Where The Warren Buffett of Cannabis is Investing in 2015, Interview with Leslie Bocskor

Leslie Bocskor

Renowned cannabis investor and advisor Leslie Bocskor gives us his prescient insights into where the cannabis industry is heading in 2015 and the exciting technologies that are emerging. Leslie goes into detail as to why he believes Las Vegas will become the Silicon Valley of Cannabis very soon.

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Matthew: Hi, I’m Matthew Kind. Each week I’ll take you behind the scenes to interview the insiders that are shaping the rapidly evolving legal marijuana industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. What are the five disruptive trends that will shape the cannabis industry in the next five years? Find out with your free report at www.canninsider.com/trends. That’s www.canninsider.com/trends. Now here’s your program. Leslie Bokskor of Electrum Partners is perhaps one of the most recognized cannabis investors. And as the founding chairman of the Nevada Cannabis Industry Association is one of the state’s most outspoken advocates. I am pleased to welcome Leslie to CannaInsider today. Welcome Leslie.

Leslie: It’s a pleasure to be here. Thank you so much for having me on the show Matt.

Matthew: So listeners get a sense of geography, can you tell us where you are in the world?

Leslie: I’m in Las Vegas, Nevada.

Matthew: Okay, and can you tell us a little bit about your background before getting into the cannabis industry?

Leslie: Sure I’m an investment banker, and I’m working corporate finance by trade and have for the last 25 years. I was one of the first investment bankers to specialize in the internet and media back in the mid to late 90s when it wasn’t even that popular. At the time you may recall, Paul Cornman wrote an article in Red Herring where he said the internet would never amount to much. There wasn’t much money to be made on it. I’ve spent my time, I’m looking for disruptive business models and trends that would fundamentally change the way we do business, live on a massive scale, and that’s sort of what brought me to the cannabis industry.

Matthew: So we’re not too early in the cannabis thing. You think now is the time, it’s coming out on the main stage.

Leslie: Not too early. A friend of mine who is a very noteworthy invested said, “Leslie, we’re not at the ground floor. We’re still in the basement. We’re at the beginning of the beginning.”

Matthew: Oh good. That’s the right place to be.

Leslie: Yes it is. It’s an incredible time. This is an unique moment in history that will never be repeated again. It’s something that a friend of mine who is another investment banker, owns his own brokerage firm, said this is the type of opportunity that you could wait many lifetimes to see repeated.

Matthew: Great. I agree by the way. Now let’s talk a little bit about your investing. What type of cannabis investments are you interested in?

Leslie: Well great question. We are interested in investments that range over a fairly broad spectrum. I like to look at the industry as six separate segments and we’re interested in every one of them. We are interested in businesses that are in the recreational cannabis industry, and that would be cultivation, processing, retail. We are interested in businesses that are in the medical marijuana industry which is actually a very new industry. We are interested in business that will be approaching the nutriceutical and supplement market which is going to be gigantic. We are interested in businesses that are in the pharmaceutical and life science market with the hundreds of cannabinoids in the cannabis plant as well as terpenes and other compounds that are unique to it. There will likely be many, many, many pharmaceutical products being researched and developed over the coming decades based upon the cannabis plant. We are interested a great deal in the industrial hemp market. Hemp is a massive product and a massive industry in and of itself. We don’t even know the sizes. There aren’t even any whitepapers currently that document what the ultimate size of the industrial hemp market will be. It’s going to be massive.

We are interested in the ancillary markets which can be broken up into B2B ancillary products; cultivation equipment, real estate base, software and services, things like that as well as the B2C ancillary markets. So I would say that our interests as investors spans all of those industries and then we have another overlay on looking at investing which is based upon the markets that are developing as each state in the United States and Canada and other countries, but primarily the US and Canada right now start to open up states with different regulatory frameworks and new markets open up. We also look at those as each state is a separate market.

Matthew: Okay. So you’re putting together a fund right now, and you don’t shy away from investments that touch the plant. Can you just talk a little bit about why some investors shy away from that and why you aren’t?

