With Jeffrey M. Zucker, Entrepreneur and Co-Founder of Green Lion Partners
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With regulated cannabis now legal in 24 states and in the District of Columbia, the industry is moving out of the shadows and into the above-ground economy. Jeffrey M. Zucker, along with his involvement in various entrepreneurial ventures, is the co-founder of the leading cannabis industry firm Green Lion Partners.
This fairly rapid level of acceptance of cannabis can be attributed to several factors including the value it has brought to the economy and to the medical world. This acceptance, in turn, has spawned a host of new companies, such as growers, sellers, and cultivators who are facing the challenges of working with a product that’s still against Federal law. Probably the largest hurdle for those who actually touch the plant itself concerns banking. What do you do with all that cash?
There’s a solution for most problems and, in this case, software firms such as Flowhub, compliance companies such as Metric, and security services which transport money to safe locations are stepping in to circumvent some of the obstacles.
Jeffrey and his colleagues and partners in the business of cannabis are presenting the argument that a safe and regulated system would work to the benefit of all concerned. At this point, marijuana is still a Class One drug, along with heroin, LSD, and cocaine, drugs with highly addictive and abusive potential. Marijuana doesn’t fit into that category and, in addition, has an incredible number of medical uses. A movement is presently underway to either have cannabis classified as a Class 2 drug or— which is the hope for the future—to have it declassified altogether.
A Facebook site called Mass Roots is stepping in where traditional methods of running a business normally would function. Mass Roots began as simply a social network for cannabis users and aficionados but has now grown into a platform for cannabis-related businesses to advertise directly. Although not yet on the NASDAQ, Mass Roots is listed on the Bulletin Board with a stock price of about 80 cents.
With more and more states legalizing marijuana, the full potential of the cannabis industry will grow along with the general acceptance on a national level. In the meantime, Jeffrey Zucker deals with the complexities of navigating the restrictions and prohibitions of a successful industry hopping and skipping its way to the mainstream of the business world.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: I don’t partake in the use of cannabis, but I am interested in how its wider acceptance and emerging legality is moving out of the shadows and into the above-ground economy. I’ve conducted a few interviews on this subject already, but a newer wrinkle has come to my attention and I want to discuss it right now. My guest is Jeffrey M. Zucker, he co-founded the leading cannabis industry firm Green Lion Partners and runs a portfolio of Angel Investments, as well. Hey, Jeffrey, welcome to the show.
Jeffrey Zucker: Thanks for having me. Glad to be here.
Steve Pomeranz: Let’s begin broadly and hone into the main subject today. I think cannabis is now legal in 24 states, plus DC? If so, what’s the pace of adoption by new states at this juncture?
Jeffrey Zucker: That’s a great question. We’re really excited for this year, 2016. Cannabis legislation could be on up to 7 or 8 ballots at this point. It’s been pretty fast-moving, for the most part. In the acceptance, in terms of the industry, it’s really gaining traction, I’d say throughout the United States, as people see the kind of help that it can bring to both people’s health as well as the economy.
Steve Pomeranz: I’m sure there’s a whole bunch of industries that have sprouted up to support this new acceptance. What kind of industries are there that support the growers? I guess maybe some that are turning it into pharmaceuticals.
Jeffrey Zucker: Sure. Absolutely. We actually, via our company, deal with a variety of services that help cultivators. An example of that is a company like Flowhub; they do seed to sale software compliance. They’re working on both an inventory management software for cultivators as well as a POS system for dispensaries that are currently live in, at least, a dozen or so stores. That gives you an example.
We’re also working on some efficiency via our distribution company, Natural Order Supply, where we’re helping cultivators get their equipment at the right times and at good prices.
Steve Pomeranz: How do the cultivators, the growers, and the sellers, deal with this fact that it’s really still against the Federal law even though it may be legal in their state?
Jeffrey Zucker: That’s definitely a headache and a hurdle for those in right now, and I think that the people involved know the risk profile and they know it’s part of the process they’re dealing with.
The biggest issue that causes is banking. What that’s led to is these cultivators and dispensary owners, people that touch the plant having enormous amounts of cash on hand that they don’t know what to do with. That’s led to a safety issue.
They’re doing a good job, for the most part. They’ve gotten large scale security and software like Flowhub and other ones allow for compliance. Flowhub, for instance, ties in directly to Metric in Colorado, and they’re about to do that in Oregon as well. It allows the cultivators to focus on their job of growing as opposed to their job of being compliant all the time.
For the most part, there are services tackling this problem. The best cultivators are very much on top of it.
Steve Pomeranz: I have this Walter White image of all this money on a pallet in some storage bin somewhere, from Breaking Bad, if you know that show.
I guess you’ve got security services, and they’re taking that money somewhere. It’s not as if that money’s going to earn anything at the bank anyway, but, obviously, how do companies transact business if they can’t write checks? It must really be a headache for them.
Jeffrey Zucker: It is very much a headache. There are some software services that allow companies to trade with other companies in the industry to make that somewhat easier. For the most part, they have security, armored car services that are trucking their money to secure locations.
It definitely makes business a lot harder, and I think that just pushes the argument for wide-scale legalization. This substance is being used throughout the country, no matter if it’s legal or not in these states. I personally can’t find an argument as to why it truly shouldn’t be in a safe and regulated system. Once it does get to that point, that will allow for much easier business for those transacting in the space.
