I C 3 - T H E 2 N D I N S T I T U T I O N A L C A P I T A L & C A N N A B I S C O N F E R E N C E ( E A S T ) TOP 10 MYTHS & FACTS IN THE CANNABIS INDUSTRY PR E S E N TE R: A D R I A N S E D L I N - C E O - C A N N D E SC E NT October 22, 2018
1 IT’S UNBANKED - MYTH • 400+ federally chartered banks do cannabusiness • Cash is a big part of the business • Structure companies not transactions • Fintech plays have huge risk • Make money solving the real banking problem PotCo HoldCo Services Payments 2 B U S I N E S S O F C A N N A B I S
2 THE INDUSTRY WILL SPLIT – FACT MEDICAL ADULT USE • Science • Brand • R&D • Marketing • Clinical Trials • Consumer Insights • Distribution • Distribution • Capital • Differentiation S PLIT IS UN D E R R EPR E S ENTE D IN M O S T B US IN E S S PLA N S A N D F UN D S 3 B U S I N E S S O F C A N N A B I S
3 TOP U.S. OPERATORS LIKE SCHEDULE 1 – FACT • Window of opportunity – Many current operators cannot scale – Perceived risk keep Fortune 2000 out • Using the window – Build barrier to entry – Establish sustainable competitive advantage – Establish brands – Scale cash flow and coffers 4 B U S I N E S S O F C A N N A B I S
4 IT’S A COMMODITY – MYTH • Medical use: can be a life saving purchase • Adult use: is an aspirational purchase in an intense world • Wine market is best analogy for adult use • Multiple, broad, deep markets • The answer is on TV 2 0 1 7 C A L I F O R N I A T O T A L , B R A N D E D F L O W E R R E T A I L S A L E S V S A V E R A G E S E L L I N G P R I C E Differentiation $16 LUXURY $14 THC Design CANNDESCENT PREMIUM Santa Cruz Veterans Alliance $12 Average Selling Price / Zenith Brands QUALITY Marley Natural $10 Flow Kana VALUE $8 Gram $6 $4 INPUT $2 $0 $0.0 $5.0 $10.0 $15.0 Total Retail Sales (millions) 5 B U S I N E S S O F C A N N A B I S
5 PRICES WILL FALL – MYTH $60 per eighth • Thesis only considers - Elimination of risk premium - Potential for oversupply 4 Joints per eighth • Thesis ignores 4-5 people per joint - Consumer Behavior & Maslow - Quality Differences - Brand, marketing and loyalty - Product innovation and R&D 16-20 servings per eighth - Packaging & size - Market Data $3.00-$3.75 per serving 6 B U S I N E S S O F C A N N A B I S
6 THE OPPORTUNITY IS UNDERVALUED – FACT Can Canna nabis Alcoh ohol ol Amazing Fundamentals Horrible Fundamentals Zero calorie High Calorie Neuro-Activator Depressant Helps many health conditions Linked to at least 12 serious diseases Medical Uses: 60+known Medical Uses: mouthwash, sleep Lower withdrawal profile than coffee Higher withdrawal profile than Heroin Zero overdose deaths in history 2,200 U.S. overdose deaths/annum $14B global annual sales $1.6T global annual sales Top 10 public companies valued at $48B Top 10 public companies valued at $1.5T 7 B U S I N E S S O F C A N N A B I S
7 – MYTH A RISING TIDE RAISES ALL SHIPS • We are officially in an asset bubble (101x revenue on TSX/CSE) • Bubbles last 5-6 years – Japan Re: ’86 - ’91 – Dotcom: ’96 - 01 – US Housing: ’00 -’06 – Cannabis: ’16 - ? • They attract fierce competitors • When they pop, you need a life preserver • Only life preserver is to solve real market problems in a lasting way …AND A TSUNAMI SINKS MOST OF THEM 8 B U S I N E S S O F C A N N A B I S
8 CURRENT LEADERS WILL WIN – MYTH Alta Vista • Lycos • Inktomi • Webcrawler • Overture • Ask Jeeves • Excite • Yahoo! • It’s a green marathon, NOT a green rush (30-50 year secular trend) 9 B U S I N E S S O F C A N N A B I S
9 WE’LL BUILD THE BRAND LATER – MYTH • Prevailing thinking is to load up on assets and then figure it out • $1 investment today is $5 in three years and $25 in 10 years • Hard to federate a confederation of unlike assets • HoldCos may be LBOs waiting to happen • Great brands are a POV, a relentless interpretation of an idea 10 B U S I N E S S O F C A N N A B I S
10 BRAND FROM THE INSIDE OUT – FACT WHAT THE MARKET DELIVERS WHAT CONSUMER WANT MEDIOCRE FLOWER QUALITY PREMIUM PRODUCTS WILDLY DIFFERENT EXPERIENCES CONSISTENT, REPEATABLE EXPERIENCES CONFUSION AND INTIMIDATION EASE OF USE & CURATION COUNTERCULTURE ASPIRATIONAL LIFESTYLES OPACITY TRANSPARENCY TOXICITY HEALTH & WELLNESS \ 11 C A L M C R U I S E C R E A T E C O N N E C T B U S I N E S S O F C A N N A B I S C H A R G E
TO P 10 MYTHS & F ACTS ABO UT THE CANNABIS INDUS TRY It’s Unbanked MYTH 1. The Industry Will Split FACT 2. Top US Operators Like Schedule 1 FACT 3. It’s a Commodity MYTH 4. Prices Will Fall MYTH 5. The Opportunity is Undervalued FACT 6. A Rising Tide Raises Ships MYTH 7. Current Leaders Will Win MYTH 8. We’ll Build the Brand Later MYTH 9. Brand From the Inside Out FACT 10. B U S I N E S S O F C A N N A B I S
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