Leslie: Sure. Other investors shy away from it because of the friction between the federal illegally and the state legality. The conflicts between the existing legal environments creates something that most people feel is a risk they’re not willing to add to the other risks that are part of investing normally. We have looked to the guidance given by FinCEN, the Financial Crimes Enforcement Network that works with OFAC and deals with anti-money laundering and other issues. We’ve looked at the guidance given by the Department of Justice, and what we’ve said is if there’s existing guidance, which there is, that tells banks that they can do business with legal cannabis businesses in states with regulatory frameworks where the businesses are operating in line with the regulatory framework, then the bank can take the deposits of those legal cannabis businesses. We look at that guidance as providing a set of parameters that if we exceed that type of criteria, it is good enough for us to invest in. So the difference between us is we’re saying if it’s good enough for the federal government to say a bank can do business with that cannabis company, then it’s good enough for us to invest in.

Matthew: Now are you accepting new investors into your fund now?

Leslie: Yes we actually have many investors who have come to us and that are contemplating coming into the fund. We have not officially started accepting funds yet. We expect to be doing that within days, a week, two weeks. It has been an arduous process to make sure every T is crossed and I dotted so that we can present our investors with the best possible framework for executing our strategies. And so we are about to accept capital in the immediate future.

Matthew: And your investments will be some equity, some loans, both, what will that look like, that mix?

Leslie: It will probably be a across a very broad array, and will be a mixture of both many times. Every individual investment will be looked at differently. I feel I anticipate more often than not we will be making equity investments.

Matthew: Now I heard you give a talk on a panel about due diligence, and that’s a huge topic and for some of us who never seen a diligence list, they really may not understand how much is involved. But can you just give us a quick summary from maybe even an entrepreneur’s point of view, an investor’s point of view why it’s so important to have a diligence list and how to make sure it’s successful for both parties?

Leslie: Absolutely. Due diligence is one of the most important exercises and practices in business especially when you’re contemplating investing or bringing in investment. From the investor’s side due diligence is the system that you set up for creating a check list that allows you to go through an investment and make sure it fits your criteria. Have you checked the background of the operators and when you’ve checked what have you found? Have they had previous successes? Have they had previous liquidity events? Have they had a track record of success? Are there any outstanding issues that you should be aware of with any of the major operators? Has the business had any issues? Is there anything associated with that you should be aware of?

From the entrepreneur’s prospective the more substantial your due diligence package, the better prepared it is, the better evaluation you will be able to defend in your business in terms of attracting investment and bringing it in. If you have an incomplete due diligence package, what will happen is in the process of negotiating with your investors, they will look at your lack of due diligence. They will look at your lack of information, and they will use that as a mechanism to attack your evaluation and bring it down. Saying, wow, you haven’t prepared your outstanding agreements. We don’t understand what the potential liabilities are. We don’t have a complete record of all of your assets, and we don’t have a complete record of all of the debts of people that owe you money and you have not perfected the debts to make sure that they’re absolutely executable and that the debtors will be able to perform according to your debt because you haven’t properly structured it and things like that. If you haven’t done that when an investor is coming in to invest in you, they will look at those things and they will attack that as reasons to lower your evaluation. So what happens is your due diligence file, your due diligence practices can directly affect the evaluation and your cost of capital.

Matthew: Great points. For any new or prospective entrepreneurs out there listening, what are the big problems in the cannabis industry that need to be solved?

Leslie: The biggest problem in the cannabis industry in my opinion has to do with a lack of substantives, self-regulatory organizations. When the alcohol industry transitioned from prohibition to a legal industry in 1933 within one year they had self-regulatory organizations set up to establish standards around packaging, potency, product integrity, marketing and advertising. And since that time the alcohol industry has been incredibly successful at using the self-regulatory organizations to be able to monitor the alcohol industry so that the federal and state governments do not have to come in and regulate them. For example right now there was a recent poll that said 73 percent of children under 18 that don’t drink say the reason they don’t drink is because of communication from their parents about alcohol. That program, getting the parents to talk to the kids about alcohol, was entirely put into place by the alcohol industry through its various self-regulatory organizations. Those organizations created the material, created the context and created programs to help parents understand how to communicate with their kids about alcohol, and gave them talking points, created programs that would teach them how to have those conversations. The result is it’s reduced youth alcohol consumption dramatically.

