and the opportunities we have in front of us I have no idea how big we’ll get. All I know is we continue to attract phenomenal talent which makes me look a lot smarter than I am proving my belief in the “8s hire 10s” philosophy….
MR: What investments has CannaRoyalty made that you believe will have the greatest impact on revenue growth during the remainder of 2017?
ML: In no particular order our REIT-like investment in state of Washington, our partnership with Rich Extracts in Oregon, our strategic relationship with leading cannabis distribution company River in California, product revenues in key markets by our brand company CR Brands, sales of our cartridge hardware by our wholly-owned Dreamcatcher Labs company and the new deals that we expect to add throughout 2017 will drive the largest impact on revenues this year.
MR: CannaRoyalty finished Q1 with cash and cash equivalents of $11,946,417 and closed a bought deal financing for aggregate gross proceeds of $15 million. In the Q1 press release, you stated that CannaRoyalty is “well positioned to continue to deploy capital and build on initiatives that will enhance shareholder value.” What verticals are you looking at deploying this capital in and why?
ML: We have built a strongly synergistic base of assets in key markets like California. Our pipeline of prospective deals in Canada and growth markets in attractive cannabis markets like Nevada, Arizona, Maryland and Massachusetts continues to grow. In terms of verticals, our product arm CR Brands will continue to develop or acquire licenses for innovative leading cannabis brands. In parallel our focus will be on the compliant, highest efficiency manufacturing processes and impactful distribution assets in focus markets.
MR: What do you see as key drivers for shareholder value in the coming 6-12 months?
ML: Current assets combining with new assets in new key markets combining synergistically to grow revenues and earnings.
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