Steve Pomeranz: Pot is still a Class 1 drug. I looked it up, and it’s classified as drugs that have a high abuse potential, no medical use, and severe safety concerns. Some of them listed were heroin, LSD, and cocaine. Marijuana doesn’t really seem to fit that exactly, does it?
Jeffrey Zucker: Absolutely not. It obviously has an incredible number of medical uses. Because it’s still Schedule 1, we haven’t even tapped into its potential because there’s been such limited research on it, definitely, in my opinion, doesn’t really have high abusive potential. The safety concerns are relatively minimal compared to some of those other drugs that are on Schedule 1.
It’s definitely alarming and, hopefully, something that’s going to be changing in the near future.
Steve Pomeranz: Is there any movement towards reclassification of cannabis?
Jeffrey Zucker: Yes, there has been a lot of talk about it over the last few months. There are a few different initiatives to get things moving on that front. There’s talk as to the potential for it to move to Schedule 2 versus potentially being de-scheduled.
I think everyone that’s involved in the industry knows that long term it needs to be de-scheduled. I think some of those people don’t like the idea of it just going to Schedule 2 initially.
For me, I’m okay with the idea of baby steps, and I know it will get where it needs to be eventually and that would be a good first start.
Steve Pomeranz: One of the companies that attracted my attention is a company that bills itself as a Facebook for cannabis users. It’s called Mass Roots. How does that business work and what is that business model?
Jeffrey Zucker: Happy to tell you about them. A really interesting company that I have had the chance to interact with a bit. Basically, they started out as a social network for cannabis users, cannabis aficionados. It’s a very targeted audience of people that cannabis is a big part of their lives.
Their business model is that they’ve got this great audience that they’ve built. The last I checked, they were nearing 800,000 users or so. It’s a very highly targeted audience, and it allows cannabis businesses to advertise directly to those people that are really looking for their services.
Especially because sites like Google and Facebook don’t currently allow cannabis advertising. Mass Roots provides a great avenue for them, and they’ve got a business platform where people can handle their social media, Facebook and Twitter included, via Mass Roots.
Long term, as those other companies start to add advertising, Mass Roots has talked about new other features that they’re working on and new growth channels and revenue streams that include being able to look up dispensaries and potentially look up products down the road.
Steve Pomeranz: It’s a niche because a lot of people who use Facebook and are active cannabis users don’t really want to talk a lot on Facebook. It’s a family generic format, and it’s really not the place, probably, to have big heavy discussions about cannabis. This allows them to be in their own space and go back and forth and then they can attract advertisers in the same way.
I understand that Mass Roots is listed on the Bulletin Board, which is not NASDAQ but is below NASDAQ, so to speak. I think the last time I looked, the stock was about 80 cents. How has that stock done overall?
Jeffrey Zucker: Overall, it’s, honestly, as many of the cannabis stocks have been, it’s been somewhat inconsistent. Mass Roots has been one of the better ones and one of the more stable ones.
Of late, they were recently turned down to come on the NASDAQ. NASDAQ said they were potentially aiding and abetting cannabis companies and, to me, I think that’s a little bit silly as they’re an advertising platform and a social platform.
Long term, I think that as they continue to grow their company—I’ve had extended interactions with Isaac Dietrich, the CEO, and Dan Hunt, the COO—and they have a tremendous team over there. I’m very high on their future, and I think it’s something that’s going to continue to rise, and I do expect them to get listed to NASDAQ at some point. I know they’re appealing this current decision.
Steve Pomeranz: Remember, listeners, we’re talking a company. We’re not really talking about a stock so much. Make sure you do your homework. This is not a recommendation by any stretch.
I saw the letter written after the refusal by NASDAQ to list the company, and I thought some of the arguments were pretty strong. They asked the question, as you said, the model could be perceived as aiding and abetting the distribution of an illegal substance.
But then the authors of the letter wrote, does that mean that the power company that provides electricity to marijuana cultivation operations are also aiding and abetting? Google and any of these social media companies that, maybe they don’t accept advertising, but they are a forum for people to talk about whatever they want to talk about. Do you buy into that argument?
Jeffrey Zucker: Yeah, to me, I agree that if they’re saying that Mass Roots is aiding and abetting, then so is the electric utility company. I apologize, but your question came kind of in and out but that’s the substance I got from it.
Steve Pomeranz: That was the substance, so why don’t you comment on that?
Jeffrey Zucker: Absolutely. It’s something that we’ve heard a lot. In this industry, like we talked about earlier, there are some business problems.
Dealing with any financial institution such as the NASDAQ, SEC, and dealing with banks, they’re very careful and obviously very concerned with risk. When they say that companies are aiding and abetting, I personally just don’t buy it.
Long term, these guys are going to have to understand that this is a legitimate business and especially those in the states where it’s currently legal. These are people trying to build a life and a career for themselves and creating jobs.
It’s important that they realize that this aiding and abetting thing is just a stretch.
Steve Pomeranz: It’s an evolution. You’re talking about all of those years where it was absolutely illegal. It’s relatively new on the scene now that it’s legal in these states. It’s going to to take time for mass acceptance, if it ever gets there.
My guest is Jeffery N. Zucker. He’s cofounded the leading cannabis industry firm Green Lion Partners and runs a portfolio of Angel investments, as well. I’m sorry we’re out of time, Jeff, but thank you so much for spending your time with us.
Jeffrey Zucker: Absolutely. Thanks for having me.