In an industry like cannabis where many of the cannabis manufacturers market to our own inner children, the problem is that those products are thereby being marketed to children as well. They can’t differentiate that candy bar, that brownie, that cookie, that lemon drop from being something that should be for them. And we need self-regulatory organizations without a doubt to establish standards that will be promulgated throughout the industry so that we will not be having issues about products being created that will have an appeal to people under 18. We need to have programs that instruct parents how to communicate with their children about cannabis, both recreational and medical marijuana. We need to have programs that educate parents and other types and anybody who has cannabis in their home, lock it up. They should be locking up their prescription medications as well. Every 18 minutes in the United States somebody dies from prescription medication. And so whether there’s prescription medication or cannabis we need to have lockable medicine cabinets where it’s kept. We need to have edibles kept in lockable boxes in the refrigerators where it’s kept. These things need to be segregated and kept separately, and the people who can make that happen are going to be self-regulatory organizations. The single biggest problem, in my opinion, in the industry is that we are still setting up the self-regulatory organizations that will be establishing the standards and monitoring the practices of the participants in the industry to make sure that we’re avoiding the issues I just described.

Matthew: You mentioned the packaging and the childproofing education. One thing that jumped out at me while you were talking is that if there’s an entrepreneur out there that can still communicate a strong brand while childproofing, that’s a homerun. Where it doesn’t attract kids, but it’s still very esthetically attractive, but can prevent kids from getting in there. That sounds like that would be something interesting.

Leslie: Absolutely. And I couldn’t agree with you more, and we’re going to see that happen. What we’re going to see is self-regulatory organizations are comprised of the industry participants. And so we will see industry participants, the various industry leaders starting to step up and establish those self-regulatory organizations and leading them. So exactly what you’re describing is what’s going to happen.

Matthew: Now switching gears, in Nevada you’re a huge advocate for Nevada, and I want to hear why. But first can you give a brief update of what happened in Nevada in November and why that’s important?

Leslie: We had in Nevada in November a series of events take place. First off we had the granting of the provisional licenses by the Department of Public and Behavioral Health and that was huge. I think something like 260 provisional licenses were granted. We additionally turned in the petitions for our adult use initiative which will be in the ballot box in 2016. As well we had ArcView, the ArcView Investor Network had a conference here, and we had the MMJ Business Daily conference here. We also had a Women Grow event, and we had the NCIA yearly banquet. All of that took place inside of two weeks. It was a real banner month for cannabis in Nevada.

Matthew: Without having recreational use being legal in Nevada, do you really think they can become the leader, take it away from Colorado, Washington, now Oregon?

Leslie: Nothing that we need to take away from anybody. Nevada is likely going to be a leader in the industry, and we are heading towards recreational use within the next couple of years. We should have it, as I said, on the ballot box in 2016. There’s a possibility that it could get approved legislatively in 2015. And so we are already heading there in addition to having too that our regulatory framework, regardless of whether it’s medical or recreational, which is very much based upon the experience the state has had in regulating gambling which was illegal at the time that the state began to regulate it. It has positioned us to be a leader in regulating cannabis as well. And so we are establishing our leadership not based upon our market and it being recreational or not recreational. We’re establishing our leadership based upon creating a regulatory framework that is business friendly and beneficial to the state, the industry and the citizens and users as a whole. And that’s based upon our experience as establishing the gold standard for regulating another taboo subject which was gaming at the time. That is now accepted everywhere, and the gaming regulation in Nevada is looked at as the gold standard worldwide.

Matthew: Now is the permitting process too expensive and too oriented towards big business to the point where it’s boxing out small family operations?

Leslie: So the answer to that is we want to make sure that this is once again a well regulated industry. And we established a merit based system for determining who is going to be able to participate in that. And it doesn’t matter whether it’s big business or small families. It’s not about the size of your business. It’s about your ability to put together a very comprehensive and well thought out plan. There are many big businesses who put together and who spent a tremendous amount of money to get their licenses approved that did not get provisional licenses because they did not score high enough in the merit based system. And there are many small businesses that did score very highly because they assembled the right team, the right program and put together a better application. So the fact of the matter is the merit based system is going to be able to benefit those who put together the best team, the best program and the best product.

Matthew: One thing I do notice about Nevada is that there is regulations there, but they’re probably more laissez faire than the other states that are allowing medical or recreational cannabis. Is there anything else about Nevada that just makes it a homerun for cannabis there?

Leslie: Yes, I would use… I wouldn’t say we’re laissez faire, I would say that we are being reasonable. We’re having an honest conversation amongst reasonable people about the nature of cannabis, it’s use, medical marijuana, which is why we’re the state that allows anybody from any state, any jurisdiction that has medical marijuana recommendation to come into our dispensaries and purchase cannabis. And so that, in my opinion, is a differentiating factor. I think that we are not… what we have established is a very forward thinking prospective on it, and we’re getting away from the old propaganda that was based upon lies and misinformation.

Matthew: What technology or trends do you see disrupting the cannabis business the next one, three, five years? I know it’s changing so quickly, but you have a focus on disruption so I would like to hear your opinion on that.

Leslie: I think that the cannabis industry is going to actually be a hot bed of innovation because of the friction between federal and state law and the patchwork of different regulatory environments on a state to state basis. What you’re going to see is innovation that’s going to have to be adaptable and take into account all of these differences on a state to state basis; the federal laws, the banking issues, etcetera. And so what’s going to happen is the tremendous upward pressure that is coming from all of the interest in getting into this business, all of the opportunity that it’s creating, the profitability that exists in the business, the rapid growth that exists, all of that capital and that economic force is going to be creating opportunities that will result in innovation being developed to take those other issues into account. That innovation will not only be applicable to the cannabis industry, it is going to be applicable to other industries.

For example, there’s a business out there named CannaBuild. Zach Marburger who is now in Denver, he developed a tool that is going to be providing information to end users to avoid the discomfort of going into a dispensary and not knowing what to get, not knowing what the differences are. He’s created a tool that’s going to allow for a user to be able to understand what they need to get before they get there, to have an actual person walk them through that process so they can walk into the dispensary already having decided what they’re going to get and just going in to pick up their purchase. Rather than having the uncomfortable experience of going in and walking in and not knowing what to get and not understanding and feeling overwhelmed. Not all together different than the way people went into video rental stores and didn’t know what they were going to watch for the night, and walked around trying to figure out. Which is why NetFlix became such a massive opportunity and a massive business going from a $10 million valuation into a $28 billion valuation or whatever the number is right now, over a 15 year period. We’re going to see the same type of innovation come out of the cannabis industry that will be applicable to other industries as well.

Matthew: Leslie I love talking with you. You have a ton of energy, enthusiasm and wisdom. In closing how can listeners follow your work and connect with you?

Leslie: They can get in touch with me through www.electrumpartners.com. That’s www.electrumpartners.com. They can also follow me on Twitter @Leslie Bocskor. And we are very likely going to be launching a website sometime soon. We’re contemplating right now the Electrum Report which will be a daily or at least four times a week newsfeed of the most significant articles in the cannabis industry that affect the cannabis industry that we curate and then present four times a week for people to read.

Matthew: Great. Thanks to Leslie Bocskor for being on CannaInsider today. Thanks Leslie.

Leslie: Thank you Matt. Have a great day.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes. Every five star review helps us to bring the best guest to you. Learn more at www.cannainsider.com/itunes. What are the five disruptive trends that will shape the cannabis industry in the next five years? Find out with your free report at www.cannainsider.com/trends. That's www.cannainsider.com/trends. Have a suggestion for an awesome guest on www.canninsider.com, email us feedback@cannainsider.com. We would love to hear from you.